Flat-Rate (Paušal) Taxation in Serbia: Who It Suits and How It Works

Paušal is a regime for sole proprietors in which the amount of tax and contributions is fixed, does not depend on actual profit and is determined by a decision of the Tax Administration. The decisions on tax and contributions for the current year arrive in the electronic mailbox on the ePorezi portal by 15 January. Flat-rate taxation suits small businesses best because of its simple administration and lower costs.

Key features

The entrepreneur does not keep books and does not pay tax on actual profit, but a fixed tax set by the Tax Administration's decision. The amount depends on several criteria:

• The activity code (for example IT services, craft services, consulting services).
• The level of development of the municipality where the business is registered.
• Additional factors the Tax Administration takes into account (for example the taxpayer's age, the number of flat-rate entrepreneurs in the same or a similar activity in the same municipality, the average salary in that municipality).

If the main activity changes during the tax period, the flat-rate entrepreneur must file a tax return by 31 January of the following year at the latest.

Advantages of paušal

• The tax is the same whether your income is 1 dinar or 1,000,000 dinars.
• It is ideal for freelancers, craftsmen, consultants and entrepreneurs with a stable income.
• Faster set-up and simpler administration compared with other forms.
• No obligation to keep business books, except the KPO book (the record of turnover of flat-rate taxpayers), in which only income from the sale of goods and services is recorded.

In addition, you need to make sure that income in the period from 1 January to 31 December does not exceed 6 million dinars.

Disadvantages and limits

• If income grows significantly the tax stays the same, but the right to paušal is lost if income exceeds 6 million dinars.
• Not all activities can be taxed at a flat rate.
• Less transparency; unlike entrepreneurs who keep books, there is no detailed record of income and expenses.
• Risk during audits; the Tax Administration may check whether the activity really meets the conditions for paušal.

Which activities can be flat-rate taxed

Under the law and the regulation on flat-rate taxation, flat-rate entrepreneurs can be, for example: crafts (hairdressers, beauticians, shoemakers, tailors, carpenters, plumbers, electricians, car mechanics); services (computer and appliance repairs, photography, taxi under certain conditions); professional and intellectual activities (IT programmers and consultants, designers, translators, lecturers, advisors).

Which activities cannot be flat-rate taxed

• Wholesale and retail trade (sale of goods, shops, boutiques).
• Hospitality (restaurants, cafes, hotels).
• Financial and insurance activities (accounting, banking services, brokerage firms).
• Medical activities (doctors, dentists, pharmacies).
• Transport and logistics (except taxi, which can be flat-rate taxed under certain conditions).

Two important reliefs for flat-rate entrepreneurs

50% discount in the first year: every first-time registered entrepreneur who chooses paušal is entitled to a 50% reduction of the tax base in the first year, regardless of the activity (as long as paušal is allowed for it).

Cap on base growth of 10% per year: the tax base cannot grow by more than 10% compared with the previous year. This measure applies until 2027. Exceptions: the 10% cap does not apply when the activity code changes, nor when the municipality or place of registration changes (except relocation within the same city).