This is the key. Freelancers earning their living on the internet are not inherently dependent on government and are much more likely to support opposition and fight back against the corrupt government.
It's easy to control people working in overblown administration or public/government sector, or in companies working for them, but controlling free financially independent people not afraid of dying of hunger if they oppose is not that easy.
The current goverment is just milking the ones caught breaking the law because of the economy being cash-strapped and well... because they can!
I still think it should be fair to offer them the best terms under which they could have incorporated (eg. for anyone with under 4.500 EUR a month it'd be self-employment with fixed rate taxation that was available to anyone), but to pretend that protesting freelancers were not breaking the law is dishonest imo.
That's not true either.
Proposed changes (not accepted by the protesters) are to consider 43% of income as non-taxable personal deductions (up from 20% in the existing law, though actual, receipt-backed deductions for performance of work are accepted), and then pay the regular tax percentages that employees pay, except that Serbian law splits the employer and employee obligations for employees, but charges the sum total of those tax rates in percentage points to freelancers (eg. see the numbers on https://taxsummaries.pwc.com/serbia/individual/other-taxes — so freelancers would pay 25.5% of the taxable income into the pension fund).
A total cost of a single employee for an employer is considered a gross contractual salary (out of which employee taxes are paid from the link above) + employer taxes on top. So because of the slightly lower "base" calculations are done on, actual percentages are slightly lower for employees, but it was basically negated with the 20% deduction. With a 43% deduction, freelancers get to pay fewer taxes than state gets for a single employee for the same net salary.
Eg. if a freelancer ends up with 100k RSD after all taxes, state gets 36k RSD in total taxes: 36k out of 136k gross is not "stupendous" at all! An employee receiving a net 100k RSD salary, state gets around 66k RSD in taxes. If existing law was upheld, it would be around 60k RSD for freelancers (iow, much closer to what employees are paid for).
It appears you are explaining how the Serbian government wants to tax freelancers as if they would have been regular employees. Which other country does that? Where do self-employed people (freelancers) get taxed as if they are employees?
This assumption appears to be underpinning your whole comparison/explanation. Where did you get this assumption of "freelancer should be treated as employee" (as far as taxing goes) come from?
If it wasn't clear from my original sentence, I meant that this tax rate for freelancers is on par with what employees in OTHER countries often pay (if not higher). But I honestly don't know a single country that taxes freelancers as if they are regular employees.
Could you give me examples of other countries that do this, and what the rational behind such an unusual approach might be?
In France, for example.
There's no actual concept of "Freelance" here [0]. Legally you're either an employee or you have some form of "company". An "independent" is basically someone running a company of one. But it's legally still a company.
If it's an "individual enterprise," you pay income tax and social security just like an employee. That's basically your revenue minus an allowance (40% I think but I'm not sure).
If you're a regular company, you'll either pay yourself a salary, in which case you pay almost all the taxes as a salaried person does (except for unemployment, which you don't get if your business falls through) or you pay yourself through dividends, in which case you pay a corporate tax (on the company's profits) + income tax (on your dividends). Even though there's a social security part levied on the dividends, you don't actually get anything in return. You're basically considered as someone who doesn't contribute to social security (no retirement and only basic health care — basically emergency). However, for any program that has an upper limit on income, your dividends are taken into account. So no social housing for you.
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[0] There's no such thing as "freelance" in France. There are some jobs that are more or less close, but they're related to show-business. For the purpose of the IT sector, there's no such thing as "freelance".
It was always an obligation for the recipient of the income, if the payer is not a company in Serbia, to self report those taxes.
The rates were similar to how employees are taxed.
Does not matter how other countries do it, Serbia always had clear laws governing how taxes should be paid. I know that because I paid those myself in 2011 before registering as a self-employed entity (agency) and later a ltd (doo) company in order to reduce my tax burden.
FWIW, all countries tax all income for their residents, at similar or higher rates. Serbia is not too bad, and the proposed taxation rate for back taxes is actually quite low.
"Freelancers" are not some magical fairies, they are simply people earning money without a registered company being involved. Again, if a freelancer had a Serbian company as a client, that Serbian company would have the obligation to pay the taxes on their behalf. Otherwise, it is their duty to self-report any income using a PP OPO for since at least 2001.
One can also be regularly employed and have some side gigs which they would also have to self report to the Tax Office. The only benefit then is that social insurance taxes are added up and one needs not pay a total social insurance taxes larger than what it'd be for 5 times an average Serbian salary.
Any Serbian accountant would have shared as much.
For freelancers who have that as their main source of income, Serbia has had (and still does) extremely low tax rate with self employment entities (agency) unless you are actually in what amounts to an employee relationship. When I looked, I could not find any country in the world that had <10% taxes on gross income up to 4500 eur a month that included social insurance (health, pension and unemployment insurance).
Why do you expect (or even insinuate) that I don't know that all countries tax income on residents working there? Of course they do. It actually is a bit more complicated than that, but never mind.
For freelancers (or as a small self-employed entities, which is how freelancers often are legalized), tax usually does not amount up to nearly half of their income. For regular employees this isn't all that unusual, but there are clear distinctions between employment and freelancing.
I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Hiring a freelancer usually means that it is essentially a business-to-business relationship, leaving things like tax, insurance, pension, etc up to the freelancer to take care of. Failing to do that is of course a violation of the tax code, but it doesn't make somebody an employee all of a sudden. I don't think a business is even legally allowed to contract a freelancer unless that person has some kind of legal registration for that. So it would not just be the freelancer that is in violation, but probably also the business contracting them (it could even be an economical crime, for the unfair competitive advantage it might provide).
I guess that the crux here is that the Serbian government decided that anyone who didn't register themselves as a legitimate freelancer (agency, in your words), yet still received income from abroad, will now be treated as if this income was from employment.
Of course these people should pay tax, no doubt about that. But, unless these people are really actual employees and not freelancers (even if they failed to register appropriately), I don't see why they should (or even can) be charged as if they are employees. Other than "might makes right" and "just because we say so".
If all these people calling themselves freelancers are in fact legitimate employees working somewhere abroad, then I completely agree with your logic. However, if that's the case, then there is another snag. The various tax treaties between those countries and Serbia usually dictate that tax will only be charged in one of the involved countries, and usually in the country of employment. But, I'm pretty sure that those foreign companies in most cases did not treat these people as employees (because they'd pay far more) and instead treated them as freelancers. So this likely a moot point.
Maybe I'm still seeing this all wrong, but to me it appears that the government is conveniently classifying these people as regular employees, just because that happens to be a group/classification for which they can charge the highest amount of tax.
For me it is really odd that a freelancer (legal or illegal) can somehow become a regular employee when they fail to register. If anything, I would expect that they be people who have illegal been operating as an business entity. Dealing with that is whole different matter. Potentially dragging in criminal justice and not just tax code. I suspect the government would quickly shoot itself in the foot with that, so maybe that is why they are taking this route instead?
I believe I understood everything you wrote and don't disagree with it (besides what you wrote about a company hiring a freelancer). However, I really don't get how employment and freelancing can somehow be bunched up as if they are the same. But that is what I get from your story and the media. For a company contracting any work force, be that employees or freelancers, it certainly never is.
I only said that the tax rates in question are the same for social security, and the income tax rate is effectively 16% (20% of 80% after 20% expense deductions; with proposed 43% of expense reductions, it's 20% of 57%, or 11.4%), which is not too different from the 10% income tax on employees. They are claiming the law doesn't recognize them, whereas in fact, it does, and the rates are worse than for employees. Which is why they should have registered.
Note that expenses are supposed to be business expenses, and if you've got much bigger real business expenses, they will be accepted (article 57 of the law: https://www.paragraf.rs/propisi/zakon-o-porezu-na-dohodak-gr...).
> I find it hard to believe that a Serbian company would pay employment tax if they hire a freelancer, as you claim. Are you really sure about that?
Serbian company is obligated to pay for any taxes that a non-company owes (income, social security) because they usually have an accountant and a physical person doesn't. If these freelancers were working with Serbian companies, all the taxes would have been paid for them.
This is not "employment tax", it's just that the same or similar rates are applied.
I am not an accountant, but I've been in this boat in Serbia ;-)
It's also about the level of tax they will have to pay going forward, which appears to be stupendously height (at least for freelancers). It appears on par with, or even higher than, what people with regular employment often pay, in countries with elaborate and functioning social security/welfare systems. Serbia certainly does not appear to have those.
It does appear as if this government really does not want freelancing to be a viable option. Considering the recent efforts to attract foreign investments into local Serbian (tech) companies, where almost insane return-on-investments figures are being promised (of course flowing back to the foreign investors), with all kind of questionable perks (pretty much destroying any potential competition from local businesses), it's not impossible that there is an orchestrated scheme going on here.
It sadly would not be a new phenomenon if/when in Serbia a small group of shot-callers are manipulating anything and everything to just enrich themselves, by collaborating with questionable (and ultimately abusive/destructive) foreign enterprises, at the expense of Serbia's citizens and in fact the country as a whole.
But, we'll see what happens.