Agency vs Paušalac: The IT Freelancer's Decision Guide

Last updated: August 2026. Tax rates and contribution amounts reflect current legislation under the Zakon o porezu na dohodak građana ("Sl. glasnik RS", br. 24/2001, consolidated through br. 6/2026).

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.

What each model charges, and on what base

The two models differ less in their rates than in what those rates apply to. In the agency model every deduction is a percentage of the money flowing from the client. In the paušal model the tax and contributions are fixed in advance by your rešenje and do not move when your revenue does.

Agency: proportional to what the client pays

Every line scales with the amount: if the client's rate doubles, each deduction doubles with it. In return the agency carries the entire administrative and labour-law side — payroll, filings, sick pay, paid leave, severance — and none of it reaches you.

Paušalac: fixed by the rešenje

For a typical IT paušalac the four tax lines come to roughly 20,273 RSD a month, and they stay there whether the client pays €1,000 or €4,000: they are computed on the assessed base, not on your revenue. What moves in the other direction is everything the agency was absorbing — KPO knjiga, four monthly payments, limit tracking, bank reconciliation, and unpaid time whenever you are ill or on holiday. Two ceilings also bound the arrangement: 6,000,000 RSD of revenue in a calendar year (paušal status) and 8,000,000 RSD in any rolling 12 months (PDV).

Reading the two columns

One arrangement takes a proportion of everything you bill; the other takes a fixed monthly amount that ignores what you bill. Which of them produces the larger charge at your revenue level depends on your rešenje, your municipality, the agency's commission, and how much you actually invoice. And the charge is only half of the comparison, because the agency's price covers obligations — sick pay, paid leave, severance, all the filing — that a paušalac funds personally or does without.

The comparison doesn't end at the monthly charge

The charge structure is one input among several. The agency model persists because it carries protections that neither table above prices.

Full comparison table

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 is reclassified as drugi prihodi and leaves the fixed paušal charge entirely: 20% tax on the gross amount (ZPDG čl. 86 st. 1, with no normirani troškovi — čl. 85 st. 5 t. 1 carves point 17 out of the general deduction) plus 24% PIO on the same base (ZDOSO čl. 44 st. 1 t. 1, čl. 28 st. 1), withheld at source where the payer is a Serbian nalogodavac (ZPDG čl. 85 st. 15–17). Retroactive assessment for prior periods is possible on top.

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.

Risk assessment by scenario:

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, while the additional earnings are charged under the paušal rules — a fixed monthly amount set by the rešenje rather than a proportion of what you invoice.

When to choose the agency model

The agency model makes sense when:

1. You have a single long-term client and can't diversify. The independence test risk is real, and employment removes it: the test does not apply to an employment relationship at all.

2. 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.

3. 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.

4. 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.

5. 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:

1. You have multiple clients or can structure your work to pass the independence test. Diversification is what keeps the arrangement stable: a single-client engagement is the one that gets tested, and reclassification takes that client's income out of the fixed paušal charge.

2. 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.

3. You value autonomy and direct client relationships. As a paušalac, you negotiate your own rates, control your schedule, and build your own business reputation.

4. You have an emergency fund. Without employer-provided sick leave and paid vacation, you need personal savings to cover non-working periods.

5. 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.

Pension points are calculated from the base your PIO contributions are paid on, and the two models use different bases. A paušalac pays PIO on the assessed paušalno utvrđen prihod — commonly around 45,000 RSD/month — whatever the client pays. An agency employee pays PIO on bruto 1, the actual gross salary, which for a €4,000/month engagement lands near 375,000 RSD/month.

Over a 20-year career:

• The paušalac accumulates points earned on ~45,000 RSD/month
• The agency employee accumulates points earned on the full salary base

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

1. The two models are charged on different bases. The agency deducts a percentage of everything the client pays; the paušalac pays a fixed monthly amount set by the rešenje, regardless of revenue. Put your own rešenje and your own agency quote into that structure before deciding.
2. The independence test is the paušalac's biggest risk. Single-client, long-term arrangements are vulnerable. Reclassification moves that client's income out of the fixed paušal charge and onto the gross the client pays.
3. Social protections have monetary value. Paid sick leave, vacation, higher pension accrual — these matter over a career, and they are exactly what a comparison of monthly charges leaves out. Twenty days of unpaid vacation and a lower lifetime pension base are real costs on the paušal side.
4. The agency model offers simplicity and security. Zero compliance burden, zero independence test risk, full labor law protections.
5. The hybrid approach works well for freelancers with a primary client plus side projects.
6. 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.