Agency vs Paušalac: The IT Freelancer's Decision Guide

Last updated: March 2026. Tax rates and contribution amounts reflect current legislation under the Zakon o porezu na dohodak građana ("Sl. glasnik RS", br. 80/2002, with amendments).

If you're an IT professional in Serbia working for a foreign client, you've almost certainly encountered this fork in the road: register your own paušalac and handle everything yourself, or work through a Serbian agency (sometimes called an "umbrella company" or "employer of record") that employs you formally and handles all tax and compliance on your behalf.

Both models are legal. Both are widely used. And the decision between them involves tradeoffs that go well beyond the tax rate — including independence test risk, social benefits, administrative burden, and how much of your gross income you actually take home.

This guide compares both options with real numbers, not generalizations.

How each model works

The agency model

You sign an employment contract (ugovor o radu) with a Serbian agency. The agency signs a service agreement with your foreign client. Money flows: client → agency → you (as salary). The agency handles:

Your employment registration (Obrazac M, CROSO)
Monthly salary calculation and tax withholding
All social contributions (employer and employee portions)
Tax filing and payment
Health insurance booklet maintenance
Compliance with Serbian labor law

You receive a net salary. The agency takes a commission (typically 3–10% of the gross amount from the client, or a fixed monthly fee of €100–300).

The paušalac model

You register your own preduzetnik at APR, choose paušalno oporezivanje, sign a service agreement directly with your foreign client, issue invoices, receive payments to your business bank account, and handle all tax obligations yourself (four monthly payments, KPO knjiga, limit tracking).

You keep everything the client pays minus your tax obligations and business costs. There is no intermediary.

The numbers: net income comparison

Let's compare both models for an IT developer whose foreign client pays €4,000/month (€48,000/year). This is a common rate for mid-senior developers working remotely from Serbia.

Agency model calculation

The agency receives €4,000 from the client and must pay you a net salary after deducting:

Item	Amount	Notes
Gross from client	€4,000
Agency commission (7%)	−€280	Typical range: 3–10%. Using 7% as middle ground.
Available for salary	€3,720
Gross salary (bruto 2)	€3,720	This is the total employment cost
Employer contributions (~16.15%)	−€517	PIO 10%, health 5.15%, unemployment 0.75%, injury 0.25%
Bruto 1 (gross salary)	€3,203
Employee income tax (10%)	−€298	On salary minus non-taxable amount (~€166)
Employee PIO (14%)	−€448
Employee health (5.15%)	−€165
Employee unemployment (0.75%)	−€24
Net salary	~€2,268

These calculations are simplified. The actual net depends on the non-taxable salary threshold (neoporezivi iznos, currently ~19,300 RSD/month), the specific agency fee structure, and whether the agency charges on gross from client or on your salary. Numbers above are illustrative but realistic.

Annual net: ~€27,216 Effective rate (what you lose from the €48,000): ~43.3%

Paušalac model calculation

You receive the full €4,000 to your business account and pay your own taxes:

Item	Amount	Notes
Gross from client	€4,000/month
Bank transfer fees	−€10	SWIFT + conversion fees, varies by bank
In your account	€3,990
Monthly income tax	−€39	~4,500 RSD. Varies by activity/municipality. Using typical IT paušalac.
Monthly PIO	−€92	~10,800 RSD
Monthly health insurance	−€40	~4,635 RSD
Monthly unemployment	−€3	~338 RSD
Total monthly taxes	−€174	~20,273 RSD total
Net income	~€3,816

Annual net: ~€45,792 Effective rate (what you lose from the €48,000): ~4.6%

The gap

	Agency	Paušalac	Difference
Monthly net	~€2,268	~€3,816	€1,548/month
Annual net	~€27,216	~€45,792	€18,576/year
Effective tax rate	~43.3%	~4.6%	38.7 percentage points

The paušalac keeps approximately €18,500 more per year — or about 68% more net income than the agency employee. This gap is the primary reason the paušal model is so popular among Serbian IT freelancers.

But the comparison isn't just about net income

If it were only about take-home pay, everyone would choose paušal. The agency model persists because it offers real advantages that the raw numbers don't capture.

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Full comparison table

Factor	Agency (employment)	Paušalac	Winner
Net income	~€2,268/month	~€3,816/month	Paušalac (by ~€1,550/month)
Independence test risk	Zero — you're an employee	Significant, especially with one client	Agency
Administrative burden	None — agency handles everything	KPO, 4 monthly payments, limit tracking, bank reconciliation	Agency
Health insurance	Automatically active, employer maintains	Must verify yourself, occasional RFZO issues	Agency
Sick leave (first 30 days)	Paid by employer (at 65%+ of salary)	Self-funded, zero compensation	Agency
Paid vacation	Legally mandated 20+ days	No concept of paid time off	Agency
Paid public holidays	Legally mandated	Not compensated	Agency
Maternity leave	Full protection under labor law	Available but more complex process	Agency
Pension accrual	Based on actual salary (higher base)	Based on assessed paušal base (lower)	Agency
Severance if terminated	Required by law	Nothing	Agency
Revenue limits	Not applicable	6M (paušal) + 8M (PDV) must be tracked	Agency
Flexibility to take other clients	May be restricted by employment contract	Full freedom (subject to independence test)	Paušalac
Control over invoicing and payments	None — agency handles	Full control, direct client relationship	Paušalac
Business deductions	Cannot deduct personal expenses	Cannot deduct either (paušal), but no taxable expenses	Tie
Long-term career building	Building employment history	Building business/client portfolio	Depends on goals
Accountant needed	No	No (but recommended)	Tie
Speed to start	1–2 weeks (agency onboarding)	1–2 weeks (APR registration + rešenje)	Tie

The independence test: the elephant in the room

The independence test (test samostalnosti) is the single biggest risk factor for paušalci working with a single foreign client. If you fail 5 of 9 criteria, income from that client gets reclassified at an effective rate of ~40% — which actually makes the paušal model more expensive than the agency model, plus you face potential retroactive assessments.

The typical IT freelancer working full-time for one foreign client is borderline on the independence test. As detailed in our independence test guide, common failure points include: revenue concentration > 70% from one client, client-set schedules, open-ended engagements, and pure time-and-materials billing.

If you fail the independence test, the paušal advantage disappears entirely. Reclassified income gets taxed at ~36–40% of gross — comparable to or worse than the agency model, plus potential retroactive assessments for prior periods.

Risk assessment by scenario:

Situation	Independence test risk	Recommendation
Single foreign client, full-time, 2+ years	High — likely fails 5+ criteria	Consider agency OR restructure contract + add clients
Primary client (70%) + 1–2 smaller clients	Moderate — may pass if contract is well-structured	Paušalac with proper contracts
3+ clients, none exceeding 50%	Low — easily passes criterion 1	Paušalac is clearly better
Short-term project (< 6 months)	Low — doesn't trigger permanence criterion	Paušalac

If your situation is high-risk and you can't diversify clients or restructure your contract, the agency model eliminates this risk entirely. You're an employee — the independence test doesn't apply to employment relationships.

The hybrid approach

Some freelancers use a hybrid strategy: they're employed through an agency for their primary client (eliminating the independence test risk for that relationship) and run a paušalac on the side for smaller projects and additional clients.

This is legal, provided:

You declare the dopunska delatnost (side business activity) properly
As a side-business paušalac, you pay only income tax (10%) and PIO (24%) — not health and unemployment (those are covered by your employment)
Your paušal revenue stays under the 6M limit

The hybrid approach gives you the security of employment (health insurance, paid leave, no independence test) for your main income, plus the tax efficiency of paušal for additional earnings.

When to choose the agency model

The agency model makes sense when:

You have a single long-term client and can't diversify. The independence test risk is real, and reclassification would cost more than the agency commission.
You value social protections. Paid sick leave from day 1, paid vacation, maternity protections, higher pension accrual — these have real monetary value that the net income comparison doesn't capture. If you plan to take significant time off, get sick, or start a family, the agency model provides a safety net that paušal doesn't.
You don't want to deal with compliance. No KPO, no limit tracking, no monthly payment juggling, no ePorezi, no rešenje management. Some people genuinely value having zero administrative overhead.
Your client requires it. Some foreign companies refuse to contract directly with individual preduzetnici due to their own compliance requirements (permanent establishment risk, co-employment concerns). They'll only work through a local employment entity.
You're new to Serbia and overwhelmed. The agency model lets you start earning immediately while you learn the system. You can always register a paušalac later when you're comfortable.

When to choose the paušalac model

The paušalac model makes sense when:

You have multiple clients or can structure your work to pass the independence test. The tax savings are enormous — potentially €15,000–20,000/year on typical IT salaries.
You're comfortable with basic financial administration. The actual work is minimal (30 minutes/month with proper tools), but you need to be responsible about it.
You value autonomy and direct client relationships. As a paušalac, you negotiate your own rates, control your schedule, and build your own business reputation.
You have an emergency fund. Without employer-provided sick leave and paid vacation, you need personal savings to cover non-working periods.
Your revenue is well within limits and you don't anticipate exceeding 6M RSD in a calendar year.

The question most people don't ask: what about pension?

This deserves special attention because the long-term impact is significant and usually ignored in short-term income comparisons.

A paušalac paying PIO contributions on an assessed base of ~45,000 RSD/month accumulates pension points at a rate appropriate to that base — roughly equivalent to someone earning a below-average salary. An agency employee earning the equivalent of €2,268 net (bruto 1 ~€3,200, or ~375,000 RSD) accumulates pension points at 8x the rate.

Over a 20-year career:

The paušalac accumulates points equivalent to 20 years at ~45,000 RSD/month
The agency employee accumulates points equivalent to 20 years at ~375,000 RSD/month

The resulting pension difference is substantial. Many paušalci plan to compensate through private pension savings (dobrovoljno penzijsko osiguranje) or investment, but few actually do the math or set up the contributions.

Key takeaways

The income gap is real and large. A paušalac earning €4,000/month from a foreign client keeps ~€1,550/month more than an agency employee at the same gross rate.
The independence test is the paušalac's biggest risk. Single-client, long-term arrangements are vulnerable. If reclassified, the paušal advantage disappears entirely.
Social protections have monetary value. Paid sick leave, vacation, higher pension accrual — these matter, especially over a career. The €18K/year paušal advantage shrinks when you account for 20 days of unpaid vacation and a future pension gap.
The agency model offers simplicity and security. Zero compliance burden, zero independence test risk, full labor law protections.
The hybrid approach works well for freelancers with a primary client plus side projects.
Your specific situation determines the right choice. Number of clients, risk tolerance, life stage, and administrative comfort all factor in. There's no universally correct answer.