How to start your own business in Serbia

Lump sum taxation

Lump sum taxation is a term prescribed by the on Citizens` Income Tax Law, in the part regulating the sole trader`s income tax.

The entrepreneur who, given the circumstances, is not able to keep business books (apart from the sales book) or for whom bookkeeping interferes with carying out the activity, is entitled to file a request to pay sole trader`s income tax on a lump sum income (hereinafter: lump sum taxation).

The right to lump sum taxation cannot be acknowledged to the entrepreneur:
1) who is the founder of a partnership;
2) who performs his/her activity in the field of: wholetrade and retail trade, except for the maintenance and repair of motor vehicles, hotels and restaurants, financial mediation and real estate activities;
3) in whose activity other persons invest;
4) whose total turnover in the year prior to the one for which the tax is calculated, i.e. whose planned turnover when starting performing activities - is more than RSD 3,000,000;
5) who is a VAT taxpayer, i.e. who decides to pay VAT pursuant to the VAT Law.

Furthermore, it is stated that the entrepreneur who performs his/her trading or catering activity in a kiosk, trailer or any other similar prefabricated or mobile unit, can be allowed, at his/her request, to pay the tax on a lump sum income, although his/her activities belong to the above-stated group.

Lump sum taxable income is actually a base on which contributions at the rate of 35.8% and tax at the rate of 10% are paid (45.8% in total). This base is determined by the tax inspector according to the Decree on detailed conditions, criteria and elements for lump sum taxation of sole trader`s income taxpayers.

Therefore, the founder of a trade files a lump sum taxation form to the tax inspector. The form contains the following:
1) reasons for which the entrepreneur holds that he/she is not able to keep business books, i.e. how bookkeeping interferes with carrying out the activity;
2) total turnover in the year prior to the one for which the tax is calculated, i.e. planned turnover when starting the activity;
3) facts and circumstances relevant for determining the lump sum income: location and equipment in the store; number of workers and engaged members of the family; market conditions in which the activity is performed; surface area of the premises; entrepreneur`s age, his/her capacity for work, and other circumstances affecting profit generation.

Based on the data in this form and the above-mentioned Decree, the tax inspector determines a monthly lump sum income on which tax and contributions are paid.

Lump sum income is determined according to the following criteria and elements:
1) average monthly salary per employee in the Republic, municipality, town and county, earned in the year prior to the one for which the lump sum income is determined;
2) location of the store;
3) equipment in the store;
4) number of workers and engaged members of the family;
5) market conditions in which the activity is performed;
6) surface area of the premises;
7) taxpayer`s age, his/her capacity for work,
8) taxpayer income who performs the same or similar activity under the same or similar conditions;
9) other circumstances affecting profit generation.

When determining lump sum income, the competent tax authority considers all liabilities, facts and data by which it came during control and otherwise.

Lump sum taxable entrepreneurs do not keep business books apart from the Register of lump sum taxpayers, which is actually a list of invoices and payments to the account. Lump sum taxpayers can withdraw up to RSD 100,000 per day from their business account without providing evidence to the bank on the reason for withdrawing money. Money of the store can be used for business needs, as well as for personal needs of the founder and his/her family.

Here is an example of a lump sum taxable income calculation.
Example of determining lump sum income – Agency (store) is registered for teaching singing, only the founder works in his studio, with standard equipment. The Agency has just been founded.

Enclosed is the Decree on detailed conditions, criteria and elements for lump sum taxation of sole trader`s income taxpayers (in Serbian) , so you can estimate yourself how much would the lump sum taxable income be in your case. You are entitled to ask around at the Tax Administration prior to starting the activity how much would the lump sum taxable income be in your specific case, based on the above-mentioned criteria.

It is important to note that the tax inspector can estimate arguably that you do not fulfil conditions for lump sum taxation any more, or he/she can determine a higher lump sum taxable income based on your turnover and other elements.

An estimate should be made then if it pays out to stay a lump sum taxable entrepreneur or is it better to hire an accountant and keep business books.