The Ministry of Finance of the Republic of Serbia published the notice relating to annual citizens’ income tax for 2020.

Annual citizens’ income tax is regulated by Article 87, 88. and 89. of the Law on Citizens’ Income Tax (“Law”), with its last amendments being applied since 1 February 2021. The annual citizens’ income tax shall be paid by natural persons whose income in a calendar year was higher than triple amount of average annual salary per employed person paid in the Republic of Serbia.

1. How does the Law regulate annual citizens’ income tax

Under the Law, natural persons who may be subject to payment of annual citizens’ income tax are defined as:

• Residents – for income generated in the territory of the Republic of Serbia and in another state; and
• Non-residents – for income generated in the territory of the Republic of Serbia.

Income, which is subject to annual tax according to the Law, shall be considered as annual sum of:

• salaries;
• taxable income from self-employment;
• taxable income from copyright and related rights and industrial property rights;
• taxable income from real estate;
• taxable income from rental of movables;
• taxable income of sportsmen and sports professionals;
• taxable income from provision of catering services;
• taxable other income;
• income on bases stated in previous points (except for catering services), generated and taxable in another state, for residents of the Republic of Serbia.

In order to establish annual citizens’ income tax, one has to calculate the base which is in this case the difference between taxable income and personal deductions with the following percentage:

for taxpayer – 40% of average annual salary per employed person paid in the Republic of Serbia in the year that taxes are established for;

• for dependent family member – 15% of average annual salary per employed person paid in the Republic of Serbia in the year that taxes are established for, per family member.

Also, one should note that the total amount of personal deductions cannot exceed 50% of taxable income.

When the base for annual citizens’ income tax is properly calculated, it is subject to the following tax rates:

• to the amount up to six-times average annual salary – the rate of 10%;
• to the amount above six-times average annual salary – the rate of 10% to the amount up to six-times average annual salary + the rate of 15% to the amount above six-times average annual salary.

2. Application of the Law to latest data of the Republic Statistical Office

According to the data of the Republic Statistical Office published in the Official Gazette of the Republic of Serbia no. 17/2021, the average annual salary per employed person in the Republic of Serbia in 2020 was 995,808 dinars.

This further means that, under the Law, the annual citizens’ income tax for 2020 shall be paid by natural persons – residents and non-residents whose the total taxable income in 2020 was higher than 2,987,424 dinars.

Having in mind possible personal deductions during the establishment of tax base, in accordance with the published data of the Republic Statistical Office, the lowest personal deductions would be:

• For taxpayer – the amount of 398,323 dinars;
• For dependent family member, per member – the amount of 149,371 dinars.

In line with the Law, the annual citizens’ income tax for 2020 shall be paid for taxable income at the 10% rate for natural person who generated taxable income up to the amount of 5,974,848 dinars, while 15% tax rate shall apply to taxable income over 5,974,848 dinars.

3. Deadline for submission of tax application and payment of taxes

Since tax obligation in the particular case is established by the decision of the Tax Administration, taxpayers are obliged to file tax application through ePorezi portal or in written form to the Tax Administration branch according to the taxpayer’s place of residence i.e. stay.

Non-resident taxpayer shall file tax application through tax representative to the Tax Administration branch responsible for the territory where income was generated i.e. place of residence of the taxpayer, or place of stay or seat of the tax representative.

The deadline for filing tax application for the establishment of taxes for 2020 is 17 May 2021 – since legal deadline i.e. 15 May falls on Saturday, the deadline is moved to the first following working day.

Tax established by the decision of the Tax Administration shall be paid within 15 days upon the receipt of the decision, while possible complaint against the decision shall not delay its execution.

4. Fiscal benefits for COVID-19 without impact on calculation of annual income tax

Having in mind that taxable income is reduced by taxes and contributions for mandatory social insurance paid for such income, one can question the impact of fiscal benefits that were used by economic entities in 2020 within a package of assistance related to COVID-19 epidemic and considering that the deferred taxes and contributions were paid only in 2021.

In relation thereto, the Ministry of Finance elaborated in its notice that taxpayers whose salaries i.e. incomes from self-employment were used by economic entity to exercise the right to deferred taxes and contributions and right to payment deferral in the prescribed deadlines, for the purpose of establishing annual citizens’ income tax, shall fill in the tax application with information on taxes and contributions that include the amount of taxes and contributions subject to payment deferral and right to deferred payment in the prescribed deadlines.

In other words, taxable income for 2020 will be reduced by the amounts of taxes and contributions on income from 2020, despite the fact that they were paid in 2021.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.