d.o.o. vs Paušalac: Which Should You Choose?

Most foreigners working in Serbia start as a paušalac — a flat-rate sole trader that is cheap and simple. You outgrow it when you approach the income cap, want limited liability, or need to hire. At that point a d.o.o. (a limited company) makes more sense. Here is how to tell which one fits you.

Paušalac — the simple sole trader

A paušalac (a "lump-sum" registered entrepreneur) is the default for freelancers and remote workers. Instead of taxing your actual profit, the authorities set a fixed monthly amount based on your profession, location and age — and that single payment covers income tax plus pension and health contributions. We cover it in depth in the paušalac guide.

• Very low, predictable monthly tax — the more you earn, the lower your effective rate
• Almost no bookkeeping; quick to set up
• Lets you invoice clients and is a valid basis for residence
• Income cap: up to 6 million RSD per year (roughly €50,000) through this system
• Personal liability: as a sole trader, you and the business are legally the same person

d.o.o. — the limited company

A d.o.o. (društvo s ograničenom odgovornošću) is a limited liability company — a separate legal entity that you own. It is the step up when the sole trader no longer fits.

• Limited liability: the company is separate from you, so your personal assets are generally protected
• No income cap: suitable for higher earnings and growth
• You can hire employees, take on partners, and raise investment
• Profit is taxed at the company level, and again when you pay it to yourself as a dividend
• Requires proper double-entry bookkeeping — you will need an accountant
• Must register for VAT once turnover passes the threshold

Side by side

When should you switch?

Common triggers to move from paušalac to a d.o.o.:

• Your annual income is approaching or will exceed the ~6M RSD (~€50,000) paušalac cap
• You want to hire employees or bring in a business partner
• A client or contract requires you to be a company, not an individual
• You want limited liability to protect personal assets
• You are buying property or assets you'd prefer to hold in a company

There is no need to guess the tipping point. The decision turns on your real numbers — projected income, whether you hire, how you want to pay yourself — and the answer is often clear once those are on the table.

A note on residence

Both structures can underpin your right to live and work in Serbia. Since 2024, residence and work for foreigners come as one combined single permit — see how to stay in Serbia legally and working remotely from Serbia. Your business structure is about how you trade and are taxed; the permit is your immigration status. Keep the two ideas separate.

This is general guidance, not legal or tax advice. Tax rates, the VAT threshold and the paušalac cap change — always confirm the current figures and the best structure for your situation with a licensed professional.