Flat Tax Cap Unchanged Since 2013, Prices Up 76 Percent

The cap for flat tax entrepreneurs in Serbia has stood at six million dinars since 2013, while consumer prices have risen 76 percent in the meantime. The average net salary jumped 120 percent over the same period, from about 60,000 to about 135,000 dinars a month.

The Protector of Entrepreneurs and Businessmen of Serbia, an association bringing together more than 25,000 domestic business owners, sent an official letter to the Ministry of Finance on August 6 asking that the threshold be moved to eight million dinars. The same letter also asks that the entry point for the VAT system be raised from eight to 12 million dinars. The association is headed by Darko Majstorovic, who sent an identical proposal to the Ministry back on May 25, 2023.

“This isn’t a new idea we’re raising just because it’s topical right now, we’ve been asking for it for three years already. The cap of six million dinars has been frozen since 2013, while consumer prices have risen 76 percent in that period, and the average net salary 120 percent,” Majstorovic said in the request sent to the Ministry of Finance.

By the association’s calculation, had the threshold tracked price growth, it would today stand at more than 10 million dinars. By that logic, the eight million being requested is still below the level the cap would have reached if it had been indexed.

How much is six million worth today

Six million dinars in annual turnover works out to half a million dinars a month. In the year the threshold was set, that was about 8.3 average net salaries. At today’s average salary of about 135,000 dinars, the same amount is worth 3.7 average salaries.

This is turnover, not an entrepreneur’s actual earnings. Out of that half a million a month come materials, rent, subcontractors, equipment and tax, so an entrepreneur billing right up to the limit has nowhere near that much left as income. That is why the threshold today catches craftsmen, hair salons and IT consultants who in 2013 were nowhere near it.

What happens when an entrepreneur nears the threshold?

Crossing the limit means losing flat tax status and moving into a far more demanding administrative regime, without a single dinar of real business growth behind it. Irena Djordjevic Susic, head of the Unit for Innovation and Entrepreneurship at NALED, described the pattern that has repeated for years as a result.

“From 2013 until today the average salary has risen from about 60,000 to 135,000 dinars, while inflation has risen by 76 percent. The cap has stayed the same, so as soon as entrepreneurs get close to the limit, they either start working off the books, or put their company into dormancy, or shut it down. That’s why we proposed raising the cap from 6 to 8 million dinars,” Djordjevic Susic said on Radio Belgrade’s First Program.

The second threshold works under stricter mechanics, a part of the story that rarely gets mentioned. The eight million dinar VAT threshold is not measured by calendar year but over any 365 consecutive days, and an entrepreneur who crosses it enters the VAT system starting the very next day. Anyone who breaches both thresholds at once ends up with the more expensive tax regime and mandatory VAT recordkeeping in the same month.

Why the increase is waiting for EU entry

The Ministry of Finance has not accepted the proposal to raise the cap so far. The state of the proposal after the public debate on the draft tax laws looks like this:

• raising the cap from six to eight million dinars did not make it into the published draft law
• the increase is being considered as part of the tax reform, but under that scenario it would only take effect on the day Serbia joins the European Union
• the proposal that a flat tax entrepreneur who exceeds the threshold moves into the personal earnings regime instead of the far more expensive self-taxation regime was accepted, effective January 1, 2027

That last item is the only concrete step forward, and it changes the cost of falling out of flat tax status, not the threshold itself. An entrepreneur who crosses six million in 2027 still loses flat tax status, just under somewhat better terms.

Tying the correction of the cap to the day of EU accession means the threshold would stay unchanged for years to come while inflation keeps doing its work. In the first half of this year the Tax Administration collected 160 billion dinars more in revenue than in the same period the year before, a result of better enforcement and collection of old debts. The association has called on the Ministry to respond to its letter with a concrete solution.