Independent entrepreneur – based on real income –
In previous articles we discussed the complexity of the Individual Income Tax Law, as well as the scope and types of income that are subject to its application. The income from self-employment is regarded as highly significant. The tax legislation of Serbia addressed the matter of engaging in self-employment through the possibility for entrepreneurs to opt for
– lump-sum taxation method or
– real income taxation method
According to how income tax is paid, Serbian business practice has established a division of entrepreneurship into lump-sum taxpayers and independent entrepreneurs. As we have written about the lump-sum taxation method previously, you may learn more about this topic through some of our earlier texts on this blog. The topic of entrepreneurs who pay taxes based on real determined income is particularly complexed, since it is related to the Individual Income Tax Law (Serbian: ZPDG), the Corporate Income Tax Law, the Law on Accounting, etc.
According to the Individual Income Tax Law the subject of taxation is the income from self-employment, meaning income from economic activities (including agriculture and forestry), income from provision of professional and other intellectual services, and income from other activities which are not otherwise taxed.
There are two types of real income taxation method, both of which require keeping the business records. This comes as no surprise, since only by keeping business records can the real income be determined.
The two types which entrepreneurs can choose from are:
– self-taxation and
– salary payment
– in this case, simply said, the difference between income and expenditures is used to determine the taxes and contributions
– business records are kept using the double-entry bookkeeping system, in accordance to the law and other regulations governing accounting (journal, general ledger, incoming and outgoing invoices book, etc.)
– the Tax Basis Balance Sheet and Tax Return (PB2 and PPDG-1S) are submitted to the Tax Administration
– the Financial Statements are submitted to the Business Registers Agency (Serbian: APR)
– the initial PPDG-1S tax return must be submitted in electronic form within 15 days of the date of registration in the APR. This tax return includes estimated income and expenditures for the period between the date of establishment to the end of the business year, and the difference between them is the estimated profit (income) which serves as the base for calculating the tax and contributions
– in the annual PPDG-1S tax return, the difference between the income and expenditures serves as the base for tax and contributions; and when we divide this base by the number of months for employment we get the monthly base for calculating tax and contributions
– the tax and contributions rates are the same as for the lump-sum taxpayers, the only difference is that they are being applied to the monthly base determined in the PPDG-1S tax return
– the tax and contributions for the prior month must be paid by the 15th of the following month
– in the case of the monthly contributions base being lower than the lowest prescribed contributions base, the lowest prescribed contributions base becomes the one to be applied for calculating tax and contributions, and the tax is paid based on the real income
– in the case of the monthly contributions base being higher than the highest prescribed contributions base, the highest prescribed contributions base becomes the one to be applied for calculating tax and contributions, and the tax is paid based on the real income
– information about the lowest and highest monthly contributions base amount is published annually by the Ministry of Finance
– if, in the current year, there are significant changes in your business, changes in the tax instruments or any other circumstances which greatly affect the monthly tax/contributions advance payment amount, you can submit the tax return with the tax basis balance sheet in which you will state the data for changing the monthly advanced payment amount. The application to amend the advanced payment amount is submitted within 30 days after the end of the period for which the tax basis balance sheet is drawn up.
– the amount that the entrepreneur uses as his or her salary throughout the year is not limited; however, it is not considered as an expense in the tax basis balance sheet, thus it increases the tax base
– in the case of opting for salary payment, the same provisions apply to this entrepreneur as for all the others, except that in this case the entrepreneur determines a certain amount which will be considered as his or her salary
– the tax rates are the same as if it were an employment relationship
– consequently, the deadline for making tax and contributions payment for the preceding month is the last day of the month
– this means the entrepreneur is his or her own employer and is limited to the salary he or she determined upon themselves, as well as the obligations on the account of tax and contributions
– opting for salary payment is recorded on the portal of the Tax Administration until December 15 for the following year, and the entrepreneur must stay in this taxation method until the end of the calendar year
– salary expenses are recognized in the tax basis balance sheet
– entrepreneur may only withdraw a certain amount of money on the account of salary, up to the level he or she determined and to which he or she makes monthly tax and contributions payments
– opting for salary payment does not exclude tax payment for income from self-employment, which is being paid based on the difference between income and expenditures, according to the PPDG-1S tax return and PB2 tax basis balance sheet