The Serbian Parliament adopted amendments to the Law on Personal Income Tax and the Law on Mandatory Social Security Contributions on 30 May 2014. The amendments primarily prescribe tax relief for the employment of new employees. The incentives will become applicable on 1 July 2014 and will also introduce new contribution rates for pensions, disability insurance and health insurance, but the overall rate for social security contributions will remain unchanged, i.e. 37.8%. These rates are applicable as of 1 August 2014.
Amendments to the Law on Personal Income Tax and the Law on Mandatory Social Security Contributions have introduced tax breaks for the employment of new employees regardless of their age or work experience. Relief is provided by a refund to employers for a portion of paid taxes and contributions on salaries paid to newly employed workers.
The main requirement for the utilisation of incentives is that an employer must increase the number of its employees from 31 March 2014.
Eligible employers will be entitled to make use of the incentives until 30 June 2016. Depending on the number of newly employed workers, the employer will be entitled to a refund for a portion of the taxes and contributions paid according to the following scale:
- 65% if between 1 and 9 new persons are employed;
- 70% if between 10 and 99 new persons are employed;
- 75% if at least 100 persons are employed.
In line with these amendments, a newly employed person is defined as any person who, prior to employment, was registered with the National Employment Service for at least 6 months, or in the case of a trainee, for at least 3 months, and who did not receive any wages during that period.
In order to be refunded, employers must file a request with the relevant tax authority, which then must reach a decision on the request within 15 days.
The amendments abolished the employer's right to exemption from the payment of taxes and contributions for newly employed persons who fulfilled certain criteria regarding age or work experience (trainees under the age of 30, persons older than 45 or persons older than 50 depending on whether the exemption in question was in relation to taxes or contributions). However, employers who were entitled to the mentioned exemptions prior to the application of these amendments may exercise their right in accordance with the previous version of the law that prescribed such exemptions.
Rates for Social Security Contributions
Amendments to the Law on Mandatory Social Security Contributions have increased the contribution rate for pension and disability insurance from 24% to 26% (the portion of contribution that is borne by the employee has been increased from 13% to 14%, and the portion borne by the employer from 11% to 12%).
At the same time, the rate of contribution for health insurance has been reduced from 12.3% to 10.3%. The portions borne by the employee and employer, respectively, are the same – 5.15%.
In line with the above, the overall burden of social security contributions will remain the same.
The new contribution rates will be applied to the calculation and payment of salaries for August 2014.