Employment Law in Serbia’s IT Sector: Contract of Employment, B2B, and the Risk of Disguised Employment

The IT sector is a global pioneer of flexible working arrangements. Yet Serbian labour law — at its core — still divides the world into two clear categories: employees and everyone else. Between these poles sit freelancers, B2B entrepreneurs, remote workers from Serbia serving foreign clients, and the increasingly popular digital nomads. This is precisely where the greatest legal risks arise.

Three Primary Forms of Engagement in the IT Sector

1. The Contract of Employment is the only form of engagement that guarantees employees the full set of rights: paid annual leave, sick leave, severance pay, protection against dismissal, and pension and health insurance contributions. In the IT context, employment contracts typically include specific clauses:

• Non-compete clause — may apply both during the employment relationship and for up to 2 years after termination, with mandatory monetary compensation for the employee;
• Intellectual property clause — governs ownership of code and solutions developed during employment;
• Confidentiality clause — particularly relevant for access to source code, client databases, and internal processes.

2. The Contract for Services is an obligatory law contract for a specific deliverable, without creating an employment relationship. This is a common arrangement for project-based engagement — where a developer builds a specific feature for a predetermined fee. However, this is precisely where the key legal trap lies.

3. The B2B model (a sole trader invoicing a legal entity) is the most common arrangement in Serbia’s IT sector for senior developers and consultants. The advantages are clear — flexibility and a more favourable flat-rate tax treatment — but the risk is equally clear if the arrangement masks a de facto employment relationship.

What Is Disguised Employment and Why Does It Matter?

The Labour Inspectorate has the authority to determine whether a contract for services or a B2B engagement conceals a de facto employment relationship. The Labour Act defines an employment relationship through several elements: continuous work, employer supervision, fixed working hours, a designated workplace, and a personal obligation to perform work. If all these elements are present, an inspector can declare the arrangement a disguised employment relationship, regardless of the contract’s label.

The consequences for the employer are serious:

• Misdemeanour proceedings and financial fines;
• Obligation to retroactively pay pension, health, and unemployment insurance contributions;
• Potential labour dispute initiated by the engaged person seeking full employment rights.

The Labour Inspectorate pays particular attention to the IT sector, where this model is especially prevalent.

Serbian Freelancers Working for Foreign Clients: Tax Pitfalls

Freelancing is not regulated as a distinct category under Serbian law — the concept of freelance activity does not appear in the Labour Act or the Personal Income Tax Act. An individual receiving income from foreign payers (Upwork, Fiverr, direct clients) has a tax obligation on each received amount and is required to file a tax return within 30 days of receipt.

Practical issues that arise in dealings with tax authorities:

• An unregistered freelancer receiving funds into a foreign currency account without filing a PP OPO tax return commits a tax offence;
• Model A (taxation of contracted remuneration from a foreign payer on a quarterly basis) applies to individuals who are not registered as sole traders, at a rate of 20% on amounts above the non-taxable threshold;
• Registering as a flat-rate sole trader (paušalac) is the most common legal response to these challenges.

Remote Work and Hybrid Models: What the Contract Must Cover

Remote work from Serbia — whether for a domestic or foreign employer — does not exist in a legal vacuum; the Labour Act continues to apply, along with specific remote working rules in force since 2023. A remote work contract must clearly define:

• Place of work (the employee’s residential address);
• Who provides and maintains equipment;
• Reimbursement of expenses (electricity, internet);
• Working hours and availability (particularly relevant for asynchronous work);
• Data security and approved technology.

Digital nomads — foreign nationals working from Serbia or Serbian nationals working from abroad — enter a particularly complex zone involving the tax and labour regulations of multiple jurisdictions simultaneously.

Practical Recommendations for IT Companies and HR Teams

1. Do not rely solely on the contract’s label — the actual substance of the engagement is what the inspector examines;
2. Ensure B2B arrangements are genuine — a sole trader must not work exclusively for one entity, at fixed hours, under direct supervision;
3. Contracts for services must have a clear deliverable — development of a specific feature, not a monthly delivery of labour;
4. Help freelancers regularise their status — many Serbian IT companies subsidise the cost of sole trader registration because it saves time and reduces legal risk;
5. Employment law and tax law go hand in hand — engage both a labour lawyer and a tax adviser before designing an engagement structure.

Conclusion

Serbia’s IT sector operates in the space between global flexible working models and a domestic legal framework that still largely recognises only the category of employee. Disguised employment is not an administrative technicality — it is an offence with significant financial consequences. Timely contractual structuring is not bureaucracy; it is the foundation of sustainable business operations.

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