Tax incentive in the field of annual personal income tax for taxpayers under the age of 40

Founders and employees within startups are usually highly educated individuals who generate sufficient income to be considered taxpayers for annual personal income tax. Therefore, although the relief does not specifically apply to individuals engaged in startups, its significance is substantial as it facilitates the operations of startups.

What is the annual personal income tax?

Natural persons who earn income exceeding three times the average annual salary per employee paid in Serbia for the year in which the tax is determined are obliged to pay annual personal income tax.

What does the incentive consist of?

The incentive consists of reducing the annual sum of earnings and taxable income from self-employment, as well as income from copyrights, related rights, and industrial property rights (only for these incomes, not other earned incomes), by an additional amount of three times the average annual salary per employee paid in Serbia for the year in which the tax is determined. It is important to note that this reduction can not exceed the amount of the annual sum of these earnings and taxable income.

What conditions need to be met?

Natural person must earn income in a calendar year that exceeds three times the average annual salary per employee paid in Serbia for the year in which the tax is determined. Additionally, the natural person must be under the age of  40 on the last day of the calendar year for which the tax is determined.

How is this incentive used?

The annual personal income tax is calculated and paid through the self-assessment system, starting from the tax year 2022, instead of paying based on a tax authority’s decision that it was done previously. The taxpayer submits the tax return after the end of the year for which the annual tax is determined, but no later than May 15th of the following year. The tax return is exclusively submitted in electronic form via the Tax Administration portal. The taxpayer completes the tax return for the calculated annual personal income tax, using the Form PP GPDG, where section 3.8 of the form refers to this incentive.

The regulations governing this incentive are as follows: 

• Law on Personal Income Tax, Article 87.
• Regulation on the Tax Return for Annual Personal Income Tax. 
• User Manual for Submitting the Tax Return for Calculated Annual Personal Income Tax.

Example:
The startup “Aurora” is conducting research and development to develop software for selling various products. One of their employees, named Igor, earns a monthly salary of 320,000 dinars. Therefore, his annual income for the year 2022 amounts to 3,840,000 dinars. Considering that the average annual salary per employee in Serbia for 2022 is 1,239,792 dinars, Igor is considered a taxpayer for annual personal income tax since his annual income exceeds three times the average annual salary per employee, which is 3,719,376 dinars. Igor turned 35 in 2022, so he is eligible to use this tax incentive since it applies only to individuals under the age of 40. He earns income solely from the startup and rental income from his property. However, in order to utilize this incentive, Igor can only take into account the annual sum of earnings from the startup and reduce it by three times the average annual salary, but he can not include the annual sum of rental income from his property. As the annual tax is paid through the self-assessment system starting from 2022, Igor is responsible for filling out the tax return using the Form PP GPDG and entering the relevant information in section 3.8 pertaining to the utilization of this incentive. He submits the electronic tax return through the Tax Administration portal.