Almost every flat-rate entrepreneur asks themselves at least once: how did the Tax Administration even arrive at that exact figure on my decision? The amount isn’t random — there is a clear formula with a starting base and a series of coefficients. In this article we explain, step by step, how flat-rate tax and contributions are calculated, and how the decision itself comes about.

What flat-rate taxation is

A flat-rate entrepreneur does not pay tax on income actually earned, but on a predetermined (flat-rate) base. This means that, regardless of whether you invoiced a lot or a little in a given month, you pay a fixed amount that the Tax Administration sets in a decision. The tax rate and the rates of contributions for mandatory social insurance are then applied to that base.

The starting base

It all begins with the starting base. It is tied to the average monthly salary per employee earned in the Republic of Serbia, the city, the municipality or the city municipality in which the business is headquartered. In other words, the base is not the same for the same business activity in Belgrade and in a smaller municipality — the location of the registered seat directly affects the amount.

A series of coefficients is then applied to that starting base, raising or lowering it depending on the business activity, the micro-location and the entrepreneur’s personal circumstances.

The coefficients that shape the base

The Regulation on the detailed conditions, criteria and elements for flat-rate taxation defines the coefficients that are applied to the starting base:

Business activity coefficient — depends on the activity code and is listed in Annex 1 of the Regulation. The differences are large: for example, for taxi transport (code 4932) the coefficient is 1.244, while for computer programming (code 6201) it is considerably higher — 4.025. That is why two flat-rate entrepreneurs in the same municipality can have substantially different bases.
Zone (micro-location) coefficient — ranges roughly from 0.7 to 1.1, depending on the zone in which the seat is located. Seats in the inner center (the extra and first zones) as a rule produce a higher base than those in suburban zones.
Founder’s age coefficient — for entrepreneurs younger than 30 or older than 55, a reduction is applied, with a coefficient of 0.9 (for certain professions such as legal, medical and architectural, even lower, 0.7).
Business duration coefficient — in the first year of operation the base is halved (coefficient 0.5), and is then gradually raised (0.8 / 0.85 / 0.9) until it reaches 1.0 for businesses older than 36 months.

The practical consequence: anyone opening a business for the first time has a base reduced by 50% in the first year of operation, which significantly lowers the monthly obligation at the start.

Tax and contributions on the base

Once the final base is determined, the tax rate and the rates of contributions for mandatory social insurance are applied to it. For entrepreneurs these are:

Tax on income from self-employment — 10%
PIO contribution (pension and disability insurance) — 24%
Health insurance contribution — 10.3%
Unemployment insurance contribution — 0.75%

An important note: not every flat-rate entrepreneur pays all contributions. If you are already employed by an employer or otherwise insured on some basis, part of the contributions (most often health) is not paid through the business. That is why it is important that the insurance basis on the decision be correct — more on that below.

Limit on the annual growth of the base

So that the base does not jump sharply from year to year, the Regulation provides that, for existing flat-rate entrepreneurs, the base cannot be increased by more than 10% relative to the previous year. This limit has been extended and applies through 2027. An exception exists if you yourself change the activity code or relocate the seat of the business — in that case the base is recalculated from scratch.

How the Tax Administration issues the decision

When you register as a flat-rate entrepreneur (or submit a request for flat-rate taxation), the Tax Administration issues an advance-payment decision based on the formula described above. It states the monthly amounts of tax and contributions that you pay, most often by the 15th of the month for the previous month.

Decisions can contain errors, so be sure to check them. The most common are:

Wrong insurance basis — health and unemployment have been charged to you even though you are already insured on the basis of employment.
Wrong business activity, zone or age coefficient.
Incorrectly determined base or the first-year reduction not applied.

If you do not agree with the decision, you have the right to appeal within 15 days from the date of receipt. Until the appeal procedure is concluded, you are obliged to pay the amounts stated in the decision.

Key takeaways

The base starts from the average salary in the municipality of the seat, and is then multiplied by the business activity and zone coefficients and the reductions for age and business duration.
In the first year of operation the base is halved (coefficient 0.5).
Rates: tax 10%, PIO 24%, health 10.3%, unemployment 0.75% — with the note that not all contributions are paid if you are insured on another basis.
The base of existing flat-rate entrepreneurs does not grow by more than 10% per year, through 2027.
Check the decision and, if it is incorrect, file an appeal within 15 days.

If you would like someone to check your decision and calculation before the appeal deadline expires, get in touch with us.