The existing system of income taxation is the result of the reform that was implemented in the spring of 2001, as well as of all the subsequent ones that have been implemented since then until today. This Law has undergone many revisions and amendments, including the recent ones during 2021 and 2022. The mixed system of taxation is used in many of the reforms which the Individual Income Tax Law has undergone along with the annual income tax, sometimes even referred to as “tax on extra income”. There are numerous countries which apply the combined systems of two or more pure models of income taxation systems; and we can say that Serbia is not falling behind them either.
Hence, in Serbia, the mixed system of taxation, in the form of a combination of the schedular and the synthetic one, is applied:
– schedular taxation – income from all sources is taxed at the moment of payment, either by deduction (withholding tax), by the decision of the tax authority, or by the self-taxation method, at a proportionate tax rate that varies based on the type of the income;
– complementary (global) taxation – natural persons (residents of Serbia) whose total annual income from labour exceeds the legally prescribed limit, are obliged to pay additional annual income tax at the end of the calendar year
The annual individual income tax serves as a corrective element of taxation of those incomes of natural persons which are taxed at the moment of payment.
Limits for 2022
Citizens of the Republic of Serbia who have generated a total income (income from various sources) higher than 3,719,376dinars in 2022, are subject to paying annual individual income tax for the year 2022. Citizens whose total income in 2022 is less than this amount do not have the tax liabilities on this basis.
Who is liable to pay this tax?
The taxpayers of the annual income tax are residents of the Republic of Serbia on the basis of income generated in the Republic and income generated abroad, as well as non-residents who generate income in the Republic of Serbia.
The sum total of which incomes is used for taxation?
The sum total of incomes for taxation includes the following incomes generated in 2022:
1) salary referred to in Articles 13 to 15b of the Individual Income Tax Law
2) taxable income from self-employment referred to in Article 33 Paragraph 2 and Article 40 of the Law
3) taxable income from copyright and related rights and industrial property rights referred to in Articles 55 and 60 of the Law
4) taxable income from real estate referred to in Article 65v of the Law
5) taxable income from the rental services of movable property referred to in Article 82 Paragraphs 3 and 4 of the Law
6) taxable income of athletes and sport experts referred to in Article 84a of the Law
6a) taxable income from providing catering/hospitality services referred to in Article 84b of the Law
7) taxable other incomes referred to in Article 85 of the Law
Salaries and taxable incomes of the lump-sum taxed entrepreneurs, as well as incomes referred to in points 3), 6) and 7) are reduced by tax and contributions for the mandatory social security insurance paid on that income in the Republic of Serbia charged to the person who generated the income. The net income of entrepreneurs who keep business records is reduced by the tax paid on that income in the Republic of Serbia. For the entrepreneurs who opted for salary payment, the salary is reduced by the tax and contributions for the mandatory social security insurance paid on that income in the Republic of Serbia charged to the entrepreneur who opted for salary payment. In essence, the sum total includes the net incomes.
It is important to note that dividends (profit-sharing) generated by the founders are not included in this list; therefore, they do not increase the annual sum total of income for taxation, more precisely they are not included in the tax base.
The lump-sum determined income from the decision of the Tax Administration is included in the annual sum total of income for taxation. If the lump-sum entrepreneur operates only through self-employment, and does not generate other income, they will most likely not be liable for the annual individual income tax. Namely, the amount of lump-sum determined income from the decision of the Tax Administration is, as a rule, below the annual census for taxation. However, if the lump-sum entrepreneur generates other income (salary from employment with another employer, income from rental services of immovable and movable property, etc.) they may be liable for annual individual income tax.
Calculation of the tax base
The natural person should add the amount of incomes from various sources for which, with the exception of net income from self-employment, they have received PPP PO certificates from the income payer. Those are salary, service contract, fixed-term employment contract, rent from renting services of immovable and movable property, etc. Net amounts are taken as the base, as prescribed by the Law. The non-taxable amount of 3,719,376 dinars is deducted from the received sum total amount. What remains represents taxable income, which is taxed at a progressive rate:
– 10% tax, up to the amount of 7,438,752 dinars
– 15% tax for the amount over 7,438,752 dinars.
Annual income tax payers can reduce their liability by using personal deductions, as follows:
– for the taxpayer – 495,917 dinars
– for the dependents – 185.969 dinars per dependent.
The sum total of personal deductions cannot exceed 50% of income for taxation.
Reduction for those younger than 40 years of age
Last year, a tax relief was introduced for people under 40 years of age. When calculating the annual personal income tax, for these people, the base will be additionally reduced by three average annual salaries per employee paid in the Republic of Serbia in 2022 (3,719,376.00 dinars). The reduction is only applied to:
– income from self-employment, and
– income from copyright and related rights.
This tax relief is entitled only to those people who were not 40 years old on December 31, 2022.
Deadlines for submission and payment of taxes
As of this year, the tax assessment procedure has been significantly changed.
Up until last year, the natural person liable for income tax was obliged to submit the PPDG-2R tax return electronically, using the ePorezi portal, no later than May 16, 2022.
Regarding the tax liability for the year 2022, the tax return is prepared by the Tax Administration, based on data from official records, and uploaded to the ePorezi portal no later than April 1, 2023; however, since April 1, 2023 was a Saturday, it was moved to Monday, April 3, 2023.
After that, the taxpayer has May 15, 2023 as the deadline to review the data from the submitted tax return, to change it if necessary, if the data is incorrect in any part, and to pay the tax and submit the tax return. Therefore, as of this year, the payment is not made based on the decision of the Tax Administration, because it will not be issued.
The data required for the calculation of the tax liability can be found in the PPP-PO certificates, which were required to be issued to every natural person by the legal entity – the payer of income, as of January 31, 2023 for the previous year.
This year, in contrast to prior years, a new procedure begins, with the official records of the Tax Administration on all incomes that natural persons have generated in 2022 serving as the starting base. According to the new procedure, the Tax Administration will post tax returns on its portal for those natural persons who, according to the official records, are subject to the annual individual income tax.
If the taxpayer finds that some of the information disclosed by the tax authority is incorrect, he or she has the obligation to correct the tax return, and submit it electronically afterwards. This also means that he or she has the obligation to pay the calculated annual individual income tax stated in the tax return. The deadline for submitting the tax return is May 15, 2023. If the taxpayer does not submit the tax return by the latter date, the Tax Administration, i.e. the competent tax authority, will do it instead.
What is required to submit the tax return?
If you are submitting the tax return yourself, you first need an electronic certificate. For the purpose of calculating the tax base, you must have PPP-PO certificates of income received in 2022, as well as personal documentation for any dependents, if you claim deductions for them.
The tax return can be submitted by the tax proxy of the taxpayer instead of the taxpayer. Such an action requires that the tax proxy has a qualified electronic certificate of the taxpayer or an authorization to use the electronic services of the Tax Administration on your behalf.
For all of the doubts and questions, as well as the submission of the documents, the Creative Finance team is at your disposal.