The worsening impact of the current economic crisis and predominantly inflation pose an existential threat to small businesses and entrepreneurs. Moreover, as of January 1, 2023, the tax burden for most of the flat-rate taxpayers in Serbia could be increased up to several times. That said, some voiced concerns regarding the existing provision of the Decree on Flat Taxation (“Decree”) stipulating that amount of monthly tax burden cannot go up by more than 10% compared to the previous year.

In particular, increased tax burden and inefficient tax structure may encourage entrepreneurs to move to jurisdictions with a lower tax burden, move to the shadow economy or even close their businesses. In light of that, the NALED and the Digital Community submitted a proposal to the Ministry of Finance requesting the amendment of the Decree (“Proposal”) with the aim to revise the current legislative framework and extend the validity period of the capped increase of the tax obligation up to 10%. Ivan Miletić, the president of the Alliance for Fair Competition in NALED, pointed out that the essential goal of the Proposal is to create an incentive ecosystem for registering new entrepreneurs and the survival of the existing ones.

The Proposal also includes an additional preposition for changing the tax calculation method for flat-rate taxpayers doing business online. Namely, this Proposal covers primarily foreign language lecturers on online platforms and so-called virtual assistants i.e. persons providing administrative services online. In a nutshell, the problem is that freelancers avoid registering because of the high levies in big cities. Therefore, considering that they perform their activity over the Internet, the amount of tax should not be affected by the city or municipality where they are registered. The crucial change in the taxation of freelancers’ activities would mean that they should be treated as location insensitive. The second one would imply a reduction of the coefficient by which the tax base for freelancers’ activities is multiplied, which would reduce their tax burden and eventually, stimulate them to legalize their business.

What is more, the Proposal suggested that the average salary at the national level, which is lower than the average salary in the largest cities, should be taken. The anticipated effects of such construction would mean a lower tax burden and, ultimately, the incentive for doing business in accordance with the law. In the long run, the desired outcome of the Proposal is to ensure the existence and sustainability of the flat-rate taxpayers businesses and thereby possibly prevent the potential closure of their businesses or even their transition into the shadow economy.

In the meantime, the Ministry of Finance published a draft amendment to the existing Personal Income Tax Act (“Draft”), which introduces the possibility for freelancers to pay tax on their income on one of two methods that they choose at their own discretion.

Basically, the amount of expenses specified by the Draft is deducted from all the income the freelancer achieves in one quarter, while the difference represents the tax base on which freelancers will pay taxes. According to the first method, recognized expenses of 96,000 RSD are deducted from the quarterly income, and a tax rate of 20% is calculated on the resulting difference. According to the second method, recognized expenses of 57,900 RSD are deducted from the quarterly income, but 34% of the realized income of each specific freelancer is also deducted, and tax is calculated on the resulting difference at a rate of 10%.

To sum up, traditional forms of work are reshaping daily, and thus, the amendment of the existing legal solutions is a sure-fire way to meet the ambitious goal of creating an encouraging legal landscape for the legal registration of new flat-rate taxpayers and the survival of existing ones. Moreover, implementing attractive tax incentives to support the growing population of location-independent freelancers could make Serbia a desirable place for starting a business.

However, let us not forget that the new legal framework should be based on well- structured measures ensuring a legitimate taxation system for the growing population of freelancers while maintaining the number of current flat-rate taxpayers. After all, the legislator’s activity on the regulation of this important matter and reaching a Solomonic decision that could be convenient to both sides would mean a win-win situation.