On June 16, 2021, the President of the Republic of Serbia announced the introduction of three new measures related to tax incentives. Mostly, they shall further encourage the employment of young people and influence the increase of their salaries.

THE FIRST TAX INCENTIVE REFERS TO THE ABOLITION OF THE OBLIGATION OF PAYING THE ANNUAL PERSONAL INCOME TAX FOR NATURAL PERSONS UNDER 40 YEARS OF AGE

Namely, the annual personal income tax to be paid is regulated by the Law on Personal Income Tax. Taxpayers of the annual personal income tax are natural persons who earned more than three times the amount of the average annual salary per employee in the calendar year, paid in the Republic of Serbia. Therefore, the payment of “extra taxes” is abolished, while the specified natural persons still retain all other obligations they had, such as the payment of contributions.

This tax incentive is determined by the decision of the Tax Administration, and taxpayers are obliged to submit a tax return via the e-Tax application or in writing, to the branch of the Tax Administration competent for the residence or temporary residence of the taxpayer.

THE SECOND ANNOUNCED TAX INCENTIVE IS A THREE-YEAR EXEMPTION FROM 70% OF TAXES AND CONTRIBUTIONS ON SALARIES FOR THOSE NATURAL PERSONS WHO ARE EMPLOYED FOR THE FIRST TIME, IF THEY HAVE A SALARY AT LEAST EQUAL TO THE AVERAGE SALARY, AND IF THEY ARE EMPLOYED BY AN EMPLOYER WHO HAS NOT REDUCED NUMBER OF EMPLOYEES DURING THOSE THREE YEARS

In this way, employers commit to retain employment relationship with employees for at least those three years.

The main goal of implementing such a tax incentive is to further motivate employers to hire young persons. Also, one of the goals is to suppress the practice of paying salaries “on hand”.

Although there is undoubtedly a motive for employers to act in accordance with this incentive, by paying a smaller amount when it comes to gross wages, it remains to be seen in practice what the approach of employers will be about hiring new employees and whether there will be their resistance, bearing in mind the restriction that they will not be able to terminate the employment with any employee during a period of a three years.

AS THE THIRD TAX MEASURE RELATED TO TAX INCENTIVES, AN EXEMPTION OF 70% OF THE RELATED TAXES AND CONTRIBUTIONS ON SALARIES OF EMPLOYEES WORKING IN RESEARCH AND DEVELOPMENT WAS ANNOUNCED

The motive for this relief is to encourage the creation of innovations. This category of tax incentive is not stated to apply exclusively to those natural persons under 40 years of age.

BOPA remains at your service for any additional information in this regard.