HOW TO INCORPORATE A COMPANY IN SERBIA

1. The first question posed when establishing a company is: shall I be an entrepreneur, or establish a company (the most common form is LLC – a limited liability company)? To choose without difficulty, let’s look at the basic differences between the liabilities of a company and entrepreneur.

An entrepreneur is a private individual personally liable to the full extent of his/her assets for the liabilities of the business, the property acquired by business activities, but also with other assets acquired apart from the business, while in case of a LLC company, the owner is liable only to the assets owned by the company. On the other side, the administration work is of larger volume with LLC, which very often determines the initial form of business to be entrepreneurship.

2. After choosing a business form, one should think of a business name. A business name must contain a name, where it is important that in practice there are no two companies with an identical name as a part of their business name. Today, it is very easy to check, regarding that the Business Registers Agency (BRA) is available to public and in order to be sure, you may also make reservation for the name of your future company.

3. To register a company, the Law on Business Companies stipulates to choose a predominant activity. A predominant activity shall be an activity which brings most profit to a company, which does not exclude the possibility to perform other activities. 

4. The incorporation of a LLC includes bringing of the Article of Association. The Article of Association is a general legal act of a company composed by one or more founders of the company. The AoA shall define all the issues related to the business operation, managing, labour relation issues and other important issues regarding business. It must be certified at the Public Notary.

5. The registered address of a company does not need to be the address at which a company will actually operate, but such address must exist, which basis will be checked, according to a Lease Contract, Ownership List and similar. Lately, the so-called virtual offices have been quite attractive, which is suitable for the companies which often have field work, those which may operate at home, if business activities are performed from another place and similar.

 

SHALL I BE IN VAT SYSTEM OR NOT?

A great dilemma arising in practice, especially with entities initiating the process of establishing own company is whether each entity registered in the Companies Register is automatically registered within VAT system, and respectively, whether such entity is VAT obligor? Registration in the VAT system may be obligatory and voluntary as well.

In the VAT system shall be registered all those legal entities which in the previous 12 months attained the total turnover exceeding 8,000,000 RSD.

Total turnover is a wide content category, and what it includes shall be found in the Law on VAT, but to understand it easier, we can put it as the sum of all issued invoices for the sold goods and services. There is a general tax rate of 20% for the goods and services and import (computer equipment, automobiles, furniture, office material, household products, fuel, etc…), and a special tax rate of 10% to tax the goods and services or import (bakery products, dairy products, medicaments, utilities, printed material, tickets for manifestations…). The tax liability is established monthly or quarterly depending on the tax administration decision.

All the entities which attained turnover of less than 8,000,000 RSD shall not be obliged to register in the VAT system, but can do it voluntarily, if they want.

In both cases, the Tax Administration shall be submitted EPPDV application. For a voluntary registration into VAT system there is no deadline defined, so it might be any time during the year, while the entities exceeding 8,000,000 RSD on, e.g. 5th August shall be obliged to already on 6th August act in compliance with the Law on VAT and issue invoices with the declared VAT.

After being registered in the VAT system, companies shall be obliged to pay it for the next two years, and only after the expiry of such a period they may leave the VAT system.

If you are not registered in the VAT system the convenience for the buyers of goods or services is if they are not in the VAT system as well (e.g. private individuals) since they will have more competent price.

If you apply to be registered in the VAT system, then it is convenient for your buyers if they are in the VAT system as well, since the declared and paid VAT amount will be their deductible item for their VAT amount.     

WHICH TAXES ARE PAID BY A COMPANY?

A legal entity registered in a Companies Register becomes a payer of a lot of taxes prescribed by a state. Please find below an overview of all the taxes to be paid by a company.

 

1.ECO FEE is a tax paid by all legal entities. The amount to be paid depends on the size of a company, but also on the impact the company’s activity has on the environment. It ranges from 5,000.00 RSD up to 2,000,000.00 RSD.  2. Communal fee – displaying business names on the business premises, known as communal fee, is defined by the Law on Financing of Local Self-Government. A company, according to the Law, shall present each displayed business name or first name referring to a certain activity performed by a legal entity or private individual. A communal fee shall be paid when the turnover exceeds 50,000,000.00 RSD. The amount shall depend on the zone the company is located in, but also on the activity and size of the company. Amounts range from 6,000.00 to 680,000.00 RSD.

3. Property tax shall be paid in case a company owns real estate as its property. A property tax rate is 0.4% and shall be calculated based on the assessed property value.

4.     VAT – if a tax payer is included in the VAT system, it shall be obliged to pay VAT amount at a general tax rate of 20% or special tax rate of 10%.

5.    Corporate tax – Corporate tax shall be paid at the rate of 15%, if a company attains profit. For example, the attained profit is 100,000 RSD so the amount of corporate tax is 15,000 RSD on an annual basis.

6. If a company has employees, it shall be obliged to pay payroll taxes. The contributions are classified as:

·       Contributions on salaries and fringe benefits, pension and disability insurance in the amount of 25.5% (14% charged to employees, 11.5% charged to employer),

·       Contributions on health insurance in the amount of 10.3% (5.15% charged to employees and 5,15% charged to employer),

·       Contributions on insurance in case of unemployment in the amount of 0.75% (0.75% from the basis – charged to employees, and there is no amount charged to employer)

Regarding the calculation of tax it should have in mind that there is untaxable amount. The current untaxable amount is 16,300.00 RSD. It means that the tax is to be paid at the rate of 10% to the difference between the gross salary and untaxable amount.

7. Pursuant to the Law, companies shall pay the withholding tax upon the turnover of goods and services especially listed in the Law, as follows:

·        Renting of immovable and movable property on the territory of the Republic of Serbia

·        Compensations for copyrights, i.e. copyrights and related rights and industrial property rights,

·        Compensations from the market research services and auditing services and other fields of legal and business advising paid to non-residents

·        Income of a non-resident legal entity from the performance of stage, entertainment, arts, sports and similar program in the Republic of Serbia, which are not taxable as an income of a private individual,

·        Income from the turnover of secondary raw materials and waste, etc…

WHAT IS NET, AND WHAT IS GROSS SALARY?

For each month of work, an employee is paid a salary, and what is paid on to his/her account or in cash presents a net salary. A net salary consists of the following:

–       basic salary (consisting of the number of working hours in a month times the price of work) and

–       paid benefits (all the benefits belonging to an employee as prescribed by the law, meal allowance, paid annual holiday, paid years of service, paid work on public holidays, paid night work or overtime work, and other).

A gross salary is an amount of a salary agreed with employees. A gross salary shall consist of net salary + contributions for obligatory social insurance + tax.  

Contributions on salaries and fringe benefits, pension and disability insurance in the amount of 25.5% (14% charged to employees, 11.5% charged to employer),

Contributions on health insurance in the amount of 10.3% (5.15% charged to employees and 5,15% charged to employer),

Contributions on insurance in case of unemployment in the amount of 0.75% (0.75% from the basis – charged to employees, and there is no amount charged to employer)

Regarding the calculation of tax it should have in mind that there is untaxable amount. The current untaxable amount is 16,300.00 RSD. It means that the tax is to be paid at the rate of 10% to the difference between the gross salary and untaxable amount.

It is often mentioned in practice a concept Gross 1 and Gross 2 amount, so let’s clarify them. Gross 1 is actually the agreed gross salary for an employee and consists of a net salary+contributions charged to employees+tax, while Gross 2 amount is something which is important for the employer, it is total expense per employee. Gross 2 amount is actually a net salary with all the contributions and taxes.

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