Upwork is an online platform that connects skilled professionals with employers in need of those skills. The demand is created by individuals and legal business entities — clients, while the work is usually supplied by individuals who can perform the required tasks. They are not registered business entities but appear on the market independently as freelancers.

The clients post job offers on the platform, to which freelancers can respond. Once the job is completed, the client can generate an invoice based on which they can make a payment.

Generally, it is only when the time comes to pay for services rendered that the clients ask themselves — is any tax due on this invoiced amount?

The answer to that question is directly tied to who is providing the service — the platform or the freelancer. Why is this important? Simple, one set of tax obligations applies if we “obtained” services from a foreign legal business entity. However, if the services were rendered by a domestic or foreign natural person, obligations are entirely different.

Therefore, to determine the tax burden, we must first answer the posed question.

The answer lies in the platform itself, within the Terms of Service. The relevant text is quoted:

“Upwork merely makes the Site and Site Services available to enable Freelancers and Clients to find and transact directly with each other. Upwork does not introduce Freelancers to Clients, find Projects for Freelancers, or find Freelancers for Clients. Through the Site and Site Services, Freelancers may be notified of Clients that may be seeking the services they offer, and Clients may be notified of Freelancers that may offer the services they seek; at all times, however, Users are responsible for evaluating and determining the suitability of any Project, Client or Freelancer on their own. If Users decide to enter into a Service Contract, the Service Contract is directly between the Users and Upwork is not a party to that Service Contract. You acknowledge, agree, and understand that Upwork is not a party to the relationship or any dealings between Client and Freelancer.”

From the quoted text, it’s clear that Upwork acts as an intermediary. The contract is between the contractor (your company) and the freelancer. Upwork, as the intermediary, charges a fee for their services along with the payment for the freelancer on their behalf. Consequently, you will receive a single invoice for the completed work, including the platform’s fee. However, the tax burden depends on who provides the service, not on who collects payment. Therefore, if you choose to work with a freelancer via Upwork who is not registered as self-employed (sole proprietor, also known as a sole trader) or business, you may have tax liabilities depending on whether that person is located in Serbia or another country.

Hiring a freelancer who is a Serbian resident (lives and works in Serbia, or resides in Serbia for a minimum of 180 days per year) is treated, for tax purposes, as a service contract. When you pay a freelancer on Upwork, you need to report and pay income tax as well as social security contributions. You can find instructions on how to calculate taxes and contributions for service contracts here.

Hiring a freelancer who is a foreign resident can also generate a tax burden. But this depends on many factors. Every instance should be examined on a case by case basis. It’s important to determine what type of work — servicethe freelancer is offering and whether there is an international double taxation prevention agreement and social security convention with Serbia. In most cases, the payment will not be taxed. The potential liabilities that can arise from hiring an international consultant can be found here.

We advise you first to gather all the relevant information about the freelancer and consult with an accountant about each case before you complete the payment. Some companies (incorrectly) assume that hiring a freelancer on Upwork insulates them from tax liabilities in Serbia. This misconception is facilitated by the terms set forth by Upwork, which state that only the freelancer is responsible for any tax obligations that may arise from their engagement through the platform.

However, keep in mind that the clauses in a contract (and terms on Upwork’s user agreement) are still subordinate to the law.

If the payment of income tax and social contributions after deduction is required by law, which is the case when both the client and freelancer are from Serbia, these obligations cannot be transferred to the payment recipient.