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The independence test for sole traders in Serbia: 9 criteria, 5 of 9, consequences

Serbia's independence test (Art. 85 ZPDG): the nine criteria, the 5-of-9 rule, who the principal is, what failing means (20% tax + pension) and who pays.

INFO
Short answer. The independence test (test samostalnosti) checks whether a sole trader or flat-rate sole trader genuinely works independently or is, for one principal, a substitute for an employee. If at least five of the nine criteria in Art. 85(1)(17) of the Personal Income Tax Act are met, or that could have been concluded when the engagement began, the fee from that principal is not self-employment income but other income: 20% tax on the gross amount, with no standard expense deduction, plus a 24% pension contribution. A domestic principal withholds and pays at the time of payment; with a foreign principal the sole trader files within 30 days. The test has applied since 1 March 2020 and does not cover companies.
ROK
Deadline. When the principal is a domestic legal entity or entrepreneur, the payer calculates and pays the tax and contribution at each payment, by withholding. When the principal is a foreign person, the sole trader files a tax return and pays the tax and contribution within 30 days of receiving the fee. The 70% income and 130 working day criteria are measured over a 12-month period that begins or ends in the tax year. (Arts. 85(1)(17), 95(6), 99(1)(9), 100a(1)(2) and 101 of the Personal Income Tax Act (Zakon o porezu na dohodak građana, Sl. glasnik RS Nos. 24/2001 ... 6/2026 - indexed amounts and 80/2026))

What the independence test checks

Since 1 March 2020 the Personal Income Tax Act counts among other income the fee paid to a sole trader or flat-rate sole trader who "performs activities for a fee for the same principal" and at the same time meets at least five of nine criteria (Art. 85(1)(17)). The purpose, as the Tax Administration puts it in its information booklet, is to establish whether the sole trader operates independently of the principal or is engaged in a way that in fact makes them a substitute for an employee.

Failing the test is not a ban on working, nor a reclassification into employment. The consequence is a tax one: that particular fee stops being self-employment income (taxed at the flat rate or as profit at 10%) and becomes other income, with 20% tax on the gross amount and a 24% pension contribution, with no standard expense deduction.

The test covers sole traders and flat-rate sole traders regardless of activity. It does not cover companies. A special rule applies to professions in which a person cannot by law be employed by the principal, lawyers for example: their income from that principal remains self-employment income.

Who the principal is

The principal (nalogodavac) is a domestic or foreign legal entity, entrepreneur or flat-rate entrepreneur that directly or indirectly engaged the sole trader to perform work. The criteria are also assessed against persons related to the principal within the meaning of the Corporate Income Tax Act, so work for two companies of the same group counts as work for one principal.

A direct payer that pays the fee in connection with agency or intermediation on behalf of another person, charging only a customary commission, is not treated as the principal; the principal is then the person on whose behalf payment is made. Platforms and agencies that merely pass money through therefore do not shield you from the test, but nor do they become the principal themselves.

The nine criteria

The statutory text, shortened to the essentials. Each criterion is judged on the actual situation, not on how the contract is titled.

  1. The principal sets the sole trader's working hours, or leave and absences depend on its decision, and the fee is not reduced in proportion to time spent on leave.
  2. The sole trader usually uses premises provided by the principal or performs the work at a place designated by the principal.
  3. The principal carries out or organises the sole trader's professional training or development.
  4. The principal engaged the sole trader after advertising in the media a need to engage natural persons, or through a third party that habitually finds persons suitable for work engagement.
  5. The principal provides its own basic tools, equipment or other basic assets needed for the sole trader's regular work or finances their purchase (other than specialised assets for a specific job), or habitually directs the work process beyond giving the basic instruction and reasonably checking results as a prudent business would.
  6. At least 70% of the sole trader's total income in a 12-month period that begins or ends in the tax year was earned from one principal or its related parties.
  7. The sole trader performs work within the principal's line of business and the contract contains no clause under which the sole trader bears the usual business risk for work delivered to the principal's client, where such a client exists.
  8. The contract contains a partial or full ban on providing services to other principals, other than a partial ban covering a limited number of the principal's direct competitors.
  9. The sole trader works for the same principal, continuously or with breaks, 130 or more working days in a 12-month period, any work within a day counting as a working day.

The rule is "five of nine": four met criteria do not fail the test, five do. The Act adds a second variant: the fee is other income also when "from the circumstances at the start of the business relationship it could be concluded" that five criteria would be met, and they later were. The defence "in the first six months we had not yet reached 130 days" therefore does not help if it was clear from the outset where the engagement was heading.

What failing means in money

The fee from that principal is taxed as other income. The base is gross income, without the 20% standard expenses that otherwise apply to other income (Art. 85(5)(1)). The tax rate is 20% (Art. 86(1)). A 24% pension and disability contribution is due on the same base (Arts. 28 and 44 of the Law on Mandatory Social Insurance Contributions); the pension contribution is paid on every basis on which income is earned (Art. 12). No health contribution is due when the sole trader is already health-insured through the business.

Example: a flat-rate sole trader, a programmer, works for one company and invoices RSD 300,000 a month. If the test fails, every 300,000 carries 60,000 in tax and 72,000 in pension contribution, RSD 132,000 in total, or 44% of the gross. For a year: RSD 1,584,000. The flat-rate decision stays in force, because the test changes the tax treatment of one fee, not the status of the sole trader; the flat rate continues to cover other income.

Who pays depends on the payer. A domestic legal entity or entrepreneur, as payer, withholds the tax and contribution and pays them at the time of payment, remitting the net to the sole trader (Arts. 99(1)(9) and 101); in an audit the liability, interest and fine go to the payer. When the principal is a foreign person with no withholding duty in Serbia, the sole trader is the taxpayer, by self-assessment within 30 days of receiving the fee (Arts. 95(6) and 100a(1)(2)). In practice the consequences are shifted by contract: the principal lowers the fee by its tax cost or seeks an indemnity. The law does not prohibit that, but nor does it change who the taxpayer is.

How the risk is reduced

The test measures facts, so the risk is reduced by changing how you work, not only the contract. Measures that genuinely help:

  • Several clients. While the share of one principal and its related parties stays below 70% of income in every twelve-month window, criterion 6 falls away. It is also the healthiest business measure.
  • Your own equipment and premises. A computer, software licences, phone and workspace that you pay for and run through your own costs.
  • Your own working hours and leave. A contract that defines the deliverable and deadlines, not hours of attendance; no duty to seek approval for absence.
  • No exclusivity clause. Only a limited ban on specific direct competitors is allowed.
  • Responsibility for the result. A clause on liability for defects and for damage to the client, and actual conduct in line with it.
  • Manner of engagement. A proposal, portfolio and negotiation rather than answering a job advert.
  • Number of days. Below 130 working days for the same principal in 12 months; records that prove it.

What does not help: renaming the contract a "service agreement", splitting the invoice between two companies of the same group, a nominally rented desk in a coworking space while working in the principal's office, or a formal risk clause nobody applies. The Tax Administration looks at the actual situation.

When the engagement by its nature is work for one employer, the honest alternative is an employment contract; another is moving to a d.o.o., which the test does not cover but which carries corporate profit tax, dividend tax, mandatory bookkeeping and payroll for the director, so the sums should be done before the change, not after.

Audits and evidence

The Tax Administration applies the test in tax audits under its Guidance on applying the independence test, published on its website, at the principal and at the sole trader. The inspector goes criterion by criterion: contracts and annexes, invoices and bank statements, income shares by client, attendance records, access cards, correspondence, the adverts through which the engagement began, evidence of who bought the equipment and rented the premises. The "could be concluded at the start" variant is assessed as well.

If five or more criteria are established, a decision assesses the tax on other income and the pension contribution, with interest from the day they should have been paid, and misdemeanour proceedings are initiated against the payer or the sole trader. The decision can be appealed within 15 days of delivery (Art. 143 of the Tax Procedure and Tax Administration Act); the appeal does not suspend payment. The right to assess tax becomes time-barred five years from the first day of the year following the year in which the liability arose (Art. 114 of that Act).

Evidence of independence is best kept as you go, not gathered when an audit arrives: contracts with all clients, proposals and declined proposals, a record of working days per client, receipts for equipment, rent and licences, proof that you set your own schedule.

When to see a tax adviser

When one principal makes up more than half of your income and the work resembles employment, when the principal offers an annex "because of the independence test" with a lower fee or an indemnity clause, when you are moving from sole trader to a d.o.o. or into employment, when the principal is foreign so the self-assessment duty is yours, or when you receive an audit notice. A lawyer is needed once an audit is under way and a decision must be appealed, or when the principal claims damages from you for tax it had to pay.

Sources

What to do

  • For every principal from whom you earned significant income in the last 12 months, go through the nine criteria and assess each honestly; the criteria are judged on the actual situation, not on the contract wording.
  • Calculate the income share: if 70% or more of your total income over 12 months comes from one principal or its related parties, criterion 6 is met. Count working days too: 130 or more days of work for the same principal in 12 months meets criterion 9.
  • Review the contract: a clause prohibiting work for others (criterion 8), the absence of a clause making you bear the business risk for work delivered to the principal's client (criterion 7), working hours and leave set by the principal (criterion 1).
  • Look at how you work: whose premises and equipment (criteria 2 and 5), who directs the work process, whether the principal organises your training (criterion 3), how you were hired, through a job advert or a recruitment agency (criterion 4).
  • If you meet five or more criteria, add up the exposure: 20% tax and a 24% pension contribution on the gross fee, plus interest and a misdemeanour fine if established in an audit. The liability sits with the payer when domestic, with you when foreign.
  • Reduce the number of criteria met where that is genuinely the case, not just on paper: more clients, your own equipment and premises, your own working hours, no exclusivity clause, contractual responsibility for the result.
  • If the engagement by its nature resembles employment, compare the alternatives with the principal: an employment contract, or a different engagement model. The test covers only sole traders, not companies, but changing form has its own costs and does not alter the facts of past periods.
  • Keep evidence of independence: contracts with several clients, invoices, proposals, a record of working days, receipts for equipment and office rent. In an audit the Tax Administration asks for exactly that, from you and from the principal.

What it costs

When the test fails, the fee is taxed as other income: 20% tax (Art. 86(1)) on the gross amount, with no standard expenses (Art. 85(5)(1)), and a 24% pension contribution on the same base (Arts. 28 and 44 of the Law on Mandatory Social Insurance Contributions). No health contribution is due when the sole trader is already health-insured through the business. Example: on a monthly fee of RSD 300,000 the tax is 60,000 and the pension contribution 72,000, RSD 132,000 in total, or 44% of the gross; a flat-rate sole trader on the same fee pays, depending on activity and municipality, a few tens of thousands of dinars a month under the decision. When the liability is established in an audit, interest under the Tax Procedure and Tax Administration Act is added. The test itself does not change the flat-rate decision or the profit tax of the sole trader for other income.

FAQ

What is the independence test for sole traders and does it apply in 2026?

The independence test is a set of nine criteria in Art. 85(1)(17) of the Personal Income Tax Act used to judge whether a sole trader or flat-rate sole trader works for a principal as an independent business or as a disguised employee. It has applied since 1 March 2020 and remains in force in 2026, with the criteria unchanged. If the sole trader meets at least five of the nine criteria, the fee from that principal is taxed as other income rather than as self-employment income. The Tax Administration applies the test in audits under its Guidance on applying the independence test.

What are the nine criteria of the independence test?

In short: (1) the principal sets working hours, leave and absences, and the fee is not reduced for time off; (2) the sole trader usually works on premises or at a place designated by the principal; (3) the principal organises the sole trader's training or professional development; (4) the sole trader was hired through a job advert or through an agency that finds persons for work engagement; (5) the principal provides the basic tools, equipment and means of work or directs the work process beyond giving instructions and reasonably checking results; (6) at least 70% of total income over 12 months comes from that principal or its related parties; (7) the sole trader performs work within the principal's line of business and the contract does not make them bear the usual business risk for work delivered to the principal's client; (8) the contract contains a full or partial ban on working for other principals, other than a limited ban on direct competitors; (9) the sole trader works for the same principal 130 or more working days in 12 months. Five met criteria are enough.

Who pays the tax when a sole trader fails the independence test?

It depends on who the payer is. When the principal is a domestic legal entity or entrepreneur, it must, as payer, calculate, withhold and pay the 20% tax and the 24% pension contribution at each payment (Arts. 99(1)(9) and 101), so in an audit the liability, interest and fine are assessed on it. When the principal is a foreign person that does not withhold tax in Serbia, the sole trader is the taxpayer: they file a return and pay within 30 days of receiving the fee (Arts. 95(6) and 100a(1)(2)). Commercially, the burden is in practice shifted to the sole trader by contract through a lower fee; the legal obligation does not change.

Does the independence test apply to foreign clients?

Yes. A principal is a domestic or foreign legal entity, entrepreneur or flat-rate entrepreneur that directly or indirectly engaged the sole trader. A sole trader working for one foreign company, in its working hours, with its equipment and under a ban on working for others, fails the test exactly as with a domestic client, except that they then calculate and pay the tax and contribution themselves, because the foreign payer has no withholding duty in Serbia. The exception is agencies and intermediaries: a person who merely passes on the fee on behalf of another, for a customary commission, is not the principal; the principal is the person on whose behalf payment is made.

Does a limited company fail the independence test, or only a sole trader?

The Act ties it exclusively to the sole trader and flat-rate sole trader, natural persons registered for a business activity. A company, including a single-member d.o.o., is not covered by Art. 85(1)(17). That is why some sole traders moved to a d.o.o. after 2020. That has its own consequences: 15% corporate profit tax, tax on dividends, mandatory books and an accountant, payroll for the director and stricter rules on payouts. A change of form does not remove liabilities from the period in which the sole trader already met the criteria.

What does the 70% of income from one principal criterion mean?

Criterion 6 is met when at least 70% of the sole trader's total income over a 12-month period that begins or ends in the tax year comes from one principal or from persons related to it within the meaning of the Corporate Income Tax Act. All of the sole trader's income, from all clients, in any twelve-month window touching that year is counted; splitting the work between two companies of the same group does not help, because related parties are aggregated. This criterion alone does not fail the test: five are needed, but in practice a sole trader with one client easily meets criteria 2, 5, 8 and 9 as well.

How does the Tax Administration audit the independence test?

The test is applied in a tax audit, at the principal or at the sole trader, under the internal Guidance on applying the independence test published on the Tax Administration website. The inspector checks contracts, invoices, income shares, attendance and working-day records, who provided equipment and premises, correspondence and job adverts, and records for each criterion whether it is met. It is also assessed whether, at the start of the engagement, it could have been concluded from the circumstances that the criteria would be met. When five or more are established, a decision assesses the tax on other income and the contribution, with interest from the due date. The decision can be appealed within 15 days.