Proof of meeting the requirements for exercising the right to tax relief

The Rulebook on the method of exercising the right to a reduction of the salary tax base for a newly-settled taxpayer (hereinafter: the Rulebook)
prescribes in more detail the way of exercising the right to this relief measure.

In order to exercise the right to the relief measure, the newly-settled taxpayer must establish an employment relationship on a permanent basis with a qualified employer. From the perspective of the Corporate Income Tax Law, an employer who is a resident of the Republic of Serbia and an employer who cannot be considered a related entity to the employer where the newly-settled employee was previously employed, is considered a qualified employer.

In order to meet the requirements needed to exercise the right to use the tax relief, the requirements must be proven, and to achieve that, the following documentation must be obtained:

1. Documentation regarding the non-existence of relation which the employer proves based on the following:
2. A written statement of the qualified employer

With this statement, the qualified employer attests that the newly-settled taxpayer, prior to establishing an employment relationship with the qualified employer, did not hold employment with a company that would be regarded as related to the qualified employer at the moment the taxpayer attained the status of the newly-settled taxpayer.

This statement is made by each subsequent qualified employer in the event that the newly-settled taxpayer concludes an employment contract with another qualified employer.

• A written statement of the newly-settled taxpayer

The qualified employer obtains a written statement from the newly-settled taxpayer with whom they establish an employment relationship, in which that person confirms that before establishing an employment relationship with the qualified employer:

– was not employed, or

– in the event that they were employed with one or more employers, the person obtains a written statement which includes the full name and the headquarter address of every employer, as well as the country whose taxpayer is the employer with whom the person was employed during the period of employment in another country.

2. Documentation which the qualified employer obtains from the newly-settled taxpayer

– certificate of changing the domicile/residence for the period beginning in 1990, issued by a competent authority of the Republic of Serbia, showing that the individual had a domicile or residence in Serbia for at least 3 years

or

– proof (certificate) of approved temporary residence or approved permanent residence on the territory of Serbia for a foreign citizen

3. Documentation regarding the period of residence on the territory of Serbia

Here, it is important to consider whether it is about:

I a newly-settled taxpayer who did not reside primarily on the territory of Serbia during the period of 24 months prior to the conclusion of the employment contract

or

II newly-settled taxpayers who, at the time of concluding the employment contract, are under 40 years old, and who primarily resided outside of the Serbian territory for further education, i.e. advanced training during the period of 12 months prior to the conclusion of the employment contract with a qualified employer

                I

                        For a newly-settled taxpayer who did not reside primarily on the territory of Serbia during the period of 24 months prior to the conclusion of the employment contract, the employer must obtain the following 4 proofs:

1. Certificate of changing the domicile/residence issued by a competent authority
2. Certificate of domicile or residence in another country, or an extract from the appropriate register of a foreign competent authority
3. Certificate of confirmation from a foreign employer regarding the employment in another country and working on the territory of another country
4. Evidence from the competent social security insurance authority of another country

                        Obtaining one of these 4 proofs is necessary.

                II

                        For newly-settled taxpayers who, at the time of concluding the employment contract, are under 40 years old, and who primarily resided outside of the Serbian territory for further education, i.e. advanced training during the period of 12 months prior to the conclusion of the employment contract with a qualified employer, the employer must obtain:

1. Certificate of changing the domicile/residence issued by a competent authority
2. Certificate of domicile or residence in another country, or an extract from the appropriate register of a foreign competent authority

In addition to the aforementioned, the newly-settled taxpayer submits to the qualified employer a written statement confirming that during the period of 24 months prior to the day of conclusion of the employment contract with the qualified employer, they mainly resided on the territory of one or more other countries. The statement contains the following:

– information on the country, i.e. countries, in which they resided, and

– that person has not stayed continuously or intermittently on the territory of the Republic of Serbia for more than 183 days during the period of 12 months prior to the day of concluding the employment contract with a qualified employer

4. Documentation regarding the residence on the territory of Serbia

Pursuant to the provisions of Article 15v(7) of the Individual Income Tax Law (Serbian: ZPDG), the right to use tax relief is given to the newly-settled taxpayer who settles on the territory of the Republic of Serbia simultaneously with the conclusion of the employment contract or within a reasonable time after the establishment of the employment relationship, and meets the requirement to be considered tax resident of the Republic of Serbia, as well as tax resident of the Republic of Serbia for the purposes of implementing Double Taxation Avoidance Agreement (DTAA) (Serbian: UIDO).

The newly-settled taxpayer submits the following documentation to the qualified employer:

– proof of own right of ownership or the right of ownership of their family members over the residential real estate or lease of residential real estate on the territory of the Republic of Serbia

– a written statement by which that person confirms that in the period from 183 days prior to the conclusion of the employment contract with a qualified employer to the expiration of 183 days after the conclusion of that contract, they settled on the territory of the Republic of Serbia together with their spouse and their minor children, with the intention of residing on the territory of the Republic of Serbia for 183 or more days in any period of 12 months after concluding an employment contract with a qualified employer during the period of exercising the right to a reduction of the tax base from Article 15v of the Law;

– certificate of domicile, i.e. residence in the Republic of Serbia for a person who is a citizen of the Republic of Serbia, issued by the competent authority in the Republic of Serbia;

– proof (certificate) of approved temporary residence or approved permanent residence on the territory of the Republic of Serbia for a foreign citizen, as well as the same proof for their spouse and their minor children, issued by the competent authority in the Republic of Serbia, for the period of exercising the right to a reduction of the tax base from Article 15v of the Law.

The newly-settled taxpayer must submit the proofs from the third and fourth items on the list within 180 days from the day of concluding the employment contract for the first time. After that, they must do so at least once every 12 months during the period of exercising the right to a reduction of the tax base.

5. Deadline for obtaining the documentation

A qualified employer is obliged to obtain the aforementioned necessary documentation no later than the day on which he pays the newly-settled taxpayer their first salary, on the basis of which they obtain the right to a reduction of the tax base, except for the part of the documentation for which the Rulebook prescribes the possibility of obtaining it subsequently during the exercise of the right.

The newly-settled taxpayer cannot exercise the right to a reduction of the salary tax base which were paid before obtaining the proof of meeting the requirements for exercising the right to use the reduction.

The qualified employer is obliged to keep the documentation determined by the Rulebook with his business documentation, and to submit it to the competent tax authority, in the original or a certified photocopy form, upon request.

6. Obtaining the documentation in the event of changing the employer

The second and every subsequent qualified employer with whom the newly-settled taxpayer concludes an employment contract is obliged to obtain:

– documentation on meeting the requirements for the period prior to the day of concluding the employment contract with the first qualified employer

and

– documentation that is subsequently obtained in the course of exercising the right to a reduction of the tax base.

The employer can obtain this documentation from the newly-settled taxpayer if they have their own copies of such documentation:

– original documents

or

– as certified copies of the original documents, which they provided for the first qualified employer.

Original documents or certified copies of the original documents are provided to the tax authorities upon request.

There is no doubt that the proving process is time-consuming and demanding, which definitely lowers the likelihood of application.

Let us see the mathematical structure of those who prove meeting all of the requirements.

1. Example without a tax relief

Gross income 300,000

1. income tax 10% = 27,829
2. contributions charged to the employee 19.9% = 57,900
3. contributions charged to the employer 15.15%   = 45,450

2. Example with a tax relief of 70%

Gross income 300,000

1. income tax 10% = 6,829
2. contributions charged to the base is 90,000 the employee 19.9% = 17,910
3. contributions charged to the employer 15.15% = 13,635

Related texts

Relief measures for employment

Requirements for using the relief measures for the salaries of the newly-settled taxpayers