Category: Serbia

Karanovic & Partners, working with Corrs Chambers Westgarth, has advised Volt Resources Limited on its acquisition of the entire issued share capital of Asena Investments Beograd-Stari Grad.

Volt Resources is an Australian graphite producer and battery anode material developer. According to the firm, Asena holds the rights to “three license applications that are considered to be prospective for lithium-borate mineralization,” with a total area of 291 square kilometers.

Karanovic & Partners’ team included Partners Ivan Nonkovic and Petar Mitrovic and Associate Katarina Tomic.

Karanovic & Partners could not provide additional information on the deal.

Radovanovic Stojanovic & Partners has advised the Soravia Group on the sale of the New Mill office building located in Belgrade, Serbia. 

According to RSP, the Soravia Group is a growth-oriented and owner-managed family business. Its core business is based on real estate development and concentrates on urban developments, privately financed residences, office and commercial real estate, hotels, subsidized residential developments, and the revitalization of listed properties. The Soravia Group has completed more than 600 projects with an aggregate project volume of over EUR 6.5 billion and employs more than 3,330 people.

RSP’s team was led by Partner Sasa Stojanovic and included Attorney Djordje Vicic and Associates Luka Radojevic and Irina Petrovic.

Radovanovic Stojanovic & Partners could not provide additional information on the deal.

The Government of Serbia has recently adopted the Proposal for Amendments to the Companies Law (the “Proposal”), which official text states that its primary goal is to promote the protection of minority shareholders, in accordance with measures provided by the Action Plan of the Program for Improvement of Position of the Republic of Serbia on the World Bank’s Business List – Doing Business for the period 2020-2023. In addition, the respective novelties imply other changes as well, the most significant being those referring to the position of entrepreneurs, and court protection in case of business address abuse.

Improvement of the Status of Minority Shareholders, i.e. Stockholders

For the purpose of improving the status of minority shareholders and stockholders, the Proposal specifies legal provisions referring to the conclusion of legal transactions and undertaking of legal actions which imply personal interest, i.e.:

• content of the notice on existence of personal interest in a legal transaction concluded by a company, and/or legal action undertaken by a company;
• data that a company is obliged to publish, and/or documentation that it is obliged to keep in relation thereto;
• data that a company is obliged to indicate in its annual financial statements with regards to concluded legal transactions, and/or undertaken legal actions that included personal interest; and
• right to file a complaint for cancellation of such legal transaction, i.e. legal action (and damage compensation) if the transaction was not concluded, i.e. the action was not undertaken in accordance with the law.

Additionally, the Proposal provides the obligation for a limited liability company, and a non-public joint-stock company, upon request of a shareholder or stockholder that holds shares, i.e. stocks representing minimum 5% of the company’s share capital, to provide such shareholder/stockholder with data on the amount and structure of total compensation for each director (or executive director and supervisory board member, in case of two-tier corporate governance system), no later than three days upon receipt of the request.

On the other hand, a public joint-stock company is obliged to have a compensation policy for directors (and supervisory board members, in case of two-tier corporate governance), while the board of directors (or supervisory board, in case of two-tier management, or compensation commission, provided that it has been established) shall prepare annual, clear, comprehensive and eligible report on all compensations paid, or to be paid by the company, or its affiliated companies operating within the same group to each current and former member of the board of directors (or supervisory board) in the last year preceding the year of the subject report. The compensation policy and report shall be subject to voting in the company’s general meeting.

Furthermore, the Proposal includes Chapter IVa, the provisions whereof stipulate special rules as regards the encouragement of long-term shareholder engagement in public joint-stock companies, in accordance with EU Directive 828/2017, notably regarding the identification of shareholders and their notifying, as well as role and status of mediators.

Status of Entrepreneurs

According to the Proposal, a business name of an entrepreneur may not contain word “Serbia”, its derivatives or any forms associating to this word, or internationally recognised three-letter designation of the Republic of Serbia “SRB”.

In addition, if an entrepreneur is prohibited to perform a registered business activity pursuant to a final decision of a competent authority, such entrepreneur shall be entitled, within 30 days upon the day of entry into effect of such act, to register the suspension of performing registered business activity for the period of validity of the imposed measure, whereby upon that, if intending to maintain the status of entrepreneur, it shall be entitled to register the change of business activity, in order to perform another activity and continue collecting profit by such performance.

Court Protection in Case of Business Address Abuse

Considering the increased number of citizens notifying the issues relating to public enforcement officers and public utility companies, because their home addresses were registered in the Companies Register as seats of companies and entrepreneurs, without their knowledge and consent thereof, court protection will be ensured in this regard.

In relation thereto, the Proposal defines company seat as a place and address in the territory of the Republic of Serbia, which is used for managing a company’s business, and which is specified as such by the memorandum/articles of association, statute or decision of the general meeting, partners or complements, while the company seat address implies city, municipality, settlement, street or square, house number, floor and apartment number, in accordance with regulations on territorial organisation.

An interested party may file a complaint to the competent court, requesting the deletion of the registered address of company seat, provided that the owner did not allow the use of the premises where the company seat is located for company management activities. Upon the request of the person who filed a complaint for deletion of the registered address of the seat, a dispute annotation will be made in accordance with the law on registration, while the procedure upon the complaint is urgent. Upon its entry into force, the court shall deliver the judgment imposing deletion of the company seat address to the companies register for registration. If the company fails to register a new company address within 30 days after the entry into force of the aforesaid judgment, the companies register shall ex officio institute the procedure for forced liquidation of such company.

Other amendments

In addition to the above, the Proposal, in accordance with provisions of the Law on Electronic Administration, stipulates that a company is obliged to register as a user of electronic administration services, and that the electronic document is submitted to the company or entrepreneur in accordance with the law governing electronic documents, electronic identification and services of trust in electronic business, i.e. the law governing electronic administration when delivery is made to the Individual Electronic Mailbox on “eUprava” portal, unless otherwise provided by a special law.

Finally, the Proposal stipulates certain changes with regards to data on persons which shall be registered under the law concerned, and which are therefore registered in accordance with the law on registration.

Namely, according to the Proposal, both for domestic and foreign natural persons, in addition to their personal name and personal ID number and/or personal name, passport number and country of issuance, i.e. registration number for foreign citizens, foreign citizen’s ID card number and country of issuance, data on the person’s gender shall also be registered.

According to the reasoning of the Proposal, this amendment was proposed in accordance with the gender equality policy, while it is not quite clear how it contributes to the achievement of goals of this policy, particularly considering that the gender information about domestic citizens is already included in the personal ID number, which is subject to registration.

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 Law on Amendments to the Law on Tax Procedure and Tax Administration (Official Gazette of RS, no. 96/2021) (the “Law”) was adopted on October 16, 2021. The novelties introduced by this piece of regulation particularly include those referring to the filing of tax application for calculated mandatory social insurance contributions for company founders and/or shareholders, deferral of interest payment for settled obligations, replacement of insurance instruments for collection of due taxes, and issuance of additional record.

Tax Application for Calculated Mandatory Social Insurance Contributions for Company Founders and/or Shareholders

The Law stipulates that, if a taxpayer fails to submit tax application for calculated mandatory social insurance contributions for company founders, i.e. shareholders in the prescribed period, instead of the taxpayer, the respective application shall be filed ex officio by the Tax Administration.

Deferred Interest Payment

The Law further sets out that, if a taxpayer settles its principal tax liability that was subject to deferral, it may, within five days upon the payment, file a request for deferred payment of the remaining interest that relates to the settled obligations.

The above said shall also apply to a due tax that was subject to the procedure of deferring the payment of due tax where the agreement was cancelled, or decision was revoked before entry into force of this regulation.

Replacement of Collection Insurance Instruments

The Law also prescribes that, upon request of taxpayer who was approved the deferral of due tax, the Tax Administration may replace the collection insurance instruments in the subject procedure. Naturally, the new insurance instrument shall be of the same type, but also of higher value than the current one.

This shall also apply to insurance instruments used in procedure of deferring the payment of due tax that was approved prior to entry into force of this Law.

Issuance of Additional Record

Finally, as it was prescribed before the adoption and entry into force of this Law, a taxpayer is entitled to submit objections to the record on undertaken tax control, within eight days upon receipt of the record (with certain prescribed exceptions). Provided that new evidence and facts have been stated in the objection, requiring the adjustments of the factual situation established in the record, or changes to the previous legal assessment, tax inspector shall include such evidence, facts or new legal assessments in the additional record, whereas it needs to be done within 30 days (instead of previously prescribed five days) from the day of receipt of objections. 

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 has recently proposed amendments to the tax laws, including amendments to the Law on Personal Income Tax (‘PIT Law’), Law on Mandatory Social Contributions (‘SSC Law’) and the Law on Corporate Income Tax (‘CIT Law’).

Several payroll tax incentives are proposed under amendments as well as tax exemption from capital gains tax in case of contribution of the IP rights into the capital of resident entity.

Personal Income Tax and Social Contributions

Extension of the term for application of incentive for employment of former entrepreneurs is proposed. Initially the incentive should last for salaries paid until the end of the 2022, but it is proposed that employers that in 2020 employed individuals formerly registered as entrepreneurs may be exempted from payment of salary tax and contribution for pension and disability until 2025 as follows:

• 60% of salary tax and 85% of contributions for mandatory pension and disability insurance for salaries in 2022,
• 50% of salary tax and 75% of contributions for mandatory pension and disability insurance for salaries in 2023
• 40% of salary tax and 65% of contributions for mandatory pension and disability insurance for salaries in 2024
• 30% of salary tax and 55% of contributions for mandatory pension and disability insurance for salaries in 2025

The same exemption will be applicable to salaries of individuals who were registered as entrepreneurs from 1 January 2019 until 31 December 2021 and who will be employed between 1 January 2022 and 30 April 2022.

Following amendments to the PIT Law and SSC Law are also proposed:

• Employer will be exempted from payment of 70% of the salary tax and 100% of the contributions for pension and disability insurance if until 31 December 2024 it employs an employee who was unemployed in the previous period, provided that salary is higher than gross RSD 76,500;
• Employer engaged in R&D activities will also be entitled to exemption from payment of 70% of the salary tax and 100% of the contributions for pension and disability insurance for the salaries of employees directly engaged in R&D process;
• Employers are entitled for reimbursement of 65% to 75% of the salary tax and social security contributions paid for the salaries of employees employed until 31 December 2022 who were previously unemployed;
• The deadline for tax exemption from salary tax and social security contributions of shareholder who holds at least 5% of share in a newly established start-up company is extended and it may be applied for start-ups established after 31 December 2021:
• Taxpayer who transfers its IP rights as a non-monetary contribution in the capital of a Serbian company is exempt from capital gains tax for that transfer;
• Standard non-taxable amount of salary is increased to RSD 19,300 per month;
• Contribution rate for pension and disability insurance is reduced from 25.5% to 25%;
• Taxpayers under the age of 40 will be entitled to reduction of the tax base for the annual personal income tax by three average salaries;
• It is proposed that payments to students and pupils while they are working as part of learning process under laws on dual education may be exempted from income tax.

The amended provisions of the PIT Law and SSC Law shall apply as of 1 January 2022, except for the provisions which introduce new employment incentives which shall apply as of 1 March 2022.

Corporate Income Tax

According to the proposed amendments to the CIT Law, the taxpayer may opt not to include in the corporate income tax base capital gain realized by transferring its IP rights in the capital of a resident legal entity. This incentive is available under condition that the resident legal entity does not alienate such acquired rights within two years. In addition, in the same period the rights cannot be given for use to a related party at the price lower than the price determined in accordance with the “arm’s length principle”. This incentive shall be available for the tax period which starts in 2022.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Branimir Rajsic, Senior Consultant, Karanovic & Partners

The Labour Law contains only 2 articles related the non-competition clause.

It says: “An employee could be prohibited by the employment contract to perform certain work on his own behalf and for his own account, and also on behalf and for the account of another legal or natural person, without the consent of his employer (hereinafter: non-competition clause).

The non-competition clause could be stipulated only in case the employee, by working with the employer, could acquire new, particularly important technology know-how, a wide circle of business partners, or learn significant business information and secrets.

Territorial validity of the non-competition clause is determined by employer’s internal act and employment contract, and it depends on the type of prohibited work.

In case the employee breaches the clause, the employer is entitled to claim damages from the employee. (Article 161)

It can be stipulated in the employment contract that the non-competition clause is obligatory after the termination of the employment, covering a period that may not exceed two years after the termination of the employment contract.

This non-competition clause could be stipulated if the employer is obliged by the employment contract to pay pecuniary compensation to the employee in the agreed amount. (Article 162)”

In practice, the courts (both the Basic and the Appellate) do not have unanimous stands on an employer’s possibility to release his employee from the non-competition clause after the termination of the employment contract.

There are judgments stating the employer is not entitled to release the employee from the non-competition clause without consent of employee. The argumentation says that the employment contract is bilateral, hence the wavier of enforcement of the non-competition clause could only be done through the mutual consent of the contractual parties and not solely by the employer. Therefore, signing the Annex would be necessary.

In another words, prior to the termination of the employment contract the employee should be served with the offer for changing the employment contract, i.e., the offer for conducting the Annex by which he will be released from the non-competition clause. The employer is in even worse position should he decide to resolve the employee from the non-competition clause after the termination of the employment, having in mind that the Annex could not be concluded after such termination. It seems that in this scenario employers’ “hands are tied” and he will be forced to pay compensation to the employee even if he does not have an interest to protect himself by the non-competition clause.

Contrary to this, there are judgments stating that non-competition clause actually represents a damage compensation for the employee since after the termination of the employment he will not be able to use his know-how or conclude another employment. Consequently, if the employer releases the employee from the prohibition of competition, the damage will not occur to the employee, since he can freely use new, particularly important technology know-how, a wide circle of business partners, significant business information and secrets. Thus, the employee will not be entitled for the damage compensation i.e., compensation for the non-competition clause.

Furthermore, the wording of the law is that the employee is forbidden to conduct any work without the employer’s consent. Using argumentum a contrario, in case of the employer’s approval, the employee is allowed to perform work on his own behalf and for his own account, and on behalf and for the account of another legal or natural person.

It is important to note that in any case, the employer’s right to release the employee from the non-competition clause should be assessed through examining whether the employee has acquired new, particularly important technology know-how, a wide circle of business partners, or learn significant business information and secrets during the employment period. If not, it seems that the conditions for activating the non-competition clause were not met and therefore the employee can be released from such an obligation (even if it can be claimed that the clause is non-binding).

Due to the contradiction of the courts practice on such an important issue, particularly of the Appellate courts, and a necessity for the legal certainty, the Supreme court needs to take a stand on this issue and decide whether the employer is entitled to waive the enforcement of the non-competition clause or not. We will keep you posted on this and in the meantime, consider stipulating in the employment contract that upon its termination the employer could waive the enforcement of the non-competition clause in writing, whereby the employee explicitly consents in advance to such waiver of the non-competition clause. 

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Ivana Disovic, independent Attorney at Law in cooperation with Karanovic & Partners

Karanovic & Partners has advised Elicio Ali VE on the refinancing of its Alibunar Wind Farm from UniCredit Bank Serbia.

According to Karanovic & Partners, “UniCredit Bank Serbia and Elicio Ali VE, a company wholly owned by Elicio NV, have completed the refinancing transaction of the 42-megawatt Alibunar wind farm, which supplies slightly less than 30,000 households with electricity.”

Elicio’s portfolio currently includes 540 megawatts of operational onshore and offshore wind farms, with another 60 megawatts under construction. In addition to projects in Serbia, Elicio manages more than 30 wind farms in Belgium and France and has a portfolio of wind farms in the North Sea.

Karanovic & Partners’ team was led by Senior Associate Mina Sreckovic.

Karanovic & Partners could not provide any additional information on the deal.

Editor’s note: After this article was published, CMS announced that it had advised UniCredit Bank Serbia on the EUR 53 million financing deal. The firm’s team included Partners Ivan Gazdic and Milica Popovic, Attorneys Ksenija Boreta, Marija Marosan, and Igor Djordjevic, and Associate Teodora Vujosevic.

For the last decade or so, the video gaming industry has been witnessing an emergence, and then almost a mainstream adoption of a revenue-generating mechanic similar, if not outright identical, to gambling.

This mechanic is commonly known as a “loot box” and offers players a chance to obtain in-game rewards. These rewards come mainly in the form of cosmetic add-ons (such as hero skins, weapon or map designs, announcer voice packs, etc.) to the base product, i.e. the game that the player has purchased. Methods in which loot boxes generate revenue vary across games, depending on game type and different publishers’ monetization models. Still, in essence, loot boxes represent a set of possible rewards from which a single reward is drawn, not unlike some traditional games of chance.

This practice has drawn the attention of various regulatory bodies, mainly in Europe but also worldwide, for a few reasons:

1. Loot boxes are (generally) not free;
2. gain or loss is not determined by skill – rather it depends on some random event;
3. they are marketed to all ages.

Firstly, loot boxes not being free poses a question of their taxation, i.e. if their purpose is to generate revenue for the developer/publisher of the game, said revenue should be subject to some type of tax. More importantly, even if they are subject to tax, the premium nature of loot boxes is analogue with the criteria that gambling is pay-to-play based, which has been recognized and adopted in most jurisdictions.

Secondly, gambling always depends on luck or an unpredictable element. The randomness of the draw in loot boxes is almost identical to many games of chance, both in method and in presentation.

Thirdly, even though the video game market has grown and now attracts consumers of all ages, video games are still primarily marketed to sensitive age groups. Given that most countries forbid minors to gamble, the loot box mechanic poses an issue even if the video game itself is considered “safe” for sensitive age groups.

However, from a regulatory point of view, the most obvious issue is that it could be interpreted that video games that contain loot boxes are, in fact, offering gambling services without proper licenses or regulatory approvals and without meeting any of the terms and standards prescribed for companies that legally offer gambling services.

While there have been some countries that have addressed this topic, most jurisdictions are yet to take any steps in that direction. Serbia, for example, has adopted the Games of Chance Act in 2019 (“Law“). According to this Law, games of chance “(…) are considered to be games in which participants, for a fee, are given the opportunity to make a profit in money, goods, services, or rights, where the gain or loss does not depend on the knowledge or skills of participants in the game, but on a happenstance or some uncertain event“.

This definition leaves little doubt as to whether loot boxes are, in fact, games of chance. If we compare loot boxes to traditional games of chance such as lottery, the similarities become apparent:

Lottery:

• To participate in a lottery draw, the player must buy a lottery ticket.
• To earn the prize, the numbers that the player selected must be randomly drawn.
• The prize has monetary value, regardless of whether the prize is money, goods, rights, or services.
• The player is the owner of the prize and can do with it as they wish (use it, sell it, give it to someone, etc.).

Loot box:

• To open a loot box, the player must pay a certain amount of money/in-game currency.
• The prize drawn from a loot box is randomly selected from the set of possible rewards via an RNG (randomly generated number) algorithm.
• The prize usually has its value in the form of in-game currency, and in some cases, can be traded within virtual marketplaces.
• The player has broad rights over the prize, which often include unlimited use and transfer. The prize is usually tied to the player’s game account which they use to buy, access, and play video games.

As for now, companies maintain the practice of using legal loopholes to justify the existence of loot boxes, some of which are: 

1. claiming that loot boxes are not obtained by using real (“fiat”) currencies, but rather via various in-game currencies, which are in turn bought with fiat money;
2. claiming that rewards are guaranteed, i.e. there cannot be an outcome that results in the player opening a loot box and leaving empty-handed;
3. claiming that rewards are purely cosmetic and have no real value.

Most of these arguments are flawed, at least from the perspective of Serbian Law. Most obviously, the previously mentioned definition of games of chance states that prizes need not only be monetary but can also be goods, rights, and services. Furthermore, the Law provides that certain games of chance can guarantee winnings.

The only argument that holds some merit is that real currency is not used when buying loot boxes, as the Law states that players need to pay a fee to participate in the game. In the case that the “fee” is interpreted to be a monetary fee, loot boxes that work based on the payment of non-fiat currencies would not fit this definition.

However, as is the case in most jurisdictions, competent Serbian authorities (primarily the Games of Chance Administration, hereinafter: “GCA“) are yet to establish their view when it comes to this practice. It may be some time before we see any development in this area, if for nothing else, then for the fact that the Law limits the actions that GCA can take regarding loot boxes. The reason for this is because the Law prescribes only certain types of games of chance. While loot boxes fit the general definition of games of chance, they do not adequately fit any of the definitions of the prescribed game of chance types provided by the Law. As the GCA issues licenses based on the type of a game of chance, and since loot boxes fit none of the types, GCA’s reach, for now, is limited.

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

By Milan Samardzic, Partner, and Vuk Knezevic, Associate, Samardzic, Oreski & Grbovic

Independent attorney-at-law Mirjana Mladenovic has joined the Deloitte network and will lead the firm’s M&A Legal Advisory practice in Serbia.

According to Deloitte Legal, Mladenovic has “over 15 years of experience as an M&A and corporate lawyer. In her professional career, she has advised large international clients on the most prominent transactions in Serbia and Montenegro. Mirjana has extensive experience in the areas of M&A, corporate, commercial, banking & finance, and insolvency & restructuring.”

Prior to joining Deloitte Legal, Mladenovic spent almost nine years with BDK Advokati, having joined the firm in 2007 as an Associate, being promoted to Senior Associate in 2010, and then to Partner in 2013. 

“I am very pleased to start cooperating with Deloitte,” Mladenovic said. “It is an opportunity to take new professional challenges and to work with the Deloitte team on building and delivering integrated solutions for clients across various industries.”

Andrejic & Partners has advised the Embassy of Brazil in Serbia on its lease agreement with Dipos for the embassy’s headquarters.

Dipos is a property management and rental company founded by the Republic of Serbia, with a focus on the real estate needs of the diplomatic and business community in the country.

The Andrejic & Partners team included Managing Partner Aleksandar Andrejic and Associate Marko Stojanovic.