The personal salary regime

What is the personal salary regime?

A sole proprietor keeping business ledgers may elect to pay themselves a monthly personal salary (lična zarada) — an amount they set themselves, taxed like an employee's salary with income tax and social contributions. That personal salary is a business expense and reduces the profit of the business.

At year end, 10% tax is payable on realised profit (income minus expenses) — and whatever remains you withdraw with no additional tax whatsoever. That is the key difference from an LLC, where distributing profit to the owner triggers a further 15% dividend tax.

Why it is the cheapest regime after flat-rate

• Profit tax is 10% — the lowest rate on profit in the system.
• No tax on withdrawing money — after-tax profit is yours, without the extra 15% that a dividend from an LLC attracts.
• Contributions are paid on the salary you choose, not on the whole profit — you control the level yourself.
• Actual expenses are recognised — equipment, premises, software and travel reduce the base, unlike under flat-rate.

For comparison: an LLC pays 15% on profit and a further 15% when it is paid out to the owner as a dividend, which is only possible where profit has actually been realised. That is why the personal salary regime is usually the first choice once you outgrow flat-rate tax — unless the reasons for an LLC outweigh it.

What to watch out for

• The independence test applies here too — moving from flat-rate does not remove the risk if you work mainly for one client. Check the nine criteria.
• You keep business ledgers — proper documentation is required for every expense you claim.
• The election deadline — notice to the Tax Administration by 15 December for the following year; newly registered sole proprietors have 15 days from registration. Missing the deadline means waiting a year.
• The RSD 8 million VAT threshold — measured on turnover with a place of supply in Serbia over the preceding 12 months; services with a place of supply abroad do not count. Details in our guide on VAT registration.

Frequently asked questions

Does a personal salary protect me from the independence test?

No. The test applies to all sole proprietors — both flat-rate and personal-salary. Only an LLC is outside its scope. If your risk on the test is high, the personal salary regime does not remove it.

How much does a sole proprietor on a personal salary pay in total?

Two things: tax and contributions on the monthly personal salary you choose, calculated as for an employee's salary, plus 10% tax on realised profit. The rest of the profit is withdrawn with no further tax. The total depends on the level of salary and profit, and is calculated case by case.

Can I set the level of my personal salary myself?

Yes — you choose the amount, subject to the statutory minimum contribution base. In practice a lower personal salary is usually chosen, since tax and contributions are payable on it as on a salary.

How do I elect the personal salary regime?

Notice is filed electronically with the Tax Administration by 15 December of the current year for the following year. Newly registered sole proprietors file within 15 days of registration.

Note: this content is informational and does not constitute tax advice.