Taxation of Income Received from Abroad – New Obligation for Freelancers?

On 13 October 2020 the Tax Administration issued the Notice regarding income received from abroad by natural persons who provide services to non-residents. The services that the Tax Administration is referring to primarily concern software development and graphic design, but the Notice generally concerns all other types of services as well. Additionally, the Notice also concerns individuals who earn income on social networks (“YouTubers”, “Influencers”), online betting, as well as the persons who rent their apartments for up to 30 days (“Day-Use-Apartments”).

In the past few years the Republic of Serbia has recorded an intensive growth of the IT sector. A part of that sector is accounted for by “freelancers” who receive payments for their services from abroad. The way freelancers do business is by providing services on social media acting as individuals (natural persons), and receiving money in compensation for their services and activities. However, not so many of them are familiar with the manner of taxation of such services and activities. This is partly because some of these services and activities are newly established, and partly because freelancers, as a small community for a very long time but not anymore, have been out of the Tax Administration’s radar. However, if freelancers generate income by providing services (usually through digital platforms) to natural persons or legal entities which do not have a representative office or branch in the Republic of Serbia, they are obliged to calculate and pay taxes themselves. Entrepreneurs and legal entities that earn income from abroad are not obliged to submit a special tax return.

By comparing available data on payments to foreign currency accounts of natural persons and their submitted tax returns, Tax Administration found that tax incomes do not correspond to the incomes received by freelancers for the services they provided. Therefore, a number of freelancers were placed under monitoring. Special attention was on payments received from the following digital platforms: Google, Upwork, BiboGlobal, Opportunity, Airbnb, through payments processed by alternative financial services companies from abroad such as Skrill, Payoneer and Nereller, as well as payments made by individuals to the Booking platform (representing commissions for bookings).

Due to the fact that so many freelancers, and citizens in general, have not been familiar with taxation of income received for the services provided to non-residents, and, more probably, due to the fact that the Tax Administration is short on staff and does not have sufficient capacity to pursue all taxpayers, it published the Notice inviting all natural persons who did not file their tax applications or have filed it but with incorrect data (tax applications state a lesser amount than the one actually received), to obey the law. Those who fail to do so will be subjects to a misdemeanor or criminal procedure, depending on their offense. On the other hand, those who act in accordance with the Notice and report all the income from abroad by 31 October 2020 will be exempted from a misdemeanor or criminal procedure.

Regulation

Although many were surprised by the Notice, considering it a new obligation imposed to fee earners, the thing is that the Tax Administration did not prescribe anything which has not already been introduced into the Serbian tax legislation. Actually, such an obligation (the obligation to pay income tax that the Serbian residents earn from abroad – with the right to reduce their obligations by the tax paid in another country), was introduced into our legislation back in the 1990s.

The Law on Personal Income Tax regulates the taxation of income earned by natural persons. A taxpayer in the context of personal income tax is a resident of the Republic of Serbia whose income is earned on the territory of the Republic of Serbia and in another country. This obligation concerns non-residents, too, but only with respect to the services they provide and income they receive on the territory of the Republic of Serbia.

The tax system of the Republic of Serbia is conceived on the principle of world income, which practically means that both domestic income and income earned from abroad are taxed.

Depending on the country from which the income is generated, more precisely depending on the provisions of the international treaties related to avoidance of double taxation, if they are concluded between the Republic of Serbia and the other state, there is a possibility of avoiding double taxation. If a taxpayer – resident of the Republic of Serbia earns income in another state, on which the corresponding tax has been paid in that state, he/she is granted a tax credit in the concerned amount in Serbia.

Tax calculations

There are two ways of tax calculation. It depends on the fact weather the taxpayer is employed or unemployed.

• Tax calculation when the recipient is employed:

The fact that a person is employed indicates that he is also insured based on employment, which excludes the obligation of paying a health insurance. In this respect, the taxpayer is obliged to pay income tax and contributions related to pension and disability insurance. The same applies when the taxpayer is insured on a basis other than the employment relationship. In any case, the following obligations are calculated and must be paid:

• Tax calculation when the recipient is unemployed and makes earnings exclusively from services provided abroad:     

Obligations of natural persons and consequences in case of failing to submit a tax report

Within 30 days from the day of payment a natural person must fill in and submit the tax application on the PP OPO form, while the period of 30 days begins to run on the next day from which the payment is credited to the account. The tax application must be submitted for each payment from abroad (5 payments – 5 returns).

In case a taxpayer omits to act in accordance with the applicable legislation and the above mentioned Notice of the Tax Administration, he/she is exposed to a misdemeanor or criminal liability depending on the extent/amount of tax evasion they have committed.

The deadline for the self-initiated submission of tax applications is 31 October 2020, after which the Tax Administration will continue with the tax controls and initiation of misdemeanor or criminal procedures in cases where the tax has not been duly paid.