Thinking Beyond Borders
Taxation of extended business travelers’ income is likely to be related to individual’s employment and/or covering of expenses in Serbia (such as expenses for rent and utilities).
A person’s liability to Serbian tax is generally determined by residence status.
A Serbian tax resident is an individual who stays (or has the intention to stay) in Serbia for more than 183 days in a 12-month period or whose domicile or center of business and vital interest is within the territory of Serbia. A non-resident of Serbia is an individual who does not fulfill any of the above mentioned conditions.
An individual who is Serbian tax resident is taxable on his/her worldwide income. A non-resident is generally taxable on income derived from Serbian sources. Serbian-sourced income is recognized as income paid by a Serbian entity (or expenses covered for an individual by a Serbian entity), income derived for work performed in Serbia, as well as any other income earned on the Serbian territory.
Extended business travelers are likely to be considered non-residents of Serbia for tax purposes unless they stay or have intention to stay in Serbia more than 183 days in 12 months period.
According to Serbian regulations a business trip within Serbian territory, for local employees, is limited to 30 days while duration of business trip out of country is not limited. In cases where Serbia has concluded Double Taxation Treaty (“DTT”) with relevant country, if extended business traveler intends to spend more than 183 days in Serbia, or Serbia is recognized as source country he/she will be obliged to pay taxes on income related to work performed in Serbia as of the first day of his or her extended business trip in Serbia. In case where there is no applicable DTT and the business traveler spends more than 30 days continuously in Serbia, he/she would become taxable in Serbia for Serbian sourced income as of the first day of his/her extended business trip.
For extended business travelers, who are recognized as non-residents the types of income that are generally taxable are Serbian-sourced employment income , income from self-employment, income from authorship and intellectual property rights, income from capital (interest on loans, deposits, dividends, rental income from immovable property), capital gains, rental income from movable property, insurance income, and “other income”. Expenses related to rent, utilities and any other personal expenses that are paid on behalf of extended business travelers, by a Serbian entity, are regarded as taxable ‘other income’.
For tax residents, all of the above stated income generated worldwide is subject to taxation in Serbia.
Serbia divides income into schedules and each schedule has its own tax rate which is applied on gross income decreased for non-taxable amount prescribed for each particular type of income. In addition to scheduler taxation, there is annual income tax which introduces progressive rates depending on the income level.
|Income generated||Tax rate|
|Income from independent ctivities||10%|
|Income from Authorship and Intellectual Property Rights||20%|
|Income from capital||15%|
|Income from capital gains||15%|
|Other taxable income||20%|
Annual personal income taxation in Serbia is based on aggregated calculation of all personal earnings for the calendar year and as such represents additional form of taxation of individuals, both residents and non-residents (on top on withholding taxes on personal income applied during the year). Residents pay annual tax on their worldwide income, while non-residents pay annual tax on their income from Serbian sources. For annual taxation purposes, the tax rates are progressive. The threshold for annual taxation is three times the average annual salary in Serbia. The amount exceeding this non-taxable limit, up to nine times the average annual salary in Serbia, will be subject to tax at the rate of 10 %, while the amount exceeding nine times the average annual salary in Serbia will be subject to tax at the rate of 15%.
Income from capital and capital gains are excluded from annual taxation.
Serbian social security legislation related to mandatory social security insurance is not precise when determining whether foreign citizens (extended business travelers or assigned to work in Serbia) who work in Serbia should be regarded as “insured persons” or not. Not precise provisions in the legislation open the way for different interpretations.
In addition, payment of Serbian mandatory social contributions can be effected by foreign citizens locally via domestic payment system. However, it is not possible to link paid social contributions with particular individual since there is no proper link between payments made and the particular individual given that there is no prescribed form for registration as insured persons of extended business travelers. Because of that, individual will in future face the problem with executing the rights from pension and disability insurance or health insurance (e.g. the rights to pension, healthcare services coverage by state health insurance fund).
Therefore, in practice it happens that the Tax Authorities accept that individual (extended business traveler/assignee) is not subject to Serbian social security contributions if he/she confirms with some document other than Certificate of Coverage, that mandatory social security contributions are paid abroad (pay slip or sometimes even employer's statement). However, the Tax Authorities may change this approach in the future and it is advisable to closely monitor developments.
An extended business traveler who is liable for taxation in Serbia, based on work performed in Serbia, is obliged to pay tax and file a tax return within 30 days of receiving salary abroad/from abroad.
An extended business traveler is obliged to file an annual tax return if his net annual income reach the threshold for annual taxation.
The deadline for the annual tax return filing is 15 May of the current year for the then previous year. The annual tax liability has to be paid within 15 days after receiving the Tax Authorities’ assessment (assessments are usually issued from August to December).
If income (except capital gains) is paid out by a Serbian payer, extended business traveler would not have any filing obligations because Serbian legal entity is obliged to perform withholding taxation and related compliance.
In general, foreign nationals must obtain a visa at Serbian embassies and consulates, prior to entering Serbia to work. The type of visa required will depend on the purpose of the individual’s entry in Serbia.
A waiver of the visa requirement is available to nationals of some countries for tourism or non-employment business purposes. Visas are not required for citizens of EU countries, Switzerland, Norway, Island, USA, Canada, Australia, Russia and a large number of other countries.
In order to perform work in Serbia, foreign nationals are also obliged to obtain residence and work permit.
Serbia has entered into double taxation treaties with 58 countries, to prevent double taxation and allow cooperation between Serbian and other countries tax authorities in enforcing their respective tax laws.
There is potential risk that an extended business traveler may create a permanent establishment if he/she has a fixed place of business in Serbia for a period longer than 183 days and depending on the level of authority the employee has, type of services performed, etc. Each of the cases should be considered separately.
The general VAT rate for the taxable supply of goods and service and import of goods is 20 %, whereas the reduced tax rate is 10 %. VAT registration is required for individuals who independently perform business activities whose total turnover in the 12 months exceeded or will exceed 8 million Serbian dinar (RSD).
Serbian law transfer pricing based on OECD TP Guidelines and prescribes extensive documentation requirements.
Serbia has data privacy laws.
Serbia has certain restrictions in terms of flow of Serbian or foreign currency out of the country. When entering the country, residents and non-residents can freely bring in unlimited amounts foreign and domestic currency, but amounts in value over 10,000 euros (EUR) must be reported to the Customs Authority.
Foreigners may transfer funds abroad if all taxes have been duly paid in Serbia. Amount exceeding EUR10,000 can be returned abroad if they were reported when entering the country.
Anti-money laundering regulations require that all financial transactions in amounts exceeding EUR 15,000 must be reported to Anti Money Laundering Commission, as well as all currency exchanges above EUR 5,000 (done by the bank or FX exchange dealer).
Serbian Personal Income Tax Law recognizes only statutory deductible costs of 20 percent for certain types of income (e.g. income from free-lance contracts). Higher lump sum deductions are provided for income from authorship and other rights. No other costs are deductible for assignees.
In terms of annual taxation, there are personal deductions of 40 percent of the average annual salary in Serbia for the taxpayer and an additional 15 percent of the average salary in Serbia for every dependent. Total sum of personal deductions cannot exceed 50 percent of the tax liability.
Tax paid abroad, related to income subject to annual taxation, is deductible for annual tax purposes.