The Regulation on closer conditions, criteria and elements for lump-sum taxation of self-employed income taxpayers (“Regulation“) is in force until January 2023. Given that the Regulation provides entrepreneurs who pay a lump-sum tax with protection from paying large amounts in the name of taxes, its termination may lead to a significant increase in those amounts.
The Regulation was adopted in 2020, with the aim of changing the method of calculating lump-sum income. Because of those changes, there would be a significant increase in taxes for certain activities. Therefore, the Regulation also included a provision that limits the increase to a maximum of 10% in relation to the amount of tax paid for the previous year, so that taxes are gradually increased until they reach an amount that is in line with the new method of calculation.
Lump-sum entrepreneurs are taxpayers of tax on income from self-employment, who meet the conditions to pay that tax on lump-sum income. Some of the conditions are that they are not value added tax payers and that their turnover in the year preceding the year for which the tax is determined does not exceed the amount of RSD 6,000,000.
In order to determine the amount of lump-sum income, entrepreneurs who meet the above-mentioned conditions are classified based on the predominant entrepreneurial activity, and then the starting basis for determining the amount of income is determined based on the average monthly salary in the republic, city or municipality, the coefficient of activity, as well as the number of employees and the number of inhabitants in the city or municipality.
When the Regulation ceases to be valid, previously mentioned limitation will also not apply, which will again expose lump-sum entrepreneurs to high tax burdens.
In order to avoid this several associations submitted initiatives to the Ministry of Finance to extend the 10% limit for tax increase by amending the Regulation.
There is also an initiative to amend the method of calculating taxes for a part of lump-sum entrepreneur taxpayers who do business over the Internet. Aim of this initiative is for the entrepreneurs who do business over the Internet to be treated as “location insensitive”, i.e. that their amount of tax is not affected by the city or municipality in which the entrepreneur is registered. Currently, considering that the majority of such entrepreneurs live in larger cities in Serbia (Belgrade, Novi Sad, Niš), they pay much higher taxes than others who are registered in smaller places (although their incomes are the same). It remains to be seen if the initiatives will have an effect until 1 January 2023.
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