Compensation of Transportation Costs to and from Work

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After the Serbian Ministry of Finance adopted Opinion no. 011-00-12/2019-4 dated 1st February 2019 (the „Opinion “), regarding the tax treatment of transportation costs to and from work, the Serbian Tax Administration has announced that tax inspectors have begun controlling accounts in companies.

The Opinion brought a change in the previous interpretation, that transportation costs to and from work do not have to be recorded up to the non-taxable amount, i.e. up to the amount of RSD 3,914 (approx. EUR 35), in accordance with Article 18 of the Law on Personal Income Tax.

The legal basis for the Opinion is Article 8 of the Law on Accounting, which stipulates that recording of business changes in the accounts of assets, income, and expenses shall be based on credible accounting documents, by which it is possible to clearly determine data of the origin, type, and content of business change.

Credible accounting documents are receipts for the purchase of monthly prepaid tickets for transportation, daily tickets, tickets for one ride in public transport, fuel receipts (in case one uses his or her own vehicle), taxi receipts, and similar.

In case of absence of credible accounting documents, the payment of transportation costs to and from work made to the employee shall be considered as a cost that cannot be documented in accordance with Article 7a of the Law on Corporate Profit Tax. Consequently, such payments will not be recognized as an expense.

Further, based on the Opinion, tax exemption (up to the above-mentioned amount) is possible only when such payments can be documented with appropriate credible accounting documents.

Finally, the Opinion states that the described payments are not subject to VAT taxation, regardless of whether the employer has proof that the employee used the received funds for the purpose of transportation to and from work.

In practice, this means that employees must submit to their employers credible accounting documents to be eligible for the compensation of transportation costs to and from work, while the employers must keep internal accounting records in this regard.

The Opinion has divided the professional and public opinion, primarily in terms of understanding the nature of the transportation costs to and from work to the employee in accordance with the Labor Law and imposed new stipulations for the employees and employers. Particularly controversial is that Belgrade city council representatives had insisted on the adoption and application of the Opinion for the purpose of improving the collection rate concerning public transportation fees.

Although the Opinion is not legally binding, the Tax Inspection has begun control of the fulfillment of the conditions in the Opinion. Also, the Tax Administration has stated that an instruction for control is being prepared, which will regulate the procedure and documents for recognizing the payment of transportation costs as a cost. It also announced it expects visible results in this regard by the end of the summer.