Past days it has been talked a lot about taxation, lump-sum entrepreneurs and amendments to tax regulations, which should come to force at the beginning of the following year.
According to the prime minister of the Republic of Serbia, Ana Brnabić, a set of measures for youth employment will be presented to the National Assembly. The measures refer to tax benefits for companies which intend to employ the youth. What caught public attention the most was the potential amendments to Law on personal income tax, which should come to force on 01.01.2020.
Online, you may have come across the topic of changes in conditions of business for entrepreneurs and lump-sum entrepreneurs, that the amendment to the Law on personal income tax will bring along. The reason for this would be the potential new test of independence prescribed by the amendments and designed to determine whether an entrepreneur is independent of the client.
The possible criteria of the independence test are circulating among our IT scene, which would, as it seems, be hit by these amendments the most. Namely, the criteria include:
- Work hours, vacation and lump sum entrepreneur’s leaves
- The use of client’s office space and his work material
- Whether the client determines how the lump sum entrepreneur works
- Whether the lump sum entrepreneur came into engagement following a public announcement that the client published
- Whether the lump sum entrepreneur works alone or engages a team of people
- Whether 70% of lump sum entrepreneur’s earnings come from one client
- Whether the business risk is taken by the client (company) or the lump sum entrepreneur
- Ban on working with others
- The number of working days in one year (130 or more working days in 12 months).
In case an entrepreneur fulfills at least 5 of the above-mentioned criteria, he would not be considered independent (i.e. the entrepreneur would fail the test). Failing the test would allegedly change the way lump-sum entrepreneur’s reimbursement is taxed. Consequently, the income he receives will be taxed as a salary or as other income, depending on the circumstances.
With these amendments to the Act wants to achieve and encourage the employment of persons who worked as entrepreneurs or lump-sum entrepreneurs during 2019, intending to reduce the misapplication of lump-sum taxation.
Accordingly, changes to the Act provide tax benefits for companies that employ persons who were not employed during 2019 (regardless of whether those persons were registered with the National Employment Service, whether those persons were students or lump-sum entrepreneurs).
Companies will be excused from paying a part of their payroll taxes and Pension contributions for these individuals so that in 2020 about 70 percent of these taxes will be exempt, 65 percent in 2021 and 60 percent in 2022.
It is expected that the amendments to the Law would affect the IT industry the most, as many IT companies employ lump-sums entrepreneurs. In our opinion, the benefits of lump-sum taxation are often misused as this method of taxation provides benefits to certain IT companies and other industries, which in turn leads to unfair competition.
In our opinion, waiting for the official proposal to amend the Law would be the best way to act for now. After the official proposal, future measures will be known, and our tax team will be ready to help you out with every question that might come up.