Employees in Serbia have been traditionally entitled by law to reimbursement of costs of commuting to and from work in the amount capped at the price of public transportation ticket, unless the employer organizes transport for the workers. Even though this statutory language refers to cost reimbursement, this benefit had been paid for a number of years as a lump-sum and was treated as a deductible for the employer and as non-taxable employee income without the requirement to produce any documentary evidence that the employee incurred the actual cost of commute.
In February 2019, the employers in Serbia were unpleasantly surprised by an opinion of the Ministry of Finance (MoF) which states that any payment to the employees on the account of the cost of their commute to and from work will not be recognized as deductible expense, and will be treated as taxable employee income, unless the employer has documentary evidence that the cost was actually incurred. Despite immense criticism from the corporate community, this opinion has now become the law, by virtue of the amendments to the Personal Income Tax Act (“PIT Act“), voted on 6 December 2019. The amendment explicitly stipulates that the reimbursement of the costs of commute is exempted from the payroll tax only if the cost is documented.
Both, the MoF Opinion and the latest amendment to the PIT Act, are controversial.
Do the employees have the right to the actual cost of commute, or to a standardized cost?
There are conflicting decisions of the Supreme Court of Cassation on the issue. In one of them, the court held that the employees who walk to and from work are not entitled to the reimbursement of the cost of commute, because they have not incurred it. In another decision, the same court held that all employees are entitled to the cost of commute, whether they walk to work or use some form of transport. However, the actual language of Article 118 of the Labour Act refers to the right to “reimbursement of the cost of commute”, suggesting that the cost should be incurred in order to be reimbursed. Now that the PIT Act makes it clear that reimbursement of the undocumented cost of commute will be taxed as salary, it is expected that the employers will be reimbursing only the documented costs.
Which form of transport qualifies for reimbursement?
Unless the employer organizes the transport, in which case the employees are not entitled to the cost of commute reimbursement, the Labour Act does not limit this entitlement to any particular mode of transport. The Labour Act only limits the amount of the entitlement to the cost of public transportation ticket and leaves it to the employer to further regulate in its internal enactment or in the employment agreement the perimeters. The monthly amount currently exempt from payroll tax is RSD 3,914 (approx. EUR 32).
It follows that, even though in light of the documentation requirement it may be easier for the employer to limit the mode of commute that qualifies for reimbursement to public transport only, and to finance that transport itself by purchasing the tickets for the employees, such limitation may not be in accordance with the Labour Act.
Which documentation is adequate proof of cost?
The MoF recommended in its Opinion that each employer should prescribe in detail in its general enactment the manner of documenting the cost of commute. It then confirmed that the following documentation is eligible as adequate cost of commute justification:
- if the employee uses his own vehicle – a consolidated invoice from the chosen fuel supplier based on fuel vouchers / coupons / cards the employer purchases for the employees OR a receipt for the fuel purchased by the employee;
- if the employee uses public transportation – a consolidated invoice from the supplier based on daily / monthly prepaid tickets purchased by the employer for the employees OR a receipt for the public transportation ticket purchased by the employee;
- if the employee uses taxi – a consolidated invoice from the chosen taxi company based on taxi vouchers / coupons / cards the employer purchases for the employees OR a taxi receipt if the employee pays for the taxi.
In each of the cases under 1-3 where the employer covers (rather than reimburses the costs), the accounting document (i.e. a consolidated invoice) should be accompanied with the list of employees using a specific type of transportation. In case the cost is initially covered by the employee, the accounting document (i.e. a receipt) must be accompanied with the employee’s statement that the specific receipt relates to the cost of fuel, daily / monthly ticket or, as the case may be, taxi ride incurred for the purpose of commuting to and from work.
The list offered by the MoF should not be understood as exhaustive. However, in the absence of a specific opinion of the MoF validating other types of accounting documentation as adequate, the uncertainty remains for the employers. For example, the employers would welcome a confirmation as to whether the cost of parking (whether on-site or at public parking space) will be recognized as a deductible and as non-taxable benefit.