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Latest news

February 25, 2020

CT Legal holds seminar on the Agency Employment Law

Jovana Tomić, attorney at law and partner at CT Legal Law Office, on February 20, 2020 held a seminar on the Agency Employment Law organized by Public Aktiv d.o.o., a company that provides training and organization of seminars to enable attendees to successfully resolve issues they encounter in practice and to get acquainted with new regulations and their interpretations by relevant experts.

National Assembly of the Republic of Serbia on December 6, 2019 adopted the long-awaited Agency Employment Law, which begins its full implementation from March 1, 2020. At the seminar held, all the participants doubts were clarified regarding the interpretation of the provisions of the Law on Agency Employment, especially issues related to employment on a definite period and the calculation of the agreement for a definite period duration before the implementation of the Law, how to define a comparably employee and what happens if the employer does not have a comparable employee, what are the differences between temporary employment agencies, cooperatives and outsourcing, when does it come to the implementation of the assumption of assignment, what are the mandatory elements of the agreement on employee assignment, which are rights and obligations of assigned employees and other issues.

For all the questions regarding the application of the Law on Agency Employment, feel free to contact CT Legal Law Office.

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January 9, 2020

Amendments to Tax Regulations – Test of Entrepreneurs Independence

The Serbian Parliament adopted the Law on Amendments to the Law on Individual Income Tax applicable from January 1, 2020, except for the provisions regarding the exemption from the tax on earnings based on the employer performing innovative activity, which will apply starting from March 1, 2020. Income paid to entrepreneur or lump sum entrepreneur ending with March 1, 2020 will be considered to be income from self-employment, regardless of the nature of his relationship with the principal, i.e. application of the independence test is postponed till 1st of March 2020. At the same session, Parliament adopted the Law on Amendments to the Law on Mandatory Social Security Contributions.

 

The most significant change that has attracted a great deal of public attention in the previous period is the change to the system of lump-sum taxation of income from self-employment. Namely, the proposed changes to the law introduce a so-called test of entrepreneur's independence, according to which the legal grounds for taxation of lump-sum entrepreneur or entrepreneur shall be determined. Therefore, in accordance with the adopted legal solution, in cases where a lump-sum entrepreneur/entrepreneur is compensated on the basis of performing activities for the same employer or a related person with the employer, criteria are introduced through which the independence of the lump-sum entrepreneur/ entrepreneur will be determined. Consequently, the legal grounds of entrepreneur's income taxation shall be determined, as well.

 

It is expected that the IT sector, where large number of employees work as entrepreneurs under a business cooperation agreement, will be most affected by the law change. With these amendments to the law, the aim of the legislator is to suppress the work of entrepreneurs in described way by improving the system of lump-sum taxation of self-employed income and stimulating employment by introducing new employment opportunities for certain categories of individuals.

 

The new amendments to the law determine tax relief for an employer who engage “a qualified new employee” (the definition is given in law). The purpose of these changes is to make individuals who until December 31, 2019 preformed the business as entrepreneurs, to enter into employment, in which case the legislator prescribed a series of tax reliefs to encourage employers to establish employment with individuals who have been employed so far under a business cooperation agreement.

 

It should be noted that the employer can get the tax relief (exemption) if, by establishing an employment relationship with the new employee, the employer increases the number of employees compared to the number of employees as of December 31,2019. If, during the tax relief period, the employer reduces the number of employees compared to December 31, 2019, he loses the right to use the tax exemption for the number of qualified new employees - by the number of employees reduced compared to December 31, 2019., whereby in case that the tax exemption was granted to more qualified new employees, he first loses the tax exemption for the qualified new employee with whom he first founded working relationship.

 

The exemption is realized in the amount of 70% of calculated and withheld taxes on earnings for salaries paid in the period from January 1 to December 31, 2020; 65% of calculated and withheld taxes on earnings for salaries paid between January 1 and 31, December 2021 and 60% of the calculated and withheld taxes on earning for salaries paid between January 1 and December 31, 2022.

 

Regarding the prescribed benefits in terms of exemption from compulsory pension and disability insurance contributions on the basis of the earnings of a qualified newly employed person, the exemption is realized in the amount of 100% of the pension and disability insurance contributions for the earnings paid from January 1 to December 31 2020; 95% of the pension and disability insurance contributions for the earnings paid between January 1 and December 31, 2021 and 85% of the pension and disability insurance contributions for the earnings paid between January 1 and December 31, 2022.

 

The new amendments set forth that the compensation which entrepreneur or lump-sum entrepreneur achieve from performing activities for the same principal or related person, and who additionally fulfils at least five of the nine listed criteria (or according to circumstances it can be expected that at least five of the nice criteria will be fulfilled), is considered “another income” in the terms of the legal provisions.

 

Thus, the test of independence would determine whether the entrepreneur generates income from self-employment or income of an individual, i.e., determines whether the entrepreneur is independent from the principal or not. In order to “fail the test”, most of its criteria, at least five, must be fulfilled, which are aimed at checking whether an entrepreneur's job can qualify as an independent entrepreneur's job or as another type of individual engagement. These nine criteria are laid down to determine the extent to which the entrepreneur / lump-sum entrepreneur is tied to the principal, in terms of whether the principal determines his working hours, working space, vacations and absences; whether the principal provide him with the tools and equipment for work, vocational training and specialization; does at least 70% of the income of one entrepreneur / lump sum entrepreneur comes from a single principal, does the lump sum entrepreneur / entrepreneur perform activities for a fee to the same principal continuously or with interruptions of 130 or more working days over a period of 12 months, etc.

 

It should be emphasized that the Law specifically prescribes that a domestic or foreign legal person / entrepreneur / lump-sum entrepreneur, who directly hired a lump-sum entrepreneur or entrepreneur to carry out business, is considered to be the principal. Also, the principal will not be considered a domestic or foreign legal person / entrepreneur / lump-sum entrepreneur who is a direct payer of the compensation, but he pays such compensation in connection with the representation or mediation for the account of another person.

For all the questions regarding the application of the Law, CT Legal team is at your disposal.

As an interpretation of Article 18 of the Individual Income Tax Law, the Ministry of Finance issued an official opinion in early 2019 stating that Article 18, paragraph 1, item 1) of the Individual Income Tax Act can be applied to employee payments only when such payments can be documented with an appropriate credible accounting document, giving as an example an invoice for the purchase of a monthly subscription ticket, daily or single-ride ticket in public transport, a fuel invoice when using one's own vehicle, etc. In accordance with this opinion, new amendments to the Law are changing Article 18, paragraph 1, item 1) of the Law, so that the word documented transportation costs for arrival and departure from work is added - up to the amount of the monthly public transportation cost or up to the amount of actual transport costs, but overall up to a maximum of RSD 3,837 per month.

 

Regarding the reduction of the tax base for the salary, the Law regulates the tax base for a person who is employed as a newly-settled taxpayer, who establishes employment in a workplace for which there is a need for a person with special professional education and for which there is a need that cannot be easily satisfied in domestic labour market. The tax base for the salary of these persons is the base referred to in Article 15a, paragraph 2 of the Law, reduced by 70%, and the right to deduct the base is exercised for a period of 5 years from the conclusion of the employment contract. The Law also regulates the conditions for the reduction of the tax base, namely who is considered to be a qualified employer, and the newly-settled tax payer, but it is expected that the Minister in charge of financial affairs should regulate in more detail the manner of exercising these rights. The base of contributions for employees and employers, for the newly settled taxpayer, based on the earnings that allows deduction of the salary tax base realized, is the salary reduced by 70%.

 

Also, an Employer - a newly established company that performs some kind of innovation activity in accordance with the law can achieve the right to tax exemption from payment of income taxes of company founders within 36 months from the establishment of the company, thus stimulating entrepreneurs to set up companies.

 

The law also changes the provisions regarding flat-rate taxation. The amendments are referring to the conditions for flat-rate taxation, the criteria for the classification of lump-sum entrepreneurs into groups for determining the amount of lump-sum income as a tax base, establishing the starting base for determining the lump-sum income, elements that reduce or increase the starting base, as well as applying for flat-rate taxation. All this having in mind the need to create preconditions for simplifying the procedure for calculating taxes on self-employed income on a flat-rate determined income, automating the process of determining the amount of tax liability, enabling greater predictability for taxpayers, as well as reducing administration by the tax authority.

 

 

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December 26, 2019

Serbian Parliament adopts the Law on Agency Employment

The Government of the Republic of Serbia adopted the long-awaited Law on Agency Employment (hereinafter referred to as the Law) on December 6, 2019. This Law regulates the field of employment through temporary employment agencies (hereinafter referred to as the Agency).

The Law was preceded by the adoption of the Law on Ratification of International Labour Organization Convention No. 181 on private employment agencies with the aim of harmonizing Serbian legal system with the legal regulations of EU Member States for the purpose of the EU accession process and aligning with EU Directive 2008/104 /EC on temporary agency work.

The purpose of the Law is primarily to protect employees and regulate the labour market. The law guarantees equal rights for employees hired through the Agencies and for other employees hired directly by the employer (Beneficiary Employer), which was not the case until the law was enacted.

By legal definition, the Agency is a company or entrepreneur registered with the competent authority in the territory of the Republic of Serbia, which establishes an employment relationship with an employee for his temporary assignment to an beneficiary employer in the territory of the RS for the purpose of performing activities under his supervision and management. Beneficiary Employer is a legal entity, entrepreneur, that is, a representative office or branch of a foreign legal entity that is registered in accordance with the law in the territory of RS, a government body, an autonomous province and local government authority, where the assigned employee temporarily performs his/her duties. It is clear from the definition of the beneficiary employer that foreign legal entities, which are not registered in the territory of RS, cannot use the services of the Agency for temporary employment of employees.

For the Agency to start performing its activity, it is necessary to obtain a license from the Ministry of Labour, Employment, Veterans and Social Affairs. The license is issued for a period of five years and it can be applied for its extension within thirty days before the expiry of the license.

The Agency concludes two contracts in its operations: employment agreement for an indefinite or definite period with assigned employee and agreement on assignment of employees with the beneficiary employer.

The agency is not allowed to charge the assigned employee with the service fee for temporary assignment with the beneficiary employer, as well as for concluding an employment agreement with the beneficiary employer after the termination of the assignment. The Agency may only receive compensation from the beneficiary employer.

The law determines situations where there is a prohibition on concluding an employee assignment agreement, for example, in the case of a replacement of an employee at the employer at whom the strike is organized, unless an employee that is determined to work during the strike to ensure a minimum work process refuses to work; for performing activities where the beneficiary employer has determined the redundancy of employees in accordance with the general labour regulations within the time limit established in accordance with the law governing labour, etc.

Also, there are restrictions on the assignment of employees with an employment agreement for definite period in relation to the number of employees at the beneficiary employer, the basic rule being that the total number of employees assigned to the beneficiary employer for a definite period may not exceed 10% of the total number of employees at the beneficiary employer on the date of conclusion of the agreement for the assignment of employees or on the day of modification of that agreement which changes the number of employees assigned. 

The law guarantees to the employees that during the temporary performance of work for the beneficiary employer, they will be guaranteed the right to equal working conditions that comparable employees of the beneficiary employer have. This means that the assigned employees like the comparable employees have the same working conditions in terms of working hours, overtime and night work, rest during daily work, daily and weekly rest, annual leave, protection of employees, safety and health at work and prohibition of all bases of discrimination, as well as the same elements for calculating wages for work and time spent at work, remuneration and reimbursement of expenses provided for by the labor law, except that the law does not equate the right to bonuses and rewards.

Comparable employee defined by the law is an employee who is employed by the beneficiary employer, who performs or would perform the same activities considering the required degree and type of qualification, i.e. level of qualifications and special knowledge and abilities, i.e. competences, complexity, responsibility, work experience and other special working conditions. Furthermore, it is prescribed that if the beneficiary employer does not have a comparable employee in the same jobs, the assigned employee cannot be given a lower basic salary than the basic salary of the employee at beneficiary employer in the same degree or qualification level. The application of this provision may cause controversial in practice. Namely, in Article 2, Paragraph 2 of the Law it is stated that the beneficiary employer has a clearly defined restriction that he must provide to the assigned employee the same basic salary as is the salary at the beneficiary employer in the same level of education or level of qualification. The Law mentions only the same level of education or qualification, regardless of the type of qualification or professional field and regardless of the responsibility and complexity of the work that the employee performs, which is a defect of the Law and in practice can very easily lead to situations that the assigned employees those who work in lower positions and have a high degree of education must be paid as much as the lowest basic salary of an employee of the beneficiary employer who has a high degree of education. Also, in this way it may happen that those assigned employees who have a lower level position but possess high degree education will have many times higher earnings than the other assigned employees who work in a lower position, but have a secondary or elementary education, inevitably violating the principle of "equal pay for equal work". 

As a presumption of assignment,the following is prescribed. A person who works for the benefit of the beneficiary employer or in the premises of the beneficiary employer, and who has an employment agreement or other employment engagement agreement with another employer is considered to be assigned employee by that employer, unless otherwise proven. For the work of these employees contrary to the provisions of the Law, responsible are both, employer and beneficiary employer.

In case of termination of employment, the Agency shall issue a decision on termination. The entire documentation proving the validity of the termination is provided by the beneficiary employer to the Agency. The assigned employee may initiate proceedings before the competent court against the Agency and such a decision, which is a paradox, since the whole procedure is conducted by the beneficiary employer and the Agency has no insight into the method of establishing evidence, but has only been given the power to issue a Decision on termination. In addition, if the court renders a decision annulling the decision of termination, the law does not stipulate that the court may impose a measure of reinstatement of the assigned employee, but that the Agency will be obliged to compensate the employee for the amount of the remaining amount of salary from the moment of termination of employment until the expiration of the contractual termination, and maximum up to 18 salaries, as well as the obligation to pay taxes and contributions for the period. 

Supervision of the implementation of this Law is performed by labour inspection and administrative inspection. 

Misdemeanor liability is envisaged for acting contrary to the provisions of the Law, for which a fine in the range of 800,000 to 1,500,000 dinars can be imposed on a company that performs the assignment of employees and beneficiary employer being a legal entity. Furthermore, for the same misdemeanor responsibility is provided and fines are imposed for entrepreneurs and responsible persons in legal entities. 

By-laws related to the work of the Agency, professional qualifications, conditions and manner of issuing, revoking and termination of a work permit shall be issued by the Minister in charge by December 31, 2019. The law will enter into force on March 1, 2020. 

For all the questions regarding the application of the Law, CT Legal team is at your disposal.

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