LUMP-SUM TAXATION OF ENTREPRENEURS – Serbia
Taxation model is one of the determining factors in the process of making a decision on starting a business activity i.e legal form in our country. The term “lump-sum taxpayer” is a very popular choice of among entrepreneurs in our country due to the smaller number of obligations and, subsequently, easier way for their settlement. Opting for the lump-sum taxation model does not imply that this will be the cheapest option; all pros and cons shall be thoroughly considered in every single case.
When we talk about entrepreneurs as an organization form within our economic environment, we primarily think about one of the three potential forms:
- lump-sum taxed entrepreneur
- an entrepreneur, who has opted for self-taxation
- an entrepreneur, who has opted for salary payment
What Is Lump-Sum Taxation?
Lump-sum taxation is an assumed income taxation system, regulated by the Individual Income Tax Law. It refers to the entrepreneurs with a business activity that does not enable keeping business records. You can opt for the lump-sum taxation model by submitting a request for lump-sum taxation to the competent local Tax Administration. Since last year, the obligation to submit the PPDG-1R tax return (Eng. Annual Income Tax Return for Individuals) to the Tax Administration has been simplified and this is now completed online via E-Taxes portal. The competent local Tax Administration issues a decision on a determined liability related to taxes and contributions and submits that decision to the personal tax account on the Tax Administration portal. It should be taken into account that the date of the publication of the decision is considered to be the date of decision delivery. The tax liability starts on the day of its entry into a corresponding register at the Business Registers Agency, which is, after all, stated in the tax return. The entrepreneur accesses the personal tax account using qualified digital certificate.
The decision issued by the Tax Administration stipulates the same tax base for the entire period i.e. calendar year and, thus, the amount of individual income tax and the compulsory social insurance contributions. The base established by the Tax Administration will not depend on the income amount, up to the stipulated limits, and the amount of liabilities for the previous month that fall due on the 15th day of every month for a previous month equals the amount of liabilities for the period, for which the decision is issued.
Lump-Sum Taxation Limitations
We have already stated that the lump-sum taxation is the taxation of an assumed income and that it refers to the activities for which business records cannot be kept.
When it comes to the income, the Legislator has set a limit in the amount of 6 million dinars for the entrepreneurs as a business form for the turnover made during one calendar year. The turnover is the sum of the values of all invoices issued during the year, regardless of whether the invoices were collected. In other words, it is the amount of goods and services invoiced during the calendar year based on the activity. This is the accrual accounting method applied in our course of dealing, regardless of the legal form. If the limit is exceeded during the first half of the year, from July 1st, the entrepreneur shall start keeping business records by applying double-entry book-keeping principles; if the limit is exceeded in the second half of the year, book-keeping shall start the following calendar year.
It shall be noted that the entrepreneurs, who exceed the limit, should not wait for the Tax Administration to become aware of it; they should take care of that on their own and keep the Tax Administration informed, which is regulated by the Individual Income Tax Law.
The entrepreneurs, whose business activities are also funded by other entities, cannot be subject to lump-sum taxation either.
Apart from the income amount limitation, it is also possible to limit lump-sum taxation by the type of activity. The codes that can be subject to lump-sum taxation are available via the following link https://www.purs.gov.rs/sr/biro-za-informisanje/novosti/6078/pausalci.html
The limitation of the lump-sum taxation is a decision on VAT registration or, to be more precise, VAT payers cannot be lump-sum taxpayers.
Deadlines Related to “Lump-Sum Taxpayers”
While registering with the Business Registers Agency, the new entrepreneurs, registered with the Business Registers Agency, shall submit a request for lump-sum taxation, which is submitted ex officio to the competent Local Tax Administration (JRPPS form). The entrepreneurs, who do not register with the Business Registers Agency (for example, lawyers), shall submit the request for lump-sum taxation within 5 days from the registration day and submit online PPDG-1R tax return via the Tax Administration portal within 15 days from the registration day.
The taxpayer with the established right to lump-sum taxation uses this taxation method until it is determined that the conditions for lump-sum taxation have ceased to exist i.e. that the amended conditions eliminate the right to lump-sum taxation.
If the reasons for the lump-sum taxation cease to exist, the Tax Administration shall issue the decision instructing the taxpayer to keep business records starting from the second half of the current year or the beginning of the following year. In accordance with the Value Added Tax Law, the lump-sum taxpayer, entrepreneur, whose right ceases to exist due to the VAT registration, shall start keeping business records no later than the day on which he becomes a VAT payer i.e. even if the Tax Administration has not issued a decision on determining the obligation to keep business records.
The entrepreneurs, who meet the requirements necessary to pay the lump-sum self-employment income tax shall submit an online request for lump-sum taxation for the following year via the Tax Administration portal no later than October 31st of the current year.
The entrepreneurs that are no longer VAT payers can submit an online request for lump-sum taxation via the Tax Administration portal within 15 days from the day of receipt of the act confirming the removal from the VAT payer register.
The entrepreneurs, who preserve the lump-sum taxpayer status but suffer the changes affecting the amount of lump-sum income (in terms of activity code change), shall submit the PPDG-1R tax return by January 31st of the following fiscal year for the year in which they made changes that affected the amount of lump-sum income.
In those case, when the performed activity has not been changed, it is not necessary to submit the tax return for the following year.
The lump-sum entrepreneur, who terminates i.e. stops self-employment during the year, shall inform the tax administration body about that by submitting a tax return within 30 days from the termination i.e. cessation day.
The taxpayer shall have a qualified digital certificate to download the decision from the Tax Administration portal (or authorize other entity to access the Tax Administration portal and undertake corresponding actions).
The lump-sum entrepreneur shall submit PPDG-1R tax return only in the following cases:
- self-employment termination
- self-employment cessation
- transition from the lump-sum taxation method to the real income taxation method
- insurance type change
- resuming self-employment after its cessation
- transition from the real income taxation method to the lump-sum taxation method
- continuation of payment of the compulsory social insurance contributions during the self-employment cessation
- performing activity through an authorized manager while collecting maternity allowance, compensation for childcare leave and childcare leave for the parents of children with special needs at the same time
- shop ownership transfer
- resuming self-employment after its termination by acting through an authorized manager
- termination of the payment of contributions during self-employment cessation
- activity code change
- change in the scope of business i.e. turnover and other conditions affecting the amount of lump-sum tax liability
The taxpayer submits online PPDG-1R tax return via the Tax Administration portal within 15 days from the date of change.