Tax benefits for employment of newcomers to Serbia
Tax benefits for the employment of the newly settled tax payers
Having in mind current events in the world, an increasing number of people living and working in the wider area of the warfare is forced to move to other countries that are not directly affected by the situation in question. Given the favorable state of the domestic economy, some of these people decide to relocate to the Republic of Serbia.
For this reason, we are coming back to the topic of tax benefits for employing newly settled taxpayers who are establishing an employment relationship with a domestic employer (which taxpayers actually include foreigners and returnees from abroad), and which benefits were introduced in the late 2019 by amendments to the Tax on Individual Income Law and the Contributions for Mandatory Social Insurance Law.
What are this tax benefits exactly?
If the employer concludes an employment contract for an indefinite period of time with the newly settled taxpayer, a 70% lower tax base on salaries and contributions is applied for such person, which practically means that the taxes and contributions for that employee are calculated only on the remaining 30% of the base.
In order to use this benefit, it is necessary for the newly settled taxpayer to establish an employment relationship for an indefinite period of time at a workplace for which there is a need for a person with special vocational education and for which there is a need that cannot be easily met in the domestic labor market.
This right to a reduction of the base is exercised for a period of five years from the day of concluding the employment contract, regardless of the change of the employer. This actually means that the new employer of the newly settled taxpayer by the way of employment automatically acquires the right to the benefit in question, all within the specified period of five years from the moment of concluding the initial employment contract.
Who is a newly settled taxpayer?
In order for a person to be considered a newly settled taxpayer, it is necessary that:
- such person did not predominantly reside on the territory of the Republic of Serbia in the period of 24 months preceding the day of concluding the employment contract;
- the agreed monthly gross salary is higher than 264.684 dinars.
- at the time of concluding the employment contract such person is less than 40 years old, and mostly stayed outside the territory of the Republic for further education, i.e. professional training in the period of 12 months preceding the conclusion of the employment contract;
- agreed monthly gross salary is higher than 176.456 dinars.
The newly established taxpayer is obliged to settle on the territory of the Republic at the same time as establishing employment, or within a reasonable time after employment, and to be considered its tax resident based on the center of business and life interests in the Republic of Serbia, as well as its tax resident for the purposes of applying the double taxation agreement that the Republic of Serbia applies with other countries.
Which employers are entitled to tax benefits?
In order for the employer to exercise the right to such benefits, it is necessary to meet certain conditions concerning the employer himself who:
– must be a resident of the Republic of Serbia;
– cannot be considered an affiliated party with the employer with whom the newly settled taxpayer was previously employed.
It should be clarified that a domestic employer will be considered an affiliated party if the previous employer of the newly settled taxpayer directly or indirectly owns at least 25% of shares or stakes in the domestic employer or at least 25% of the votes in its governing bodies. Domestic employer and the previous employer shall be considered affiliated parties also if in both companies the same natural or legal persons directly or indirectly participate in management, control or capital with at least 25% of shares or stakes respectively at least 25% of votes.
In addition, affiliated parties are considered spouse or common-law partner, descendants, adoptees and descendants of adoptees, parents, adoptive parents, siblings and their descendants, grandparents and their descendants, as well as siblings and parents of spouse or common-law partner, of the person holding at least 25% of the shares or stakes in the domestic employer or at least 25% of the votes in its governing bodies.
Affiliated party is also any non-resident legal entity from a jurisdiction with a preferential tax system, which are listed in the Rulebook on the list of jurisdictions with a preferential tax system.
However, it must be noted that there is one exception to the rule that the domestic employer cannot be an affiliated party to the previous employer of the newly established taxpayer. Namely, domestic employer can exercise the right to tax benefits even if it is an affiliated person in case it establishes an employment with the newly settled taxpayer who has had a residence or center of business and life interests in the Republic of Serbia for at least three years since 1990.
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