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

In one of our previous articles we discussed the tax relief for the newly-settled taxpayer; however, we did not cover all of the aspects necessary to exercise the right to the relief. First, let us remind you:

What requirements must be met in order to use the relief measures for the salaries of the newly-settled taxpayers?

• an employment contract on a permanent basis must be established between a qualified employer and a newly-settled employee;
• the employment relationship is established on a job position for which a person requires specialised vocational education and for which there is a demand that cannot be easily met on the domestic labour market;
• the monthly salary for an employed newly-settled taxpayer who has not resided on the territory of the RS in the previous 24 months must be greater than 300,216 dinars;
• the monthly salary for an employed newly-settled taxpayer must be greater than 200,144 dinars, the taxpayer must be under 40 years old, and the taxpayer must have spent the majority of the previous 12 months outside of the Serbian territory for further education or advanced training.

We shall now discuss the individual segments for the relief measures for the salaries of the newly-settled taxpayer, namely:

1. a) the salary tax base for the newly-settled taxpayer
2. b) the contributions base for the salary of the newly-settled taxpayer
3. c) who is considered a qualified employer
4. d) who is considered a qualified newly-settled taxpayer
5. e) duration of the tax relief
6. f) proof of meeting the requirements for exercising the right to tax relief
7. g) example of tax and contributions calculation for a newly-settled taxpayer

1. a) The salary tax base for the newly-settled taxpayer

Pursuant to the provisions of Article 15v(1) of the Individual Income Tax Law (Serbian: ZPDG), the salary tax base for the newly-settled taxpayer, who has an employment contract on a permanent basis with a qualified employer on a job position for which a person requires specialised vocational education and for which there is a demand that cannot be easily met on the domestic labour market, is comprised of a base reduced by 70%in accordance with Article 15a(2) of the IITL (Serbian: ZPDG).

1. b) The contributions base for the salary of the newly-settled taxpayer

Pursuant to the provisions of Article 15a of the Law on Mandatory Social Security Insurance Contributions (Serbian: ZDOSO), for employees and employers, on the basis of hiring a newly-settled taxpayer, the base is reduced by 70%.

The basis on which social security insurance contributions are paid, not the basis of earned income, determines the newly-settled person’s rights to the mandatory social security insurance. It should be borne in mind that the provisions of the Law on Mandatory Social Security Insurance Contributions (Serbian: ZDOSO), which determine the highest and lowest monthly base for calculating contributions, apply to the income of the newly-settled taxpayers. Currently the highest base for calculating contributions is 500,360 dinars, while the lowest is 35,025 dinars.

In practice, this means that when the contributions base, which consists of earnings reduced by 70%, is above the highest base (which is currently 500,360 dinars), contributions are made to the payment of the highest base, and in the event when the contributions base is reduced by 70% below the lowest base (currently 35,025) contributions are made to the lowest base.

Extremely high income can sometimes lead to paradoxical circumstances. As an example, consider a gross income of 2 million dinars; after the relief measure of 70% it becomes 600,000, which is higher than the highest prescribed base, thus renders the relief measure ineffective. It is doubtful that the base will be lower than the prescribed one in practice, since this does not meet the requirement for the possibility of exercising the right to the relief measure for the newly-settled taxpayer.

1. c) Who is considered a qualified employer

–  a resident of the Republic of Serbia

–  a legal entity which, in accordance with the Individual Income Tax Law, which regulates the income tax of legal entities, cannot be considered a related entity to the employer where the newly-settled employee was previously employed

– an employer, resident of the Republic of Serbia, who establishes an employment relationship with a newly-settled taxpayer, who has met the conditions from Article 7(2)(1) of the IITL (Serbian: ZPDG) (which state that they have residence on the territory of the Republic of Serbia, or the center of professional and personal interests as a resident there) for at least 3 years since 1990

1. d) Who is considered a qualified newly-settled taxpayer

– an employee who, in the period of 24 months before the day of establishing an employment relationship with a qualified employer, did not mainly reside on the territory of the Republic of Serbia (the requirement is that they earn a monthly salary greater than 300,216.00)

– an employee who, at the moment of entering into an employment contract with a qualified employer, is younger that 40 years old, and who, in the period of 12 months prior to establishing an employment relationship with a qualified employer, predominantly resided outside of territory of the Republic of Serbia for further education or advanced training (the requirement is that they earn a monthly salary greater than 200,144.00)

– an employee who settles on the territory of the Republic of Serbia simultaneously with the establishment of the employment relationship or within a reasonable time after the establishment of the employment relationship (who, in this way, meets the requirement of being considered a tax resident on the basis of having the centre of professional and personal interests as a resident on the territory of the Republic of Serbia, as well as a tax resident for the purposes of implementing Double Taxation Avoidance Agreement)

We reiterate the scope of each segment of this question, thus the final one—proving the meeting of the requirements for exercising the right to tax relief—will be explained in the following articles, along with an illustration of how to calculate taxes and contributions for a newly-settled taxpayer. Until then, our Creative Finance team remains available to answer any questions you may have.