Serbia: Tax incentive for newly inhabited persons in the Republic of Serbia

In its session held on 16 June 2022, the Government of the Republic of Serbia adopted the Regulation on Criteria for Granting Incentives to the Employers who Employ Newly Inhabited Persons in the Republic of Serbia, published in the Official Gazette of the RS no. 67/22 and entered into force on 18 June 2022.

Pursuant to the provision of the Regulation, the employer who employs a certain category of employees is entitled to refund 70% of paid tax as well as refund 100% of the paid mandatory pension and invalidity security.

To be eligible for this incentive, the employer must execute a full-time employment agreement for an indefinite period with a person who, in the last 24 months before the execution of the employment agreement, has not resided in the Republic of Serbia for more than 180 days. Furthermore, the incentive may be applied only if the employee has a salary of RSD 300.000,00 (ca. 2.550,00 EUR) or more. It is worth mentioning that incentives may be granted to both domestic and foreign employees.

Under employer is considered a domestic or foreign natural person i.e., a legal entity or an entrepreneur registered to perform activities in the Republic of Serbia, as well as a branch and representative office of a foreign employer registered to perform activities in the Republic of Serbia.

At the moment of application for this incentive, the employer must have the same (or more) number of employees with an employment agreement for an indefinite period as on the date of entering into force of the Regulation. Additionally, the employer may apply for incentives only for the surplus of incentive-eligible employees (positive difference between the number of employees on the date of application for incentive and the number of employees on the date of entering into force of the Regulation). In case the employer is established after 18 June 2022, it is deemed that he had no employees at the time of entering into force of the Regulation.

The employer applies for incentives with the Ministry of Economy once a year in the period between 15 September and 30 September. The incentive period starts on 01 July 2022 and ends on 31 December 2028. This means that one employer may submit a total of 8 applications for incentives. Each employer is entitled to a maximum of 60 months of the incentive period. When applying for an incentive, the application may encompass up to 12 months preceding the date of application.

Prohibition to pay dividends from the refunded tax and mandatory pension and invalidity security is introduced. In other words, the employer may pay dividends only from the part of the profit that exceeds the refunded amount. Otherwise, the employer loses granted incentives and must return all received benefits.