Tax resident and foreign freelancers in Serbia 

Freelancers pay taxes and contributions on income earned on a quarterly basis by submitting an online tax return. Tax residents of Serbia have the option to claim a tax credit for taxes paid in another country, provided they possess the relevant certificate from the competent state authority of the foreign country indicating the paid tax amount. This is applicable irrespective of whether a double taxation avoidance agreement has been concluded.

Non-residents have the option to register as freelancers in Serbia and report their taxes, provided they possess either a foreigner registration number or a tax identification number. It is crucial for non-residents to hold an approved stay in Serbia or to register themselves with the Tax Administration as taxpayers through a tax attorney. Notably, non-residents are not required to obtain a work permit. They can legally reside in Serbia with an approved temporary stay and engage in freelance work without establishing an employment relationship.

From 2023: option to chose between two taxation models

Since 1 January 2023, freelancers in Serbia have the option to choose between two taxation models, enabling them to optimise their tax liability. The first model is more favourable for novice freelancers or for those for whom freelancing represents merely an additional income source. The second model is a more advantageous choice for individuals for whom freelancing constitutes their primary source of income.

Both models are built upon the recognition of specific standardised costs that reduce the tax base, with the amount and method of determining these costs varying significantly depending on the chosen model. 

According to the first taxation model, which can be chosen by freelancers in Serbia, the tax base is the gross income reduced by a fixed amount of standardised costs, approximately EUR 800, on a quarterly basis, on which a tax rate of 20% is applied. The base for contributions for mandatory pension and disability insurance is the taxable income of the freelancer, which is subject to a rate of 24%. The base for health insurance contributions is the same as the tax base, but it cannot be lower than approximately EUR 390, to which a rate of 10.3% is applied.

According to the second taxation model, which can be chosen by freelancers in Serbia, the tax base is the gross income reduced by an absolute amount of standardised costs, approximately EUR 490, on a quarterly basis, and a relative amount of standardised costs of 34% of the gross income. Tax rate in this model is 10%. The base for contributions for mandatory pension and disability insurance is the same as the tax base, but it cannot be lower than approximately EUR 890 on a quarterly basis (this condition does not exist in the first model). The base for health insurance contributions is the same as in the first model.

Exemptions from contributions

When it comes to contributions for the pension and disability insurance fund, there is no obligation for freelancers in Serbia to pay them if the work is performed abroad and the income is earned from a foreign payer (primarily important for tax residents of Serbia).

There is no obligation to pay health insurance contributions for freelancers in Serbia if the person is health-insured in Serbia on another basis or is health-insured in another country with which Serbia has concluded an international agreement regulating health insurance.

The consulting team of WTS Serbia has extensive experience providing tax advisory services to companies and individuals, including expat workers. Please do not hesitate to contact their experts if you have questions related to the taxation of freelancers in Serbia.

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What are the main rules?

Content-wise, the special retail tax included in the government decree and the tax in the bill are identical. Rate of the special retail tax, calculated based on annual net sales revenue:

• between HUF 500 million (roughly EUR 1.4 million) and HUF 30 billion (roughly EUR 86 million): 0.1%,
• between HUF 30 billion (roughly EUR 86 million) and HUF 100 billion (roughly EUR 285 million): 0.4%, and
• more than HUF 100 billion (roughly EUR 285 million): 2.5%.

The companies assess and declare the tax by the last day of the fifth month following the end of the fiscal year. Tax advances do not have to be declared in the first fiscal year, since the companies already did so upon submitting their special tax returns prescribed due to the state of emergency, so there is no need for extra administration in this respect. The advances must be paid in two equal instalments.

What activities are affected by the special retail tax?

Taxable retail activity is construed to be market trade as well as parcel delivery and online retail, alongside actual retail in shops, regardless whether some of these are actually non-store retail. It makes no difference either whether the taxpayer has a TEÁOR (activity) classification, and if so then which, nor whether the enterprise conducts the given taxable activity as its core activity or not.

According to the bill, retail activity is taken to mean the sale of products or goods without change to the general public, including mainly – but not exclusively – households. The entire revenue derived from sales available to everyone constitutes the tax base, regardless whether a business entity or business organisation may be the buyer in certain cases. Sales by wholesale manufacturers and resellers to wholesalers, resellers and retailers do not fall into this category if the sale is not made via a sales channel that is easily available to anyone.

The scope of sold goods is limited to consumer goods and does not include products that are not commercially available (cereals, minerals, etc.).

What about foreign companies?

The tax liability also applies to retail activity in which, or as a result of which, a foreign-registered person or entity – irrespective of whether they have a Hungarian branch office or not – sells goods handed over in Hungary to its customers via channels other than a branch office.

According to the government’s announcement, foreign entities conducting online trading activity cannot evade payment of the special retail tax. Based on data received by the National Tax and Customs Administration in Hungary, the tax authority can check whether foreign companies meet their registration and tax payment obligations in Hungary.

Entry into force

The law shall enter into force on the day after its promulgation, given that the special retail tax promulgated with the state-of-emergency government decree is already in force, and the tax proposed by the bill, content-wise, is exactly the same as this existing tax.

WTS Klient Hungary is doing everything it can to provide up-to-date information on the further details of the economy protection action plan launched as a result of the state of emergency, and to help its clients in these tough times too. If you have any questions on how the new measures will impact on your business, and what opportunities the current regulation brings with regard to tax payments for instance, feel free to contact us.

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Special tax on credit institutions

• Taxpayer: credit institutions
• Tax assessment, payment: The special tax obligation shall be assessed on a separate form by 10 June 2020 and shall be paid in three equal instalments until 10 June, 10 September and 10 December.
• Tax base: The base of the special tax is the amount exceeding the HUF 50 billion (roughly EUR 143 million) tax base threshold for the 2020 fiscal year assessed according to the 2006 special taxes act.
• Rate:19%

Retail tax

Pursuant to Government Decree 109/2020 introducing the retail tax, any retail activity as well as the sale of goods to a customer in Hungary by a person or organisation resident abroad is taxable. 

Payer of retail tax

The payer of the retail tax is the Hungarian or foreign person or organisation conducting the above taxable activities in a business-like manner.

Base of retail tax

The base of the retail tax is the net sales revenue (sales revenue defined separately in the decree) for the entire fiscal year that includes the period from the regulation taking effect until the end of the state of emergency. The tax base includes the sales revenue stemming from services provided by the taxpayer – in connection with the sale of the acquired goods – to the supplier (manufacturer, distributor) of the goods acquired for retail sale, as well as the amount of any discount granted by the supplier to the taxpayer on the goods acquired for retail sale. For persons or organisations resident abroad and not operating through a branch office in Hungary, any consideration less VAT received for the sale of goods in Hungary is considered sales revenue. The decree specifies special detailed rules for the tax assessment of related companies.

Rate of retail tax

The rate of the tax on retail activities shall be defined as follows:

• 0% on any amount not exceeding the tax base threshold of HUF 500 million (roughly EUR 1.4 million),
• 1% on any amount exceeding the tax base threshold of HUF 500 million (roughly EUR 1.4 million), but not exceeding HUF 30 billion (roughly EUR 86 million),
• 4% on any amount exceeding the tax base threshold of HUF 30 billion (roughly EUR 86 million), but not exceeding HUF 100 billion (roughly EUR 285 million),
• 5% on any amount exceeding the tax base threshold of HUF 100 billion (roughly EUR 285 million).

The tax payable is the amount determined based on the tax assessed with the above rates, Considering the sales revenue of related companies too (but only in certain cases), for the period from when the decree takes effect until the end of the state of emergency, in proportion to the amount this represents in relation to all the calendar days of the entire fiscal year.

Procedural provisions

The retail tax obligation shall be determined and declared on a special form by the 30^th day after the end of the year including the state of emergency, or if the fiscal year ends during the state of emergency, then by the 30^th day after the end of the state of emergency. The monthly amount of the tax advance shall be declared until 31 May 2020. Its calculation shall be based on the provisions of the decree. Any taxpayer not subject to paying the tax is not bound by an obligation to file a tax advance return.

WTS Klient Hungary is doing everything it can to provide up-to-date information on the further details of the economy protection action plan launched as a result of the state of emergency, and to help its clients in these tough times too. If you have any questions on how the new measures will impact on your business, and what opportunities the current regulation brings with regard to tax payments for instance, feel free to contact us.

A Retail tax and special credit institution tax on the way bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

When an investor ventures into foreign markets, besides the local recruitment of workers they usually send some employees from their own organisation to the target country, who handle business management or key tasks at the new location during certain periods of the manufacturing. This is no different for business entities operating in Hungary: foreign nationals regularly arrive here to take up jobs.

When these foreign nationals meet tax consultants they typically ask the same or very similar questions. What do they ask about most often, what interests them the most?

“Will I have to pay taxes in two countries then?” 

Postings are a frequently used arrangement adopted by many companies. For postings to Hungary, the original (e.g. German) employment contracts of foreign nationals are left unchanged or include slightly amended conditions. The activities carried out in Hungary are governed by a posting agreement between the posting entity and the host entity. Following the first meeting we generally have enough information to know whether or not the posted employee needs to pay taxes in Hungary on their wages for the duration of the posting. If the answer is yes, we need to notify the client that in the event no paying agent is involved, the individual has to pay the taxes in the form of tax advances during the years subject to taxation. “Will I have to pay taxes in two countries then?” – comes the usual question. Fortunately, this happens only in the rarest of cases. For employees arriving from countries that have a convention on double taxation in force with Hungary, the ways of avoiding double taxation are set forth by said convention. In the event that no such convention exists, the Hungarian rules provide a basis for credit method the majority of the tax paid abroad against the Hungarian tax base.

Important! It often happens that the accountant of the German employer, for instance, does not change the accounting process after the posting begins, meaning they keep deducting the entire German tax advance from the wages that are now fully taxable in Hungary. So the German company deducts the German tax on our German employee, who then needs to settle the Hungarian tax advance too. Reclaiming the German tax can be time-consuming, so our client has to pay the Hungarian tax from their net wages. If you can, involve a German tax consultant who can offer solutions for such situations. This means that in certain cases they can fine-tune German payroll practices and in so doing minimise the otherwise unnecessary German tax deduction.

“The German bank already deducted the tax along with the interest payment. What can I do?”

In line with the Hungarian-German convention, interest income is taxed based on tax residency. If all the necessary conditions (permanent address, centre of vital interests, etc.) have been thoroughly examined and we conclude that our German client is a Hungarian tax resident, the current convention enables Hungary to tax the interest income. It is possible in principle to reclaim the deducted German withholding tax, what is more, our experience shows that in certain cases you may be able to convince the bank not to deduct any withholding tax in the future by sending them the appropriate certificates (on tax residency for example). 

Important! Always examine the relevant convention for the avoidance of double taxation. Although interest income may well be taxable in the state of tax residency, and the convention prescribes the tax base exemption method for the other state involved, there are conventions where credit method needs to be applied. 

“Can I receive a housing allowance from my company for the duration of my stay here? If yes, is this amount taxable?”

According to Hungarian legislation, housing allowance related to a posting does not qualify as income for the posted employee. In harmony with the guidelines of the Hungarian National Tax and Customs Authority, this rule is applicable for Hungarian employees posted abroad as well as for foreign nationals posted to Hungary. The answer from the tax authority to a question we submitted earlier reveals that the exact content of housing expenses can mostly be defined by common sense: they may include anything besides rent that is considered an expense related to a normal way of living. According to the Hungarian tax authority this does not include laundry services for instance; however, renting a storage unit or a garage connected to the apartment can constitute part of housing expenses too.

Important! In the event of a posting it is recommended to review the relevant contracts thoroughly. We believe, for example, that in situations where the gross wage of a posted employee increases during the posting because of the extra anticipated costs (e.g. rent), the above-mentioned cost accounting rule is difficult to apply. It is especially difficult to interpret a situation when these rent components are not indicated item by item in the contract, and only background deals and calculations – not included in the contract – underlie and drive the wage increase.

For many years now, WTS Klient Hungary has kept abreast of the legislative changes affecting the work of foreigners as well as international developments and applies these in its day-to-day work. We regularly publish articles, which aim to use practical hints to inform expats in Hungary about authority matters concerning taxes other than personal income tax. If you do not want to miss these news, please feel free to sign up for our newsletter!

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