Foreign nationals who plan to start a business in Serbia as sole proprietors (“entrepreneurs”) must be aware of the legal framework that governs independent work and the risks of misclassification. One of the key regulatory mechanisms is the Self-Employment Test (“test samostalnosti“), introduced to ensure that freelancers and entrepreneurs are genuinely independent and not operating under disguised employment contracts.
This guide explains the Independence Test, why it matters, and how to structure your business in Serbia to remain compliant with Serbian tax laws and avoid penalties.
What Is the Independence Test for Entrepreneurs in Serbia?
The reasons behind the introduction of the independence test lie in the state’s effort to influence and prevent the engagement of individuals through contracts with entrepreneurs, instead of establishing formal employment relationships. Namely, engaging an entrepreneur via a service agreement represents a lower financial burden compared to hiring an employee under an employment contract. This is because the gross costs associated with hiring an entrepreneur are lower than the employer’s costs related to hiring an employee.
Additionally, entrepreneurs do not enjoy the rights that are granted to employees under the Labor Law. Therefore, the criteria of the independence test predominantly refer to element characteristic of employment relationships.
Failing the test can result in severe tax implications for both the entrepreneur and the company engaging them. If five or more of the nine criteria are met, the entrepreneur is considered dependent and the relationship may be reclassified as employment.
Who Is Subject to the Independence Test?
The independence test applies only to two groups of entrepreneurs:
- Flat-rate (paušal) entrepreneurs, and
- Entrepreneurs who maintain accounting records.
Flat-rate entrepreneurs are those whose annual revenue in a calendar year does not exceed six million dinars. If their annual revenue exceeds this amount, they move into the second group of entrepreneurs—those who are required to keep accounting records.
Flat-rate entrepreneurs are obligated to maintain the KPO book—a book of recorded turnover. They must record each issued invoice during the calendar year in the KPO book, which can be kept either in paper form or as an Excel spreadsheet.
Another distinction is:
- Flat-rate entrepreneurs pay a fixed monthly amount of tax and contributions;
- Entrepreneurs who maintain accounting records can choose between the self-taxation model or the personal salary model and usually engage an accounting agency to handle their bookkeeping.
Legal Background and When the Test Applies
The criteria that constitute the independence test are prescribed by the provisions of the Personal Income Tax Law. Although the amendments to the Law introducing the independence test have been in force for some time now, if you have not yet aligned your business operations with the relevant provisions, it is important to do so as soon as possible.
In this regard, the Tax Administration conducts supervision and control to determine whether entrepreneurs are operating in accordance with the requirements of the independence test or not.
The Key Criteria of the Independence Test for Entrepreneurs in Serbia
The Independence Test consists of nine criteria. It is considered that an entrepreneur has not passed the test if at least five criteria are met. Therefore, it is not necessary for a business to comply with all nine criteria.
If you determine that only two out of nine apply to your case, you will not be at risk nor will it be considered that you have failed the independence test.
In this regard, when establishing a business relationship through a contract, special attention should be paid to the following elements:
Fixed Working Hours and Leave
The entrepreneur should set their own working hours. If the client dictates when and how long the entrepreneur works or takes vacation, this suggests an employment relationship.
Use of Client’s Office Space
Using office space provided by the client or working on premises designated by the client indicates a lack of independence. Entrepreneurs should ideally work from their own location or remotely.
Professional Development Paid by the Client
If the client funds the entrepreneur’s training or professional development, this implies dependence. Entrepreneurs should invest in their own education and certifications.
Recruitment Through Job Ads or Agencies
If the entrepreneur was engaged via job advertisements or recruitment agencies, this can be interpreted as an employment indicator. Independent contractors should establish relationships directly or through business development channels.
Equipment Provided by the Client
Entrepreneurs must use their own tools and equipment. If the client provides laptops, software, or other tools (excluding specialized or industry-specific equipment), it may violate the independence standard.
Revenue Structure
If more than 70% of the entrepreneur’s annual income comes from one client, this signals a high level of economic dependence. Diversifying the client base is advisable.
No Business Risk
Contracts should specify that the entrepreneur bears the business risk. If the contract lacks this clause, or if the entrepreneur operates with no financial risk, it may trigger reclassification.
Exclusivity Clause
An exclusivity clause preventing the entrepreneur from working with other clients may be problematic. Restrictions should be limited to direct competitors and justified commercially.
Duration of Engagement
Working for the same client for 130+ days over 12 months suggests dependency. Shorter and project-based contracts are safer for maintaining independent status
How Is the Test Evaluated in Practice?
In Serbia, the independent contractor test consists of nine criteria designed by the Tax Administration to determine whether a business relationship is truly independent – or if it actually resembles a disguised employment relationship.
Here’s the key point: you do not need to meet all nine criteria to pass the test. In fact, if five or more criteria apply to your situation, you may be considered a dependent worker, which carries a potential tax risk. On the other hand, if only two or three criteria apply, your business activity will likely be seen as compliant.
So, the test doesn’t demand perfection – it’s about checking for signs of dependency. If you’re working as a freelancer, IT consultant, project-based expert, or any kind of contractor in Serbia, this is something you should definitely be aware of.
If you’re unsure whether you qualify as an independent contractor under Serbian law, our legal team can walk you through each criterion and help you assess your level of risk.
Consequences of Failing the Independence Test
If an entrepreneur fails the independent contractor test in Serbia – meaning that the business relationship is deemed dependent rather than independent – this can trigger significant tax consequences.
Specifically, if the authorities determine that the contractor is not truly independent from their client (i.e. principal), the following obligations may arise:
- 20% tax on all income received from the client;
- 26% in mandatory social contributions.
However, who is responsible for paying these amounts depends on whether the client is a Serbian or foreign legal entity:
- If the client is a Serbian company (i.e. a company opening in Serbia), the client will bear the tax and contribution burden.
- If the client is a foreign company, the contractor will be liable for the payments.
Understanding these risks is crucial for both contractors and businesses, especially those opening a company in Serbia and looking to engage independent service providers.
If you’re unsure how this might affect your business or freelance arrangement, feel free to reach out – we can help assess your situation and ensure you remain compliant.
How to Structure Contracts to Pass the Independence Test
To ensure your business complies with Serbia’s independence test requirements, it’s essential to carefully draft your contract for business cooperation with the client. The contract should clearly define the nature of the working relationship in a way that reflects genuine independence.
Here are the key provisions that should be included in the agreement:
- The contractor independently determines their working hours and vacation time.
- The contractor uses their own business premises in Serbia or rents one independently.
- The contractor is responsible for their own professional training and development.
- The contractor owns and uses their own work equipment and tools.
- The contractor bears the typical business risk for the completed work.
- There is no exclusivity – the contractor is free to work with multiple clients, not just one.
If these clauses are clearly defined and included in the agreement, then even if a contractor earns more than 70% of their income from a single client, or works for the same client 130+ days within a 12-month period, this alone will not automatically mean they fail the independence test.
This structure is especially important when opening a company in Serbia or engaging freelancers and entrepreneurs under local regulations. A well-drafted contract can be the difference between a smooth operation and unexpected tax complications.
Best Practices for Working as an Independent Contractor in Serbia
Entrepreneurs should review their contracts and working arrangements to ensure they do not meet five or more of the above criteria. Structuring the business properly can help avoid costly audits or reclassification.
Both the entrepreneur and the hiring company can be liable for back taxes, interest, and penalties if the test is failed.
To mitigate this risk:
- Diversify your client base
- Define project scopes and avoid long-term engagements with one client
- Specify business risk in your contracts
- Use your own equipment and workspaces
- Avoid clauses that restrict other business activities
Frequently Asked Questions (FAQ)
Independence test applies to the flat-rate entrepreneurs (so called “paušal”) and entrepreneurs who maintain accounting records.
Even if you earn a significant portion of your income (70% over a 12-month period) from a single client, this does not automatically mean you’ve failed the independence test — as long as the business relationship is structured in line with the other key criteria.
Tax Administration checks the fulfilment of the conditions set in independence test and determines whether such criteria is fulfilled, i.e. whether the independence test is passed or no.
No, the independence test is not limited to entrepreneurs in the IT industry. However, it is particularly widespread in this sector due to the high number of freelance developers and consultants operating through sole proprietorships or contractor agreements. That said, the test applies to all independent contractors, regardless of industry, if the nature of the engagement raises questions about the contractor’s true independence from the client.
When to Seek Legal or Tax Advice
For foreigners planning on starting a business in Serbia, understanding and complying with the Independence Test is essential. Failing the test can result in major tax liabilities and legal complications.
Consulting a corporate law firm in Serbia is highly recommended. Our office provides end-to-end support for foreigners interested in setting up businesses in Serbia—from company registration and virtual office setup to compliance and taxation guidance.
Contact us for personalized advice on structuring your business legally and efficiently in Serbia.
This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.
