Switching from flat-rate tax to books: when it is mandatory, how to notify, single or double-entry bookkeeping
Leaving Serbia's paušal regime in 2026: loss above RSD 6,000,000 turnover or on VAT registration, the date books start, double-entry, 10% tax, personal salary.
Three reasons for a mandatory switch
Flat-rate taxation is a privilege tied to the size and type of business. Art. 40(2) of the Personal Income Tax Act (Zakon o porezu na dohodak građana) lists who cannot obtain flat rate, and the same list determines who loses it.
Turnover above RSD 6,000,000. What counts is total turnover in the year preceding the year being assessed, or planned turnover when starting out (item 4). Turnover is what you collected from sales of products and services; refunds, loans and transfers of your own money into the account do not count, but the Tax Administration starts from inflows to the account, so every atypical inflow should be documented. The RSD 6,000,000 limit has not changed for years and the Flat-Rate Taxation Regulation (Sl. glasnik RS Nos. 94/2019, 96/2019 - corr., 156/2020, 141/2022, 89/2023 and 115/2025) has been extended to 2027 unchanged.
VAT registration. Whoever is registered as a VAT payer cannot be a flat-rate trader (item 5). VAT registration is mandatory when turnover in the previous 12 months exceeds RSD 8,000,000 (Arts. 33(1) and 38(1) of the VAT Act) or voluntary, by filing the registration return (Art. 33(3)). The two thresholds differ: the flat-rate limit measures the calendar year, the VAT limit a rolling 12 months.
Change of activity. Flat rate is not allowed for advertising and market research (item 1), wholesale and retail trade, hotels and restaurants, financial intermediation and real estate (item 2), or where other persons invest in the business (item 3). The exception is trade and catering from a kiosk, trailer or similar mobile unit, which may be granted flat rate on request (para. 3). Changing the principal activity code at APR to one on this list ends flat rate.
The earlier practice of refusing a flat-rate application at the tax authority's discretion "because the trader is able to keep books" is no longer in the Act; the conditions are only those listed.
From what date you keep books
The consequence depends on the reason (Art. 42(4)-(6)):
| Reason | Who determines | Books from |
|---|---|---|
| Turnover above RSD 6,000,000 in the first half of the year | Tax Administration by decision | 1 July of the current year |
| Turnover above RSD 6,000,000 in the second half of the year | Tax Administration by decision | 1 January of the following year |
| VAT registration, mandatory or voluntary | The trader, by the registration return | the day VAT payer status is acquired, no decision |
| Change of activity | Tax Administration by decision | per the decision, from mid-year or the start of the year |
Flat rate lasts "until it is established that the reasons for flat-rate taxation have ceased" (para. 4). Until the date set by the decision you pay the old monthly amount; from that date you calculate the advances yourself.
Notifying the Tax Administration
Three filings, all through the ePorezi portal:
- VAT registration return (EPPDV), within 5 days of the day turnover in 12 months exceeded RSD 8,000,000 (Art. 38(1) of the VAT Act). If you do not file it, the Tax Administration registers you of its own motion (para. 3), but the fine and the VAT on supplies from that day are yours.
- Notice of the personal-salary election, within 15 days of the day flat rate is lost (Art. 33a of the Personal Income Tax Act). This is the deadline most often missed, and the miss costs a whole year of contributions on profit.
- PPDG-1S tax return with an estimate of income, expenses and the monthly advance to year end. The Act sets the 15-day deadline expressly for a trader who is just starting (Art. 94(1)); no separate deadline is set for a switch from flat rate, so file as soon as the decision arrives or VAT registration takes effect and confirm the exact deadline with the Tax Administration.
Where books are ordered by decision, PPDG-1S follows the date in the decision; where you enter VAT, you file it together with EPPDV.
Single or double-entry bookkeeping
The question in the title has a short answer: for an ordinary sole trader there is no choice. Since 1 January 2019 a sole trader taxed on actual income keeps books under the double-entry system, in line with the Accounting Act (Art. 43(2) of the Personal Income Tax Act). Single-entry bookkeeping remains only for farmer sole traders and other-person sole traders (Art. 43(3)), while a flat-rate trader keeps only the register of turnover, KPO (Art. 43(4)).
Double-entry bookkeeping in practice means:
- a general ledger and journal, a chart of accounts, customer and supplier sub-ledgers;
- an inventory of assets and liabilities on the switch date (opening balance sheet) and at every year end;
- the PB 2 tax balance sheet and the PPDG-1S return by 15 April (Art. 93(1));
- regular annual financial statements to APR by 31 March (Art. 44(1) of the Accounting Act);
- retention of documents for 5 years, the journal and general ledger for 10, financial statements for 20 years (Art. 28 of the Accounting Act).
The Act does not forbid a sole trader from keeping the books personally, but responsibility for the accuracy of the tax balance sheet and the APR filings is theirs, so an accountant is the practical standard.
Taxation on books: profit or personal salary
On books, two things are paid.
Self-employment income tax: 10% of taxable profit (Art. 38). Profit is the difference between income and expenses in the books, adjusted in the tax balance sheet (non-deductible expenses, depreciation at tax rates).
Contributions: 35.05% (pension 24%, health 10.3%, unemployment 0.75%; Art. 44(1) of the Contributions Act), on one of two bases (Art. 22(1)):
- without a personal salary, the base is taxable profit: every dinar of profit carries 10% tax and 35.05% contributions, 45.05% in total, subject to the maximum annual base (12 maximum monthly bases, 12 × RSD 732,820 in 2026);
- with a personal salary, the contribution base is the wage you set for yourself, not below the minimum monthly base (RSD 51,297 in 2026), on which you also pay 10% salary tax above the tax-free RSD 34,221 (Arts. 15a and 16); the salary is an expense, and the remaining profit carries only 10% tax and is freely at your disposal.
Example, profit before personal salary RSD 5,000,000 a year:
| Without personal salary | With personal salary of RSD 60,000 gross a month | |
|---|---|---|
| Tax and contributions on the salary | 0 | (60,000 − 34,221) × 10% + 60,000 × 35.05% = 23,608 a month, 283,296 a year |
| Taxable profit | 5,000,000 | 5,000,000 − 720,000 = 4,280,000 |
| 10% tax on profit | 500,000 | 428,000 |
| 35.05% contributions on profit | 1,752,500 | 0 |
| Total | 2,252,500 | 711,296 |
The difference of around RSD 1,540,000 a year is why the personal-salary election is filed within 15 days of losing flat rate, not "when we remember". A higher salary means a higher pension base, so choose the amount by what you want to pay into the pension fund, not only by the minimum.
When an LLC makes sense
Leaving flat rate is also the moment to revisit legal form. A sole trader on books and an LLC (DOO) pay similar running bookkeeping costs but differ in three respects:
- liability: a sole trader is liable with all personal assets, an LLC with company assets (Companies Act); in a business with a real risk of damage or debts this is the main argument for an LLC;
- taking money out: a sole trader takes the profit remaining after 10% tax with no further tax; an LLC pays 15% corporate income tax and a dividend to the founder carries a further 15% (Art. 61 of the Personal Income Tax Act), about 27.75% combined on distributed profit, plus the director's contributions at least on the minimum base (Art. 23 of the Contributions Act);
- structure: several founders, an investor, retaining profit for growth, selling a stake and foreign clients who require a legal entity favour an LLC.
For a single operator with income of a few million dinars and low risk, a sole trader on books with a personal salary is usually simpler and cheaper. For a business with employees, stock, contracts with penalties or a plan to sell one day, an LLC. Formation and costs are described on the company formation page.
Common mistakes
- Checking turnover only in December: an excess in the first half of the year means books from 1 July, so half a year is reconstructed backwards.
- Mixing up the two limits: RSD 6,000,000 per calendar year for flat rate, RSD 8,000,000 per rolling 12 months for VAT.
- Missing the 15-day personal-salary deadline: a year of contributions on the whole profit.
- Voluntary VAT registration to deduct VAT on equipment, without reckoning that it binds you for the current and following year (Art. 33(4) of the VAT Act) and brings SEF and monthly VAT returns with it.
- No opening balance sheet on the switch date: equipment and stock bought under flat rate cannot later be expensed if not inventoried and documented.
This text is an informational overview of the regulations and does not replace an accountant or a tax adviser; the EPPDV and PPDG-1S forms and current notices are on the Tax Administration website.
What to do
- Track turnover during the year, not only at year end: the RSD 6,000,000 limit covers total receipts from sales of products and services in the calendar year (Art. 40(2)(4) of the Personal Income Tax Act), while VAT looks at turnover in the previous 12 months, not the calendar year (Art. 33(1) of the VAT Act).
- If turnover in 12 months exceeds RSD 8,000,000, file the VAT registration return (form EPPDV) via ePorezi within 5 days (Art. 38(1) of the VAT Act). Flat rate ends and books start that day, without a decision (Art. 42(6) of the Personal Income Tax Act).
- If you exceeded RSD 6,000,000 but not 8,000,000, wait for the Tax Administration decision: it orders books from 1 July of the current or 1 January of the following year (Art. 42(5)). Until the date in the decision you keep paying flat rate under the old decision.
- Within 15 days of losing flat rate decide whether you will pay yourself a personal salary and file the notice with the Tax Administration via ePorezi (Art. 33a). Whoever misses the deadline pays contributions on the whole profit until year end and can introduce a personal salary only from the following year, with notice by 15 December.
- Engage an accountant and open double-entry books from the first day of the new regime (Art. 43(2)): opening balance sheet, inventory of equipment and stock, contracts with customers and suppliers. A flat-rate trader entering VAT may, under the conditions of the VAT Act, deduct input VAT on stock held on the entry date if invoices exist, so take the stock inventory that same day.
- File the PPDG-1S tax return with an estimate of income, expenses and the monthly advance for the rest of the year via ePorezi; for a new sole trader the deadline is 15 days (Art. 94(1)), and the exact deadline for a switch from flat rate should be checked with the Tax Administration, as the Act does not set a separate one.
- From the first month on books pay the monthly advance of tax and contributions by the 15th (Arts. 111 and 114), and if VAT-registered file PPPDV monthly (first two years) and record VAT in SEF (Arts. 48(8) and 50 of the VAT Act; Art. 4 of the E-Invoicing Act). The deadlines are on the month-by-month obligations page.
- By 15 April of the following year file PPDG-1S with the PB 2 tax balance sheet for the period from the start of books to year end (Art. 93(1)), and by 31 March the financial statements to APR (Art. 44 of the Accounting Act).
- If business shrinks permanently below RSD 6,000,000 and you leave VAT, you return to flat rate by application by 31 October for the following year, or within 15 days of the notice of deregistration from VAT (Art. 42(1)).
What it costs
The switch itself costs nothing: the VAT registration return, the personal-salary notice and PPDG-1S carry no fee. The cost is the accountant, who is a practical necessity on books: prices for a sole trader on double-entry books without employees and outside VAT run around RSD 8,000 to 15,000 a month, more inside VAT and with employees; details are on the page about the cost of an accountant. The other cost is contributions: without a personal salary, 35.05% on the whole profit; with a personal salary, 35.05% only on the salary, while the rest of the profit bears 10% tax (Art. 38 of the Personal Income Tax Act; Arts. 22 and 44 of the Contributions Act).
FAQ
When must a flat-rate trader switch to books in Serbia in 2026?
In three cases under Art. 40(2) of the Personal Income Tax Act: when total turnover in the calendar year exceeds RSD 6,000,000 (item 4), when the trader becomes a VAT payer, mandatorily above RSD 8,000,000 turnover in 12 months or voluntarily (item 5), and when the trader takes up an activity for which flat rate is not allowed: advertising and market research, wholesale and retail trade, hotels and restaurants, financial intermediation and real estate (items 1 and 2), or when other persons invest in the business (item 3). The exception is trade and catering from a kiosk or mobile unit (para. 3). The RSD 6,000,000 limit has not changed, and the Flat-Rate Taxation Regulation (Sl. glasnik RS Nos. 94/2019, 96/2019 - corr., 156/2020, 141/2022, 89/2023 and 115/2025) has been extended to 2027.
From what date does a sole trader keep books after losing flat rate?
It depends on the reason. On exceeding RSD 6,000,000, the Tax Administration issues a decision ordering books from the middle of the current year (1 July) or the start of the following year (1 January), depending on when the excess was established (Art. 42(5)); until then the old decision applies. On VAT registration, books are kept from the day the trader becomes a VAT payer, without a separate decision (Art. 42(6)). In practice: whoever passes RSD 8,000,000 on 20 March files EPPDV by 25 March and is on books and in VAT from that day.
Can a sole trader keep single-entry books?
An ordinary sole trader cannot. Since 1 January 2019 a sole trader taxed on actual income keeps books under the double-entry system, in line with the Accounting Act (Art. 43(2) of the Personal Income Tax Act). The Act kept single-entry bookkeeping only for farmer sole traders and other-person sole traders (Art. 43(3)), while a flat-rate trader keeps only the register of turnover, KPO (Art. 43(4)). Double-entry means a general ledger, a journal, a balance sheet and income statement and annual financial statements to APR by 31 March (Art. 44 of the Accounting Act), which in practice does not work without an accountant.
How much tax and contributions are paid on books?
Self-employment income tax is 10% of taxable profit, that is, the difference between income and expenses adjusted in the tax balance sheet (Art. 38). Contributions are 35.05% (pension 24%, health 10.3%, unemployment 0.75%) on one of two bases: on taxable profit if you pay no personal salary, or on the personal salary if you elected one (Arts. 22 and 44 of the Contributions Act). The base cannot be below the minimum monthly base, RSD 51,297 in 2026, or above the maximum, RSD 732,820 a month (Arts. 36-42). Example: profit of RSD 5,000,000 without a personal salary carries RSD 500,000 tax and RSD 1,752,500 contributions; with a personal salary of RSD 60,000 gross a month, about RSD 711,000 a year in total.
What is a sole trader's personal salary and by when is it declared?
The personal salary is the amount a sole trader on books pays themselves as a wage, on which 10% salary tax (above the tax-free RSD 34,221 in 2026) and 35.05% contributions are paid monthly, with PPP-PD before payment; the salary paid is an expense that reduces taxable profit (Art. 33a of the Personal Income Tax Act; Art. 52a of the Contributions Act). The election is notified to the Tax Administration by 15 December of the current year for the following one, and a flat-rate trader who loses the right has 15 days from the day the right is lost (Art. 33a). The election holds at least until year end; withdrawal is likewise notified by 15 December.
Is it better to move to books as a sole trader or to set up an LLC (DOO)?
It depends on risk and how you take money out. A sole trader is liable with all personal assets, pays 10% tax on profit and freely disposes of the rest, with no further tax. An LLC is liable only with company assets (share capital of RSD 100), pays 15% corporate income tax, and a distribution to the founder carries a further 15% dividend tax (Art. 61 of the Personal Income Tax Act); the director, even as founder, pays contributions on a salary or at least on the minimum base (Art. 23 of the Contributions Act). An LLC makes sense when the risk of claims is serious, when several founders or an investor come in, when you plan to retain profit in the company and when clients, especially foreign ones, require a legal entity. For a single operator with a stable income of a few million dinars, a sole trader on books with a personal salary is usually simpler and cheaper. The set-up procedure is on the company formation page.
Can you go back to flat rate after switching to books?
Yes, if the reasons that excluded flat rate have ceased: turnover in the previous year below RSD 6,000,000, exit from the VAT system and an activity that is not excluded (Art. 40(2)). The application is filed electronically via ePorezi by 31 October of the current year for the following year, and whoever was deregistered from VAT files within 15 days of receiving the deregistration notice, by 31 December at the latest (Art. 42(1)). Bear in mind that voluntary VAT registration binds you for at least the current and the following calendar year (Art. 33(4) of the VAT Act), so a return to flat rate is possible only after that period.