Forms of Entrepreneurship in Serbia: A Complete Guide for Relocators

The Paušalac Regime: A Simplified Sole Proprietorship for Starting in Serbia

For many planning to move and obtain a residence permit in Serbia, choosing the right business structure is the first and most crucial step. The simplest and most popular option for sole proprietors is the Paušalac regime—a simplified flat-rate tax system, ideal for an easy start.

Opening such a sole proprietorship takes up to 5 days. An important point for citizens of the Russian Federation is that from the perspective of Russian legislation, this is a natural person, so there is no need to notify Russian tax authorities about its opening. However, it's worth remembering that to successfully extend your residence permit after a year, you need to conduct real and profitable activities, not create a shell company.

The main advantage of this regime is the simplicity and predictability of taxes. The entrepreneur pays a fixed amount that already includes all major contributions.

• Total taxes: Ranges from 200 to 600 euros per month and depends on the business activity code and registration address.
• Accountant: Not required, which significantly reduces operating costs.
• Withdrawal of funds: Money can be withdrawn from the account without additional reporting.
• Turnover limits: There is a limit of 6 million dinars per calendar year or 8 million dinars over the last 365 days. Turnover is calculated based on invoice dates.
• Super-income tax: Entrepreneurs under the Paušalac regime are exempt from paying the personal super-income tax.
• Independence test: It is necessary to pass a test where it is permissible to 'fail' no more than 4 out of 9 points.

Transitioning from Paušalac to Knjigaš: Process and Pitfalls

Exceeding the annual turnover limit under the Paušalac regime requires a transition to a system with bookkeeping, known as Knjigaš. This process is not automatic and has strict deadlines, non-compliance with which can result in serious fines.

Transitioning to the Knjigaš regime with the option to pay a salary is a multi-step procedure. First, you must switch to the Knjigaš regime without a salary, and only then to the regime with a salary.

1. Step 1: Transition to Knjigaš without salary. An application can be submitted either by June 1 (the transition will take place after June) or by December 15 (transition from the new year).

1. Step 2: Transition to Knjigaš with salary. After switching to the no-salary regime, an application to switch to the with-salary regime can only be submitted by December 15, and the transition itself will only take place from the new year.

These rules may seem illogical. If an entrepreneur switches to Knjigaš without a salary in the new year, they will have to work the entire year without an official salary. Often, the quickest method is to completely close the old sole proprietorship and open a new one, which in turn necessitates reopening bank accounts.

If the transition application is not filed on time, the tax service can initiate an audit, block the tax identification number (PIB), and collect 46% of all income that exceeded the 6 million dinar limit.

The Knjigaš with Salary Regime: Sole Proprietorship with Bookkeeping

For entrepreneurs with higher turnover or business activities not eligible for Paušalac, the Knjigaš with salary regime is suitable. This form also serves as a basis for obtaining a residence permit in Serbia. The key feature is that social contributions are calculated based on the official salary, not on the entire company profit.

Operating a business under this regime requires hiring an accountant, whose services cost around 100 euros per month. The entrepreneur can write off business expenses, which reduces the taxable base. If the annual turnover exceeds 8 million dinars, an obligation to pay VAT arises.

The tax burden under this regime is approximately 20% of the profit. The tax base for social contributions is the entrepreneur's salary, which for foreigners is usually set at around 70,000 dinars.

The funds remaining after paying the salary and taxes can be spent on business needs. Withdrawing profit for personal use is subject to an additional 10% tax and is included in the calculation of the personal super-income tax at the end of the year.

The Knjigaš without Salary Regime: An Alternative for Special Cases

The Knjigaš without salary regime is an option where taxes and social contributions are calculated on the entire profit (income minus expenses), rather than on a fixed salary. This results in a significantly higher tax burden, reaching approximately 46%.

Most often, people switch to this regime involuntarily when they exceed the annual limit of the Paušalac regime. The transition is possible either from June 1 or January 1 and requires the timely submission of an application through an accountant. This form can also be advantageous for businesses with a high proportion of expenses and low margins, as it allows for significant write-offs and reduces the taxable base.

• An accountant is mandatory.
• Business expenses can be written off.
• VAT must be paid after reaching a turnover of 8 million dinars.
• An annual report must be filed.

The key difference is the tax base. Since it is the entire profit, the combined contributions for pension, health insurance, and income tax reach about 46%. Additionally, as with the salaried Knjigaš, there is an obligation to pay the personal super-income tax at the end of the year.

Opening a DOO (LLC): A Structure for Scaling Your Business

DOO (Društvo sa ograničenom odgovornošću) is the Serbian equivalent of a Russian OOO, a limited liability company. It is suitable for larger projects, companies with multiple founders, or those planning to scale their business in Serbia.

The process of opening a DOO takes about 2.5 weeks. Unlike a sole proprietorship, a DOO is considered a full legal entity, and citizens of the Russian Federation must declare its opening in Russia. Managing a DOO is impossible without an accountant, and its closing procedure is significantly more complex and expensive than for a sole proprietorship. An important advantage is that a DOO is not subject to the independence test.

Withdrawing funds from a DOO is a more complex process than from a sole proprietorship. There are two main methods:

The choice of profit withdrawal method depends on the company's strategy and requires mandatory consultation with an accountant to optimize the tax burden.

How to Choose the Optimal Form of Entrepreneurship?

The choice between Paušalac, Knjigaš, and DOO depends on many factors: the number of founders, type of activity, income and expense levels. To simplify the decision-making process, you can use the following criteria.

• DOO (LLC): The optimal choice if you have two or more co-founders and shared clients.

• Knjigaš: Suitable if your business activity code does not allow you to operate under Paušalac. If you have many business expenses that can be officially written off, choose Knjigaš without salary. Otherwise, choose Knjigaš with salary.

• Paušalac: Most profitable if your monthly income is in the range of 2,000 to 4,200 euros.

• Knjigaš with salary: Consider this option if your monthly income is less than 2,000 euros (taxes may be lower than under Paušalac) or if your income exceeds 4,200 euros, but you are not starting the business in January, and the annual turnover will not exceed 6 million dinars.

• Knjigaš without salary: Can be a temporary solution if you have no income yet, as this regime does not require you to pay yourself a salary and the corresponding taxes.

Super-Income Tax in Serbia: What You Need to Know

In addition to the regular taxes and contributions an entrepreneur pays throughout the year, at year-end, an obligation to pay a citizen's income tax, also known as super-income tax, may arise. This is an additional tax levied on the income of a natural person that exceeds a state-established limit.

The calculation and payment process is as follows:

1. Income compilation. At the end of the year, all income received by the individual from various sources, including profit from entrepreneurial activity, is summed up.

1. Application of deductions. All legally established deductions to which the taxpayer is entitled are subtracted from the total income amount.

1. Tax calculation. The remaining amount is taxed at a progressive rate. For entrepreneurs under the Knjigaš regime, super-income taxation begins at an annual income of 3 million dinars.

For an annual income between 3 and 6 million dinars, the rate is 10%. If the income exceeds 6 million dinars, the tax is calculated as 10% on the amount up to 6 million plus 15% on the amount exceeding it. This tax is paid by the individual independently after filing an annual declaration.