Tax treatment of income from foreign sources of natural persons

TAX TREATMENT OF INCOME

FROM FOREIGN SOURCES OF NATURAL PERSONS

RESIDENTS AND NON-RESIDENTS

– liabilities of former residents of Serbia –

The development of science, technology, i.e. the Third Industrial Revolution, has necessarily led to the migration of the workforce, in the same manner the first two had. However, the latest revolution has greatly influenced that the migration happens in a reversed manner; more precisely, the development of information technology has enabled many people with the possibility of working from any place in the world.

The information technology has erased many borders, the income may be generated wherever you are and no matter how far away you are from the parent company. The only question that remains open is to whom is the “tribute” to the progress of civilization paid? This question was raised by the tax systems of many countries, initiated by the so-called digital nomads. At the same time, it has imposed the doubts of many if how much, where and whether at all we are obligated to pay tax.

Sometime in the second half of 2020, the Tax Administration of the Republic of Serbia disclosed to the public the high percentage of non-compliance with the tax regulations, based on the available data on payments from foreign sources. The Tax Administration has simply compared the data received from the National Bank of Serbia (NBS) with the submitted tax returns on calculated and paid tax by self-taxation and related contributions to salary/other types of income by a natural person as a taxpayer, and established a high rate of non-compliance with the tax regulations.

Failure to comply with the tax regulations primarily means that natural persons who had generated certain income from non-resident payors did not report this income to the Tax Administration, i.e. they did not submit tax returns and calculate the accompanying taxes and contributions through self-taxation.

The Tax Administration issued a statement and called on the aforementioned natural persons to report the income thus generated and pay the accompanying tax and contributions before starting the tax control or submitting a request for the initiation of misdemeanor proceedings, in order to avoid possible misdemeanor liability.

This statement was considered by many to apply only to freelancers; however, it should be borne in mind that this applies to all natural persons, both residents and non-residents, for property and income generated on the territory of the Republic of Serbia, and this primarily means:

– Property Tax,

– Inheritance and Gift Tax,

– Absolute Rights Transfer Tax,

– Annual Income Tax,

– Dividends and

– Other Income from Foreign Sources.

Thus, it is of great importance to determine in which cases is a natural person considered liable to pay taxes and contributions to the income generated from a foreign payor. They are obliged to submit a tax return by self-taxation on the PP OPO form.

Nevertheless, around 2000 citizens in Serbia submit a request for release from citizenship annually, most often due to the conditions of restriction or prohibition of dual citizenship existing in the countries of their residence. Legal consequences of terminating Serbian citizenship apply to various segments of life:

– registering the residency in the Ministry of the Interior,

– tax status,

– inheritance, acquisition or alienation of property,

– transfer of money to foreign countries and bank accounts, etc.

We are interested in their tax treatment, which is the same for them as for all foreign natural persons. This means that if they are liable for any of the aforementioned taxes in Serbia, they must have a TIN (Tax Identification Number). TIN is of importance to them for all the matters regarding inheritance, property transactions, as well as both buying and selling of goods and gifts. TIN is issued by the Ministry of Finance. It should also be highlighted that these natural persons cannot obtain property tax reliefs based on the residence, which they had as citizens of Serbia.

As usual, for all of your doubts and questions regarding this and any other topic, TEAM CREATIVE FINANCE is at your disposal.