When you start a sole proprietorship in Serbia, the first big decision isn’t the company name but the method of taxation: flat-rate tax or double-entry bookkeeping. This choice directly affects how much you’ll pay the state, how much time you’ll spend on administration, and how much your accounting support costs. Let’s break down when each option pays off.

What flat-rate tax is, and what bookkeeping is

Flat-rate taxation means that the Tax Administration determines your monthly obligation (tax and contributions) in advance, based on your business activity code, municipality, years of service, and other criteria. The amount is fixed and does not depend on how much you actually earned in a given month. You don’t keep business books in the classic sense, only the KPO book (the book of recorded turnover).

Bookkeeping (taxation based on actually earned income, the so-called bookkeeping regime) means you report your actual revenues and expenses, and tax is calculated on net profit. The income tax rate on self-employment income is 10%, plus the applicable contributions for mandatory social insurance. This regime requires proper accounting and the mandatory engagement of an accountant.

The key limit: 6 million dinars

Flat-rate tax isn’t available to everyone. The most important restriction is the upper turnover limit of 6,000,000 dinars per year (the figure applies to 2026; the limit has been unchanged since 2013). How that limit is calculated matters:

It is calculated based on issued invoices, not on collection – income is recorded when you issue the invoice, regardless of whether it has been paid.
It is tracked by calendar year (January 1 – December 31).
If you exceed 6 million, you lose the right to flat-rate tax and switch to bookkeeping.

Note: the flat-rate limit (6 million) and the limit for entering the PDV system (8 million) are two different things. The PDV threshold of 8,000,000 dinars is tracked continuously, 365 days back from any date, and never resets. It’s possible to enter PDV before you lose flat-rate status, or vice versa – which is why the two should not be confused.

When flat-rate tax pays off

Flat-rate tax is typically the best choice for freelancers and service activities with low costs and high margins. These are jobs you do from home, with a laptop, without major purchases:

IT and programming, design, copywriting, marketing, consulting, online education.
Income is stable and below the limit of 6 million dinars per year.
Operating costs are minimal – you have nothing to show as an expense, so deducting costs brings you no benefit.
You want predictability: you know exactly how much you pay each month and spend less time on administration.

Keep in mind that flat-rate tax is not permitted for all business activities. Activities in the fields of trade, hospitality, finance, and real estate, as well as situations where another person invests in your business, cannot be taxed on a flat-rate basis.

When bookkeeping pays off

Bookkeeping becomes the more natural choice as soon as you have more serious costs or higher income. Since tax is calculated on profit (income minus expenses), every legitimate expense reduces the tax base:

You have significant costs: rent of premises, equipment, goods, employees, subcontractors.
Your income exceeds (or will soon exceed) 6 million dinars – in which case flat-rate tax is not an option anyway.
Your business activity is not permitted under the flat-rate regime.
Your business is such that the flat-rate amount for your activity code turns out higher than what you would pay on actual profit.

Within bookkeeping there are two sub-regimes: taxation of the entire profit, or opting to pay a personal salary. A personal salary is a monetary amount you pay yourself as monthly income, on which tax and contributions are calculated. Which sub-regime is more favorable depends on the size and structure of your income, so it’s worth calculating with an accountant.

Costs and administration

The biggest practical difference is the administrative burden. A flat-rate entrepreneur keeps only the KPO book and has a fixed monthly obligation, so accounting support is simpler and cheaper. A bookkeeping entrepreneur must have an accountant who keeps complete business books, tracks costs, and files returns – that’s more work, but in return it allows you to reduce your tax through expenses.

If you lose the right to flat-rate tax, the transition isn’t automatically painless. The Tax Administration orders bookkeeping by decision (from the middle of the current year or from January 1 of the following year), and you file the PPDG-1S tax return within 15 days of the date stated in the decision. In practice, after the decision there is also a window to engage an accountant and set up bookkeeping, so it’s best to act immediately.

Key takeaways

Flat-rate tax: low administrative cost, fixed monthly obligation, ideal for services with few costs and turnover below 6,000,000 dinars per year (2026).
Bookkeeping: mandatory when you have high costs, exceed the limit, or your activity is not permitted for flat-rate tax; tax is 10% on profit, but expenses reduce the base.
The 6 million limit (flat-rate) is calculated based on issued invoices within the calendar year – don’t confuse it with the PDV threshold of 8 million (365 days back).
When switching to bookkeeping, deadlines apply: PPDG-1S within 15 days of the date in the Tax Administration’s decision.

The right choice depends on your specific numbers – income, costs, and business activity. If you’d like someone to calculate what pays off for you, get in touch.