Category: Serbia

Dentons has advised lead arrangers UniCredit, UniCredit Bank Serbia, Erste Group Bank, Erste Bank, and Raiffeisen Bank International, on the EUR 673.7 million term and revolving loan facility to Telekom Srbija. Morgan Lewis reportedly advised Telekom Srbija.

“The facility, which will be used for refinancing, working capital, and capex, featured a new structure for the Serbian market in the form of a revolving credit facility that combined both local and international liquidity that can be accessed either jointly or separately as the borrower requires,” Dentons informed. “Syndication closed with a healthy oversubscription with a further eight banks joining the deal, allowing the facility amount to ultimately be upsized.”

Telekom Srbija is a state-owned telecom company and fixed-line and mobile telephony operator in Serbia.

The Dentons team was led by Partner Mark Segall and included Senior Associates Stefi Ionescu and Lawrence Florescu.

An interesting case occurred before a while in Norway, when the authority competent for personal data protection was subject to complaint for infringement of the EU General Data Protection Regulation 2016/679 (“GDPR”).

Complaint

According to the complaint, which was decided by the third, i.e., impartial body, upon the decision of the competent ministry, the infringement of GDPR provisions was perpetrated in relation to the manner of keeping, i.e., administering of the website of the respective authority, in terms of the following GDPR articles:

• Article 6(1), since in this particular case the competent authority based personal data processing – in relation to visits and searches on the subject website – on Article 6(1)(f) of GDPR, under which the processing is necessary for the purposes of legitimate interests pursued by a controller or by a third party, whereas second paragraph of Article 6(1) explicitly stipulates that the basis of processing established by 6(1)(f) of GDPR shall not apply to processing carried out by public authorities in performance of their tasks;
• Article 13(1)(d), since the privacy notice contained on the said website did not specify the previously mentioned legitimate interest;
• Article 5(1)(b), given that there was no appropriate notice on the purpose of the processing concerned;
• Article 57(2), as the responsible authority disabled the electronic submission of complaints, and made the process of finding the information about possible ways of complaint submission unnecessarily complicated; and
• Article 77, for the reason that the responsible authority requested from complainants to refer to a controller regarding an infringement of personal data prior to addressing to the said authority.

Decision

In accordance with the decision enacted in the stated procedure, it was established that the competent authority infringed the above stated provisions of Article 13(1)(d) and 77 of GDPR, since:

• It failed to specify legitimate interest under which the processing is necessary; and
• It requested from complainants to refer to a controller of personal data in relation to their complaints for personal data violation prior to addressing to the authority.

As regards other statements of the complaint, i.e., infringement of other provisions of GDPR that it refers to, no liability of the competent authority was established.

Since the specification of the legitimate interest was done during the very procedure, and thus partially aligned operations of the authority with relevant GDPR provisions, the party deciding upon the complaint established that it expected other irregularities to be eliminated by undertaking of appropriate measures as well.

Finally, it is important to note the part of the rationale of the subject decision, pursuant to which “(…) the only personal data used upon the stated processing is IP address, which is considered anonymous information, available only to few persons, wherefore the risk in this sense is minimal to the extent in which it enables the prevailing of legitimate interest of processor over the rights and freedoms of data subjects“.

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, Senior Associate, PR Legal

The Government of the Republic of Serbia adopted the Regulation on Conditions and Criteria on Harmonized State Aid for Environmental Protection and Energy Sector (“Official gazette of the RS” no. 99/2021, hereinafter referred to as: “Regulation”).

The Regulation introduced detailed rules for granting harmonized state aid to market participants in the energy sector as well as to the market participants for investment in environmental protection, regardless of the sector they are in.

Criteria for harmonized state aid

The main criteria for state aid to be harmonized, as prescribed by the Regulation, are transparency, the effect of incentives and justification of costs.

State aid is deemed to be transparent if the total gross amount of state aid may be calculated without the need for the assessment of risk from excessive state aid. Examples of transparent state aid are subvention and subsidized interest rate of loans, the guarantee – if it is calculated as the gross monetary equivalent of the subvention, loan – if the gross monetary equivalent is calculated based on the reference interest rate in force at the time the state aid is granted, etc.

In order for state aid to have the effect as an incentive, eligible entity files must file a request for state aid before the implementation of the project or, start of conducting an activity.

It is worth noting that the granter of state aid is responsible to determine the amount of justified costs of investment. When the justified costs are determined, the amount of state aid is calculated as a certain percentage of such costs, all in line with the rules envisaged by the Regulation.

Investments subject to harmonized state aid

The Regulation sets out various investments for which harmonized state aid may be granted. This article provides a brief overview of such investments.

One of them is an investment in environmental protection measures. Such investment must aim to achieve higher environmental standards than prescribed in the Republic of Serbia, or to achieve higher environmental protection when lacking environmental standards. Also, it may comply with standards that are prescribed but still not in force in the Republic of Serbia.

Additionally, for investment in energy efficiency measures state aid may be requested, if such investment improves energy efficiency beyond applicable standards in the Republic of Serbia.

Harmonized state aid may be granted for investment in the project of highly efficient cogeneration of thermal and electric energy, provided that investment is made in new or renovated generation facilities. By investing in highly efficient cogeneration, the overall savings of primary energy must be ensured, compared to the separate generation of thermal and electric energy.

Concerning the generation of electric energy from renewable energy sources, new and innovative technologies for the generation of electric energy are eligible for state aid, as well as generation in small facilities i.e., facilities with an installed power of less than 500 kW.

Harmonized state aid may be granted for investment in the recycling and reuse of waste, produced by other market participants and which would otherwise be disposed of or treated in a less environmentally friendly manner.

Additionally, state aid may be approved for an environmental impact assessment study which is conducted for investment listed in the Regulation.

The Regulation for each particular investment sets out rules on how to assess and determine justified costs, as well as sets out limits for state aid. State aid for the majority of investments may not exceed 15.000.000,00 EUR per market participant.

Last but not least, the Regulation does not prohibit the cumulation of state aids.

By Jelena Gazivoda, Partner, Nikola Djordjevic, Partner, and Marko Mrdja, Senior Associate, JPM Jankovic Popovic Mitic

Jankovic Popovic Mitic, working with CMS in London, has advised sellers Goran Kovacevic and the Seaf South Balkan Fund on the sale of Gomex to Ceecat Capital. BDK Advokati, working with Pillsbury Winthrop Shaw Pittman, advised Ceecat.

“The investment in Gomex is the first in Serbia for Ceecat Capital,” BDK Advokati informed. “With its sale to Ceecat Capital, the Seaf South Balkan Fund has sold its last investment in that Fund, while Gomex’s founder Goran Kovacevic remains in the company as a minority shareholder.”

Established in 1997 in Serbia, Gomex is a grocery retail network. The company has approximately 2500 employees and more than 190 retail stores in Serbia.

Ceecat Capital is a private equity and private credit investor. The company operates offices in London, Luxembourg, Bucharest, Istanbul, and Almaty.

“Gomex has proven its capabilities with its successful penetration and leadership position in Northern Serbia,” Ceecat Capital Partner Anthony Stalker commented. “We will enhance and support the existing strong core management team and invest in the human capital backbone of Gomex to catalyze its next phase of growth. Our target is to help create the means for Gomex to fulfill its potential to emerge as the national leader in grocery retail in the neighborhood/convenience format.”

The JPM team was led by Senior Partner Nenad Popovic and included Senior Associate Bojana Javoric Micovic and Associate Luka Hajdukovic.

The BDK Advokati team was led by Senior Partner Vladimir Dasic and included Senior Associates Jelena Zelenbaba and Marija Gligorevic and Junior Associates Milan Popovic and Tijana Martinovic.

Recently, the Serbian Parliament has adopted new Law on Innovation Activity. This Law is a part of the Strategy of Scientific and Technological Development for the period from 2021 to 2025, whose basic motto is “The Power of Knowledge”, which was adopted by the Government of the Republic of Serbia last year. Serbian digital community welcomed the adoption of the mentioned law, bearing in mind that the digitalization of the domestic economy has reached its peak in recent years, which was significantly contributed by the Covid-19 pandemic. In addition to the above, the Serbian startup ecosystem was recognized as “the most promising one” according to the report of the “Start-up Genome” (an organization specialized in following and reporting about worldwide Start up ecosystems). As the report states, the reason for this is quality professional staff and favorable tax treatment.

Below, we present the five most important novelties which introduce the new Law on Innovation Activity.

Innovation entities receive their legal definition

Until the adoption of this Law, innovation entities were not a legal category and there was no legal definition for them. However, the business practice itself has given rise to concepts such as start-up, spin-off, investment angel, which the new law has taken over, many without being translated into Serbian.

Thus, the new Law on Innovation Activity for start-ups says that it is a newly established company (or entrepreneur) that develops an innovative product and /or service and which has the potential for rapid and large growth. If we divide this definition into several segments, we can conclude that three elements of the start-up are marked as important:

1) this needs to be a new company;

2) an innovative one;

3) its growth needs to be scalable. 

In addition to start-ups, the new law explicitly defines spin-offs. In essence, a spin-off can be treated as a subtype of start-up, since in practice it often happens that one company establishes a new company (its daughter company) to develop and commercialize a specific innovation project, which is a spin-off.

By their nature, start-up and spin-off companies are young innovative companies. The beginning of their business is associated with numerous costs and risks. Therefore, investment angels are especially important for them, ie business investors who are ready to invest their financial resources in their innovative projects.

It is important to note that our legislator, aware of the dynamics and speed of change in the digital world, does not close the circle of innovation entities, but speaks of “other innovation entities” and defines them as entities engaged in innovation activities, who are registered in “National innovation entities system”.

Entities of innovation infrastructure

Innovation entities often need help and support, especially in the initial phase of development. Hence, the Law on Innovation Activity speaks and explicitly defines the entities of the innovation structure, which consists of: Start – up support organizations, Science and technology parks, and other entities of the innovative structure.

Start-up support organizations consist of companies whose predominant activity is the implementation of start-up support (such as providing workspace, professional, administrative, technical, and other services), all to facilitate innovation activities.

On the other hand, Science and Technology Parks (STP) are companies whose primary goal is to encourage economic development through the promotion of innovative thinking, by stimulating and managing the exchange of knowledge between universities, research organizations, businesses, and markets. Serbia has several Science and Technology Parks and the most famous are located in Belgrade, Novi Sad, Čačak, and Niš.

In addition to the above, new legislation also envisages the possibility for several STPs to unite and form the so-called network of STPs. The formation of the mentioned network aims to speed up and facilitate the flow of information important for the development of innovation projects, and also enables easier connection with their members.

Establishment of a special “Register of national innovation entities”

An important novelty is the establishment of a “Register of national innovation entities”. This Register aims to keep a record of the entities of the national innovation system, as well as to facilitate the financing of innovation activities (including state economic incentives).

Establishment of the “Fund for innovation activity”

The Register of national innovation entities is subordinated to the “Fund for Innovation Activity”, which has the financial support of the Government of the Republic of Serbia.

Therefore, in addition to its main goal, ie managing the Register, the Innovation Fund provides and manages financial resources from national, international, and other sources to implement innovation policies and also determines and implements support programs aimed to encourage innovation in both private and public sector.

The special regime of intellectual property law

Intellectual property rights are closely connected with the activities of innovative companies. Innovative entities often develop a product or service which can be protected by some Intellectual property (IP) rights.

It is important to emphasize that if any IP rights derive as a result of research in an Accredited scientific research institution financed from the state budget, in that case, the Law on Science and Research will be applied, meaning that the state will be their owner.

By Nenad Cvjeticanin, Cvjeticanin & Partners

For the existence of joint controllership, it is sufficient that both controllers determine purposes and means of processing in one or more segments of processing activity. Lack of control over data flow in other segments of processing activities does not release controllers from responsibility for the part/s where they determine purposes and means of processing jointly. This means that in one part of processing activity, controllers can act as joint, while in other parts they can act as independent controllers. The purposes and means of processing for controllers can be different. It is important that decisions of both controllers on purposes and means of processing are inextricably linked, meaning that processing of personal data in the particular case would not be possible without the said decisions of the controllers.

1. Introductory Remarks   

In order to differentiate situations where parties involved in processing of personal data act as joint or independent controllers, in this text we analyse the opinion of the Serbian SA and ECJ judgment. The opinion of the Serbian SA sets criteria for independent controllership – when the company engages a business partner which processes personal data within its registered activity, both parties act as independent controllers as the party which provides services processes personal data exclusively to perform its registered business activity. On the other side, when the decisions of the parties involved substantially affect purposes and means of processing, in the manner that decisions of both parties have overarching influence on purposes and processing, the parties act as joint controllers. Further, when one the parties involved makes the platform available to the other party involved in processing for its own purposes and the other party involved accepts such means of processing, the parties are considered as joint controllers. It is sufficient for the party involved to be considered as controller when it sets parameters for processing and, therefore, decides which personal data will be processed, how long and for which purposes – this reasoning is confirmed by ECJ.  

Ratio legis of joint controllership is to determine responsibility for processing of different entities in different stages of processing and to enable data subject to exercise their rights at all entities involved in the processing operations. For this reason, the controllers are advised to execute data processing agreements where they shall define responsibilities for providing information to data subjects (Art 13 and 14 of GDPR) and responsibilities for particular stages of processing. Joint controllers shall make available relevant parts of data processing agreement to data subjects (Article 26 para 4 of GDPR).   

Opinion of Serbian SA

The Serbian SA has recently issued important opinion related to capacity of public or private entities performing postal services (postal operators) – whether postal operators, when providing postal services under request of the companies, i.e., deliver products or documents of these companies to their customers, are considered as processors or joint or independent controllers. The reasoning of the Commissioner is that postal operators act as independent controllers as they offer their services to all companies within their registered business activity and, therefore, companies which use their services have no influence on the purposes and manner of processing. In simple words: postal operators do not act as processors as they do not process any personal data on behalf of companies (controllers), but rather personal data which are necessary to provide services within their business activity. Further more, companies and postal operators do not act as joint controllers – they do not determine purpose and means of processing jointly. In other words, postal operators process companies’ customer personal data  within their registered activity – under the same conditions to all market participants and therefore companies have no influence on determination purposes and means of processing.

2. Opinion of ECJ

ECJ, in its case Unabhängiges Landeszentrum für Datenschutz Schleswig-Holstein v. Wirtschaftsakademie Schleswig-Holstein GmbH, Case C-210/16, dated on 05.06.2018 (“ECJ Judgement”) expressed the opinion that administrator of Facebook fan page acts as joint controller with Facebook. The ECJ argued that administrator of Facebook fan page “by its definition of parameters depending in particular on its target audience and the objectives of managing and promoting its activities, takes part in the determination of the purposes and means of processing the personal data of the visitors to its fan page”. The ECJ argues “that the existence of joint responsibility does not necessarily imply equal responsibility of the various operators involved in the processing of personal data. On the contrary, those operators may be involved at different stages of that processing of personal data and to different degrees, so that the level of responsibility of each of them must be assessed with regard to all the relevant circumstances of the particular case.”

In the particular case, fan page administrator determines the purpose of processing of the visitors – promotion and managing its business activities by creation of fan page. Furthermore, it determines means of processing since creation of the fan page itself includes setting parameters for targeting audience and therefore influences processing of personal data – which statistical data to receive to promote and manage its business activities. However, the responsibility of fan page administrator is limited to setting parameters for processing and use of statistical data, while the responsibility of Facebook is related to other phases and aspects of processing personal data in connection to fan page – using its own cookies and processing personal data on Facebook platform – irrespective of processing related to fan page.  

3. Joint Controllership and Processors in Employment Relations

Voluntary Collective Health Insurance

Voluntary collective health insurance exists in case when employer decides to grant additional benefits to employees and enables employees to use extra medical services at certain health care institution/s. To achieve this goal, employer executes contract on voluntary collective health insurance with insurance company. The employer agrees with insurance company on the level insurance fee and types of health care service covered by insurance. Based on the contract on voluntary collective health insurance, health care institutions provide medical services to employees which are covered by collective health insurance.

In regard to processing of employees’ personal data,  employer acts as joint controller with insurance company. Employer defines purpose of processing as it decides to grant benefits to its employees to use extra medical services – employees would not have had right to additional health protection if the employer had not rendered decision to grant benefits to them. Since employer reaches arrangement with insurance company on the level of insurance fee and, accordingly, on types of health care services which are covered by insurance fee, it participates in definition of parameters processing, i.e., affects categories of data that are to be processed by insurance company and health care institutions. This reasoning is based on arguments in ECJ Judgement – when legal entity decides on parameters of processing meaning which categories of personal data and of which data subjects, it determines means of processing. In addition, the employers influence the duration of processing of employees’ personal data for the reason it agrees with the insurance company on this matter.  The main difference between collective health insurance and provision of services by our market operators which process personal data of customers of market operators to perform it business activity (please see the opinion of the Serbian SA) is that both employer and insurance company agree on the level of insurance fee which directly affects the sort of medical services covered by insurance fee and accordingly to categories of personal data. Whether the employer has access to employees’ personal data processed by the insurance company is irrelevant for being joint controller. The employer would not be responsible for all stages of processing related to consumption of the agreement on collective health insurance – it would be responsible for transferring relevant data to insurance company and to ensure that processing employees’ personal data resulting from the agreed insurance fee are exclusively processed for implementation of the contract within the agreed period. On the other side, insurance companies act as independent controller in regard to processing of employees’ personal data to fulfill its legal obligations.  

Employment Agencies

In accordance with our professional experience, employers, when need new employees, send profiles of job candidates to employment agencies. Employment agencies search their data bases candidates which correspond to required profile and perform interviews with selected candidates. After completion of interviews, employment agencies send employers the list of job candidate which most likely correspond to required profiles and then employers either interview job candidate themselves or inform employment agencies which job candidates to contact for interview. At the end, either employer agencies or employers inform job candidates on results of recruiting. Decisions of employers and employment agencies in regard to purpose and means of processing are inextricably linked – employer determines profiles of candidates for recruiting while employment agencies render decision to process personal data from their own data basis and perform interviews to determine which candidates most likely correspond to required profile/s. Processing of personal data of job candidates would not be possible without participation of both parties, whereas both parties have overarching influence on purposes and means of processing – employers determine profiles and employment agency processes personal data of potential candidates (upon obtaining their consent for processing) from its own data base to determine whether the potential candidates correspond to required profiles. Both employers and employment agencies determine manner of processing – which categories of personal data and of which potential candidates to be processed. In cases when employment agencies publish job advertisement according to instruction of employers, they act as processors as they perform certain processing operations on behalf of controllers       

Staff Leasing

The analysis related to employment agencies is applied to staff leasing companies in case when they process personal data of job candidates from their own data bases and publish job advertisement on behalf of employer. As per business relationship between two entities related to assignment of employees to the company which uses services of the staff leasing company – these act as independent controllers. The staff leasing company and company which uses its services conclude agreement in which they define business cooperation related to assignment. An employee concludes employment contract with staff leasing company and is assigned to work at company which uses services of staff leasing company under conditions defined by two entities. Both entities process personal data independently meaning that they process personal data within their registered activities and have no overarching influence on purposes and means of processing. The fact that the entities agree on business cooperation does not automatically mean that they determine purposes and means of processing – purposes and means of processing are in both cases defined by respective regulations. However, the parties are advised to execute data processing agreements in which they define rights and obligations for processing of personal data, in particular in regard to obligation of the parties to process personal data exclusively for business cooperation and to apply adequate technical and organisational measures.

Meals to Employees

In case when employee provide meals to employees and for this reason engage catering agency, the parties involved may act as joint controller. In this particular case, employer maintains application where employees enter their personal data to access application, payment details and chosen food. The catering agency has access to this application, i.e., to personal data of employees  – payment details and the food ordered to deliver the food and to issue invoices to employees. Employer determines purposes and means of processing – it decided to provide possibility employees to order food and for this reason enabled both employees and catering to use application for this own purposes. The fact that employer enabled the catering agency to use application and that the catering accepted to use this application for its own purposes make both parties joint controllers.

By Ivan Milosevic, Partner, JPM Jankovic Popovic Mitic

NKO Partners has advised the Dr. Max Group on its acquisition of the Vojvodina-based pharmacy chain Janja.

Dr. Max is a pharmacy chain operating in Central and Eastern Europe. The company has over 2,200 pharmacies in six countries, including the Czech Republic, Slovakia, Poland, Romania, Serbia, and Italy.

The firm previously advised Dr. Max Group on its acquisition of the Zlatni Lav pharmacy chain (as reported by CEE Legal Matters on January 5, 2022).

The NKO team was led by Partner Djordje Nikolic and Senior Associate Branko Jankovic.

According to the Law on Archival Materials and Services (Official Gazette of RS no. 6/2020) (“the Law”), creators and holders of archival and documentary material shall be obliged, in addition to other obligations set out by the Law and by-laws passed thereunder, to submit to the competent archive a transcript of archive book no later than April 30 of the current year, for documentary material created in the previous year.

Obligation to submit archive book transcript

The Law has started to apply on February 2, 2021, and it stipulates a series of obligations for creators and holders of archive and documentary material. One of the respective obligations is to submit to the competent archive a transcript of archive book for documentary material created in the previous year, no later than April 30 of the current year, under the threat of misdemeanor liability and imposing of the prescribed fine (in the amount of RSD 50,000 to 2,000,000 for a legal entity, and from RSD 5,000 to 150,000 for a responsible person in a legal entity).

Opinion of the competent ministry with respect to the Law application

According to the official opinion of the Ministry of Culture and Information no. 011-00-71/2021-02 from April 29, 2021, which was issued due to a large number of questions regarding the exercising of the Law, notably concerning the drafting of normative acts and submission of archive book transcript to the competent public archive, the obligation for companies to submit the respective transcript commences in 2022. Namely, transcripts of archive books for documentary materials created by the end of 2021 shall be submitted by April 30, 2022, since companies were not liable to submit their archive book transcripts in 2021.

Issues in implementation of the Law

However, it appears that certain practical issues regarding the aforesaid obligation have not been resolved yet, regardless of the time passed.

Namely, on the website of Historical Archive of Belgrade there is a notice according to which there is still an ongoing registration of an immense number of received requests (around 20,000) for issuing of consent to the list of categories, while at the same time, in accordance with the existing human resources and technical capacities, the processing of lists, creating and archiving of dossiers, and issuance of consents is simultaneously done, while their takeover is done upon invitation from the said archive, by phone or email, to the provided contact information. Therefore, prior to the completion of registration procedure concerning the received documentation, the archive will not have the capacity to continue with receipt of new requests (either by mail or personally), while further information will be provided to the interested parties in the same way.

In relation thereto, a particular problem is the fact that the Rulebook on Archive Book Template (Official Gazette of RS no. 34/2022) (“the Rulebook”), which enters into force on March 24, 2022, stipulates that the template concerned shall contain the number of consent to the category list, which cannot be obtained by creators and holders of archive and documentary material from the territory of Belgrade at the moment, according to the abovementioned notice.

According to the information from the archives, creators who did not submit archive book before, shall be obliged to provide such book covering the period from their establishment until December 31, 2021, i.e., not only for 2021. On the other hand, those who submitted transcripts for previous period shall file them only for 2021.

Content of the Rulebook

As we have mentioned earlier, the Rulebook (enacted only one and a half month before the expiry of the deadline for submission of archive book transcript) specifies the template of archive book which is kept by creators and holders of archive and documentary material.

According to the Rulebook, archive book represents the main record of the overall archive material and documentary material generated during creator’s work, i.e., general inventory of overall archive and documentary material from previous years that creators and holders such material are obliged to keep as of their establishment, as well as documentary material kept for any reason whatsoever either by creator and holder.

Archive book may be kept in paper and electronic form, on AK form that is printed at the end of the Rulebook and represents its integral part. The respective form contains the following elements: ordinal number, date of entry, year of creation, content, classification mark, storage period from the category list, number of consent to the category list, volume of documentary material, premises and shelves/devices for storage with location, number and date of minutes, as well as remarks.

Paper form of archive book is a hard-cover book in horizontal A4 layout, with title Archive book printed on the cover, including a space for creator’s and holder’s name, place and range of numbers in the book, whereas all of its pages (except the first and the last page) shall be numbered.

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 Ivana Ruzicic, Partner, and Lara Maksimovic, Senior Associate, PR Legal

JPM partner Nikola Djordjevic and Senior Associate Marija Vukcevic single out and analyze official clarifications and opinions on the application of financial regulations for January 2022, related to taxes, which have been published in the latest newsletter of the Ministry of Finance of the Republic of Serbia.

Tax treatment of natural person revenue accrued on the basis of acquisition of shares in the company in which the natural person is an employed, i.e. in the company that is an affiliated company of the employer

(The opinion of Ministry of finance no. 011-00-863/2021-04 dated 18 November 2021)

The matter of acquisition of stocks, i.e. shares by the persons employed in a company – employers (or their affiliated companies), has been in a spotlight since the application of amendments on the Companies Law, which commenced on 1 April 2020.

Even though the possibility of so called “stock options” for third parties existed in regard to joint stock companies before the mentioned amendments, which is similar to the practice in other countries, these amendments provided for this possibility also in relation to limited liability companies, as the most common form of companies in Serbia.

These amendments introduce the concept of reserved own share of the company and of the financial instrument – the right to acquire share, a financial instrument which may be granted to third parties (so called “share option”) on the basis of the reserved own share of the company.

The effect of this financial instruments is mostly noticeable in the context of, nowadays widely spread, concept for motivation of employees – the companies enable their employees to acquire stakes/shares in the company on a specified day (due date) and for a specified price, aiming to motivate their employees to be even more productive by giving out a share in the ownership structure of the company.

Regardless of the matter of commercial effects of this approach, both the positive ones – effect of better business running of the company due to higher motivation of the employees for their company to accrue more profit so the value of its stocks/shares would rise and, the negative ones – large dispersion in ownership structure, low percentage of participation in share capital that excludes the possibility of an employee to participate in decision making in regard to business operations of the company, as well as, after all, negative effects of such concept familiar to this region from the period of self-managing socialism, the Ministry of Finance tackled this matter from the perspective of tax related effects of this practice.

In this opinion, the Ministry of Finance considers the matter of tax treatment of the revenue accrued by an employee on the basis of acquisition of share in a company – affiliate of the employer, which is regulated under the Personal Income Tax Law (the „Law“). This matter does not differ in its substance from the matter of tax treatment of the revenue accrued on the basis of acquisition of share in the company – employer (the Law equally treats both cases).

Having in mind the provisions of the Law, stating that other income of the employee including, inter alia, securities received by the employee from the employer or affiliated company of the employer, becomes taxable salary of an employee in the moment when such employee becomes entitled to dispose of such securities, as the starting point of analysis, the Ministry of Finance further accounts the exception prescribed by the Law, on the basis of which the salary tax is not due on income received by an employee from the employer on the basis of: (i) (own) stocks; (ii) (own) stock options; or (iii) (own) shares of the employer or its affiliate, which are received by the employee from the employer, without remuneration or for discount price.

In accordance with the above, the Ministry of Finance confirms the stand that for such income of the employee salary tax is not due (meaning only salary tax, not including other potential taxes such as, for example, annual income tax), naturally, provided that the conditions stipulated by the Law are met – besides the conditions which, in substance, condition the application of this exemption by mandatory proper application of the provision of the Company law (the procedure and form for determining the reserved own share and granting, i.e. exercising the right to acquire share), these are the conditions that regard the relation of the employee towards its employer and/or acquired share, which conditions aim to secure certain continuity in such relation. These conditions assume that the employment relationship is not terminated, i.e. that an employee does not sell this share for the period of at least two years, as well as that the employer/its affiliate do not buyback (own) shares from such employee. Even though the Law (and the Rulebook on exercising the right to tax exemption for income of the employee on the basis of own stocks acquired without remuneration or for discounted price) speaks exclusively about stocks in this part, the fact that the Ministry of Finance makes a reference to these conditions in this opinion implies that the Ministry takes the stand that these provisions equally apply to shares in a limited liability company.

We should also mention herein the opinion of the Ministry of finance no. 011-00-588/2020-04 dated 13 November 2020, published in the newsletter for November 2020, which tackles the matter of tax treatment from other (opposite) direction – the tax treatment of free-of-charge transfer of a portion of share by the sole shareholder – natural person to the company in order to create a reserved own share for the purpose of issuance of financial instrument – right to acquire share. This opinion confirms that, since this is a transfer that is free of charge, no capital gain that would be taxed by capital gain tax exists. Naturally, this does not affect the tax treatment of revenue that the company potentially accrues in the later stage by selling such reserved share to a third party granted with the financial instrument – right to acquire share, which revenue falls under the scope of application of Corporate Income Tax Law.

Having the above in mind, the Republic of Serbia seeks to make its own contribution to the concept of motivating employees through so called „share options“ mechanism by means of above provisions of the Law and the interpretation thereof by the Ministry of Finance, by exempting the income accrued on the basis of shares acquired through the financial instrument – the right to acquire share from the personal income tax obligation, but only in relation to the employees, i.e. only in the context of salary tax.

Can the taxpayers whose accounts are blocked in the moment of payment, due to enforced collection by the organization for enforced collection, settle mutual pecuniary rights and obligations by agreeing on change of creditor, i.e. debtor in certain contractual relation?

(The opinion of Ministry of finance no. 011-00-00045/2021-04  dated 22 December 2021)

In this opinion, the Ministry of Finance inter connects relevant provisions of the Law on payments by legal persons, entrepreneurs and natural persons who do not perform business activities (the „Law on Payments“) and the Law on Tax Procedure and Tax Administration (the „Law on Tax Procedure“.)

Namely, even though the Law on Payments prohibits settling of mutual pecuniary obligations between the legal persons and/or entrepreneurs, inter alia, by virtue of agreeing on change of creditor, i.e. debtor in certain contractual relation (i.e. through assignation, assignment, dept assumption and similar), in cases when their accounts are blocked due to enforced collection, the same law provides for the possibility of exemption – provided that different approach is envisaged by the law that regulated tax procedure.

The Law on Tax Procedure prescribes such exemption, i.e. allows for settling of mutual pecuniary obligations by virtue of change of creditor, i.e. debtor even when the accounts are blocked due to enforced collection. However, this only applies in case that such change is performed for the purpose of fulfillment of public revenue related obligations that fall under the application of the Law on Tax Procedure.

In accordance with the above, it is recommendable to explicitly stipulate in the appropriate  ground – e.g. agreement under which the parties agree the change of a party, the purpose and effects of such change of the contracting party.

These provisions of the law i.e. the exemption set out in the Law on Tax Procedure, clearly shows that the receivable of the Tax Administration towards debtors have preferential treatment in relation to treatment of receivables of other (unsecured) creditors – employees, business partners and similar.

By such approach that indirectly favors the receivable of the Tax Administration, is not completely in line with the manner of determining the priority rank of claims generally accepted in other Serbian regulations, mainly in relation to application of the Bankruptcy Law. This law gives advantage to certain claims of employees, while the public revenue related claims come second, and this only for the period of three months before opening of the bankruptcy proceedings (i.e. in regard to claims that become due in that period), while the public revenue related claims that became due at earlier time do not have advantage even in relation to remaining unsecured claims.

Having in mind that debtors whose accounts are blocked are often faced with the risk of bankruptcy, and application of the Bankruptcy Law, accordingly, it is not clear why the same principle does not apply to the matter of settling mutual pecuniary obligations through change of creditor, i.e. debtor.

By Nikola Djordjevic, Partner, and Marija Vukcevic, Senior Associate, JPM Jankovic Popovic Mitic

Serbian Republic Geodetic Authority has recently added various new online features and services available both for professional users and citizens, in its overall efforts to implement the principle of development of electronic services.

The „Cadaster Alarm“ online app – this service is available for both natural and legal persons. The idea of this app is to alarm the property owner or other person with relevant legal interest on any change with regard to inscribed data related to the property in real time. E.g. if the request for annotation of existing dispute regarding the property is submitted, the owner – user of the app shall be „alarmed“ through the app in real time. This service should be provided free of charge. 

The only catch is – it is necessary to obtain electronic signature (i.e. electronic certificate) in order to apply and register as the user of this app.

More details on the app are available at official Republic Geodetic Authority website, and terms of use are stated in the request for opening of user account – also available at Republic Geodetic Authority webpage.

The e-desk online service for citizens – even though e-requests (e.g. for issuance of cadaster excerpts) can be provided only to professional users – lawyers or licensed geodetic organizations, the e-desk for citizens online features are user friendly and provide clear input on available options – e.g. citizens can easily check the list of available professional users who may provide services related to e-requests, or decide to submit the request personally in which case they can e-schedule a desk appointment and avoid waiting in the line. This online service includes other helpful features such as e-notice board for online tracking of resolutions rendered by the competent Cadaster Registry Offices, or e-tracking of the status of submitted requests, online support feature, possibility to submit e-complaints and similar.

 „My address“ online service – the newest online service of the Republic Geodetic Authority should enable automatic issuance of notice on house number through web app. Registration of user account should be rather simple (similar to any online service such as e.g. opening of a google account).

As published in the user manual for this app, the notice on house number generated through the „my address“ app should be valid as an evidence of house number for all procedures before the competent public bodies and public companies. 

The app provides two-way feature – the user may (i) use the address to determine accurate number of the cadastral plot on which the property is located; or (ii) use the cadastral plot number to determine accurate house number.

More information on this app is also available on the Republic Geodetic Authority webpage and published user manual.

By Marija Vukcevic, Senior Associate, JPM Jankovic Popovic Mitic