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June 29, 2026
The moment your business expenses start growing and your company begins to expand, it may be time to change your tax model and discover the advantages of paying profit tax.
Entrepreneurs who keep business books do not pay taxes in advance through a fixed annual assessment, as lump-sum entrepreneurs do. Instead, they pay taxes based on their actual profit—that is, the difference between the income they generate and the expenses they incur.
Simply put, the more profitable your business is, the more tax you will pay.
Unlike the lump-sum system, where the monthly tax amount remains fixed, under bookkeeping the amount of tax can vary from month to month. In addition, entrepreneurs are required to maintain business records, including detailed evidence of income, expenses, taxes, payments, and operating costs. This is precisely why they are commonly referred to as “bookkeeping entrepreneurs.”
There is another important difference: the money in the business account is not automatically your personal money, and you cannot spend it freely.
Paying profit tax becomes mandatory if your annual revenue exceeds 6 million RSD or if you operate in a business activity that, by law, is not eligible for lump-sum taxation.
However, you should not wait for the tax authorities to force you into this system.
Although bookkeeping appears more complex, it offers significant advantages. Once business investments become substantial, the lump-sum model often stops being financially efficient.
Certain activities are not eligible for lump-sum taxation and must keep business books. These include:
The restriction on marketing and advertising activities is particularly important because many entrepreneurs assume that all marketing agencies can operate under the lump-sum system. In reality, business activity codes relating to advertising agencies, media representation, and market research are generally excluded from lump-sum taxation.
Profit taxation is often a good option for entrepreneurs who have substantial operating costs, plan to grow their businesses, or work in industries that cannot use the lump-sum system anyway.
The lump-sum model—where taxes are determined once a year and remain fixed—works well while revenue is stable and expenses remain low.
However, once a business begins investing significantly in equipment, marketing, employees, training, or office space, bookkeeping can become more financially advantageous because these expenses reduce taxable profit.
Bookkeeping and profit taxation are particularly suitable for:
Profit taxation can also benefit entrepreneurs who want a clearer understanding of their finances.
Many lump-sum entrepreneurs know how much money enters their account but have little understanding of their actual profitability. Bookkeeping forces entrepreneurs to monitor revenue, expenses, profitability, and cash flow.
On the other hand, entrepreneurs who work alone, have very few clients, minimal expenses, and revenues below the lump-sum thresholds may find that bookkeeping creates more administrative burden than benefits.
Your business model will usually make the right tax choice obvious.
For bookkeeping entrepreneurs, tax is not calculated on total revenue, but on profit—the difference between income and expenses.
Although the formula appears simple, the calculation is often more complex in practice.
Not every expense is automatically recognised for tax purposes.
To reduce taxable profit, an expense must:
If your business cannot provide invoices, contracts, or other valid supporting evidence, the Tax Administration may reject the expense, increasing taxable profit and consequently increasing the amount of tax owed.
This is why bookkeeping entrepreneurs need more than proof of payment. Every expense must be properly recorded, documented, and tax-recognised.
Well-organised documentation directly affects how much tax a business ultimately pays.
One of the greatest advantages of bookkeeping is that many business expenses can reduce taxable profit.
Examples include:
However, tax authorities are primarily interested in whether an expense is genuinely necessary for the business and whether documentation clearly demonstrates its business purpose.
Particular caution is required with expenses that fall somewhere between personal and business use.
Expenses commonly challenged by tax authorities include:
These expenses are not automatically rejected, but their deductibility often depends on documentation and professional accounting advice.
Bookkeeping entrepreneurs must maintain significantly more documentation than lump-sum entrepreneurs.
Required documentation includes:
Serbian accounting legislation requires:
Auxiliary records typically include:
Businesses registered for VAT must also maintain separate VAT records.
At first glance, the amount of required documentation can seem overwhelming.
Fortunately, this is precisely why accountants exist.
An accountant will usually:
However, entrepreneurs remain responsible for:
A good accountant is not merely someone who handles paperwork. They are a business partner who provides a clear financial picture of your company.
Still, even the best accountant cannot fix disorganised documentation or a business owner who has no understanding of their own finances.
This is one of the most common questions asked by first-time entrepreneurs.
For bookkeeping entrepreneurs, the money belonging to the business is not automatically personal money. The way funds are withdrawn depends on both the legal form of the business and the chosen taxation model.
For sole proprietors who keep business books, the situation is relatively straightforward.
Since the entrepreneur and the business are not fully separated legal entities, owners may withdraw money for personal purposes. This is typically recorded as:
Entrepreneurs who pay themselves a salary pay taxes and social contributions on that amount. Remaining profits may then be withdrawn without additional taxation.
For limited liability companies (LLCs), the rules are stricter.
Company funds are not personal funds and cannot be freely withdrawn. Owners may receive money only through salary, dividends, contractual compensation, or loans under specific conditions.
No.
Profit tax and VAT are entirely separate concepts.
Choosing profit taxation does not automatically require VAT registration.
Most small businesses start operating outside the VAT system unless there is a specific reason to register voluntarily.
Mandatory VAT registration occurs when turnover exceeds 8 million RSD within any consecutive 365-day period.
Voluntary VAT registration often makes sense when:
In many other cases, VAT may simply create additional administrative complexity.
For most service businesses at the beginning—consultants, educators, small agencies, and creative professionals—there is often no need to register for VAT immediately.
Monitoring turnover and planning ahead as you approach the 8-million-RSD threshold is usually a far more important priority.
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