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Home/News/What are changes to tax laws for the IT industry?

What are changes to tax laws for the IT industry?

Will changes to tax laws that are drafted ready to enter the Serbian Parliament become a country with ideal conditions for the digital economy, or will these changes drive IT’s into the gray zone or abroad?

The draft laws amending Income Tax Laws and Contribution Law Amendments have caused major turbulence in the IT community.

Speaking on tax reforms, Prime Minister Ana Brnabic emphasized that they are being implemented with the aim of developing digital technologies and innovative industries.

“From January 1, 2020, all digital nomads who reside in Serbia for up to 90 days will be tax-exempt,” Brnabic said, adding that start-ups with up to nine employees will not pay taxes in the first year of business.

“The proposal applies to non-residents (natural persons) who do not stay for more than 90 days in a tax year in the territory of the Republic of Serbia. They would not have an obligation to calculate, pay and report the income they receive from providing services to a person who does not do business in the territory of Serbia, “the Prime Minister’s office explained. Also, this applies only if they work for a foreign employer.

Digital nomads, people who travel around the world and stay in different countries but work at the same time, since their computers are also an office, according to various studies, place Serbia among the most attractive European countries for cheap living, good time and security and somewhat internet speed .

Milan Solaja, President of the Vojvodina ICT Cluster, points out that such tax breaks are common in other countries and welcomes the Government’s thinking in this part of the IT sector as well. However, according to the writings of digital nomads who were in Serbia, despite all the advantages, this type of business is not overdeveloped in our country, so it is not expected to have too great effect.

On the other hand, the same draft law provides for an entrepreneur independence test that wants the state to separate lump sums that work for only one client instead of being employed on a contract of employment (and paying far higher taxes and flat-rate tax contributions) than real entrepreneurs and freelancers.

By changing the law on income tax, the state has enabled those who do not pass this test to either get a job with an employer or set up a company where they would be employed and to obtain tax benefits at the same time. In the next year, they would be reduced their income tax base and contributions by 70 percent, in the second year by 65 percent, and in the third year by 60 percent. As things stand now, the full amount of taxes and contributions would be paid, which would mean an increase in costs for the company by about 30 to 40 percent.

Goran Prijic, co-owner of the IT company Vivify Ideas from Novi Sad, in an author’s article on the Startit portal, pointed out that if this happens after three years, IT firms will either have to raise the price of their services for clients or hire a cheaper workforce.

“We will have a situation where hiring mediocre developers from Serbia will cost e.g. € 3,000 a month, hiring an independent associate from Serbia with the same knowledge € 2,300, but with very limited conditions of cooperation, while hiring a consultant from Ukraine with equal knowledge will still cost € 2,000, ”he states. In the second case, if they do not raise the prices of IT firms they can simply turn to markets where developers are cheaper.

Amendments to the law also give the possibility of reducing the income tax base and contributing up to 70 percent in the case of hiring a “newly arrived person” as stated in the draft law. These are returnees from abroad who would be employed in Serbia, and in order to receive this relief, they must not stay in Serbia for two previous years and have a minimum wage of RSD 145,104.

In addition, the same allowance is granted to those under 40 who have been abroad for the previous year because of their education and have a salary with a new employer of at least 217,656 dinars.

Otherwise, the state adopted tax breaks for innovative industries last year, which is primarily related to the IT industry. Thus, the income tax on intellectual property is three percent (instead of 15 percent), and in addition, the research and development costs are recognized in double amount for the purposes of calculating corporate income tax.

According to Nenad Paunovic, an adviser to the Prime Minister for the creative industry, digital companies are already paying zero to three percent profit tax this year, or not actually paying it.

In Serbia, according to a survey by the Center for Policy Research, there are 3.52 digital workers per 1,000 inhabitants, which is twice as high as in America.