The Ministry of Finance of the Republic of Serbia – the Sector for the Fiscal System, acting upon the request of Živković Samardžić, issued an Opinion no. 011-00-137/2018-04 dated June 11th 2018 (hereinafter referred to as: „Opinion“).
The main reason for passing this Opinion is to answer the question that relates to the payment of contributions for compulsory social security under the contract on the rights and duties of the director without the establishment of employment relation in the case where that person, who is not the founder or a member of the company, “does not realize remuneration” for his/her work as a director.
According to the Opinion:
- a director or other legal representative of the employer (hereinafter referred to as: „the director“) may establish employment relation either for an indefinite or definite period of time;
- special contract on the performance of the work of the director without establishment of the employment relation (hereinafter referred to as „Contract“) could be concluded;
- rights, obligations and responsibilities of the director who did not establish employment relation and the employer are regulated by the Contract;
- the person who is performing the duties of the director shall be entitled to remuneration for work and other rights, obligations and responsibilities in conformity with the Contract;
- the director who performs jobs under a Contract without establishment of the employment relation is entitled to remuneration for work;
- in accordance with the Constitution of the Republic of Serbia, everyone has the right to a fair remuneration for work and no one could renounce such rights;
- remuneration for work shall be considered as a compulsory element of the Contract on mutual rights, obligations and responsibilities of the director who did not establish a employment relation;
- when a natural person (in the concrete case, who is not a founder or a member of a business entity) performs the affairs of the director on the basis of a Contract on the rights and obligations of the director, without the establishment of a employment relation in that company, there is an obligation to calculate and pay the personal income tax on the other income and associated contributions for compulsory social security on the basis of the agreed remuneration for work (it is an essential element of the Contract on mutual rights, obligations and responsibilities of the director);
- agreed remuneration (which contains the tax and contributions payable on behalf of the person who exercises such remuneration) is an adequate remuneration for the work of the director, and represents the basis of taxes and contributions (irrespective of the circumstances in which a natural person – the director renounces the agreed remuneration for work in favor of another person);
- the relevant contributions for compulsory social security are calculated and paid according to the subject matter – the contribution for pension and disability insurance, if the natural person is insured on another basis, and if not – a contribution for health insurance also;
- the basis of the contribution is the taxable income from the agreed fee in accordance with the law governing the personal income tax;
- the contribution for compulsory pension and disability insurance based on the agreed remuneration is calculated and paid at a rate of 26%;
- tax on other income is calculated at the rate of 20% applicable to the basis – taxable income constituting gross income (agreed remuneration) reduced for the standardized costs of 20%.
Legal consequences and obligations of the employer
When concluding a Contract on the rights and duties of the director without establishment of the employment relation, the director could not renounce the remuneration, because the remuneration is a compulsory element of such Contract according to the Constitution of the Republic of Serbia. For the amount of the agreed remuneration, the employer shall pay taxes and contributions for compulsory social security, for pension and disability insurance and health insurance.
The obligation to inscribe the amount of the remuneration in the Contract and the payment of taxes and contributions on the basis of the agreed remuneration by the employer does not cease, even in cases when the director renounces the remuneration, bearing in mind the fact that it is a compulsory element of the Contract and a basis for calculating compulsory taxes and contributions.
If you have any questions or need further information regarding the contract on the rights and duties of the director without establishment of the employment relation, please contact Jovana Tomić, Partner at jovana.tomic@zslaw.rs, Ana Popović, Senior Associate at ana.popovic@zslaw.rs, Filip Erić, Associate at filip.eric@zslaw.rs, or any of your regular contacts at Živković Samardžić.