The difference between the taxation of entrepreneurs and limited liability companies
It is completely expected that achieved results i.e. profit will be withdrawn after the end of a fiscal year and the submission of financial and tax statements. We spoke about the advantages of organizing a business in Serbia several times, mostly from the aspect of founding, business and legal obligations, tax liabilities, responsibility for capital, etc. but the question related to the achievement of positive business results has remained unanswered.
Depending on whether they perform their activity as entrepreneurs or companies (where the most common form is the limited liability company i.e. LLC), businessmen in the Republic of Serbia can dispose of funds i.e. withdraw the funds from a banking account even as profit payout.
Entrepreneurs Withdrawing Profit
During a year, entrepreneurs can withdraw money from a banking account as an advance payment of self-employment income, regardless of whether they have shown operating profit or loss for the previous accounting period. The advanced payments of self-employment income that are withdrawn during the year are posted through the account – employer’s personal income, these advanced payments are not and cannot represent an expense.
If it is determined that the amount of payouts made cannot be covered by the gained profit on the balance date, the uncovered amount is debited to the loss caryforward account at the end of the accounting period. If the entrepreneur does not withdraw advanced payments of self-employment income, in accordance with the entrepreneur’s decision, the entire income will be payed out from the banking account in the following year, after the preparation and submission of the regular financial statement i.e. after the preparation of the tax statement, which determine the final self-employment income amount to which the self-employment income tax was calculated and payed at 10% rate.
This means that entrepreneurs will be able to withdraw their profit from their banking account when they pay 10% tax liability i.e. when they settle this liability, there will no longer exist the tax liability related to the entrepreneur’s profit (income) tax. There will only be one liability related to the excess of the limit for the annual personal income tax. When the profit amount exceeds the limit, the annual personal income tax is payed for the amount exceeding the limit in accordance with the progressive tax scale.
LLC Withdrawing Profit
Profit of the companies registered as limited liability companies (LLC) is taxable at the 15% rate. When it comes to LLC, the profit gained by the company is the profit of that company. Subsequently, when the founder (owner) wants to withdraw the profit, he first needs to pay withholding dividend tax in the amount of 15% and then withdraw that dividend i.e. profit. In order to get the profit, the founder has to pay 15% tax twice; first the tax on profit and then on dividend.
Each withdrawal of the money that belongs to the company property for personal founder’s needs is considered to be investment income, which is taxable at the 15% rate at the moment of payout, just like the dividend payout.
- Disposal of the cash is also defined by the Law on the Prevention of Money Laundering and the Financing of Terrorism; an entrepreneur i.e. legal entity should not receive from a third party or buyer €10,000 or more in cash (in dinar countervalue) for goods and services.
- When it comes to the withdrawal of cash from a banking account, it is prescribed that the daily undocumented and uncontrolled amount cannot be higher than RSD 150,000 i.e. cash payouts higher than RSD 150,000 require a documented reason for withdrawal (decision, contracts, etc.).