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The tax system in Serbia is outdated, the recommendation of foreign investors to establish a synthetic model

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Personal income taxation in Serbia is based on the principle of tabular income taxation, which many advanced tax jurisdictions have abandoned because it is unclear and unfair, is one of the conclusions of the analysts of the Foreign Investors Council (FIC), which was published in the White Book for 2023.

They state that even in the previous editions of the White Book, references were made to long-standing problems in the tax system of Serbia.

Analysts point out that it is necessary to repeal or amend the controversial opinion of the Ministry of Finance regarding the tax treatment and documentation of compensation for employee transportation costs for arriving and departing from work, and to amend the law so that the documentation requirement is abolished or aligned with the earlier judgment of the Supreme Court of Cassation on to this question.

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“The cedular system of taxing the income of citizens is still in use, and this still remains a problem of the Serbian system of taxation of natural persons. Therefore, the Government of Serbia should consider introducing a synthetic system of taxation, which is present in many developed tax systems. The recommendation refers to the timely adoption of an appropriate by-law that will regulate in detail the issue of per diems for official trips and reimbursement of expenses,” the FIC report states.

It is also recommended that, through amendments to the law, clearly define and specify the position regarding the tax treatment of interest-free loans (that is, loans with interest rates lower than the market), which the employer grants to employees, and that this position be expressed through an official explanation that would lead to greater legal certainty.

“We believe that it is necessary to establish cooperation between the Ministry of Finance and the Ministry of Labour, Employment, Veterans and Social Affairs in order to ensure the correct application of the relevant regulations, i.e. to treat compensation for unused annual leave as compensation for damages (as is recognized by the Labor Law), and not as earnings”, the analysis states.

Knowing that social security rights represent one of the basic social and economic rights of employees, i.e. hired persons, the FIC points out the importance of harmonizing certain provisions of regulations that would enable foreign persons sent to work in Serbia (without establishing an employment relationship) and domestic citizens employed by foreign employers are registered for compulsory social insurance.

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In addition, they note that the Republic of Serbia should expand the network of international agreements that regulate the issue of social insurance, all with the aim of avoiding double payment of contributions.

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