Tax evasion is one of the common issues in Serbia, as evidenced by the fact that the Tax Administration filed more than 8,000 criminal charges for this offense between years 2011 and 2021.
Since it can be treated as a criminal offense, misdemeanor, or commercial offence, tax evasion carries serious consequences and strict penalties. That is why we have prepared this guide for all taxpayers—whether you accidentally made an error in your tax return, or you suspect possible irregularities, or simply fear a tax audit.
Although tax regulations are not always simple, understanding the law and reacting in a timely manner can help you avoid severe consequences and protect your financial stability.
1. What is tax evasion?
Tax evasion is the deliberate avoidance of tax payments or applications by providing incorrect information or concealing income, assets, or other relevant facts that affect the calculation of tax obligations.
In other words, tax evasion is not only the failure to report taxes but also intentionally submitting incorrect tax returns or other actions that reduce tax burden or completely evade tax liabilities, such as misrepresenting facts on which tax determination depends. One example is flat-rate entrepreneur registering their business address in a depopulated village where the tax base is lower, thus reducing their tax obligations, even though they have no real connection to that location. This practice can, in some cases, be considered tax evasion.
2. Is tax evasion a criminal offense?
Yes, Article 225 of the Criminal Code recognizes tax evasion as a criminal offense punishable by imprisonment and fines.
However, in addition to being a criminal offense, tax evasion can also be treated as a misdemeanor or a commercial offence, depending on the amount of evaded tax and other circumstances.
For example, if the amount of the avoided tax obligation is below the legal threshold for criminal liability—i.e., less than one million dinars—a misdemeanor procedure may be initiated. However, if it i is found out that the amount exceeds this threshold, the case may escalate to a criminal proceeding.
If a person has already been legally convicted of the criminal offense of tax evasion, they cannot be additionally punished for a misdemeanor based on the same facts—and vice versa. This means that it is up to the competent authorities (especially the tax police) to decide between initiating either a misdemeanor or a criminal proceeding.
3. Who can be held liable for tax evasion?
Anyone obligated to pay taxes (a taxpayer)—whether a natural person (individual), sole proprietor, or legal person —can be held liable for tax evasion.
Primarily, those who commit the offense by action can be held responsible, such as an sole proprietor, director, or owner of a legal person who underreports income to reduce tax obligations or intentionally records incorrect expenses to decrease the tax base.
Individuals who commit the offense by the lack of action where action is due can also be held liable, such as a person who fails to report capital gains from the sale of real estate or an entrepreneur who does not file a tax report on time.
Finally, those who conceal the criminal offense can also be held accountable, such as a director who orders the tearing up of financial reports to hide illegal transactions or an entrepreneur who tears up business records to conceal income.
4. How does the tax audit detect tax evasion?
The Tax Inspection detects tax evasion through a detailed audit procedure, which includes an examination of business records, documentation, and other relevant information obtained from the taxpayer.
This procedure may be initiated based on a audit request (e.g., submitted by a competitor or any other party suspecting tax evasion) or ex officio.
If a tax inspector identifies irregularities during the audit, they draft a record (minute) in which he documenting all established facts.
This report is used as a basis for all further actions, including the possibility of forwarding the case to the Tax Police if there is suspicion of a crime. In such cases, the police conduct further investigative actions (such as questioning suspects and witnesses, searching residences/business premises/vehicles, and temporarily confiscate items that may serve as evidence in the proceedings). A frequent evidence is economic-financial expert witness opinion, where an expert witness examines the financial records of the audited legal entity. If any documentation is missing, the inspector may contact the suppliers or customers of the audited legal entity in order to find out the actual amount of income and expenses.
If the investigation shows grounds of suspicion of a crime, a criminal complaint will be filed with the competent public prosecutor, who will initiate criminal proceedings and undertake further actions to investigate and prosecute those suspected of tax evasion.
5. What does the Tax Audit examine to find out tax evasion?
The Tax Inspection examines various aspects of a taxpayer's business (whether a sole proprietor or a legal person), as well as the income and expenses of natural persons (individuals), to identify possible irregularities and tax evasion.
Thus, the Tax Inspection:
- Conducts a detailed examination of financial records, invoices, contracts, income and expense reports, and other documents related to the business of a sole proprietor/legal person.
- Checks the stock of goods/raw materials in warehouses or at points of sale.
- Verifies the accuracy of tax returns and whether taxes have been correctly calculated and paid.
- Examines financial transactions, including both income and expenses, of natural persons, entrepreneurs, and legal persons.
- Ensures that income taxes and social security contributions are correctly calculated and paid by businesses that employ workers, and checks whether all employees are properly registered or if any are working illegaly.
- Also focuses on timeliness—delays in tax payments raise red flags for the inspection.
A lot of questions about tax audits also come from individuals engaged in online sales through social media or websites such as KupujemProdajem.com, where various methods (e.g., changing sender names, switching courier services) are used to evade tax obligations. This involves an unregistered subject, i.e. when someone sells goods or provides services without being a registered sole proprietor or legal entity. In such cases, the Tax Administration may conduct undercover purchases to prove that an individual is engaged in economic activity without registering a business.
Additionally, the Tax Audit monitors shipments and cash-on-delivery transactions across all courier services, just as it tracks taxpayers’ bank account activity and obtains information from other taxpayers or competitors. It has the means to uncover these common tricks used for tax evasion, which is why attempting to avoid tax payments through such methods is strongly discouraged.
6. How does the Tax Audit determine the amount of evaded tax?
If a taxpayer owes taxes for a single year, the Tax Inspection sums up all unpaid taxes for that year to assess the severity of the offense and the total evaded amount.
For example, if both VAT and income tax remain unpaid in the same year, these amounts will be combined to determine the total tax evasion for that period.
What if taxes are owed for multiple years?
The answer is not entirely clear.
Some courts hold that tax liabilities for different years cannot be aggregated, meaning that debts for 2019 and 2020 would be assessed separately.
However, the Tax Audit generally aggregates outstanding taxes from different years to calculate the total unpaid amount. For example, if a taxpayer owes RSD 2 million for 2019 and another RSD 2 million for 2020, the Tax Audit may sum these amounts (2 + 2 million = 4 million) and treat them as a single tax liability, regardless of the years in which the debts arose.
This discrepancy between the approaches of the Tax Audit and the courts can create problems for taxpayers, as the Tax Audit’s method can push the total debt above the threshold for a more severe penalty, even if the debts were incurred in different years.
7. What are the penalties for tax evasion?
The penalty for tax evasion depends on the amount of tax evaded:
If the evaded tax exceeds RSD 1 million, the offender faces a prison sentence of one to five years and a fine.
If the evaded tax exceeds RSD 5 million, the penalty is two to eight years in prison and a fine.
If the evaded tax exceeds RSD 15 million, the offender faces three to ten years in prison and a fine.
In addition to criminal penalties, the taxpayer must also pay the evaded tax retroactively.
While prison sentences for tax evasion are often suspended, this is not possible for the most severe offenses (where the evaded amount exceeds RSD 15 million) while in all milder forms a suspended sentence is possible, meaning that a convicted person does not serve a prison sentence unless the suspension is revoked (for example they commit another crime).
As for fines, the average amount imposed in recent years has been around RSD 80.000 rsd.
The exact fine depends on the amount of evaded tax and several other factors, such as:
- The specific type of tax that is evaded.
- The duration of the tax evasion.
- Whether any individuals suffered financial harm and how much is that harm.
- Whether the evasion resulted in unlawful financial gain and how much.
- The level of intent.
- Whether the tax evasion was committed by an organized criminal group.
- The method used to commit tax evasion.
8. Are unpaid tax debts subject to the statute of limitations?
Tax debts become statute-barred after 5 years, calculated from January 1 of the year following the year in which the tax should have been assessed.
For example, if a tax obligation arose in 2019, the statute of limitations begins on January 1, 2020, and the debt expires on January 1, 2025. If the tax office started their audit, statute of limitation is pushed. The statute of limitations for criminal prosecution is a separate issue.
For the least severe form of tax evasion (punishable by up to five years in prison), the statute of limitations is five years from the date the crime was committed. If criminal proceedings are not initiated within this period, prosecution of this crime is no longer possible.
9. What if I unintentionally evaded taxes?
Tax evasion is a criminal offense that requires intent, meaning it must be proven that there was a deliberate intention to avoid paying taxes.
If there was no intent, a person cannot be held criminally liable for tax evasion.
In practice, intent is not always easily provable, and courts generally maintain that it must be unequivocally established.
So, for example, if you were to argue that you researched your tax obligations on Google and unintentionally committed tax evasion because you relied on incorrect information you found, that might serve as grounds for mitigation, though not necessarily for eliminating the penalty. On the other hand, courts often assume the defendant's intent, since any other explanation 'is neither logical nor plausible'—which isn’t exactly consistent with the presumption of innocence, but it happens.
If you believe this is your case, it would be best to consult a tax attorney who can guide you on how to proceed further and advise whether you can use these or other arguments in your defense.
10. Can tax evasion penalties be paid in installments?
While the law does not explicitly provide for installment payments, in practice, the Tax Administration often allows taxpayers to reschedule their debt and pay in installments.
Thus, the Tax Administration often helps those who have difficulties in paying their tax debt and fines in full at once, allowing for the rescheduling of the debt and payment in installments.
It is important to be honest and show a willingness to fulfill your obligations.
11. What should I do if I am suspected of tax evasion?
If you are suspected of tax evasion, your first step should be to consult both an experienced attorney specializing in criminal and and attorney specializing in a tax law. They will guide you through the process and help you understand all legal aspects of your situation. Knowledge of tax regulations can be crucial in your defense, so only a defense attorney who specializes only in criminal law is often not sufficient.
Additionally, the attorney will help you gather all the necessary documentation that will serve as evidence in your defense or in clarifying misunderstandings, as well as communicate with the tax authorities on your behalf. This way, you will avoid thoughtlessly sharing information that could further compromise you. Before making a statement, you have to consult with your attorney.
Last but not least, tax evasion is a serious crime, misdemanour or commercial offense with potentially severe consequences, but with timely and appropriate legal assistance, you can mitigate risks and potential penalties.
Tax Evasion Attorney
Do you have any further doubts or questions regarding the criminal offense of tax evasion? Feel free to email us at: [email protected]
