Entrepreneur in Serbia
Corporate Law, Market EntrybyPavle Stavretović

When deciding to start a business in Serbia, foreign investors and local entrepreneurs often weigh the differences between establishing a sole proprietorship in Serbia (entrepreneur in Serbia) and forming a Limited Liability Company (LLC in Serbia). Both options come with unique advantages and obligations, depending on your long-term goals, business volume, and desired legal structure. In this guide, we break down the key differences between an entrepreneur in Serbia and an LLC in Serbia, helping you make an informed decision.

1. Formation Process – Faster and Simpler for an Entrepreneur in Serbia

The process of registering as an entrepreneur in Serbia is significantly more straightforward than forming an LLC. A sole proprietorship in Serbia can be established by submitting a scanned power of attorney and a copy of the founder’s passport. There is no need for notarization or an electronic signature.

On the other hand, to form an LLC in Serbia, you must draft a founding act, which must be either notarized, signed with a Serbian qualified electronic signature, or signed by an attorney.

Additionally, LLCs must register the ultimate beneficial owner in the register maintained by the Serbian Business Registers Agency (APR) and submit tax registration forms within 15 days, which is not required in the case of a lump-sum taxed entrepreneur. This makes the LLC formation process slightly more formal and time-consuming.

Administrative fees and legal service costs are also lower for a sole proprietorship in Serbia, making it a more cost-effective solution for small-scale operations and freelancers.

2. Operational Costs – Entrepreneurs in Serbia Enjoy Lower Taxes and Simpler Bookkeeping

When it comes to operating costs, entrepreneurs in Serbia benefit from reduced public fees, such as Chamber of Commerce membership dues and ecological contributions. Moreover, suppose the entrepreneur in Serbia opts for lump-sum taxation. In that case, they may even maintain their business records, unlike LLCs in Serbia, which are subject to double-entry bookkeeping and usually require professional accounting services.

Additionally, LLCs must maintain and archive all business documentation and submit an archive report to the relevant state archive authority annually.

3. Liability – LLC Offers Limited Liability, While Entrepreneurs Are Fully Liable

One of the most crucial differences between an entrepreneur in Serbia and an LLC in Serbia lies in liability. A sole proprietor in Serbia bears unlimited liability, meaning their personal and business assets are not separated. In contrast, an LLC in Serbia is a separate legal entity, and its founders are generally not personally liable for the company’s obligations.

However, if LLC owners manage the company negligently or fraudulently, they may still be held liable through civil proceedings, provided the harm to creditors can be proven.

4. Work and Residence Permits – Stricter Requirements for Foreign Entrepreneurs in Serbia

Foreign citizens who wish to operate as entrepreneurs in Serbia must obtain both a temporary residence permit and a work permit. This is a legal requirement to perform any business activity as a sole proprietor in Serbia.

In contrast, LLC founders and directors are not strictly required to obtain a work permit to establish or own an LLC in Serbia, especially if they are not living in Serbia.

5. Taxation – Entrepreneur in Serbia Can Choose Flat Taxation, LLCs Pay Corporate and Dividend Tax

An LLC in Serbia is taxed through double-entry bookkeeping, with a 15% corporate profit tax and 15% dividend tax on profit distribution.

An entrepreneur in Serbia, particularly those operating as a sole proprietorship in Serbia, can often benefit from lump-sum taxation – a fixed monthly tax typically ranging from €150 to €650, depending on the municipality, industry, and other factors. This tax model is available in most cases, except for the entrepreneur in Serbia engaged in retail, hospitality, or similar sectors, where lump-sum taxation is not permitted.

If the annual revenue exceeds 6 million RSD (cca EUR 52,000), the entrepreneur in Serbia must switch to double-entry bookkeeping, where income is taxed at 10% of the net profit.

Both LLCs and sole proprietors in Serbia are required to register for VAT (20%) once their taxable turnover surpasses 8 million RSD (cca EUR 68,000) within the previous 12 months, as per the Serbian VAT Law. This applies to domestic transactions, while exports are generally exempt from VAT.

Important Note: Lump-Sum Taxation and the Independence Test for Entrepreneurs in Serbia

While lump-sum taxation is a popular benefit for many entrepreneurs in Serbia, it comes with certain responsibilities. If you operate as a sole proprietorship in Serbia, you must ensure that your business relationship with clients remains independent and genuinely entrepreneurial.

Serbian tax authorities apply a tool known as the “test of independence” to determine whether an entrepreneur in Serbia is truly self-employed or is in reality engaged in a disguised employment relationship to reduce tax and contribution obligations.

Entrepreneurs working primarily for one international client should assess their structure carefully. You can read more about the test of independence in Serbia and how to comply with it here – Independent Contractor Test in Serbia: Compliance Key Points.

6. Access to Funds: Personal vs. Company Money

One of the key distinctions between lump-sum entrepreneurs in Serbia and LLCs lies in access to business funds. Namely, lump-sum taxed entrepreneurs can freely transfer money from their business account to their personal account or withdraw it from ATMs.

In contrast, LLCs cannot do this without a legal basis, such as a business trip or declared dividends, since the funds belong to the company, not to the owner personally.

7. Company Closure – Easier and Faster for Entrepreneurs in Serbia

The closure of an LLC in Serbia requires a formal liquidation procedure, which takes at least six months. It includes multiple publications, document signing, tax clearance, and appointing a document custodian (archivist) for the company.

In comparison, an entrepreneur in Serbia can close their business by submitting a single registration application to the Business Registers Agency, accompanied by two tax certificates proving all liabilities are settled.

Additionally, a sole proprietorship in Serbia can be temporarily suspended (dormant status). During dormancy, the entrepreneur in Serbia is not liable for taxes or contributions, and the business can later be reactivated through a simple registration procedure.

Conclusion: Entrepreneur in Serbia or LLC in Serbia? Choose Based on Your Needs

Choosing between a sole proprietorship in Serbia and an LLC in Serbia depends on your business objectives, expected income, liability comfort level, and immigration status.

  • If you’re a freelancer or small business owner, an entrepreneur in Serbia is a more affordable and flexible choice.
  • If you’re planning to scale, involve partners, or limit your liability, forming an LLC in Serbia might be a better solution.

In case you need more reasons for registering your business presence in Serbia, feel free to browse through some of our most popular blogs on the subject:

Regardless of your choice, professional legal assistance ensures proper registration and compliance with Serbian laws. For more guidance on starting a business in Serbia, feel free to contact our office.

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