Serbian Ministry of Finance (“Ministry”) issued a new opinion regarding the reimbursement of expenses for employees’ commute on February the 1st 2019. The new opinion regulates tax aspect of commuting expenses, as The Serbian Labor Law determines that an employee is entitled to reimbursement of mentioned expenses in the amount of money equal to the price of a public transportation ticket, in case the employer does not provide its own transportation.
In accordance with the mentioned provision of the Labour Law, some employees have been given monthly public transportation ticket and some of them were paid the correspondent amount in cash.
Furthermore, The Serbian Act on Citizens’ Income Tax determines the amount of up to 3.914 RSD that an employer is obligated to reimburse in the name of commuting expenses. Therefore, commuting expenses are not under the tax treatment.
The new opinion issued by the Ministry establishes the obligation of the employer to obtain the proof of the commuting expenses in order to make the reimbursement of the commuting expenses non-taxable, and at the same time, this would be a proof that the amount was indeed spent on commuting. In that context, if the employer does not justify commuting expenses, the reimbursement could be considered as salary, and therefor subject to tax treatment.
In addition, the opinion issued by the Ministry indicates that the municipalities and firms should decide how to make the funds justifiable. The proof of the commuting expenses can either be the invoice from the public transportation company, or the fuel expense receipt.
The opinion does not affect directly the Serbian Labor Law, but it involves certain tax obligations that need to be met if the fee for commuting is provided in cash, since, as previously said, the reimbursement of the commuting expenses to the employees must be justified, because it is exempt from certain taxes.
The new dilemma could be how thoroughly the Ministry will go into verifying expenses. There is a possible practical problem such as if the Ministry will require a copy of license and registration number in addition to the fuel receipt, to make sure that the reimbursement cash was used for that purpose and needs of each employee as individual.
This potential problem could be avoided if the employer would buy monthly tickets for public transportation for all employees. Nonetheless, as it is well known, many employees do not use public transportation and use the reimbursement cash to buy gas, or sometimes some of them use it as an additional salary. With the new opinion, this last option could not be possible in the future, due to the following explanation.
Salary is taxable, and because of that, the employees that have been given the reimbursement money should justify the use of it for the purpose of the commuting expenses. If this is not the case, the employer would have to pay the tax in the amount that was envisaged as the reimbursement for the commuting expenses.
In accordance with all that has been said, the new opinion indicates that if the employee does not use any type of transport that is being paid, there is no need for the employer to pay the reimbursement for the commuting expenses. This is a relevant issue because in that way the opinion conflicts with the established practice by Serbian Labor Law, by which the employee is entitled to reimbursement regardless of the way that he or she actually commutes to work.
Finally, there is one additional aspect of the new opinion issued by the Ministry. It is about the idea that derives from the local government in Belgrade, by which the intention is to prompt companies to buy monthly tickets and, in that way, to increase the revenues of the Belgrade Public Transportation Company that is a public enterprise owned by the City of Belgrade.
In conclusion, since the opinion of the Ministry is subrogated to the Labor Law and in no way should it derogate its previous application in practice, it remains to be seen the application of this opinion in practice through its appropriation of the relevant authorities. Accordingly, employers should adapt to this new conditions and harmonize their current work practices in this field, as well as to find the best way to fulfil their obligations and rights of employees.