How much tax will freelancers pay in 2023?

The current Law on Personal Income Tax will be amended in the part that refers to the income of freelancers, since a separate law on freelancers will not be adopted by the end of the year. That means that this type of activity will be considered all the income from foreign natural and legal persons, as well as from domestic natural persons for services/work on an author's work or services/work similar to an author's work, i.e. from the field of digital services (online work for a foreign client, where a service is delivered rather than a physical product).

The amendments to the law will enter into force on January 1, 2023.

Income reporting will be done quarterly online through a specially created portal, and the deadline for reporting and payment is 30 days from the end of the quarter. For payments from January 1 to March 31, 2023, registration and payment are made from April 1 to 30.

“Each freelancer will have the option to choose one of the two billing models based on the amount of income in the quarter. The first model is more favourable for people with lower incomes or who occasionally receive money in this way, while model B is more favourable for higher incomes", says the Association of Freelancers and Entrepreneurs of Serbia (UFPS).

The bases for taxes and contributions are the taxable income in the quarter, that is, what remains after deducting the standardized expenses (percent and fixed).

 Although contributions for PIO are currently 25 percent, this solution will be subject to reductions in contribution rates, i.e. PIO will be reduced to 24 percent from January 1.

UFPS points out that if you are employed in Serbia and this is an additional source of income, you do not pay contributions for healthcare, because the primary insurance is through employment. If you were insured as an unemployed person, when you report your freelance income, you lose your right to insurance on that basis.

In order for everyone to still be able to exercise their right to a health insurance card, a mandatory minimum payment amount for health insurance was introduced. With that payment, you are insured, along with family members who are entitled to it, for the next six months.

"By the time this solution is implemented in April, the portal should be enabled and the verification of the health insurance card  should be done automatically with the payment of contributions. Currently, the regulation still applies that we have to submit the application to the RFZO with proof of payment ourselves", explained UFPS.

When it comes to paying contributions for pension and disability insurance, even those who are already employed will pay PIO because it is calculated on all the income that the individual has, and the pension base is increased accordingly. There is no possibility of voluntary PIO payment, except in model A for the unencumbered part.

If you exceed the maximum amount (four average earnings per month) with contributions to the PIO for the year, you have the right to request a refund. Given that this amount is considered on an annual basis, and no one guarantees that you will have income in the next quarter, it is not possible to pay less quarterly.

Standardized expenses are subtracted from the total amount of income and serve to cover "business costs", instead of justifying costs incurred during operation (internet, licenses, electricity, various other costs). It is approved in a lump sum.

Fixed tax-free amounts will be adjusted annually.

"By choosing the appropriate model each quarter, you can optimize taxes and contributions so that your total burden is always between 10 and 25 percent, depending on the amount of income. It is much more profitable than any other type of business. We remind you that lump-sum workers and entrepreneurs generally pay contributions and taxes even if they do not make any profit, and that freelancers will not be subject to the independence test", it is stated on the website of the Association of Freelancers and Entrepreneurs of Serbia (UFPS).

Model A

According to this model, freelancers have an unencumbered portion of 96,000 dinars per quarter (or 32,000 dinars per month). This means that there is no tax on an amount lower than that, nor PIO. Health insurance will be mandatory and will amount to a minimum of 1,402.17 dinars per month (4,206.51 dinars per quarter) or 10.4 percent. With the first payment, you will be insured for the next six months.

On amounts that exceed the unencumbered part, taxes and contributions for PIO are 24 percent, health insurance is 10.3 percent or a minimum of 1,402.17 dinars per month, and tax is 20 percent.

Model B

This taxation model should be more favourable for higher incomes. The non-taxable part amounts to 19,300 dinars per month (57,900 dinars quarterly), standardized expenses 34 percent, PIO 24 percent on the taxable part of income or at least 7,720 dinars per month (23,160 dinars quarterly). Health insurance is paid at a rate of 10.3 percent or a minimum of 1,402.17 dinars per month (4,206.51 dinars per quarter). According to model B, the tax is 10 percent.

The right to tax reduction

Freelancers who work for legal entities from a country that has signed an agreement with Serbia on the avoidance of double taxation should have the possibility to reduce the tax burden.

What is necessary in that case is to submit a certificate of paid taxes from the tax administration of that other country.

Source: biznis.rs