Category: Serbia

One of the new possibilities introduced by the new Serbian General Administrative Procedure Act is an administrative guarantee.  It is a statement issued by an authority that it will issue an administrative act at the request of a party.  By issuing an administrative guarantee, the authority guarantees that the act issued will have a precisely defined content.

The Act does not stipulate when an administrative guarantee could be issued, and leaves this to be regulated by sector legislation instead.  This legislation will have to lay out the conditions that petitioners have to meet in order to obtain the guarantee.  However, if the facts of the case change significantly after the issuing of the guarantee the authority can refuse to issue the administrative act when requested.

Three pieces of legislation currently in force provide for an administrative guarantee – Act on Serbian Citizenship, Regulation on Customs Proceedings with Imported Goods, and Act on Nationality and Registration of Watercraft.  It is expected that the business community in Serbia will try to persuade legislators to use this possibility as much as possible in future legislation.

The rationale behind the administrative guarantee is to increase the predictability in longer and more complicated administrative procedures.  The practice so far was to organize “consultations” with officers of a certain authority to gain information about hypothetical future requests.  The officers would provide information which was informal and often would turn out to be incomplete or just wrong.  Because of this informality, the authority was not bound by them and if the officer providing information was not the one actually conducting the procedure the information could be of little value.

The validity of the guarantee is one year and, if used properly, it could save lots of time and resources.  However, it remains to be seen whether the legislators will use this possibility more often in future legislation.  It will also be important for authorities issuing the guarantees to act according to them upon request.  The key will be careful examination of the facts of the case by both the petitioner and the authority prior to requesting and issuing the guarantee.

By Milan Samardzic, Partner, and Dusan Dincic, Associate, Samardzic, Oreski & Grbovic

On 22 September 2017 the public debate on the proposed amendments to the Serbian Companies Act (hereinafter: the “Act“) was initiated.  The changes of the Act are expected to create conditions for further development of the concept of e-government, and are mainly focused on expediting the process of company registration and creating space for further europeanization of business environment in Serbia upon accession to the EU.

The announced changes will enable the industry to digitalize its business to a greater extent thus reducing the unnecessary bureaucratic procedures, and to achieve more efficient communication between the industry stake holders and the competent authorities. One of such changes pertains to the possibility for the founders of companies to be able to sign the Memorandum of Association of their companies by using an electronic signature. On the one hand, this will reduce the cost pertaining to the certification of signature with the public notary, and on the other – reduce the overall amount of time necessary for the registration of the company.

Other changes provided in the draft introduce the obligation for companies to register an email address, and pertain to further harmonization with regard to EU rules which refer to cross border mergers and acquisitions of companies, as well as the introduction of new EU law institutes into Serbian law – the European Company and the European Economic Interest Grouping.

All of these provisions, which will become applicable as of the accession of Serbia into EU, are meant to facilitate easier conducting of business between Serbian and European companies.  The new rules on cross border M&A contain detailed instructions on conducting a merger or an acquisition between a Serbian and an European company – the mandatory content of an agreement on merger or acquisition, the procedure for adoption of the agreement, as well as employee participation in decision making regarding the M&A transaction.

The European Company (also known by its Latin name Societas Europaea or SE) is a type of public company regulated under EU law. The creation of the European Company Statute will mean in practice that companies established in more than one Member State will be able to merge and operate throughout the EU on the basis of a single set of rules and a unified management and reporting system. This avoids the need to set up a financially costly and administratively time-consuming complex network of subsidiaries governed by different national laws. In particular, there are advantages in terms of significant reductions in administrative and legal costs. In the proposed amendments to the Act, it is provided that the SE will be founded as a joint stock company, and one of the main benefits of forming this type of company is the easier procedure regarding the change of business seat of the company throughout the EU.

A European Economic Interest Grouping (EEIG) is a type of legal entity created under European Community (EC) Council Regulation 2137/85.  It is designed to make it easier for companies in different countries to do business together, or to form consortia to take part in EU programmes. Under the proposed changes to the Act – EEIG is a legal entity formed between at least two companies, entrepreneurs, or other legal or natural persons carrying out agricultural activities, one of which is registered on the territory of Serbia and the other on the territory of another Member State.  EEIG has its own legal form, and does not have a separate business activity, its main goal being to further the economic interests and activities of its members.

While it is premature to comment on its effects, the draft being still in the phase of public debate, it is safe to assume that the efforts regarding the introduction of concepts of e-government in the area of company registration will lead its greater efficacy.  On the other hand, bearing in mind the delayed application of provisions pertaining to cross border M&A, SE and EEIG, their true effect on business environment in Serbia is yet to be seen.

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

On its way to becoming a Member State of the European Union, Serbia undertook the obligation to implement the fundamental EU principles into its legal system by entering into the Stabilization and Association Agreement (the “SAA”).

Under the SAA, Serbia was bound to introduce mechanisms so as to allow EU citizens to acquire agricultural land under the same conditions as its own citizens by September 1, 2017.  In order to perform its obligation, Serbia adopted amendments to the Agricultural Land Act (the “Act) and became the first non-Member State allowing EU citizens to acquire the ownership title on agricultural land.

The Act stipulates that EU citizens may acquire ownership title on the agricultural land in accordance with the SAA.  However, if one was to closely analyze the Act, it may be argued that EU citizens and Serbian citizens are practically not able to acquire agricultural land under the same conditions.  Specifically, there are no specific restrictions for a Serbian citizen to acquire agricultural land whereas if an EU citizen wants to purchase the said land, it would have to: (i) live on the territory of the municipality where the land is located for at least 10 years; (ii) cultivate the land for at least three years; (iii) have a registered farmland ownership; and (iv) own the machines and equipment necessary for agricultural production.

Not only that, but if the EU citizen satisfies the above mentioned criteria, it would still be prevented to acquire more than 2 ha of agricultural land.  Moreover, the right of disposal of the EU citizen would also be restricted since the Act stipulates that the Republic of Serbia has a pre-emption right over the agricultural land which is to be subject of the transaction.

Since the equalization of the EU citizens with Serbian citizens was the main goal of the above mentioned article of the SAA, it may be questioned whether Serbia actually liberalized the agricultural land marked in an expected manner.  Moreover, the Act does not include provisions concerning the right of the EU legal entities to acquire agricultural land in Serbia.

By Radovan Grbovic, Partner, and Nevena Milosevic, Associate, Samardzic, Oreski & Grbovic

Foreigners acquiring ownership of agricultural land in the Republic of Serbia.

The National Assembly of the Republic of Serbia has adopted amendments and supplements to the Law on Agricultural Land and prescribed the possibility and the requirements for foreign natural persons acquiring ownership rights over agricultural land. According to the recent press release, the Republic of Serbia has thereby fulfilled its obligation under the Stabilization and Association Agreement with the EU, which stipulates the obligation of the Republic of Serbia to permit citizens of the EU member states to acquire ownership rights over real estate in Serbia, and over a period of four years from the entering into the Agreement, that is the Law on Ratification of the Stabilization and Association Agreement entering into force, to gradually harmonize its legislation on acquiring real estate in Serbia.

The Law on Agricultural Land prohibited foreign natural persons and legal entities from becoming owners of agricultural land. This prohibition existed in other countries of the Balkans as well, and is a customary measure prescribed by countries in order to protect their agricultural land, as goods of general interest. Contrary to the provisions of the law, accession to the EU requires enabling equal treatment of citizens of EU member states and local citizens. The Agreement also prescribes deadlines for harmonizing the legislation, making the amendments and supplements to the Law on Agricultural Land necessary in order to fulfill the obligations undertaken by the international agreement.

The amendments and supplements to the Law on Agricultural Land enable foreign natural persons to acquire agricultural land under certain conditions. The conditions specified by the Law are such that the possibility of foreigners acquiring ownership rights over agricultural land is suspended for at least ten years, the possibility of acquiring land is restricted to foreign natural persons only, and the area of land that foreigners can acquire ownership rights over is limited.

In order for a foreigner to acquire ownership rights over agricultural land, he/she must have had permanent residence in Serbia for at least ten years, must have cultivated the land he/she intends to buy for the past three years, must have been the owner of a family farm with active status continuously for ten years, and must own farm machinery and equipment. These periods of time are determined starting from the date when the amendments and supplements to the Law enter into force, meaning that the earliest year that a foreigner will be able to buy agricultural land is 2027.

It is clear that Serbia intends to protect its agricultural land as goods of general interest, so stipulating certain restrictions, such as preemption right in favor of the Republic of Serbia is both necessary and understandable. However, the requirements for acquiring land prescribed by the Law are such that it is safe to say that no foreign citizens meet the legal requirements, even if the periods of time were to be applied retroactively. This means that the amendments and supplements to the Law on Agricultural Land will have no effect, given that it would be hard to find individuals who meet the prescribed requirements even among Serbian citizens.

The reasoning for the proposed amendments and supplements to the Law on Agricultural land specifies that the Law is being enacted in order to fulfill obligations under the Stabilization and Association Agreement. However, by adopting these amendments and supplements to the Law on Agricultural Land Serbia has not fulfilled its obligations undertaken by the Stabilization and Association Agreement for at least two reasons.

The first reason is that the right of foreign entities to acquire agricultural land is restricted to natural persons only, since only natural persons can meet some of the legal requirements for acquiring agricultural land. Namely, only a natural person can be the owner of a family farm, and also the concept of permanent residence can only be applied to natural persons. This does (partially) fulfill the obligation under Article 63 paragraph 2 of the Stabilization and Association Agreement, but fails to fulfill the obligation under Article 53 paragraph 5 point b of the Stabilization and Association Agreement and allow foreign legal entities to acquire real estate, including agricultural land.

The second reason is failure to fulfill the obligation of “equal treatment” of foreign and local citizens. Article 63 paragraph 2 of the Stabilization and Association Agreement clearly and equivocally specifies that Serbia must enable the EU citizens to acquire real estate, and that within four years of the date of entry of the Agreement into force, the EU citizens have to be provided with the same treatment as local citizens with respect to acquiring real estate.

Considering that the Law demands fulfillment of strict requirements for foreigners to acquire ownership rights over agricultural land, which are not demanded of local citizens, it is clear that the amendments and supplements of the Law on Agricultural Land do not constitute fulfillment of obligations under the Stabilization and Association Agreement in the part relating to equal treatment. Amendments and supplements to the Law on Agricultural Land should have been such to equalize the position of the EU citizens and citizens of Serbia, yet they have achieved the opposite – the EU citizens have been placed in a less favorable position, with such requirements for acquiring agricultural land imposed on them, that they cannot be fulfilled even in ten years’ time.

The question remaining without a clear answer is why such amendments and supplements to the Law on Agricultural Land were adopted in the first place. There are two possible answers to this question. The first is that the Republic of Serbia has not properly taken into account the Stabilization and Association Agreement and that, through superficial interpretation of the Agreement provisions, the provision clearly specifying equal treatment was overlooked. The second possibility is that the Republic of Serbia is thereby trying to “buy time” because it is essentially still not prepared to permit foreign citizens to acquire agricultural land. 

The fact that the amendments and supplements to the Law on Agricultural Land have failed to permit the possibility for foreign legal entities to also acquire ownership rights over agricultural land, even though this obligation was undertaken by Article 63 paragraph 5 point b of the Stabilization and Association Agreement, gives the impression that the competent authorities in the Republic of Serbia do not grasp the importance and weight of the Stabilization and Association Agreement. Without entering into the merits and need for a country to protect its agricultural land as goods of general interest, this indeed gives rise to the question of understanding the basic principles on which the European Union was founded, particularly the principle of equal treatment of EU citizens and citizens of member states. The very fact that Serbia will one day be a member of the EU means that every citizen of the EU will be permitted to enjoy the same rights as Serbian citizens, including the right to own agricultural land. Prescribing special requirements for acquiring ownership rights to agricultural land which apply only to foreign citizens is, from the viewpoint of EU law, discrimination, and it is reasonable to expect a demand to cease such discrimination.

The future application of this Law and the reaction of other signatories to the Stabilization and Association Agreement are predictable. The amendments and supplements will, in any case, remain a dead letter, and will not be applied even after the ten-year period (the stipulated length of time a foreign citizen must reside in Serbia in order to buy agricultural land) has expired. The side effects will be much more significant – prescribing unequal treatment for foreign citizens will become the main topic of debate and discussion with the EU and the trump card for blocking negotiations for those EU members preferring not to include the Republic of Serbia in the European family.

By Ivan Petrovic, Senior Associate, JPM Jankovic Popovic Mitic, a member of TLA.