Apr 15, 2020

New tax incentives for Serbian employers

The Serbian National Employment Service regularly publishes new employment and self-employment tax incentives on its official website. As of January 1, this year, some new incentives have been put into place that stimulate hiring highly qualified personnel.

The tax relief is primarily targeted at the IT sector even though the incentives apply to other industries as well. These will facilitate the operation of small- and medium-size companies in particular.

What are the essential conditions of the tax incentives?

The new regulations provide for an opportunity to receive subsidies to those employers who hire qualified specialists that were unemployed in 2019 during the whole year.

The subsidies will come in the form of reduced taxes and PIO contributions. (PIO is a Serbian abbreviation that stands for pension, social security, and medical security.) The amounts of the reductions are as follows:

  1. 70% of salary tax and 100% of PIO contributions in 2020;
  2. 65% of salary tax and 95% of PIO contributions in 2021;
  3. 60% of salary tax and 90% of PIO contributions in 2022.

Both the employer and the employee will benefit from these reductions as they apply to the payments that have to be made both by the former and by the latter. Thus, the taxes payable will be lower for both parties.

What companies are eligible for these tax reductions?

Even though the tax incentives have been introduced with IT companies in mind in the first place, they actually apply to all business spheres.

Every company hiring a highly qualified specialist that meets the specified criteria is eligible for these tax reductions.

What is the primary difference between these and other types of benefits?

Unlike the types of incentives that are currently in effect, these tax incentives are designed in such a way that the employer does not have to calculate the amount of the reductions and apply for a refund after he or she has paid the full salary to the employee. All the deductions from the taxes and the PIO contributions are made at the moment when the salary is paid.

Another important condition that the employer has to meet in order to qualify for the reductions is that the overall number of personnel working for him or her shall increase with the hiring of the person who was unemployed during the previous year. In other words, there shall be more people working for the company in comparison to their number on December 31, 2019.

Furthermore, another important feature of the new set of tax incentives is that new employers are also eligible for them. By ‘new employers’ we refer to the companies that started business operations after December 31, 2019.

What dates are important when applying for the subsidies?

In order to qualify for the tax incentives a private entrepreneur shall hire a qualified specialist who meets the criteria specified above in the period between January 1, 2020 and April 30, 2020. Companies with all other forms of ownership shall hire such a specialist in the period between January 1, 2020 and December 31, 2020. The employment agreement shall specify the agreement period.

The employer has to do only two things:

  1. Make an official employment agreement with a qualified specialist;
  2. Make sure that the new employee is registered with the mandatory social insurance system (abbreviated in Serbian as CORSO).

Who does not qualify as an employee eligible for the tax reductions?

The central requirement is that the person who is being hired did not work a single day in 2019. However, this requirement is applicable only to adult people of the working age. The following categories of people may not have worked a single day in 2019 but they do not qualify for this tax incentives program:

  1. Retired people who are paid pensions as well as disability pension payees;
  2. Employees of state agencies, public enterprises, and other budgetary institutions;
  3. Full-time students who are paid stipends.

How can the right for the incentives transferred?

The tax reductions have one more benefit related to the employment: incentives are the property of the employee, not the employer.

What are the practical consequences of this feature?

The Government decree says that all employees who qualify for these benefits shall preserve them if they are hired by another company within the specified period. Thus, the tax incentives are not a privilege of the employer who is the first to hire a qualified specialist. Rather, the employee can carry these incentives to whatever company hires him or her next before December 31, 2022.

How can the eligibility for these tax incentives be lost?  

If the total number of the company staff remains the same as it was before December 31, 2019 or if it becomes lower when a new qualified specialist is hired, both the employee and the employee lose the benefits that the tax incentive program offers.

There is no maximum limit as to the number of new qualified employees that can be added on the company staff so that both the employer and the employees can enjoy the tax reductions described above.

The Serbian economy is booming thanks to the serious efforts that the National Government is taking in order to make the people’s lives better. The abovementioned tax reduction scheme is only one of such measures.

The inflow of foreign direct investments to Serbia was enormous before the current global crisis broke out. At the moment, many processes have been put on hold but the positive trends are going to return when the pandemic is over and some time passes.

Offshore Pro Group will be happy to assist you in establishing economic presence in this Balkan country. It can be done in many different ways such as registering a new corporation in Serbia or purchasing a ready-made company with a corporate bank account already opened, or by setting up a Serbian branch of your offshore company, or by setting up a personal account with one of the Serbian banks, and so on.

We will gladly talk to you about all the business opportunities that you can find in Serbia. Our branch office in this country is working and we are keeping track of all the new updates that appear on a regular basis. Please contact us via e-mail [email protected] to enquire about some wonderful opportunities to diversify your assets. Instead of driving you into panic, the current critical situation should set you thinking about protecting your future against other similar disasters that are bound to happen later.

Are there any tax incentives in Serbia?

Yes, multiple tax incentives are available in Serbia including tax holidays, foreign tax credits, R&D tax deduction, royalty income relief, and many others.

Can I establish a company branch in Serbia?

Yes, it is quite possible to establish a foreign company branch in this country. In particular, the legislation allows opening a branch of an offshore-registered company in Serbia.

Can I open a non-resident bank account in Serbia?

Theoretically, it is possible. However, a legal resident of Serbia (or a corporate entity registered in the country) stands a better chance to set up an account with a Serbian bank.