In Serbia, all individuals meeting specific criteria are subject to annual personal income tax. This tax applies to residents in the following cases:
- Those who receive an income from both domestic and international sources;
- Individuals who earn three times more than the average annual salary. For instance, in 2021, the average gross salary amounted to 1,089,408 Serbian dinars (roughly EUR 9,300), making the threshold 3,268,224 dinars.
Non-residents, on the other hand, are only taxed on income generated within Serbia’s borders.
Determining Tax Residency in Serbia
In Serbia, the Serbian Individual Income Tax Law determines tax residency status. Resident individuals include those with their primary residence, location of business, or significant interests within Serbia. Additionally, individuals who stay in Serbia for 183 days or more within any twelve months during a tax year are considered tax residents.
Sources of Income Subject to Taxation in Serbia
There are several different sources of income on which Serbia imposes income tax, including:
- Earnings under employment contracts;
- Income from occasional and temporary work;
- Revenue from copyrights, related rights, and industrial property rights;
- Revenue generated from renting out movable or immovable property;
- Proceeds from property sales;
- Earnings from providing catering services;
- Other specified sources of income as outlined in the Individual Income Tax Law.
Calculating Taxable Base
The taxable income is the foundation for calculating annual personal income tax liabilities. The taxable base is determined by subtracting personal deductions from total earnings. The calculation of personal deductions goes as follows:
- For the taxpayer: 40% of the average annual salary;
- For each dependent family member: 15% of the average annual salary. Serbia’s statistical authority provides data on the average annual salary that becomes the base for these calculations. If multiple family members are subject to annual income tax, only one taxpayer may claim deductions for their dependents.
Tax Rates
Annual personal income tax rates for individuals in Serbia are structured as follows:
- Income up to six times the average annual salary is taxed at a flat rate of 10%.
- If income surpasses the average annual salary by 600%, a tiered approach is employed: 10% for earnings up to six times the average annual salary, plus an additional 15% for the remaining amount.
Tax Benefits for Individuals Below 40 and Investment Incentives
Taxpayers who receive alternative investment funds from purchasing investment units are eligible for a tax credit against their annual personal income tax obligations. This tax credit can amount to as much as 50% of the invested sum.
To enjoy this tax incentive, individuals must fully pay their share or unit in the alternative investment fund. Furthermore, the tax credit stays at 50% of the determined tax liability based on the annual personal income tax.
Individuals under the age of 40 also receive additional benefits. These incentives, introduced in 2022 and applied to income earned in 2021, double the non-taxable threshold for this demographic based on net earnings from employment, self-employment, or copyright and related rights. If these individuals previously paid income tax on earnings exceeding 3.2 million Serbian dinars, the threshold went up to 6.4 million dinars in 2022 (equivalent to an extra 300% of the average annual salary).
Changes in Serbian Personal Income Tax for 2023
On December 9th, 2022, the National Assembly of Serbia passed amendments to the Laws on Personal Income Tax and Compulsory Social Insurance Contributions, effective January 1st, 2023. Key updates include:
- The contribution rate for mandatory pension and disability insurance was decreased from 25% to 24%. Employee contribution remained at 14%, while the burden on employers decreased from 11% to 10%.
- The non-taxable amount for income tax calculation increased from 19,300 to 21,712 dinars.
- The deadline for new employees to claim a refund of part of their income tax was extended to December 31st, 2023.
- The deadline for filing a tax application and making decisions on income tax payment was extended to December 31st, 2023 (previously 5 days from registration with the tax authority).
- Introduction of a tax for freelancers, with two calculation models.
Transition to Self-Assessment for Annual Personal Income Tax
Starting with 2023, taxpayers will transition to self-assessment for reporting and settling their annual personal income tax, departing from prior tax administration protocols. What are the implications of this transition for taxpayers?
Under the new system, the tax authority will generate a draft declaration by April 1st annually, utilizing available income data from the preceding year. Taxpayers are responsible for reviewing these calculations in their electronic accounts and correcting any inaccuracies before submitting the tax declaration.
The deadline for filing the tax declaration and remitting the annual tax is 15 May of the subsequent calendar year. If the taxpayer fails to file the tax declaration within the specified period, the tax administration will submit it on their behalf, using the available data and calculations.
Sanctions and Penalties for Violations Regarding Income Tax Payment in Serbia
If you are a taxpayer in Serbia, you should bear in mind that failure to furnish or timely submit the tax declaration may result in administrative or criminal repercussions.
Administrative liability
Individuals who aren’t engaged in entrepreneurial activities may face fines ranging from 15,000 to 150,000 dinars for various infractions, including:
- Late submission of the declaration;
- Failure to sign the declaration;
- Provision of incorrect information that remains uncorrected within the stipulated timeframe;
- Failure to provide required documents and evidence impacting tax calculation.
Criminal liability
If it is determined that the taxpayer deliberately provided false information or concealed information to evade tax payments and mandatory contributions, they may face the following penalties based on the amount of outstanding obligations:
- For amounts exceeding 150,000 dinars: imprisonment for up to 3 years and a fine;
- For amounts exceeding 1,500,000 dinars: imprisonment from 1 to 5 years and a fine;
- For amounts exceeding 7,500,000 dinars: imprisonment from 1 to 8 years and a fine.
Would you like further insights into conducting business in Serbia? Visit our site to learn about company registration requirements, administrative complexities, and associated maintenance costs.
