The short answer
If your priority is the lowest tax and you work alone, choose a sole proprietorship (flat-rate while you qualify, personal salary afterwards). If protection of personal assets, partners, investors or stepping outside the independence test matter, choose an LLC. Now the detail.
Sole proprietor
- Registered in a day or two, low costs
- Flat-rate (a fixed amount) or personal salary (10% on profit)
- Money is withdrawn with no further tax
- Liable with all personal assets
- Subject to the independence test
LLC (d.o.o.)
- A separate legal entity: limited liability
- 15% profit tax + 15% dividend tax
- Minimum share capital of RSD 100
- Not subject to the independence test
- Room for partners, investors and a team
Taxes: what is actually being compared
A sole proprietor on a personal salary pays 10% on profit, and that is the end of it: the remainder is withdrawn freely. An LLC pays 15% on profit, and when the owner wants to pay it out as a dividend, a further 15% (a dividend is only possible out of realised profit). For the same profit fully distributed to the owner, an LLC is noticeably more expensive. That is the price you pay for limited liability and flexibility.
Flat-rate tax is a different story: a fixed monthly amount independent of earnings, but capped by the RSD 6 million limit and a list of excluded activities. Check the approximate amount in our flat-rate tax calculator.
Liability and risk
A sole proprietor is liable for the obligations of the business with all of their personal assets, even after the business is closed. An LLC is liable with its own assets, and the founder as a rule only up to the value of their contribution. For activities with genuine risk (larger contracts, goods, employees, potential damages) this often matters more than the tax difference.
The independence test as a deciding factor
If you work mainly for one client (typical in IT), check the independence test before choosing a form. The test applies to all sole proprietors, both flat-rate and personal salary; only an LLC is outside its scope. Where the risk is high, an LLC is often the only long-term peaceful solution, despite the higher tax.
Administration and costs
A flat-rate sole proprietor has minimal administration: just the KPO book. A sole proprietor keeping ledgers and an LLC both maintain full business ledgers; there is a difference in accounting fees, but it is smaller than people assume. An LLC additionally files annual financial statements with the APR. How we build a price in each case is set out on the pricing page.
Frequently asked questions
What is the minimum share capital for an LLC in Serbia?
From RSD 100. Capital is not an obstacle to founding an LLC. Registration and running costs are what actually get compared.
Does an LLC pay more tax than a sole proprietor?
On distributing profit to the owner, yes: an LLC pays 15% profit tax plus 15% dividend tax, while a sole proprietor on a personal salary pays 10% on profit and withdraws the money with no further tax. But an LLC is not subject to the independence test and protects personal assets, so the decision is not purely a tax one.
Does the independence test apply to an LLC?
No, an LLC is not subject to the independence test. The test applies to all sole proprietors: both flat-rate and personal salary.
Can I convert from a sole proprietorship to an LLC later?
Yes, this is a common move and it is done to a plan: the LLC is founded, the business and contracts are transferred, and the sole proprietorship is closed or made dormant. We manage the whole procedure.
Does an LLC have to have employees?
It does not, but someone must be registered as director. The founder can act as director without an employment contract, with contributions due on that basis, or be formally employed. Which is cheaper depends mainly on whether you are already insured on another basis.
Can I run a sole proprietorship and an LLC at the same time?
You can. It is not prohibited and it happens in practice. What matters is keeping the work, the costs and the records clearly separated, because these are two distinct taxpayers. If the two are related parties, transfer pricing comes into play.
Which is easier to close down, a sole proprietorship or an LLC?
The sole proprietorship. Deregistering it at the APR is a simple, quick procedure. Liquidating an LLC is a formal process with statutory deadlines and a public notice, so it runs for months. That is one reason it can make sense to start as a sole proprietor when the venture is still uncertain.
Still weighing it up?
This is a decision made once, and with numbers, not on forums. Tell us your activity, expected revenue and plans, and we will tell you what pays off and why. We then handle the entire registration.
Book a consultation +381 21 422-690Note: this content is informational and does not constitute legal or tax advice.