The motive for engaging entrepreneurs and simulating employment is for tax reasons.
The amendments to the Law on Income Tax of Citizens (hereinafter referred to as the Law) have entered into force, thereby adopting a new legal decision relating to the Entrepreneurship Independence Test. The Tax Administration issued the Instruction for the application of the test. The law has been in force since March 1, 2020 and its implementation has not been suspended by the introduction of the state of emergency in the Republic of Serbia.
The reason for the amendments to the Law and the filing of the so-called the independence test was the fact that in the past few years a sharp increase in the number of registered entrepreneurs was observed, which imposed the need to examine their real independence in carrying out their registered activities. It turns out that in a number of areas entrepreneurs close a service contract, which simulates the real legal relationship between companies and entrepreneurs, which actually comes down to employment. The motive for engaging entrepreneurs and simulating employment is for tax reasons.
The test is based on 9 criteria that aim to evaluate the actual relationship between the entrepreneur and the principal, and must be met by 5, to be considered as independent by the particular entrepreneur. The consequence of the established independence test is that the income generated in such relationship is taxed as “other income” within the meaning of Article 85 of the Law, which increases the tax rate from 10% to 20%, and therefore the base to which the tax rate applies and the contribution base for compulsory and social security.
Tax controls relating to the period until February 28th, 2020 will not call into question the economic system of the relationship between the originator and the sole proprietor, but will only focus on the correct fulfillment of the tax obligations arising from that relationship. From March 1, 2020, the Tax Administration will control the business relationship between the principal and the entrepreneur in accordance with the provisions of Article 85, paragraph 1, item 17) of the Law.