Well-educated but relatively cheap, Balkan freelancers are in high demand among foreign firms. But they complain of heavy-handed efforts by governments to regulate the sector and levy taxes.
By Sasa Dragojlo, Sinisa Jakov Marusic, Danijel Kovacevic and Samir Kajosevic
When the Serbian government and the Association of Internet Workers struck a taxation deal last month, association president Miran Pogacar said a battle had been won, but not yet the war.
The agreement followed months of performances, cyber-attacks and tent protests by Serbian freelancers appalled by an announcement in August last year by the Serbian Tax Office that it would heavily and retroactively tax residents who received payments from abroad in the last five years.
The announcement marked an attempt to top up state coffers depleted by the economic impact of the COVID-19 pandemic and to get to grips with a grey economy that has grown up around tens of thousands of freelancers and digital workers hired – but not formally employed – by foreign firms in search of remote, educated and cheap labour.
They include language teachers, digital workers on freelancing platforms such as Upwork, journalists, web designers, music or video editors, translators and a host of other professions suited to remote working in the digital age.
They are not recognised as classic employees under Serbian Labour Law, and the firms that hire them have no obligation to pay social security contributions to the state. Such payments fall on the individual, as does the obligation to pay income tax.
Under the April deal, the retroactive taxation will be staggered according to earnings, while a new law on ‘flexible labour relations’ is in the works.
“This is a success, but not a complete victory,” said Pogacar. “We prevented a catastrophe, but we need to think about the future.”
The same applies to much of the Balkans, where there is a rich supply of poor but educated young people.
“In today’s global economy, freelancing is in its essence a poor man’s job from ‘middle-misfortunate societies’,” said Svetislav Kostic, a professor of tax law at the University of Belgrade.
“Those societies are able to create enough educated people who can offer their skills in the international market, but they are also poor enough to be attractive and cheap to companies.”
But as wages rise and state step up efforts to regulate the sector, the region will lose its attraction, he warned.
“The foreign employer puts the entire burden on the freelance worker. When he stops being cost-effective, they will found another country and another worker willing to work for less,” Kostic told BIRN.
“A country which considers freelancing as the future has no future at all.”
Invisible in Montenegro
Milos, a photographer in Montenegro, sells pictures to foreign newsrooms, yet he is registered as unemployed since Montenegrin Labour Law does not recognise the terms ‘freelancer’ or ‘self-employed’.
“Even though I’ve been working as a photographer for more than a decade, officially I’m jobless,” Milos, who asked that his surname not be used, told BIRN.
“I can’t pay pension or health insurance because our laws don’t recognise freelancers. Some of my colleagues registered their own firms so they can pay insurance.”
Since the law does not recognise them, there is no official data on the number of freelancers or people on part-time contracts, meaning many journalists, writers, photographers, videographers, educators, translators or designers are effectively invisible.
The only step towards some kind of recognition came in September last year with the adoption of a law on research and innovation, which recognised freelancers working in innovation for local and foreign firms. The law envisages tax breaks, but such freelancers have to be registered with a state commission that has yet to be created.
Dragan Cabarkapa, founder of DevClub, an association of software developers, said it was in the state’s interests to encourage such people.
“In a country with high numbers of unemployed, the government should promote freelancers because they are searching for jobs on their own, sometimes in very difficult conditions,” he told BIRN. “It should encourage freelancers and give them some benefits, because only skilled and educated people can make our economy stronger.”
Protests force U-turn in North Macedonia
In North Macedonia, the Association of Trade Unions says that from a total workforce of some 700,000 people, roughly 180,000 are freelancers, among them photographers, IT experts, translators, musicians, any NGO workers and about a third of the country’s journalists.
While freelancers are obliged to pay 10 per cent income tax, there is scant regulation of the sector in terms of labour law.
In 2015, the then government led by the now-opposition party VMRO-DPMNE tried to hike taxes on freelancers to 35 per cent, to cover health and welfare contributions, triggering protests by those on fixed-term contracts and casual workers.
The government backed down, but the issue resurfaced in 2018 when the Social Democrat-led administration at the time tried to impose additional VAT on freelancers earning a million denars [16,200 euros] or more per year. Anyone who did not want to pay it, said then Finance Minister Dragan Tevdovski, should put 27 per cent of their earnings in a pension and health insurance fund instead.
This time the revolt was expressed mainly on social media, where users argued that earning 16,000 euros a year hardly made a person rich. It never came to pass, however, as the government backtracked on introducing a progressive tax rate and Tevdovski resigned in early 2019.
Darko Dimovski, the head of the Association of Trade Unions of Macedonia, SSM, said freelancers and those on fixed-term contracts faced huge insecurity.
“They have almost no social or healthcare protection,” he said. “Freelancing is also a cover for many employers to hire people on fixed term contracts instead of employing them fully. And now these workers face the greatest danger of losing their jobs and income due to the current economic crisis caused by the pandemic.”
Bosnia authorities deaf to freelancers’ demands
Freelancers in Bosnia and Herzegovina face a similar situation.
In December last year, in the Republika Srpska, one of two entities of Bosnia, tax authorities invited those who perform freelance work for foreign firms to report their income, though unlike Serbia id did not threaten to tax them retroactively.
In the other entity, the Federation, tax authorities in April 2018 demanded freelancers settle their tax debts, and the situation remains unresolved.
For two years, members of the Bosnian Freelance Association have been lobbying lawmakers to change legislation on labour and tax policy.
“Institutions in Bosnia and Herzegovina have not yet officially recognised the potential of this category of workers,” said the Association’s vice-president, Elena Babic-Djakovic.
“Representatives of parliamentary parties very often are not even familiar with the concept of freelancing, which makes it difficult to determine the status of freelancers and slows down the work of the Association in improving their, or our, status.”
New proposals for the Law on Income Tax and the Law on Contributions have entered parliamentary procedure, through Babic-Djakovic’s Association is not happy with them.
Based on online platforms where freelance services are offered and sought, there are some 15,000 freelancers in Bosnia. The true figure is almost certainly higher.
Most of them work in IT and creative industries, marketing, advertising and consultancy. They include developers, online educators, designers, ad writers, journalists, translators, independent photographers and videographers, editors, instructors…
“Most freelancers earn average salaries, enough to cover the cost of living in Bosnia and Herzegovina,” said Babic-Djakovic.
“But there are also those with longer work experience, with a larger list of contacts or clients and a larger market who can earn a few euros each month. Given that there is still no register of freelancers or official statistics in Bosnia, it is impossible to determine the average monthly or annual salary, and while some freelancers earn really low incomes, there are also people who receive significant amounts.”
Babic-Djakovic said that, despite the contribution made by freelancers and the fact they are not a burden on the state, her Association has struggled to strike up a dialogue with authorities in Bosnia.
“Apart from a few written responses from the Ministry of Finance, our initiatives addressed to the governments are completely ignored,” she told BIRN.
“All our members are people living in Bosnia and Herzegovina and working for clients around the world. They bring in money here. They pay bills, rent. They are studying. They educate and support their children. They are certainly raising a new, more numerous generation of freelancers to whom we must provide the right to live and work in their country, so as not to flee it.”