Novelties prescribed by the Draft Law on Amendments to the Law on Compulsory Social Security Contributions
On October 8th 2019, on the website of the Ministry of Finance of the Republic of Serbia, the Draft Law on Amendments to the Law on Compulsory Social Security Contributions was published. Since the deadline for receiving suggestions and objections to this draft has not been announced, it can reasonably be expected that the draft will soon be on the agenda of the session of the Government of the Republic of Serbia.
The reasons for the adoption of this law are reflected in the need to create conditions for the implementation of reform of the business environment, create the conditions for further investment inflow, employment and economic growth, as well as to facilitate more favorable economic conditions through the relief of economic entities. In this regard, further fiscal offloading of income from labor is suggested by reducing the rate of contributions for compulsory social security, introducing new benefits on the basis of payment of contributions, as well as modifying the period for which the average earnings data is an element for determining the lowest and highest monthly contribution bases.
The following are the most important amendments:
- Article 44, paragraph 1, item 1) proposes to reduce the contribution rate for compulsory pension and disability insurance from 26% to 25,5%. Also, in paragraph 2 item 1) of the same article, it is proposed to reduce the rate of pension and disability insurance contributions payable at the same time from the base and on to the base by the employer from 12% to 11.5%.
The proposed reduction of pension and disability insurance contribution rates practically means, from the point of view of calculating and paying the contribution based on earnings, that the employer is exempt from paying part of the contribution that is calculated and paid at the expense of the employer, i.e. earnings. This ensures a smaller fiscal burden on the income generated by individuals as a result of labor, as well as reducing business costs for employers and other income payers.
- A new Article 15a is added and prescribes the following: “The base of contributions for employees and employers, for a newly-settled taxpayer on whose wage a reduction in the wage tax base is based in accordance with the law governing personal income tax, has been reduced by 70 %.”
Paragraph 2 of the same article reads: “The right to deduct the base referred to in paragraph 1 of this Article may be exercised for the newly-settled taxpayer who fulfills the condition of being considered an insured in accordance with the laws governing compulsory social security, as well as for the purposes of applying social security contracts that the Republic of Serbia applies with other countries.”
In order to stimulate employment in the territory of the Republic of Serbia, the aforementioned article is proposed as a relief for employers who start a new employment relationship with a newly-settled person, while the relief itself is reflected in the reduction of the wage contribution base for newly-settled persons who start an employment relationship with a domestic employer.
- Articles 37, 38 and 42 propose a change in the period for which, in order to determine the highest and lowest monthly contribution base, the average monthly earnings in the Republic of Serbia paid over the previous 12 months are taken as a starting point, starting in September instead of October.
- The introduction of Article 45d provides for relief for the employer – a newly established company that performs an innovation activity within the meaning of the law governing corporate tax and which is entered in the register of the competent authority. Namely, such an employer may exercise the right to exemption from payment of contributions at the expense of the employee and at the expense of the employer on the basis of the earnings of the founders who are employed in the newly established company, and which are paid in the period of 36 months from the date of establishment of the company, if the monthly salary does not exceed the amount of RSD 150,000.00, and if it exceeds, only for the part of the salary up to RSD 150,000.00. The main conditions that must be fulfilled to realize this relief are:
- that the natural person – the founder, or each of the founders, if there are more of them, has established a working relationship with a newly established company, concluded a contract of employment in accordance with the law governing labor relations and that he is registered for compulsory social security in the Central Register of Compulsory social security;
- that during the period for which the right to exemption is exercised, the founder has at least 5% of shares in the newly established company.
Also, this relief applies to the employer – a company that is not affiliated with any legal entity within the meaning of the law governing corporate income tax and which does not receive more than 30% of its total income from other entities considered affiliated with any founder of an employer – a company.
The exemption provided for in this Article may be exercised by the employer established by 31 December 2020 at the latest.
- The introduction of Article 45g provides for relief for an employer who establishes an employment relationship with a person who, in accordance with the provisions of this Article, may be considered as a qualified newly employed person. The relief is such that an employer is exempt from the obligation to pay contributions for compulsory pension and disability insurance at the expense of the employee and at the expense of the employer, for earnings paid by December 31 2022 at the latest. The very term of such an employer and “qualified newly employed person”, as well as further conditions for the realization of this relief, are defined in detail in the provisions of this article.
Such an employer may be exempt from the obligation to pay contributions for compulsory pension and disability insurance as follows:
- 100% of contribution – for earnings paid between January 1 and December 31, 2020;
- 95% of contribution – for wages paid between January 1 and December 31, 2021;
- 85% of contribution – for wages paid between January 1 and December 31, 2022.
If you have any questions or need additional information, you can contact Natasa Saric, a lawyer at Zivkovic Samardzic Law Office, or any of your regular contacts.