Amendments to the Individual Income Tax Law and the Law on Mandatory Social Insurance Contributions
Amendments to the Individual Income Tax Law and the Law on Mandatory Social Insurance Contributions
The Government of the Republic of Serbia affirmed the text of the Draft Law on Amendments to the Individual Income Tax Law, as well as the Draft Law on Amendments to the Law on Mandatory Social Insurance Contributions, submitted by it, as a proposer, to the National Assembly of the Republic of Serbia on November 4, 2021 for the purpose of reading and adoption. The National Assembly of the Republic of Serbia adopted these bills on November 26, 2021. Provisions of both laws shall enter into force on January 1, 2022.
The reasons for the adoption of both laws can be found in the need to enable economic growth and development, as well as investment inflow. For the purpose of achieving these goals, the amendments contain the measures, which are primarily stimulating, namely:
1) Measures for the fiscal relief of the earned labour income, such as:
– increase of the non-taxable salary cap from RSD 18,300 to RSD 19,300
– decrease of the mandatory pension and disability insurance contribution rate (PDI contributions) from 25.5% to 25%
2) Measures to stimulate employment by extending the period of enforcement of the existing reliefs related to the employment of certain groups of people
– extension of the period of enforcement of the existing reliefs related to the employment of new people, achieved by returning one part of the taxes and contributions payed based on the salary of a newly employed person in the amount of 65-75% from December 31, 2021 to December 31, 2022
– change of the terms of use of the exemption based on the salary of a founder employed in a newly founded company performing innovation activity
– clarification and extension of the period of application of the exemption from the payment of PDI taxes and contributions based on salary of a qualified newly employed person until 2025
Apart from this, two new reliefs shall become effective on January 1, 2022:
– for the employer hiring a specific group of people
– for the employer who, within his activity and the territory of the Republic of Serbia, performs research and development activities, in case he pays salary to an employee, who is directly engaged in research and development activities.
Increase of the Non-Taxable Salary Cap
The non-taxable cap is increased from RSD 18,300 to RSD 19,300. This means that the taxable salary base is decreased, as well as the tax, accordingly. That ensures lower fiscal burden of the natural persons’ labour income.
PDI Contribution Rate Decrease
As of January 1, 2022, a new lower rate in the amount of 25%, instead of 25.5%, will be applied to the calculation and payment of PDI contributions. This means that the PDI contributions debited to the payer are calculated and payed at 11% rate, instead of 11.5%. That ensures lower fiscal burden of a natural person’s total labour income and, at the same time, decreases employer’s business costs.
The Extension of the Period of Enforcement of the Existing Reliefs Related to the Employment of New People, Achieved by Returning One Part of the Taxes and Contributions Payed Based on the Salary of a Newly Employed Person in the Amount of 65-75%
The extension of the period of enforcement of these reliefs primarily ensures the continuity of employment incentives. On one hand, this is the way to give an opportunity to the employers, who have already started using these benefits in the previous period, to keep using them in 2022. On the other hand, it is expected that the extension of the period of enforcement of the existing facilities will stimulate the employment of new people in 2022.
Newly Founded Companies Performing Innovation Activity
An employer can get reliefs for founders’ salaries payed within 36 months from the moment of company foundation. The amount of monthly salary of each founder, for which the employer can use the right of exemption, is limited to RSD 150,000 on a monthly basis, and if the salary is higher than this, the right of exemption can be used for the amounts not higher than RSD 150,000.
Stimulating Employment by Introducing New Reliefs
As of March 1, 2022, two new reliefs will be applicable. The first one refers to the employer, who enters into a labour agreement with a newly employed person in such a manner that the employer is exempt from paying 70% of the calculated and withheld tax on salaries, as well as 100% of PDI contributions debited to both employee and employer based on the payment made to the newly employed person not later than December 31, 2024.
The other relief refers to the employer, who, within his activity on the territory of the Republic of Serbia, performs research and development activities, based on the salaries of people engaged directly in research and development activities in such a manner that the employer is exempt from paying 70% of the calculated and withheld tax on salaries, as well as 100% of PDI contributions debited to both employee and employer in proportion to the time spent by those people on research and development activities in comparison to the full-time.
