29 Jan 2021

Tax Regime Changes on the Horizon & the Tax Administration Crusade Against the Gig Economy (Fact or Fiction)?


The subject of adequate and/or fair tax regulation is always a hot topic.  Not only because it affects a country’s economy, but also people`s everyday lives.  Updates to tax regulations are almost always controversial.  This article gives an overview of amendments to Serbia’s Value Added Tax (“VAT”), and the wrangling between members of the gig economy and the Tax Administration. 

The Ministry of Finance of the Republic of Serbia published the Value Added Tax Amendment Bill (“Bill”). The main changes are as follows:

  • Open-end investment funds and alternative investment funds will be liable to VAT;
  • VAT on speculative gold and services connected to trading speculative gold will be calculated as of the next tax period;   
  • Real estate leasing is not considered as an ancillary service and is therefore liable to VAT as an independent service; 
  • Transfer of rights over (i) real estate or an economically self-sufficient part of it, which is considered immovable property, and (ii) movable property with the right to dispose immovable property, will not be considered as ancillary delivery of goods;
  • Taxpayers who trade in used goods (including used vehicles, collectibles, antiquities and art) can determine a tax base at an amount equal to the discrepancy between the purchasing and selling price with a VAT deduction in that regard;
  • Taxpayers receiving goods or services in the construction sector, including public administration at all levels of government and legal entities established by them, are liable to VAT if the value of the goods or services exceeds RSD 500,000.

Against this background, we need to address a recent “controversy”.  This controversy concerns relations between the Tax Administration and members of the gig economy (notably freelancers).  Before going into the matter we need to define who qualifies as a Serbian resident and is therefore liable to taxes. 

Determining residence can be a tricky task.  Its very definition can vary from jurisdiction to jurisdiction, and national laws have a habit of differing from double taxation treaties.  Article 7 of the Personal Income Tax Act defines tax residents as private individuals: (i) whose residence or center of business and vital interests is in the territory of the Republic of Serbia, or (ii) residing in the territory of the Republic of Serbia for 183 or more days, continuously or with interruptions, over a period of 12 months beginning or ending in the respective tax year.  

Therefore, we can conclude that freelancers and others involved in the gig economy are liable to pay taxes if their residence is in the Republic of Serbia. 

Given the confusion caused by recent developments involving freelancers and the Tax Administration regarding tax returns, we ought to dig a little deeper.  Recently, some members of the gig economy (including freelancers) started receiving tax returns (with default interest included!) for tax liabilities going back several years.  This justifiably concerned them and prompted a massive outcry.  But there is a simple answer to this conundrum. 

These tax obligations are not new!  The Personal Income Tax Act which deals with this issue was enacted in 2001, but the Tax Administration didn`t have the means to fully enforce it.  With the restructuring of the Government, the Tax Administration was finally able to enforce tax liabilities.  Therefore, this is not a case of retroactive application of the Act; it was already enforceable.  How freelancers respond remains to be seen.  Will they open accounts in foreign banks in the hope of evading the Tax Administration or come to a different arrangement with their employers? 

Though it may seem unfair or sudden, this should come as no surprise.  Serbian tax regulation is crystal clear on this matter.  The Serbian government takes an uncompromising stance that everyone should pay their fair share of taxes, no exceptions. 

At this point in time, it is difficult to say how this will play out.  Freelancers are reaching out to the tax authorities, exploring options that would benefit all parties, but perhaps it is too late in the day.  Likewise, the economic consequences of these actions are difficult to foresee.  One thing is sure, fiscal policy will always remain a sensitive topic.


Author: David Spaić