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The conundrum with daily allowances is Serbia

10/11/2015

The Serbian government amended the decree regulating allowances payable to civil servants and employees for meal and transportation expenses when travelling abroad on official business, which had an unexpected tax effect on the private sector.

The Serbian government has amended the decree regulating allowances payable to civil servants and employees for meal and transportation expenses when travelling abroad on official business, reducing them to EUR 15 per day.

However, as in practice the interpretation of the Tax Administration was that the Personal Income Tax Law relies on this decree for the prescribed maximum tax-free portion of the allowance paid to employees for business trips abroad, this resulted in a severe reduction of the tax-free amount in the private sector.

The change of the decree also leads to two illogical results - the non-taxable amount for a business trip in Serbia is higher than for the one abroad (e.g. a trip to Novi Sad has a higher non-taxable amount than a trip to Paris), while the non-taxable amount for business trips to certain destinations (e.g. New York) seems highly insufficient.

Still, until there is a change of either the Personal Income Tax Law or the decree, daily allowances paid by companies to their employees for a business trip abroad after 14 October, exceeding EUR 15, will be taxed at a 10% rate.

Several foreign investors and domestic organisations are already taking steps to open a dialogue with the government and the Ministry of Finance in order to resolve this conundrum and eliminate the negative tax effects on the private sector. Hence, it seems likely that the tax-free amount for the private sector may change again in the near future, hopefully, this time for the better.

Authors

Picture of Nebojsa Pejin
Nebojša Pejin