Serbia, New tax relief for employment of foreigners

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At the beginning of November, the Ministry of Finance prepared the Draft Law on Amendments to the Law on Personal Income Tax. One of the changes refers to the taxation of newly settled taxpayers.

According to tax adviser Zvezdana Pisarević, in the future, returnees from abroad and foreigners will not have to fulfill two, but only one condition in order to receive tax benefits.

Persons who have a special professional education and whose work there is a need that cannot be easily satisfied on the domestic labor market are considered newly settled taxpayers. The legal decision stipulated that in the previous two years this person had not mainly resided in Serbia and that at the time of concluding the employment contract he was less than 40 years old.

“This actually meant that both conditions had to be met in order for a person to be considered a newly settled taxpayer . In the amendments to the law, “or” was added here – which means that now it is enough to meet only one condition in order to be able to apply the tax relief of 70 percent of the gross salary for these persons, while respecting the nominally prescribed amount of net salary for this person, says Pisarevic.

Facilitation for the employment of returnees is a type of support intended for the IT industry, in order to attract our professional staff who went to work abroad to return and work for companies in Serbia. These benefits are defined in the law as benefits for the newly settled taxpayer.

The tax adviser explains that the essence of the relief for the newly settled taxpayer is that the employer has a reduction of 70 percent of the base on which the tax and contribution rates are calculated, which means that the tax and contributions paid are calculated on the remaining 30 percent of the employee’s salary. The remaining amount is practically not taxed at all. The employer can use the relief within a period of five years from the moment of concluding the employment contract with the newly settled taxpayer.

In order for the employer (called a qualified employer according to the law) to be able to obtain this relief, there are conditions that must be met, just like the other party, the newly settled taxpayer.

The employer must meet the following conditions:

  • For the specific position in which the newly settled taxpayer is employed, there must be a need for the person to have a special professional education and there must be a need that cannot be easily met on the domestic labor market. It is not clear how this is proven in the case of a possible tax audit, or rather, it is not precisely defined by law
  • A qualified employer must be a resident of the Republic of Serbia
  • A qualified employer cannot be considered a related person to the employer where the newly settled taxpayer was previously employed. This means that if the taxpayer worked abroad for a company that is the founder of the company in Serbia, that person cannot simply be transferred to work in a company in Serbia. This requirement exists to prevent such abuses by multinational companies

Certain conditions must also be met by a foreigner, so it is necessary that in the period of 24 months preceding the day of concluding the employment contract with the employer, the newly settled obligee did not mainly reside in Serbia. It is also a condition that the newly employed worker has a basic salary of at least 300,000 dinars, which is about 1,820 euros net.

According to the tax advisers, when looking at the list of evidence that the employer must have, it is not easy to realize the right to this relief, especially because the person being employed must provide most of the evidence for the employer.

Additional documentation for employers

The Ministry of Finance also adopted the Rulebook on how to exercise the right to a reduction of the salary tax base for newly settled taxpayers, which defines what evidence the employer must obtain in order to be able to use the relief for newly settled taxpayers. Some of the evidence that a qualified employer must have:

1. To make a written statement confirming that the newly settled taxpayer was not employed by any employer before establishing an employment relationship with a qualified employer who, at the time of acquiring the status of a newly settled taxpayer, would be considered a related person to that qualified employer, in the sense of the law regulating corporate income tax

2. To obtain a written statement by which the newly settled taxpayer confirms that he was not employed before establishing an employment relationship with a qualified employer, i.e. if he was employed by one or more employers, he obtains a written statement in which the newly settled taxpayer states the full name and headquarters of each employer and the state whose employer is the taxpayer with whom he was employed during the period of work in another state, Biznis writes.

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