What is a Tax Position of a Foreigner who Performs Duties of a Director in Serbia without Establishing an Employment Relationship?

A foreign national, as well as a domestic citizen, assumes the status of a self-employed person when performing duties of a director outside an employment relationship, i.e., based on a contract governing rights and obligations of the director, unless insured on a priority basis.

This position is outlined in the Opinion of the Serbian Ministry of Labor, Employment, Veterans and Social Affairs no. 011-00-00383/2021-07 dated December 8, 2021 (“Opinion”), and further details on this matter are provided below.

Regulations

The regulations of the Republic of Serbia governing the labor and employment matter, as well as mandatory pension and disability insurance, do not differentiate between the treatment of domestic and foreign citizens. Specifically:

• According to Article 2, paragraph 1 of the Labor Law, the provisions thereof apply to employees working within the territory of the Republic of Serbia, whether for a domestic or foreign legal or natural person, as well as to employees seconded abroad by the employer, foreign citizens and persons without citizenship working for an employer within the territory of the Republic of Serbia, unless otherwise specified by law.

In accordance with the above, foreign citizens and persons without citizenship working for employers in Serbia have the same status as domestic citizens, along with all the rights and obligations that come therewith.

• Pursuant to Article 48 of the Labor Law, a director or another legal representative of an employer may establish an employment relationship for an indefinite or definite period, based on an employment contract. The employment relationship for a definite period can last until the expiration of the director's term or until their dismissal. The mutual rights, obligations, and responsibilities of a director who has not established an employment relationship with the employer are regulated by a contract, in which case the person performing the respective duties is entitled to a compensation, as well as other rights, obligations, and responsibilities in accordance with the contract.

Namely, it is stipulated by the Constitution of the Republic of Serbia that everyone is entitled to a fair compensation for work, and no one can waive that right. In this regard, and in line with the Opinion of the Serbian Ministry of Labor, Employment, Veterans and Social Affairs no. 011-00-00416/2021-07 dated October 15, 2021, compensation is a mandatory element of the contract governing the mutual rights, obligations, and responsibilities of a director who has not established an employment relationship, as well as the representation contract for a representative who has not established an employment relationship and is not a founder or shareholder of the company.

• In accordance with Article 12, paragraph 1, item 3) of the Law on Pension and Disability Insurance, individuals performing tasks based on a work contract, author's contract, or other contracts where they receive compensation for their services are considered self-employed persons.

Ministry's Position

In line with the above, foreign nationals who perform the capacity of director of a company in the Republic of Serbia, based on a contract specifying the rights and obligations of the director, are considered self-employed persons.

Furthermore, a director may agree with the employer to waive the agreed compensation for work, but regardless of that, the employer is obliged to pay contributions for mandatory pension and disability insurance for such insured persons - at least on the minimum basis.

Additionally, the existence of a concluded bilateral agreement on social security and registration for mandatory pension and disability insurance based on employment in the domicile countries of these individuals is usually not relevant in these situations. This is because social security agreements, if concluded, generally do not include provisions for resolving positive conflicts of jurisdiction in cases of simultaneous employment in one country and self-employed activities in another.

Namely, only social security agreements concluded with Hungary, Russia and Greece explicitly stipulate that, in case of simultaneous employment in one country and self-employed activities in another, the legislation of the country of employment is applicable. As such, these agreements provide a legal basis for an individual who is mandatory insured based on employment in one of these countries not to be mandatorily insured in the Republic of Serbia in case of simultaneous self-employed activities.

Therefore, foreign nationals employed in their domicile countries, who perform the capacity of director of a company in the Republic of Serbia based on a contract specifying the rights and obligations of the director, and do not receive compensation on that basis, cannot be exempted from the application of the laws of the Republic of Serbia governing pension and disability insurance. They acquire the status of self-employed persons, and the employer is obliged to calculate and pay contributions for pension and disability insurance in accordance with the regulations on contributions for mandatory social insurance, i.e., based on the taxable income. There is also an obligation to submit a unified electronic application to the Central Registry of Mandatory Social Insurance.