Category: Serbia

Lately, investors have had fairly high expectations for the Serbian real estate market. New and improved real estate and construction regulations, updates to the urban plans, and the announcement of significant projects all indicate that a very interesting period is in front of us.

Serbia moved up 116 spots in the World Bank’s global Doing Business 2017 ranking, according to the recent data regarding dealing with construction permits, coming in 36th out of 190 ranked countries.

Recent changes to Serbia’s Planning and Construction Act made dealing with building permits faster. The so-called “integrated procedure” for obtaining all necessary documentation for construction, electronically, on a “one stop shop” basis was created. This procedure encompasses all actions in the construction process, from determination of adequate location conditions, through the issuance of the building and use permits, up to the registration of ownership of a newly constructed facility in the Real Estate Cadaster.

The total number of building permits issued from January to November 2016 represented a 21.5% increase over the same period in 2015.

Nevertheless, Serbia is still dealing with the post-socialist right-of-use regime on state-owned land designated for construction. Although conversion proceedings (i.e., converting the right of use on the construction land into ownership, for a fee) are finally being implemented, this process has turned out to be unexpectedly slow, and it seems that a new effort of the Ministry of Construction is required to accelerate it, mainly because the right of use on land no longer serves as a basis for obtaining construction permits. Given that now only ownership on the land (in addition to a long-term lease) serves as a basis for obtaining a building permit, the speed and overall efficiency of the conversion process is therefore crucial.

However, there have been other changes in Serbian legislation that should boost the Serbian real estate market. For example, the registration of real property rights has been improved recently by fresh amendments to the Real Estate Cadaster and Survey Act. The Mortgage Act also underwent significant changes recently, removing many obstacles to its implementation.

From the market perspective, the traditional focus has mainly been on residential and business developments. However, there has also been a growing trend towards the construction of retail parks and shopping malls. This is partly due to the fact that this kind of facility has not been widespread in Serbia in the past and also because it is a growing trend all over Europe.

The market share of major hypermarkets and retail chains in Serbia has been constantly growing during recent years. Additionally, international hotel chains may play an important role in the coming period, given that the market still lacks a significant presence of high-end hotels and hotel chains.

Currently, the biggest construction project in Serbia is the Belgrade Waterfront project: A EUR 3.5 billion residential and business complex in Belgrade. The project is being conducted by the Republic of Serbia and an investor from the United Arab Emirates.

One third of all construction projects in Serbia are located in Belgrade at the moment; consequently, the city represents a driving force behind the country’s construction industry. There are several projects planned with regards to renovation of the capital, including the restoration of the city’s main symbol, the Belgrade fortress, construction of a new principal bus station and new public garages, the renewal of facades, the extension of bicycle areas throughout the entire city (making bicycles a new form of urban public transport), and other developments of major public areas. With regards to public infrastructure projects, there is an increasing tendency by both state and local authorities to undertake such projects through a public private partnership. 

When it comes to residential premises in Belgrade, the asking prices of high-quality projects start from EUR 2,200 per square meter, while mid-range projects usually range between EUR 1,500-2,100 per square meter. The average rent for class A office premises in Belgrade ranges from EUR 15-17 per square meter, and for class B office premises from EUR 11-12 per square meter.

By Ivan Gazdic, Head of Real Estate, and Mario Kijanovic, Associate, Bojovic & Partners

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As Serbia doubles down on its EU accession efforts, the pivotal role of State aid in a crucial negotiation chapter creates serious challenges for the finalization of country’s prolonged privatizations and the continuation of its recently revamped subsidy scheme for foreign and local investors. 

Companies contemplating investing in Serbia because of its incentive schemes and its favorable climate for foreign investors ought to be aware of both the general and country-specific risks associated with all forms of State aid.  These risks persist irrespective of the nature of the investment; that is, regardless of whether investors opt for a greenfield (building of business operations from the ground up) or brownfield (purchase or lease of existing production facilities to launch a new production activity) investment. This assertion puts State aid rules and the legal requirements for Serbia’s accession to the EU on a collision course with a number of incentive schemes currently offered to investors – a “catch-22”, it might appear to the oblivious.

Although Serbian spectators are accustomed to a welcoming attitude towards state donations, State aid forms an integral part of Chapter 8 of the EU acquis, broadly described as the Competition Policy.  With regard to Serbia, Chapter 8 of EU negotiations has yet to be opened while the harmonization with the EU law is approaching its peak activity.  Hence, the EU monitoring mechanisms are already dealing with the matter of Competition on the Serbian market and, inevitably, its State aid schemes.  As a result, the European Commission has emphasized the need for Serbia to adjust and align Serbian State aid rules, and – most importantly for the investor – to return any unlawful prior aid. 

The reasoning behind the spotlight on State aid in Serbia, as was the case with other Eastern European countries on their path to the EU, lies primarily in the fact that Serbia followed the trend of supporting domestic companies through grants without a sound economic plan, while presumably using said companies as social welfare distribution channels. Today, with Serbia well on track to join the EU, such aid schemes become particularly important from the perspective of the planned privatizations of the Serbian “crown jewels”: the 11 large state-owned enterprises that hold particular strategic importance for the Government, as: (i) Serbia adopted its State aid rules in 2010, prior to finalizing its transition process, making any and all aid granted from 2010 onwards subject to inspection by competent authorities tasked with assessing and ensuring its compatibility with Serbian national law and applicable EU regulation; (ii) in cases where the aid is found to be illegal, it would need to be returned, imposing a severe financial burden on potential acquirers of the companies.  

In addition, investors need to take into account that Serbia has, both internationally (via a number of investment treaties (e.g. by means of most-favored nation clauses, stabilization clauses etc.) and free-trade agreements) and domestically (through tax holidays (did someone say “Apple”?) and employment subsidies), created a wide net of incentives for local greenfield projects. Similarly, incentives to foreign investors can be easily torn apart before the State aid authorities if not handled with great care and expertise. 

Serbia has, as it appears, reached a problematic position.  On the one hand, it has a strong strategic, economic, and political interest in finalizing privatizations and attracting new investors, while, on the other hand, its rules on State aid create a strong disincentive for private investors. Consequently, although Serbia is clearly advancing in harmonization of its State aid rules with the EU law, these rules may prove to be the main deterrent for new investors, thus further prolonging the transition process and, paradoxically, hindering its progress towards the EU.   

It almost goes without saying, the prevalence of either set of rules depends greatly on the acting forum (even arbitral awards ordering compensation to be paid to an investor do not hold as a sufficient guarantee), while vast know-how and rock-solid argumentation seem to be the key bargaining chip therein.

By Bogdan Gecic, Partner, and Tatjana Sofijanic, Associate, Gecic Law

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Serbia’s 2010 Anti-Mobbing Act prescribes the procedure for fighting workplace harassment in a detailed manner. Employers are obliged to familiarize all staff members with the anti-mobbing procedure by providing them with an info sheet before they commence work.

A victim of horizontal (peer-against-peer) mobbing can file a lawsuit against his/her employer only if mandatory internal mediation fails to result in an agreement with the harasser. In this mediation, the employer, the victim, and the harasser consensually appoint a mediator, whose role is to propose a solution for the situation. The mediator cannot impose a resolution.

For victims of vertical mobbing (i.e., harassment by a superior), mediation is optional, and they may immediately choose to file a lawsuit against the employer, which can recover from the harasser any damages it is ultimately required to pay the victim.

However, victims keen on preserving anonymity are unlikely to choose one of the paths prescribed by the Anti-Mobbing Act i.e., to initiate mediation or file a lawsuit. Instead, such victims can alert the management about the harassment in other ways, such as through the internal whistleblowing channel that every employer is obliged to implement, or via an employee satisfaction survey. 

Anonymous reporting through one of these channels is usually resorted to where there are multiple victims of the same mobbing act or in an environment where employees feel insufficiently protected from potential retaliation. Some victims do not necessarily want to sue for mobbing but instead want the employer to remove the harasser from the work environment. Also, witnesses to harassment who are not themselves victims may want to fight harassment by filing a report to the employer. 

If an employee files a harassment complaint through an internal whistleblowing channel, the employer is obliged to investigate the allegations in accordance with its internal whistleblowing bylaw, which can entail substantial paperwork. As a minimum, the internal whistleblowing officer is required to prepare a report on the actions the employer undertook following the receipt of the complaint and propose measures for remedying the situation to management. 

As part of its general statutory duty to protect employees from harassment, employers are obliged to investigate any allegations of harassment, even if they are made in other ways than through the internal whistleblowing channel.

If the mediation fails but there is reasonable doubt that harassment occurred, the employer has the duty to initiate disciplinary proceedings against the employee. If the employee is found liable for a breach of work duty or discipline at the workplace, the employer can choose among five different measures, depending on the severity of harassment and other circumstances of the case. 

As a first option, the employer may dismiss the harasser, in a procedure which can last anywhere from eight days to about two weeks. The employee is entitled to a dismissal warning and a time to respond. The employer may suspend the harasser pending the dismissal procedure, but not for more than three months. During the suspension period, the employee is entitled to a partial salary compensation equal to one fourth of his base salary (one third if he has a family to support).

As a second option, the employer can permanently transfer the harasser to another work location and thus separate him from the victim. 

The remaining options include: suspension from four to 30 working days without salary compensation; a monetary penalty in the amount of up to 20% of the employee’s monthly base salary, applicable for up to three months; and a warning to the harasser that he will be dismissed without notice if he commits a further act of harassment in the following six months. 

By Ana Jankov, Partner, BDK Advokati

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The National Bank of Serbia has invested significant efforts to harmonize national regulations in the field of payment systems with those of the EU.

As a result of these efforts, on December 18, 2014, the National Assembly of the Republic of Serbia adopted the new Law on Payment Services. The Law introduces significant improvements to the existing system, modernizing and aligning it with the directives of the European Union (Directive 2007/64/EC on payment services in the internal market, Directive 98/26/EC on settlement finality in payment and securities settlement systems, and Directive 2009/110/EC on the taking up, pursuit, and prudential supervision of the business of electronic money institutions), creating a harmonized, modern, and comprehensive set of rules for the provision of payment services at the EU level. A set of provisions in the Law will apply once the Republic of Serbia becomes a member of EU. 

The Law creates the legal basis for the establishment and operation of electronic money institutions for the first time. Electronic money has been introduced and its issuance regulated. 

Electronic money may be issued only in accordance with the Law, and – according to the Law – only by the following entities: (i) a bank; (ii) an electronic money institution; (iii) a public postal operator; (iv) the National Bank of Serbia; or (v) the Treasury Administration or other public authority body in the Republic of Serbia, in line with competences established by law. No other person may issue electronic money in the Republic of Serbia, which means that in the private sector only banks and electronic money institutions are able to issue electronic money. Electronic money institutions or banks can operate by themselves, through a branch, or through third parties.

An electronic money institution, under the Law, is a legal entity with its head office in the Republic of Serbia that is licensed by the National Bank of Serbia to issue electronic money in accordance with the Law. During the process of obtaining the license to issue electronic money from the National Bank of Serbia and on the day the license is granted, the initial capital of the entity applying for the license needs to be no less than the dinar equivalent of EUR 350,000 at the official exchange rate. Even though there is a list of additional conditions that need to be met in order to issue electronic money, this one is the most specific. The National Bank of Serbia must decide on an application for a license to issue electronic money no later than three months following the day of receipt of a duly completed application. The register of electronic money institutions is maintained by the National Bank of Serbia.

Relations between the electronic money issuer and the individual to whom electronic money is issued are contractually regulated, particularly in connection with the issuance and redemption of electronic money and all fees that the electronic money issuer charges to the electronic money holder in the process. Electronic money related services must be advertised in a clear and comprehensible way, and the advertising must not contain inaccurate information or information that may mislead electronic money holders regarding the terms of use of these services. Furthermore, electronic money holders need to be fully informed of all terms and conditions prior to conclusion of the contract.

So far there is only one electronic money institution registered in the Republic of Serbia, which is why this is a good time to initiate this kind of business on the Serbian market. The focus of this sole existing company is on e-commerce, which leaves a lot if space for other activities in this area. Because electronic money is relatively new in the Republic of Serbia, establishment of an electronic money institution at this point could lead to a leading place on the market and the opportunity to develop business activities of this kind in Republic of Serbia.

By Milos Curovic, Partner, and Milkica Trivicevic, Associate, ODI Law Serbia

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It is undisputable that the right to reputation and honour is a basic human right known to virtually every legal system and that its violation causes a non-material damage to a person.

Serbian Contracts and Torts Act explicitly prescribes the right to a monetary compensation of a non-material damage caused by a violation of the right to reputation and honour. The competent court determines the amount of such compensation by taking into account all relevant circumstances of a specific case. It is safe to say that the Serbian court practice in this regard is vast and well-established.

However, when it comes to protecting the reputation of a legal entity, things are a bit different. One can argue that a legal entity doesn’t have feelings as human beings do, nor the innate right to a reputation and honour granted to humans upon birth. As such, a legal entity doesn’t “deserve” legal protection in case its reputation is impaired, i.e. it cannot suffer non-material damages. Although this argument does make some sense, argumentation in favour of such protection is much stronger.

Let’s just think about what it takes for a company selling goods or providing services to establish itself on a competitive market. And especially nowadays, when the opportunity for tarnishing one’s good reputation is just a click away. No one can argue that building a reputation in a competitive market takes a lot of effort, time and money. Such efforts can be shattered very quickly, leaving the company in debts, or, worst-case scenario, out of business. In these cases, legal protection of company’s reputation in form of a monetary compensation is, indeed, necessary.

Thankfully, Serbian Trade Act prescribes the act of unfair competition (anticompetitive behaviour), which is defined as the act undertaken by a trader against another trader, i.e. its competitor, by which the codes of business moral and good business practice are broken, and thereby damage is, or may be inflicted to another trader (competitor). The Act recognizes some types of behaviours as acts of unfair competition, including making untrue and offensive allegations about another trader, disclosing information on another trader or their goods aiming to harm their reputation and business operations, using and disclosing a business secret without the consent of its holder in order to aggravate their position on the market, etc. It is important to note that the legal protection is not only granted in cases when damage is inflicted, but also in cases when damage may be inflicted by such behaviours.

The trader who suffers damage due to unfair competition acts is entitled not only to a monetary compensation for suffered material damages, but also for suffered non-material damages. This means that the right to reputation is also recognized to a legal entity, and such entity can file a lawsuit claiming monetary compensation for the acts which tarnished its reputation. To be specific, the Trade Act prescribes that a legal entity may file a suit due to unfair competition and demand that the court determines the act of the unfair competition, forbids further repetition of such act, orders the remedy of the consequences thereof and the compensation of damages, both material and non-material. The proceedings in these cases are considered urgent, according to the Trade Act.

However, monetary compensation for both material and non-material damages caused by the acts of unfair competition is basically reserved for the situation in which one company performs the above mentioned acts against its competitor.  This means that in case, say, soap distributor engages in act of unfair competition against a shoe maker, the shoe maker could not succeed in getting monetary compensation for suffered damages, given that a soap distributor and shoe maker cannot be considered competitors. Limiting court protection in mentioned cases solely when they involve competitors on a market is unfair and doesn’t suit the reality. It is very easy to imagine that a company engages in acts of unfair competition and tarnishes the reputation of another company, even though they are not competitors.

Besides that, the court practice in these cases is extremely scarce. It is safe to say that many Commercial Court judges in Serbia hadn’t come across a lawsuit in which a company demands compensation of non-monetary damage for the violation of right to reputation during the course of their careers. Still, this doesn’t mean that such practice is not going to be established in the near future, given that we all live and work in an IT society, which will make this kinds of lawsuits more often.

By Marija Oreski Tomasevic, Partner, Dunja Tasic, Senior Associate SOG / Samardzic, Oreski & Grbovic

Serbian national electricity company, Electric Power Industry of Serbia (“EPS”), is working actively on the development of systems for generation of renewables. Some of the most important ventures at the moment are construction of solar and wind farm in Kostolac, a small town in the eastern part of Serbia, as well as support to investments in the field of biofuels.

Taking into consideration the already existing position of EPS as the natural monopoly, EPS is de facto the most important and the biggest power generator in Serbia, producing more than 98% of its total electricity.  This advantage enables EPS to invest some of its revenues towards goals defined by the Government.  This is exactly the case with the already invested financial means in the sector of environmental protection.  Namely, EPS works actively on the introduction of certain new power generation methods.  According to the newest data released, 60% of its current production is generated from coal and cca. 30% from hydro potential.

Those plans are in line with the internationally accepted obligations, which Serbia undertook by signing the Paris Agreement determining the newest threshold for reduction of gas emissions on the global level.

Besides, Serbian National Action Plan for the introduction of renewable energy implements the goal of about 4 TWh of power generated from renewable sources by 2025.

On one hand, the abovementioned solar and wind project planned in Kostolac represent the embodiment of such plans and just a beginning of the road to greener and eventually cheaper energy in Serbia.  The projected Kostolac solar and wind farm should produce about 70 MW of power.  City of Kostolac has a long tradition of fuel provision.  Mines in Kostolac will now attain inheritors to continue this practice.  Also, the Kostolac Power Plant will directly profit from such project positioning.

Biofuels, on the other hand, represent not only a chance for the development of environmental protection, but also a chance for modernization of agriculture and livestock breeding in Serbia.  In some rural parts, this is still a major activity.  Unfortunately, biofuels are still not widely popular and developed as is the case with other types of renewables.  The Government of Serbia and EPS are working on construction of new biofuel plants and new, even more helpful, incentive measures. Buyout prices are higher than last year for 3 eurocents per kWh and the Government has an obligation to buy out the complete production for the next 12 years.  However, developments in this specific field so far have been few and far between, and the private sector demands more assistance of the Government.  Current biofuel energy production amounts to only 6,32 МW.

To conclude, Serbia and its major power generating company are indeed working actively on promotion of internationally accepted goals.  Renewable energy cannot be understood as the only and ultimate method of power generation, but it absolutely can help achieve cleaner and greener environment in the years to come.  Its development and introduction is more expensive, but in the long term it brings more good than bad than traditional, fossil fuels we mostly use today.

By Milan Samardzic, Partner, Katarina Grga, Associate, SOG / Samardzic, Oreski & Grbovic

During the last year, the number of labor disputes which were resolved through mediation and arbitration in Serbia have increased fivefold. To improve the process of peaceful labor dispute resolution, amendents to the Amicable Labor Dispute Resolution Act (the “Act”) are expected.

One of the motives for amendments is an increase in authorizations of the Republic Agency for Amicable Resolution of Labor Disputes (the “Agency”).  At this moment, during the process of mediation or arbitration, mediators and arbitrators are authorized to hear both parties, employee and employer, and to decide which party is a “winner”.  As stated by the Agency, it is not unusual that parties are willing to settle during mediation or arbitration, but the arbitrator or mediator is not authorized to participate in the settlement procedure.  Thus, the Agency expects that after amendments to the Act, arbitrators and mediators will be authorized to create a mutually acceptable solution for both parties – a win-win solution.

The main difference between mediation and arbitration is in the dispute type to be resolved.  Mediation is a procedure in which the mediator provides their assistance in collective labor disputes and arbitration is a procedure in which individual labor disputes are to be resolved.  Additionally, the arbitrator’s decision is binding and enforceable and parties have an obligation to act in accordance with it.  Conversely, even though the mediator’s decision is not binding for the parties, it is clear that in a large number of cases it shall be respected.

The procedure of amicable resolution of the labor dispute may be initiated by one party, employee or employer, by a motion which is submitted to the Agency.  The Agency then delivers it to the other party inviting it to declare, within three days, whether it accepts the proposal.  If the other party accepts it, the procedure is initiated by the decision of the Agency.

Compared to court proceedings which may last up to 10 years and incur huge cost for both parties, mediation and proceedings are limited up to 30 days and are much less expensive.  In this regard, the number of labor disputes which are resolved amicably is rising and it is expected that any amendments made to the Act will result in a further increase of out-of court labor dispute resolution.

By Marija Oreski Tomasevic, Partner, Nevena Milosevic, Associate, SOG / Samardzic, Oreski & Grbovic

New Regulation on Terms and Conditions for Attracting Direct Investments enacted by the Serbian Government came into force on 1 January 2017 (the “New Investment Regulation”).

The New Investment Regulation is based on the Serbian Investment Act introduced in 2015, which tackled a number of important deficiencies of the previous system such was the division of investment support activities among two public bodies (the Agency for Support of Foreign Investments and Export Promotion and the National Agency for Regional Development were replaced by a single entity – the Serbian Development Agency). The Act also forced public authorities to promptly supply investors with licenses and permits necessary for implementing their respective business endeavors, and, among other, introduced novelties such is the forming of special project teams by the Serbian Development Agency in order to facilitate investments more efficiently.

In order to be eligible for government support the New Investment Regulation requires for an investment to be regarded as “direct”. Direct investments are defined as investments in tangible and intangible assets of a company operating in manufacturing sector or internationally marketable service sector, which encompass opening of new work places and have a positive effect on the development of economy of the Republic of Serbia. The New Investment Regulation lists several means of implementing a direct investment besides incorporating a new entity: starting of a new business activity, expanding the existing business activities, expanding of the existing product portfolio into new products, substantial changes in overall production process of the existing business activity of an enterprise, or acquisition of the assets from a company, which was closed or would have been closed if it had not been purchased by a nonaffiliated entity on an arms-length basis. In order to become eligible, the investor must secure at least 25% of the justified expenses (the New Investment Regulation regulates in more detail the type of expenses that is considered to be justified for an individual investment project) from non-state aid sources.

The New Investment Regulation does not apply to some sectors of the economy, reason being that such activities are either subject to other regulations or that the public authorities are not offering any assistance in relation thereto.

Only domestic, i.e. Serbian legal entities are granted state assistance through the New Investment Regulation. However, there are no limitations on the origin of the ultimate owner of such entity.

Investment aid is granted through a public call for bids which the public authorities periodically publish. Aid related to investments of special importance is rendered without a public call for bids.

The maximum amount of aid is limited to a portion of the justified expenses of an investment and depends on the size of the beneficiary. Aid to large entities can be up to 50% of the justified expenses, for medium entities up to 60% and for small entities up to 70% of the justified expenses.

Amount that can be granted for investments of national importance exceeding EUR 50 million in justified expenses is further regulated depending on the size of the investment:

• For justified expenses ranging from EUR 50 to 100 million – up to 25% of these expenses,
• For justified expenses of more than EUR 100 million – up to 17% of these expenses.

Depending on the purpose of investment aid, there are limitations on the amount of aid that can be granted for certain purposes. These limitations are based on the development level of the municipality in which the investment is to be realized and depend on the justified costs of opening new work places and investing in assets of the domestic entity using the investment aid.

The aid is provided in annual installments. The amount of installments is determined as percentage of the total amount of allocated funds corresponding to the percentage of the project completeness in a particular year as per the investment project and in a way that investor is paid the amount proportionate to the percentage of newly employed personnel in every year of implementation of the investment project in relation to the total amount of newly employed personnel as defined per the investment project.

By Marija Oreski Tomasevic, Partner, SOG / Samardzic, Oreski & Grbovic