Will Serbian freelancers lose American clients due to a new law in the US?

The bill introduced in the US Senate in early September, called the HIRE Act (Halting International Relocation of Employment Act), has caused a storm of reactions around the world. Its essence is that America wants to keep jobs at home, and not “export” them to other countries through the outsourcing model.

However, the way it plans to do this could significantly change relations in the global digital services market. According to the bill, American companies would have to pay an additional tax of 25% on all payments to foreign outsourcing companies, i.e. those that provide services to American consumers outside the US. In addition, the possibility of tax deduction of these costs is lost, which means that payments abroad can no longer be counted as an expense when calculating corporate income tax.

All payments will have to be reported, and the money collected from this tax will be redirected to a fund for the education and retraining of American workers. The legislator’s idea is to encourage employment in the domestic IT sector, reduce dependence on foreign collaborators and strengthen the American workforce.

Although it is envisaged that the tax will be paid by American companies, the effects could also spill over to foreign exporters of IT services, including Serbia. As tax advisor Gordana Aritonovic explains, US companies, wanting to keep the cost of doing business the same, would probably try to reduce fees for foreign collaborators.

– If they wanted to keep the existing budget, fees would have to be lower by about 20%. When the fact that these payments would no longer be recognized as an expense is taken into account, it is realistic to expect a reduction of as much as 35 to 40% – says Aritonovic.

In other words, the tax is formally paid by the American side, but the financial burden could also fall on foreign workers - freelancers, programmers and outsourcing companies that cooperate with clients from the US. Despite the dramatic headlines in the media, Gordana Aritonovic points out that America currently simply does not have enough domestic labor to replace foreign IT associates.

– The law is still in draft form, without clear support from the professional community and without precise elaboration on how it would be implemented in practice. Therefore, there is no reason to panic for now – she states.

According to her, the American labor market in the IT sector still depends on global expertise.

– If the law were to come into effect, implementation would be complicated, and American companies could lose their competitive advantage. Therefore, the likelihood of the HIRE Act entering into full implementation is relatively small – explains Aritonovic and advises that Serbian IT companies and freelancers monitor the development of the situation, because the possible implementation of these measures could affect prices and the way jobs are contracted.

The announcement of the HIRE Act coincided with changes in the global gig sector. On the most famous platform Upwork, the number of active workers from Serbia has fallen by 3% in the last six months, according to Gigmeter’s measurement data from May this year. However, compared to the period when the decline was almost 19%, this slight decline can be interpreted as stabilization.

According to Gigmeter’s analysis, the reason is a combination of factors - supply saturation, a better job offer in the country and a constant departure of the workforce from Serbia (between 25,000 and 27,000 people per year). Despite this, the digital sector remains vibrant and in demand, especially in areas such as artificial intelligence, cybersecurity and software development, where salaries are up to 45% higher than in other IT fields.

Research shows that as many as 43% of gig workers currently have active projects, which is an increase of 1.5 percentage points. However, the growth mainly refers to experienced workers. Newcomers to the market have a decreasing chance of getting hired, as companies are looking for proven experts.

One trend among Serbian freelancers is a change in mindset. While just a few years ago flexibility was the main reason for entering the gig economy, today more and more workers are looking for security and stability.

According to the latest survey, as many as 44.9% of freelancers want long-term business relationships with clients, while previously this percentage was only 12.9%. This change is even more pronounced among new workers - and those without previous experience are increasingly seeking more permanent employment.

HIRE Act

Gordana Aritonović

freelancers

outsourcing model

gig workers