Independence Test: 9 Criteria Every Freelancer Must Know

If you are a flat-rate entrepreneur working for a single client, a large share of your income comes from one source, and on top of that they set your working hours — there is a real chance the Tax Administration will view your relationship as a disguised employment relationship. This is exactly what the independence test checks, and the consequences of failing it can be significantly higher tax obligations. Below we explain all 9 criteria and how to protect yourself.

What the independence test is and why it exists

The independence test is a set of nine criteria the Tax Administration uses to determine whether an entrepreneur (including flat-rate entrepreneurs) genuinely operates independently or is essentially a „hidden employee” of a single principal. It was introduced by amendments to the Personal Income Tax Act (ZPDG), in force as of 1 March 2020. The goal is to prevent situations in which someone is effectively employed by a single company but, on paper, operates as an entrepreneur and thereby pays significantly less in taxes and contributions.

The key rule: if five or more of the nine criteria are met in your relationship with a single principal, you are deemed not to be independent in relation to that client.

The 9 criteria of non-independence

Each criterion describes one element of the relationship that resembles an employer-employee relationship. Read them as questions and answer honestly for each of your clients:

• Working hours and leave — the principal sets your working hours, or your leave and time off depend on their decision.
• The principal’s premises — you regularly use premises provided by the principal or work at a location they designate.
• Training at the principal’s expense — the principal organizes or covers the cost of your professional training or development.
• Method of engagement — you were engaged following a job advertisement or through a recruitment agency.
• Tools and work management — the principal provides the basic tools, equipment, or other fixed assets, or manages the work process.
• Income dependency (70%) — you earn at least 70% of your total income over a 12-month period from a single principal.
• No business risk — you perform tasks within the principal’s business activity, and the contract does not establish your liability for risk (e.g. for quality) towards the end customer.
• Ban on working for others — the contract contains a partial or full ban on working for other principals (other than competitors).
• 130 working days — you perform tasks for the same principal for at least 130 working days over a 12-month period.

Consequences if you fail the test

If five or more criteria are met, the income from that principal is no longer treated as flat-rate income and is taxed as „other income.” This means a significantly heavier tax treatment:

• 20% tax on gross income, without the standard deductible expenses that flat-rate entrepreneurs normally have.
• PIO (pension) contribution of 25.5%.
• Health insurance contribution of 10.3%, if the person is not insured on another basis.
• The possibility of retroactive collection of taxes and contributions, plus interest.

Who bears the obligation depends on who the principal is. If the principal is a domestic legal entity, it calculates and pays the tax and contributions by withholding, so the burden falls on them. If the principal is from abroad (a common case for foreign freelancers working for companies outside Serbia), the obligation to calculate and pay falls on the entrepreneur themselves. That is why this test is especially important for freelancers with foreign clients.

How to protect yourself

The goal is not to „cheat” the test, but to genuinely operate independently and document it. Practical steps:

• Diversify your clients — avoid having a single client account for 70% or more of your annual income, and keep track of the 130-working-day threshold per client.
• Draft the contract carefully — without a ban on working for others, without fixed working hours dictated by the client, and with your risk and responsibility for the result clearly defined.
• Use your own equipment and premises — work with your own tools and from your own space whenever possible.
• Charge per project or result, rather than as a monthly „salary” for fixed working hours.
• Keep evidence of independence — contracts, invoices from multiple clients, and correspondence showing that you organize the work yourself.

Key takeaways

• The test has 9 criteria; non-independence is triggered when 5 or more are met.
• Failing the test means 20% tax without standard deductible expenses, PIO of 25.5%, and health insurance of 10.3%.
• With a domestic principal, the obligation is borne by them; with a foreign one, it is borne by the freelancer.
• Protection: multiple clients, a sound contract, your own equipment, and keeping evidence.

If you are unsure where you stand with a particular client or how to draft a contract that holds up to the test, get in touch — we are happy to help.

Sources

• Paragraf — The independence test for entrepreneurs: criteria and explanations
• Paušalko — The independence test for flat-rate entrepreneurs: 9 criteria and penalties
• Cloudbook — The independence test for entrepreneurs: 9 criteria