How will freelancers pay taxes in 2022?

After long negotiations, protests and various proposals from representatives of freelancers sent to the Government, the latest amendments to the Law on Personal Income Tax and the Law on Contributions for Compulsory Social Insurance established the treatment of freelancers in the field of taxes.

By the end of 2021, this category of taxpayers is exempt from paying taxes in the amount of RSD 384,000.00 per year for revenues generated in the period from 2015 to the end of 2021. To be more precise, the law refers to royalties from copyright and related rights to contracted compensations for work performed, on which tax is paid by self-taxation. Another relief is the reduction of the tax base for standard costs in the amount of up to 50% of income for the part of the realized income that exceeds the amount of the introduced tax exemption. The tax liability is determined by the decision of the Tax Administration and is paid in 120 monthly installments, ie during a period of 10 years, with the first amount due for payment on the 15th day of the following month, in relation to the month in which the decision of the Tax Administration was made.

However, these rules do not apply if:

  • the statute of limitations for determining the tax liability in accordance with the regulations in force at the time of revenue generation has occurred;
  • the procedure for determining the tax liability has been finalized;
  • tax liability paid before May 5, 2021 in accordance with the regulations that were in force on the day of the tax liability.

Compulsory social security contributions

Compulsory social insurance contributions for freelancers who receive the agreed compensation in the period from 2015 to December 31, 2021 from entites who are not obliged to calculate and pay contributions when paying the compensation, are determined by the decision of the Tax Administration and paid by freelancers in accordance with the provisions of the Law on Personal Income Tax relating to the agreed compensation on which the tax is paid by self-taxation.

What is quarterly taxation and how does it affect freelancers?

From January 1,2022, the rule according to which freelancers will have to file a tax return every 3 months – quarterly – comes into force. So, as before, the way to determine the tax liability is through self-taxation. The tax base will be determined by reducing the gross income generated in the quarter by standard costs in the amount of three times the amount of tax exemption provided for salaries, which currently amounts to a total of RSD 54,900.00 (non-taxable amount of salary for 2021 is RSD 18,300.00). This practically means that freelancers who earn income from copyright and related rights and income based on the agreed compensation for the work performed, and which amounts to less than RSD 54,900.00, are not obliged to report income and pay taxes. However, if the salary in the quarter is higher than the stated amount, the taxpayer will pay personal income tax, retirement and dissability insurance and compulsory health insurance. The tax return for the stated income is submitted within 30 days from the end of the quarter in which the income was realized. Please note that taxpayers who are already employed do not pay a contribution for compulsory health insurance based on performing activities as freelancers.

This change will not apply to the income from copyrights and related rights realized by persons who have the status of an independent artist. Then, if the taxpayer generated both types of income in the same quarter, the stated standard costs will be recognized in respect of the total amount of those income, and not in respect of each type of income separately.

The changes introduce extremely favorable tax treatment of the income of freelancers, which were realized from 2015 to the end of 2021, which was one of the requests of the Association of Freelancers and Entrepreneurs of Serbia during the negotiations with the Government. On the other hand, the new rules that will be applied from the beginning of 2022 enable freelancers to continue performing their activities without the need to register as an entrepreneur or a company. Of course, all options are open, so those who want to register can do so in time by the end of this year.

Adoption of bylaws for the implementation of all the above changes is expected in the coming period.