Category: Serbia

The new Serbian Act on State Aid Control (“SAA”)¹ has entered into force. Its implementation, apart from the provisions on organisation of the Commission on State Aid Control (“Commission”), will begin on 1 January 2020.

The SAA significantly modifies the existing system and aims to (i) harmonise the applicable legal framework with the EU acquis, and (ii) align the specifics of the state aid control procedure with the recently adopted General Administrative Procedure Act. Its proponents, i.e. the Serbian government, also hope that the SAA will resolve ambiguities in the practical application of the “old” SAA and that the new SAA will help push forward the EU accession process and the opening of Negotiation Chapter 8 – competition policy.

What will new SAA bring to the private sector?

Serbian entities, including private entities as potential aid beneficiaries and their competitors, have so far not focused on compliance with the state aid rules. Most likely, this was simply due to lack of awareness about the system and its relatively lenient enforcement. This is expected to change with the adoption of the SAA, primarily because of the Commission’s operational independence from the Government. This new setup should increase the awareness of all market players and, in turn, heighten enforcement of the SAA.

For the private sector, the overhauled state aid setup above all means particular caution in each transaction with state bodies (including other entities managing or disposing with public funds) should be exercised. Such transactions should be carefully assessed for (i) any signs of potential state aid measures; and (ii) if these are detected, their compatibility with SAA. The risk of failing to do a proper assessment is now significant, as the Commission can oblige the state aid grantor to undertake measures to recover from the beneficiary any incompatible aid within 10 years from the date on which such aid was granted.

Key novelties

Unsurprisingly, the SAA largely mirrors the pertinent EU legal framework and contains several important novelties:

• A comprehensive definition of state aid, including exemptions and de minimis aid;
• The codification of the so-called “Altmark criteria” concerning compensation measures for services of general economic interest (“SGEI“) and the introduction of the “private investor” test;
• Overhauled position of the Commission, i.e. above all its operative independence;
• Detailed regulation of proceedings before the Commission; and
• Improved transparency thanks to the launch of the State Aid Registry.

Broadened definition of state aid

The SAA contains an extensive definition of state aid, modelled after Article 107 (1) of the Treaty on the Functioning of the European Union (“TFEU“). An important novelty is that, apart from fulfilling the other criteria replicated from Article 107 (1) TFEU, the measure must affect trade between Serbia and EU Member States to be considered state aid. Thus, strictly internal measures and measures potentially affecting trade with neighbouring non-EU countries, for example, may not be considered state aid. Still, this ultimately depends on how the Commission will in practice interpret the phrase “must affect trade between Serbia and EU Member States”.

The SAA also provides a non-comprehensive list of state aid instruments (previously stipulated in bylaws) and exemptions from the general ban on state aid. The latter mirror Articles 107 (2) and (3) TFEU. A broad definition of de minimis aid is also included.

Transposition of “Altmark criteria”

Before the SAA, Serbian law did not recognise either the concept of SGEI or benchmarks for not considering measures concerning performance of SGEI as state aid. The SAA now closes this loophole by codifying the four “Altmark criteria” from the famous judgment of the European Court of Justice.² It also inaugurates the “private investor” test for potential state aid grantors. The practical application of the test may pose a challenge for the grantors, as adopting a private legal entity’s way of thinking is generally alien to Serbian public authorities.

Overhaul of the Commission’s position

Perhaps the most significant change of the Serbian state aid regime is an overhaul to the position of the Commission, which will now become operatively independent from the Government. The new setting, expected to come into effect in two months, should lead to the overall strengthening of the state aid regime and its more efficient enforcement.

In accordance with the EU’s recommendations, the SAA aims to establish the operative independence of the Commission, which will also gain legal entity status (instead of being a government body) and will report directly to Parliament. The president and the members of the Commission will be elected by Parliament.

This important development is expected above all to increase the enforcement record, awareness and transparency of the state aid rules, none of which is currently high in Serbia. 

Updates to the procedure before the Commission

Party standing

Under the SAA, only aid grantor(s) are parties to proceedings before the Commission. Aid beneficiaries and interested parties, including parties who submit “initiatives” for the ex post review of granted aid, do not have standing.

Ex ante and ex post control

The SAA regulates in detail the procedures for ex ante and ex post state aid control and introduces the possibility for the potential grantors to submit the notification on the need to notify the state aid. This institute is aimed at clarifying for potential aid grantors whether a certain measure can be considered state aid and should be notifiable.

Other procedural updates

Somewhat similarly to the Act on Protection of Competition (“Competition Act“), the SAA thoroughly regulates the procedure and criteria for granting the confidentiality status of information collected in proceedings before the Commission. Other broad parallels to the Competition Act include: (i) possibility of carrying out a dawn raid (albeit announced) at the state aid beneficiary’s premises; (ii) sectoral analyses; (iii) administrative measures (behavioural measures, aid recovery, etc.); and (iv) procedural penalties to be imposed on state aid beneficiaries or other undertakings.

The Administrative Court is the only institution competent to review the Commission’s final decisions. As the Court has competence to resolve all administrative matters and generally lacks specialist knowledge and experience, its rulings on state aid matters will be particularly intriguing to follow.

Also, the statute of limitations for recovery of incompatible state aid is, for the first time, fixed at 10 years from the date of granting the state aid.

Increased transparency

Transparency is central to increasing awareness of the state aid rules in Serbia. The SAA corrects the deficiency of its predecessor by obliging the Commission to maintain a registry of (i) notifiable aid, (ii) granted aid, (iii) de minimis aid, and (iv) other data relevant for the implementation of the Commission’s competencies

¹ Official Gazette of RS, no. 73/2019. 

² Judgment of the Court of 24 July 2003, Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim Bundesverwaltungsgericht.

By Jelena Obradovic, and Zoran Soljaga, Attorneys at Law, Schoenherr

The State Secretary of the Ministry of Labor, Employment, Veteran and Social Policy of the Government of the Republic of Serbia announced the new Act on health and safety at work, which is to be adopted by the end of the year. The new Act is intended to enhance the level of protection at work and to impose a general standard of safety which would lead to a better and healthier work environment.

The problem: sporadic application of precautionary measures

One of the main gaps in the existing Act is the lack of obedience among the working public. The measures of precaution, which are intended to decrease the possibility of the unfortunate events occurrence, are not implemented in an orderly way, but rather sporadically. The aforementioned led to an unrealistic condition where courts sought for prescribed fines in the amount of 246 million RSD as opposed to the amount of approximately 4 billion RSD, which would occur if the courts applied not even the highest, but average level fines from related legal provisions. Additionally, the courts never imposed a maximum sentence of 12 years which, according to experts, led to a decrease in liability among employers and employees.

Auxiliary, the number of deaths at work dramatically amplified with a count of 53 deaths during the year of 2019, which ironically led to the Serbian Government pronouncing the year of 2019 as the year of health and safety at a workplace.

The resolution: A wiser application of pre-existing requisites

The State Secretary stated that the area of health and safety at a workplace does not require major investments and that the state already has a sufficient number of experts. Therefore, changes in the Act itself would suffice in the resolution of the issue and would bring the health and safety standard to a higher level.

The new Act will include the following novelties:

• A bigger fine for legal offenses in the amount of up to 2 million RSD;
• Mandatory fines without the right to appeal;
• An obligation to use a safety harness for work at height, depth and energy facilities;
• Work at height, depth and energy facilities will only be performed by licensed people;
• Mandatory study on the construction site for activities lasting more than three days;
• Mandatory training for both employers and employees ;
• Mandatory health checks every 5 years;
• Companies will need to hire competent personnel in the area of health and safety.

A high level of health and safety at a workplace is a requirement for the normal and stable functioning of the Company. Therefore, legal entities aiming to achieve better results, increase the efficiency of staff, and create a more harmonic work atmosphere should start from the foundation – adequate work conditions, and adapt their business conduct to most recent legal updates in this area.

 

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milos Velimirovic, Partner, and Anastasija Milosevic, Associate, Samardzic, Oreski & Grbovic

On its way to becoming an EU Member State, Serbia has been harmonizing its law with the EU acquis. Within the Negotiating Position of the Republic of Serbia for Chapter Nine – “Financial Services”, the RS undertook, inter alia, to transpose Directive 2011/61/EU of the European Parliament on management of alternative investment funds in the national legal framework of the RS by adopting a separate law governing alternative investment funds.

The Alternative Investment Funds Act (Act), entered into force on 19 October 2019 and will be applicable upon expiration of six months from the day of its entry into force, that is, from 20 April 2020, while the provisions governing small investors, public offering and cross-border activity shall be applied from 1 January 2021 or from the date of accession of the RS to the European Union.

NOVELTIES

The Act defines establishment, activity, and operations of Alternative Investment Fund Management Companies, as well as establishment, organization, and management of Alternative Investment Funds (AIFs), types of alternative investment funds, depositary activities and duties, as well as the competencies of the Securities and Exchange Commission.

Key provisions of the Act which shall start to apply six months after the entry into force of the Act, are the ones regarding:

– Managers of alternative investment funds (AIFM) which are legal entities headquartered in the RS whose primary activity is the management of one or more alternative investment funds on the basis of a license issued by the Securities Commission. The AIFM is established in the form of a limited liability company or a joint stock company which is not a public company, while a large AIFM is established in the form of a two-tier joint stock company. Depending on the value of the portfolio of AIFs managed by the AIFM, the Act differentiates two types of AIFM: small and large. If the value of the portfolio of AIFs managed by AIFM exceeds 75 million EUR (or 25 million EUR if AIFs use financial leverage), the AIFM must be organized as a large AIFM. Consequently, if the value of the portfolio of AIFs managed by AIFM amounts to less than the above figure, it can be organized as a small AIFM. The main difference between small and large AIFM is that some provisions like additional capital, minimum number of the Management Board, compliance monitoring, risk and liquidity management, etc. do not apply to small AIFMs. There are also capital requirements that AIFM must satisfy in order to conduct business operations. For a large AIFM, 125.000 EUR in RSD equivalent, 300.000 EUR in RSD equivalent of a closed fund which has its own legal entity with internal management, and 70.000 EUR in RSD equivalent for a small AIFM, or 150.00 EUR in RSD equivalent of a closed-end fund which has its own legal entity with internal management.

– Different organizational forms of AIFs: An AIF may be organized as an AIF which can be marketed publicly or as one which can be marketed only to professional investors and semi-professional investors (investors who invest at least EUR 50,000 into one AIF and have proven knowledge and experience in capital markets). AIFs which can be marketed only to professional and semi-professional investors can be organized in different forms, including venture capital funds and private equity funds.

– Depositary: An AIF must have a depositary which is appointed by the AIFM. In RS, the depositary may be a credit institution with headquarters therein, which has the approval of the Depositary Commission for a specific fund. A depositary is responsible for monitoring the AIFs’ cash flow and keeping AIFs’ assets. The depositary is liable to the AIFM and its members or shareholders.

Article 3 of the Act specifies entities to which the Act does not apply (holding companies; voluntary pension fund management companies, and voluntary pension funds; insurance and reinsurance companies; supranational institutions; national, regional, and local authorities and bodies or other institutions managing funds that support pension and social security systems, etc.).

OBJECTIVIES OF THIS ACT

The objectives of the Act are to provide a greater degree of protection in case of risky investments in alternative investment funds and to define in more detail the rules with respect to alternative investment fund management companies.

Aside from the new legal concept and harmonization with EU law, the goal of this Act is to develop micro, small, and medium-sized enterprises through alternative forms of financing, i.e. through venture capital funds and private equity funds.

The Securities Commission shall enact bylaws which will further regulate AIFMs, AIFs, and depositaries within six months from the entering of the Act into force.

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milan Samardzic, Partner, and Petra Sretkovic, Trainee, Samardzic, Oreski & Grbovic

Ministry of Finance adopted the new Rulebook on 31 October 2019 related to the determination of Telecommunication and Electronic Services. The new rulebook will be applicable from 1 January 2020.

The latest amendments of the Law on VAT, and particularly of its Article 12 regulating the matter of relevant place of delivery of services, widened the elements that should be determined in more detail through bylaws. Therefore, the subject matter of the new rulebook is widened accordingly, in two directions:

• First, in addition to the determination of services that represent electronic services, the new rulebook also determines the services that represent telecommunication services; and
• Second, the new rulebook also covers the matter of determination of the location (registered seat/permanent establishment/residence) of the recipient of telecommunication and/or electronic services, being the relevant place of delivery of such services under the Law on VAT.

With respect to the matter of determination of the relevant location of the recipient of above indicated services, the new rulebook prescribes multiple sets and combinations of criteria, as well as the rules on how to apply these criteria,  in order to resolve the issues related to determination of the specific location in practice, having in mind the specific nature of delivery of telecommunication and electronic services. 

By  JPM Jankovic Popovic Mitic

Double taxation treaty between the Republic of Serbia and Israel has entered into force.

The Ministry of Finance of the Republic of Serbia has published in the Official Gazette of the Republic of Serbia dated 4 November the information on its entry into force.

As of 1 January 2020, the withholding tax rates for tax residents of Israel shall decrease from statutory rate of 20% to 5% i.e. 15% in case of dividends, 10% in case of interest and 5% i.e. 10% in case of royalties.

It is expected that entry into force of the double taxation treaty will add to a further increase of cooperation between residents of two countries, as well as increase in investments. 

By  JPM Jankovic Popovic Mitic

At the moment, there is no generally applicable obligation to report a personal data security breach in Serbia. This type of obligation is currently envisaged only by certain sector specific laws such as the Law on Electronic Communications.

Under the Law on Electronic Communications (which originated in 2010 and was last amended in 2018), electronic communication operators are obliged to undertake the following activities, in relation to the safety and integrity of public communication networks and services: (i) To report to the competent authority any breach of safety and integrity of the respective networks and services which influenced their work significantly, particularly any data security and privacy breaches relating to their subscribers or users; and (ii) To notify their subscribers of any risk concerning a data security breach and, if such a risk is out of the scope of the measures which a particular operator is obliged to undertake, to notify them of the possible measures of protection as well as the implementation costs of those measures.

The competent authority is the Regulatory Agency for Electronic Communications and Postal Services (RATEL). Its competence in the field of electronic communications includes, among other things, adopting subordinate legislation, deciding on the rights and obligations of operators and users, cooperating with relevant regulatory and expert authorities in Serbia and abroad, and participating in the work of international organizations and institutions in the field of electronic communications in the capacity of a national regulatory authority. Additionally, under the Information Security Law, RATEL has the role of the National Center for Prevention of Security Risks in Information-Communication Systems of the Republic of Serbia (CERT).   

On the other hand, the current Serbian Law on the Protection of Personal Data (originating from 2008) does not envisage any obligation to report a data security breach to the competent data protection (or any other) authority or to notify data subjects of such a breach. However, this is about to be changed. Specifically, this “old” law shall soon be superseded by the new Law on the Protection of Personal Data (the “New DP Law”) – which introduces those obligations.

The New DP Law was adopted on November 21, 2018, in order to align Serbian data protection legislation with the EU General Data Protection Regulation (GDPR). However, although adopted last year, its application was postponed until August 21, 2019, when it became fully effective.  

Since August 21, data controllers (regardless of the field or industry in which they perform their business activities) are obliged to fulfil the data breach notification obligations envisaged by the New DP Law. The precondition is that a particular breach is likely to result in a risk or high risk to the rights and freedoms of natural persons. If there is no such risk, the respective obligations do not need to be fulfilled. If, however, such a risk would exist, the data controller would be obliged to notify both the Serbian data protection authority (i.e., the Commissioner for Information of Public Importance and the Protection of Personal Data), as well as the data subject of that particular data breach. These obligations should be fulfilled without undue delay and, in case of a notification towards the Commissioner, no later than 72 hours after becoming aware of it. Additionally, the data processor is to notify the controller without undue delay after becoming aware of that particular data breach. 

If the relevant obligations are not fulfilled, a legal entity may be liable for misdemeanour and fined in an amount up to RSD 2 million (i.e., up to approx. EUR 16,950), plus the same type of liability and fine in an amount up to RSD 150,000 (i.e. up to approx. EUR 1,270) for the responsible person in the legal entity.

It remains to be seen how these rules will be implemented in practice and how strictly the penal policy will be applied. In the meantime, data controllers should ensure that all measures – technical and otherwise; which are necessary for them to fulfil the relevant obligations are undertaken in a timely manner. Failure to fulfil those obligations may expose them not only to the aforementioned lability and fines, but also to significant reputational risks. Such risks, if realized, may result in irreparable damage to their businesses, particularly if they include the processing of personal data of a large number of data subjects and/or a broad scope of personal data, such as, for example, in the field of telecommunications and media.

By Goran Radosevic and Sanja Spasenovic, Independent attorneys at law in cooperation with Karanovic & Partners

This Article was originally published in Issue 6.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.