Amendments to the Law on Personal Income Tax and the Law on Mandatory Social Security Contributions, which came into force on January 1, 2020, essentially mean the following: If you are a lump sum employee and do not pass the Independence Test - the person who was your client until now should become your employer.
What do the new regulations actually bring to the lump sum workers, and what to the companies that hire them? Will the consequences of these measures influence foreign companies to turn to other countries where freelancers can more easily develop their business?
Associations of IT entrepreneurs claim that such newspapers are suitable for large companies, while large companies say that unfair competition chooses an irregular path and that instead of paying the full amount of taxes and contributions, they gain an advantage in the market and reduce their costs by hiring lump sums.
As the Informatics Society of Serbia (DIS) pointed out to telegraf.rs, these changes additionally regulate the area of the way entrepreneurs perform their activities. They point out that real entrepreneurs will not be affected by the application of this law, because they have their own clients and in accordance with their income they pay tax as a flat rate or according to turnover.
Furthermore, entrepreneurs who are not, but are registered for the performance of their activities due to the optimization of tax benefits, may be affected, but first of all they will start paying taxes in accordance with the law.
Additionally, the tax has not been increased as was one of the main dilemmas during the previous weeks.
In the past, lump sums have had a significant contribution to the growth of the IT sector.
The new regulations regulate the position of lump-sum workers in order to bring their position closer to the status of a worker in a regular employment relationship. Lump-sum employees get the opportunity to improve their work status and open the perspective of career development within the company. Companies are getting stronger in terms of organization and personnel. The intention is to regulate the status of lump sums. However, a number of lump-sum recipients believe that their incomes will be reduced to some extent and new administrative obligations will be added - the Society for Informatics of Serbia told telegraf.rs.
They emphasize that foreign companies will no longer be motivated to turn to freelancers in other countries, and that costs for freelancers in Serbia will generally remain at the same level.
As they explain, foreign companies to cooperate with our experts are motivated by lower costs and higher quality of software and efficiency in programming.
The Government expects that the Law will contribute to the further encouragement of IT activities, as it provides tax relief for three years. It is estimated that there will be a very small decrease in budget revenues, but that the number of new employees will increase - they add.
The Society for Informatics believes that it is necessary to establish permanent monitoring of the implementation of the Law and monitoring of the overall effects and to react in case of unwanted effects (decline in activity, decrease in wages, increase in staff turnover, etc.).
These regulations reduce the opportunities for unfair competition between the hiring of lump sum workers who have lower tax obligations and developers who are in regular employment. So, if it was, now the possibility of unfair competition is decreasing.
The purpose of the independence test is to determine whether an entrepreneur earns income from independent activity or is in fact employed, nine criteria define him and IT entrepreneurs are also covered by it, i.e. 9 criteria should be as objective as possible to classify entrepreneurs who are, i.e. those who are not.
If the entrepreneur fulfills at least five criteria, he will be considered not self-employed, and the compensation he receives will be taxed as other income in accordance with Article 85 of the Law on Personal Income Tax, and contributions for pension and disability insurance will be calculated on such compensation at a rate of 26 percent.
The criteria are:
- Working hours, holidays and absences at a flat rate.
- Using the premises for the client's work and providing work materials.
- Does the client determine the method of operation of the lump sum.
- Whether the lump sum employee was hired after a public job advertisement placed by the client.
- Does the lump sum worker work alone or does he hire a team of people.
- Does 70 percent of the revenue come from one client.
- Business risk, i.e. whether it is assumed by the company or the lump sum.
– Prohibition of working with others.
- Number of working days in one year.
The application of the independence test, which should define the status of an entrepreneur according to the employer, since employers often hire entrepreneurs due to the reduction of tax obligations, most often those who are taxed at a flat rate and who are a substitute for an employed worker, has been moved to March 1, 2020, instead of January 1, as was originally planned.
Incentive measures, i.e. reduction of taxes and contributions for newly hired workers, will be valid from January 1, 2020. According to the proposed law, companies that increase the number of employees and employ persons who were not employed during 2019 will be exempted from paying 70 percent of wages tax and pension and disability insurance contributions for those persons during 2020, i.e. 65 percent in 2021 and 60 percent in 2022.
