Tax Alert, October 2019

On 08 October 2019 the Ministry of Finance has published the Draft of the Law on amendments of the Law on mandatory social security contributions.

It is expected that the draft will be adopted soon, and key proposals refer to:

·        Definition of SSC base for the repatriates and new immigrants;

·        Reduction of the contribution rate for pension and disability insurance born by the employer;

·        Definition of contribution base for founders of newly founded companies that carry out innovative business activity;

·        Definition of base for qualified new employees.

Amendments of the Law on Mandatory Social Security Contributions

1.   SSC base for the repatriates and new immigrants

New Article 15a foresees that both employee and employer SSC base will be reduced by 70%, for the repatriates and new immigrants, in accordance with the PIT Law.

2.   SSC rate for pension and disability

In accordance with the amendments to Article 44 the rate of pension and disability insurance contributions paid by employers or other payers is reduced from 12% to 11.5%.

3.   SSC base for founders of newly founded companies that carry out innovative business activity

Article 45d prescribes that the newly founded company i.e. employer will be able to apply the exemption for social security in total on the founder’s salary.

The exemption is applied to salary paid out to the founder, who is employed with the company, for the period of 36 months and up to RSD 150,000.

4.   SSC for qualified new employees

New Article 45dj prescribes the exemption from paying pension and disability insurance contributions due by employee and employer in case of employing a qualified new employee for the salaries paid out until 31 December 2022.

Qualified new employee is a person who did not have the status of an insured employee during 2019 and who acquires this status from January 1 to April 30, 2020.

The same Article sets out additional conditions that must be fulfilled for this tax exemption to apply.

The employer is exempted from the obligation to pay contributions for pension and disability insurance due by employee and employer in the following manner:

• 100% contribution - for salary paid from January 1 to December 31, 2020;

• 95% contribution - for salary paid between January 1 and December 31, 2021;

• 85% contribution - for salary paid from January 1 to December 31, 2022.

Upon adoption, amendments to the Law will apply from 1 January 2020, except for the provisions relating to repatriates and new immigrants and provisions relating to the exemption applied to the salary of founders of entities who perform innovation activity, which will apply from 1 March 2020.