Category: Serbia

According to the provisions of the Labor Law (“Law”), in case of (culpable) breach of work obligations or non-compliance with work discipline by an employee, before terminating the employment contract or imposing another measure prescribed by Law, the employer is obliged to warn the employee in writing about the existence of grounds for termination of the employment contract and to provide them with a deadline (of at least eight days from the date of receipt of the warning) to respond to the allegations included therein.

Content and delivery of the warning

In the warning, the employer must specify the basis for termination, facts and evidence indicating that conditions for termination have been met, and the deadline for responding to the warning (at least eight days from the date of receipt of the warning).

The Law further stipulates that the warning should be delivered to the employee in the manner prescribed for delivering decision on termination of employment contract, which includes written form and a notice of legal remedy, as well as personal delivery to the employee – at the employer’s premises or at the employee’s address of residence or whereabouts.

In this regard, Article 192 of the Law stipulates that the rights, obligations, and responsibilities arising from the employment relationship are decided by:

• in a legal entity – the competent body at the employer, or a person determined by law or the employer’s general act, or a person authorized by them (which authorization is issued in writing);
• in an employer who is not a legal entity – an entrepreneur or a person authorized by them.

In accordance with the above, and in line with the Opinion of the Ministry of Labor, Employment, and Social Policy no. 011-00-569/2012-02 of September 25, 2012 (“Opinion”), employment contracts, decisions, warnings, and other enactments determining the rights, obligations, and responsibilities of employees must be signed by the director, entrepreneur, or an employee authorized for this purpose.

Case law

However, according to the Decision of the Supreme Court of Cassation Rev2 2834/2022 of February 2, 2023 (“Decision”), while the decision on termination of the employment contract is a decision on the rights, obligations, and responsibilities of the employee and must therefore be made in accordance with Article 192 of the Law, the employer’s warning does not constitute a decision to which this provision would apply.

According to the reasoning of the Decision, the warning is not a decision because it does not decide on the right, obligation, and/or responsibility of the employee; rather, it is an action that must be taken in the procedure before the termination of the employment relationship, whereby the employee is warned that there are grounds for termination, i.e., the reasons are presented, the facts on which they are based, the evidence confirming them, and the deadline for the employee to respond, thus providing the employee with the right to defense. Furthermore, the Decision states that the warning is by its nature a document that can be signed not only by persons from Article 192 of the Law but also by a person authorized to act on behalf and for the account of the employer. This authorization can be specific or general, and proof of authorization in any case is an excerpt from the competent register of the Business Registers Agency.

Conclusion

The Decision, therefore, takes a position contrary to that expressed in the Opinion, raising questions about its foundation in the provisions of the Law.

Namely, although the warning to the employee does not actually issue a termination or another (disciplinary) measure and therefore does not constitute a decision in the strictest sense of the word, i.e., an act with final effect, issuing a warning in a broader sense involves deciding on the rights, obligations, and responsibilities arising from the employment relationship within the meaning of Article 192 of the Law. In other words, the warning in its essence represents a decision to initiate what is called a disciplinary procedure at the employer level, which may result in the issuance of a decision on termination of the employment contract or a decision imposing another disciplinary measure prescribed by the Law.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic and Borinka Dobrnjac, Senior Associates, PR Legal

NKO Partners has advised the IGEPA group on its acquisition of a 51% stake in Serbian company Oracal Polikarbonati from Dejan Karic, who will stay on with a 49% stake. Four Legal advised the seller.

The IGEPA group is a specialist wholesaler active in Europe, catering to over 50,000 customers from various industries. The group specializes in trading products like graphic paper and board, packaging, and media for advertising technology, including technical equipment and services.

Oracal Polikarbonati is based in Smederevo, Serbia, and is engaged in the distribution of materials and equipment in the advertising industry.

The NKO Partners team included Partners Djordje Nikolic, Branko Jankovic, and Djuro Otasevic and Associate Benjamin Graca.

Cvjeticanin & Partners has advised Infinity Production on copyright protection for the Sing with Me TV music show.

According to Cvjeticanin & Partners, “Infinity Production was founded in 2018 and, in a very short period of time, managed to gather under its wing the most popular Serbian music stars. As one of the largest management companies, Infinity Production engages in booking performers for clubs and event halls. Additionally, Infinity Production offers the production of high-quality music videos and corporate advertisements in collaboration with its very professional creative team.”

The Cvjeticanin & Partners team included Managing Partner Nenad Cvjeticanin and Partner Marija Cvjeticanin.

Karanovic & Partners has advised both parties on Embracer Group’s sale of Saber Interactive to Beacon Interactive in a deal worth USD 247 million. Baker McKenzie reportedly advised the Embracer Group.

The Embracer Group is a global group of creative and entrepreneurial businesses in PC/console, mobile, and board games and other related media.

According to Karanovic & Partners, “the former CEO of Saber Interactive and part-time chief operating officer of the Embracer Group, Matthew Karch, established a company called Beacon Interactive earlier this year, which acquired Saber Interactive from its parent company, the Embracer Group. The Serbian studio, Mad Head Games, with its operations in Serbia and Bosnia and Herzegovina, will be among those parting ways with Embracer.”

The Embracer Group had purchased Mad Head Games, a game development studio from Novi Sad, back in 2020 (as reported by CEE Legal Matters on November 20, 2020).

The Karanovic & Partners team included Senior Partner Milos Jakovljevic, Partner Ivan Nonkovic, Associate Jasmin Omerdic, and Junior Associates Teodora Vasin and Pavle Vucetic.

Cvjeticanin & Partners has advised the Modern Business School on the implementation of Serbian labor law provisions relating to collective and individual aspects within a redundancy case.

According to Cvjeticanin & Partners, the Modern Business School was founded in 2008 in Belgrade by the Digifactum Academy from Vienna (Digifactum Akademie). It operates in Serbia as an accredited higher education institution for management and business.

The Cvjeticanin & Partners team included Managing partner Nenad Cvjeticanin and Senior Associate Milan Vulic.

Serbia’s real estate sector is undergoing some foundational shifts, according to Vukcevic Law Managing Partner Nenad Vukcevic, with numerous changes to the property and construction laws, led by a shift towards mandatory electronic cadaster subscriptions heralding a new digital era for legal processes in the country.

“The most significant change is the modification of the real estate cadaster subscription system,” Vukcevic begins. “As of November 4, 2023, individuals can no longer submit their documents directly; instead, they must go through a professional lawyer registered with the authority. This move aims to professionalize the submission process, ensuring accuracy and reducing errors,” he explains. Moreover, he reports that this is a “brand-new approach for Serbia, to have everything done exclusively in electronic forms, which at the same time marks a significant shift towards digitalization in our legal processes.”

Focusing on how the change has impacted the legal professional community and the citizens at large, Vukcevic shares that “for lawyers, this has been a positive development. It has significantly increased our workload, but in a good way – it elevates our role in the real estate sector and is beneficial for our profession.” On the flip side, he reports that “it still takes time for citizens to adapt to these new requirements. They are used to directly dealing with the cadaster, so this intermediary step requires a shift in mindset and practice, which might, in turn, lead to a longer adjustment period.”

Additionally, Vukcevic reports that the fee for converting the right of use into ownership has been abolished in the Republic of Serbia. “Indeed, one of the pivotal changes is the abolition of the conversion of the right of use in favor of ownership with a fee, meaning that citizens no longer need to pay a fee to the state for converting the use of land into ownership. This change has streamlined the process for land development and construction, encouraging more investment in the sector, particularly in residential projects,” Vukcevic explains. However, despite the challenges, he reports that “the construction industry in Serbia is burgeoning, with significant capital being invested in new developments.”

Moreover, Vukcevic reports that, in recent years, “efforts have been made to improve Serbian national infrastructure, including highways, railways, residential, and commercial areas, which contributes significantly to our GDP and continues to attract foreign direct investments,” he explains. “Interestingly, despite expectations of a price drop due to these developments, real estate prices have remained stable – of course, this stability only further provides an attractive environment for investment and development.”

Finally, looking ahead and considering all of these changes and recent developments, Vukcevic shares that he feels the future will be promising. “With the government taking decisive steps to modernize and professionalize the real estate sector, we anticipate more robust growth and development across residential and commercial real estate,” he says. “These legal changes, while requiring adjustments from all parties involved, are set to enhance efficiency, transparency, and trust in the real estate market, laying a solid foundation for future growth.”

In April 2024, Karanovic & Partners announced that DS Smith’s acquisition of Bosis (reported by CEE Legal Matters on August 4, 2023) had closed.

DS Smith is a British multinational packaging business headquartered in London and listed on the London Stock Exchange. It is a provider of sustainable packaging solutions, paper products, and recycling services worldwide.

Situated approximately 100 kilometers south of Belgrade, the family-owned Bosis business was founded in 1982 and employs 140 people working on a single site in Valjevo.

According to Karanovic & Partners, “DS Smith, a renowned sustainable packaging provider, has successfully finalized the acquisition of Bosis, a premier packaging company in Serbia specializing in fast-moving consumer goods clientele. Notably, a core focus area for DS Smith is plastic replacement, and the company recently achieved a significant milestone by replacing over 762 million units of plastic since March 2020. By collaborating closely with customers, DS Smith endeavors to assist them in achieving their sustainability objectives, with a particular emphasis on accelerating progress in the East Region.”

As previously reported, Karanovic & Partners advised DS Smith on the acquisition.

Following the completion of the share-transaction acquisition of Bosis, DS Smith’s total packaging operations in Eastern Europe will comprise 29 box plants and additional facilities, employing more than 7,000 people in the region, the company announced.

“Following 41 years of successful, responsible, and sustainable business, during which Bosis grew from a small family-owned screen printing shop […] the time came for a new phase in the development of Bosis,” Bosis Founder and Owner Bogoljub Pantelic commented. “We are sure that this is the right decision for our family and Bosis, our employees and their families, as well as our long-term business partners and the local community.”

The Karanovic & Partners team included Senior Partner Milos Jakovljevic, Partner Bojan Vuckovic, Senior Associates Marko Culafic, Milorad Gajic, and Mladen Vujic, and Associate Ljubica Stojanovic.

On April 1, 2024, BDK Advokati announced that Waberer’s acquisition of MDI (reported by CEE Legal Matters on October 16, 2023) had closed.

According to BDK Advokati, “in accordance with the sale and purchase agreement signed on October 6, 2023, Waberer’s wholly-owned subsidiary, WSZL Kft., has successfully concluded the acquisition of a 55% interest in MD International of Serbia. As part of this transaction, WSZL has also secured an option to acquire an additional 45% interest, as well as a 0.1% stake in MDI Dobanovci, a separate entity resulting from the carve-out of MDI, which possesses 8.5 hectares of land designated for logistics center development in the Dobanovci municipality, near Belgrade.”

As previously reported, BDK Advokati advised Waberer’s International, while JPM & Partners advised MDI shareholder Dragoslav Micic and Marjanovic Law reportedly advised the other sellers.

According to BDK Advokati, Waberer’s is the largest road transport company in Hungary and one of the largest road freight transport companies in Europe, operating a fleet of 3,500 trucks. It has a presence in Belgium, Germany, France, Italy, the Netherlands, Poland, and the UK.

MDI is a Serbian distribution industry player responsible for brands such as Henkel, Vileda, Wilkinson Sword, and Pionir.

The BDK Advokati team included Senior Partner Vladimir Dasic and Junior Associates Milan Popovic and Petar Eric.

The JPM & Partners team included Partner Aleksandar Hadzic.

At the end of January, the Ministry of Finance invited representatives of business associations to submit their views regarding the possibility of a reform aiming to increase the progressivity of salary taxation. The Ministry emphasized that the framework for the change refers only to salary tax and not to contributions for mandatory social insurance, as well as that any proposals should produce effects that are de minimis budget neutral, both at the level of the entire economy and at the level of local governments.

Responding to the invitation, AmCham, FIC, Naled, and PKS prepared a joint position. The associations expressed the view that the increase in progressivity by changing only the salary tax, in conditions of revenue neutrality for the budget of the Republic of Serbia, could produce various negative effects on business, including increasing pressure on the disposable income of employees, on the cost of employers wages, as well as on the competitiveness of employers in Serbia, or to the growth of wages in the service sector whose services are exported, which would lead to less competitiveness of Serbia as a hub for export-oriented services.

In their conclusion, the associations recommend continuing the policy of increasing the non-taxable amount of wages or introducing a tax credit for dependent family members, in order to further reduce the burden on below-average wages, without exposing the rest of the economy to the risks highlighted by the associations.

However the associations are right when they state that “currently we do not have clearly defined reasons and goals for the introduction of additional progressivity of salary taxation, as well as indicators that could be used to monitor the fulfillment of such goals, which makes it difficult to choose adequate measures and taxation policies to be applied”, it seems that the associations missed the opportunity to propose consideration of certain changes in the individual income taxes.

First of all, employers could take advantage to advocate for the equalization of the way of taxation of natural persons they engage. The Fiscal Council is also in favor of such a solution, and it would certainly make sense for compensation to natural persons to be taxed in the same way, with salary tax, regardless of whether someone is engaged on the basis of an employment contract, a service contract, a temporary or casual contract jobs or on the basis of the contract on the rights and obligations of a director. This would certainly simplify the calculation of taxes and contributions on these remunerations by employers.

In addition, when talking about the income of natural persons who provide IT services, currently those who are employed are subject to salary tax, and those who are entrepreneurs are subject to the tax on income from self-employment (whereby they are subject to the independence test in which case if it turns out that they are not independent, are subject to the tax on other income), and those who work directly with foreign companies also pay tax on other income, but with a different method of calculating the base than non-independent entrepreneurs.

By equalizing the taxation of employed IT workers, non-independent entrepreneurs, and those who work directly for foreign companies, as well as by equalizing the treatment of employment contracts, work contracts, contracts on temporary and occasional jobs, and contracts on the rights and obligations of directors, it would be achieved that from a tax point of view, from the point of view of a natural person, the method of engagement does not affect the tax liability of that natural person. And by providing appropriate incentives such as incentives for hiring new employees or incentives for research and development prescribed in connection with corporate income tax, employment would be encouraged from the point of view of employers.

Finally, there is another aspect that was taken into account in the analysis conducted by the associations, which could potentially be part of the recommendations to the Ministry of Finance. It is the annual personal income tax, which the associations took into account in order to prove that the taxation of wages is already progressive. However, a small number of taxpayers are subject to the annual personal income tax. If the coverage of those to whom this tax applies would be expanded, the possibility would exist to provide additional incentives in connection with this tax, even potentially returning part of the salary tax paid during the year. For example, in the event that the taxpayer, during the year, invests funds in increasing the energy efficiency of the real estate in which he/she lives. The state and local governments anyway have programs for approving funds for these purposes. In this way, natural persons would be encouraged to do it themselves, and even in the event that due to refunds lead to slightly lower budget incomes, the expenditures foreseen in the budgets for such purposes would also be reduced. At the same time, the tax return for the annual personal income tax and the construction and use permits are submitted/obtained electronically, so by connecting the e-system of the Tax Administration and the Ministry of Construction i.e. local bodies, proof of the investment of funds for these purposes would be provided in a simple way.

Of course, as the associations correctly note in their analysis, any such proposal is flawed in the sense that the Ministry has not provided its own analysis of this issue, so the stated ideas must be taken with a grain of salt. But it certainly could have been indicated to the Ministry what it could take into account and what kind of analyses it should prepare before making a decision on the further progressiveness of the salary tax.

By Nikola Djordjevic, Partner, JPM & Partners

NKO Partners has advised Manuvia on its acquisition of Serbia’s Interea from Iosif Calamar.

Manuvia is an international HR company.

Interea is a local Serbian HR company based in Novi Sad.

According to NKO Partners, the strategic acquisition of Interea further enhances Manuvia’s presence in the Serbian market.

The NKO Partners team included Partner Djordje Nikolic and Associate Goran Mihajlovic.