Tax Obligations for U.S. Citizens in Serbia
Understanding Tax Obligations for U.S. Citizens in Serbia: A Guide to Two Taxation Models
If you’re a U.S. citizen living in Serbia and working remotely for a U.S. company, you may wonder about your tax obligations for U.S. citizens in Serbia. Even though your employer in the U.S. handles your taxes, Serbia may require you to pay taxes on the income you earn while living here. In this blog, we will explain the two main taxation models for U.S. citizens in Serbia and help you understand your potential tax obligations.
Who Is a Tax Resident in Serbia?
Under Serbian tax law, you are considered a tax resident if you meet one of the following criteria:
You have permanent residence or the center of your business and personal interests in Serbia.
You stay in Serbia for 183 days or more, either continuously or intermittently, within a 12-month period.
If you’re living in Serbia with temporary residence (e.g., for family reunification), you might still be considered a tax resident. This is especially true if you’re married to a Serbian citizen and your center of business and personal interests is in Serbia.
Tax Models in Serbia: Which One Applies to You?
If you’re a tax resident of Serbia, you must pay taxes on income earned abroad. The way you’re taxed depends on the taxation model that applies to your situation. Serbia has two main models for taxing foreign income:
1. First Tax Model: The Simplified Approach
The first model applies to people who earn lower amounts or have temporary engagements with foreign employers. This model is simpler and works as follows:
How It Works: You subtract 107,738 RSD (for the quarter) from your income as fixed, standardized expenses. The remaining amount is taxed at a rate of 20%.
Social Contributions: The pension contribution base is calculated based on your taxable income. You don’t need to compare this with the minimum contribution base. For health insurance, the contribution base will be based on your taxable income, as long as it exceeds three times the minimum health insurance base.
This model works well for individuals who earn lower amounts and don’t have permanent or long-term employment in Serbia.
2. Second Tax Model: The Regular Taxation for Higher Earnings
The second model is for individuals who earn regular or higher amounts of income. This model is ideal for those with a steady income from foreign employers. Here’s how it works:
How It Works: You deduct fixed costs of 64,979 RSD plus percentage-based expenses (34% of your income) from your total earnings. After these deductions, the remaining income is taxed at a rate of 10%.
Social Contributions: As in the first model, pension contributions are based on taxable income. If your income is below three times the minimum pension contribution base, the contribution will be calculated based on that minimum base (currently 45,950 RSD for 2024). Health insurance contributions are calculated in the same way.
This model benefits individuals with regular, higher earnings and allows for more comprehensive deductions.
Filing Your Tax Return: What You Need to Know
Regardless of which taxation model applies, you’ll need to self-assess your taxes. This means that you must calculate how much you owe and submit a tax return to the Serbian authorities. You need to file your return within 30 days after earning the income or by the end of the quarter when the income was earned.
Here’s a quick breakdown of the forms you might need:
Form PP OPO: This is for monthly earnings and is used if you’re filing your tax return for regular income.
Form PP OPO-K: If you earn income quarterly, use this form to file your taxes.
In both cases, you must file a tax return, even if you’ve already paid taxes in the U.S. Serbia allows you to claim a tax credit for any taxes you’ve paid abroad. To do so, you need to provide proper documentation (like a certificate of tax paid).
How to Determine Which Tax Model Applies to You
The first and second tax models cater to different types of income and employment situations. Let’s look at each in more detail.
When to Use the First Model:
If you have temporary employment with a foreign employer or your income is relatively low, the first model is a good fit. This model simplifies the process and provides a straightforward way to determine your taxable income. It’s also suitable for people who work part-time or earn occasional income from foreign sources.
When to Use the Second Model:
If you have a full-time position with a foreign employer or earn substantial income, the second model will likely apply. This model offers more deductions but requires a more detailed tax calculation. It is ideal for individuals with regular income who need to account for both fixed and percentage-based costs.
Conclusion: What Should You Do?
If you’re a U.S. citizen living in Serbia and earning income from a foreign employer, it’s essential to stay informed about your tax obligations. Determine which taxation model applies to your situation and make sure to file your tax return accordingly. The first model is best for lower income or temporary engagements, while the second model benefits those with regular, higher earnings.
To ensure you comply with Serbian tax laws, you might want to consult with a local tax expert. They can guide you through the self-assessment process and help you avoid potential issues with the Serbian tax authorities.
By following these guidelines and filing your taxes correctly, you can stay compliant with the law while managing your finances effectively. Stay proactive and file your tax returns on time to ensure a smooth process!