Category: Serbia

In cooperation with the USAID and E-commerce association of Serbia, the Ministry of Trade, Tourism and Telecommunications published Guidelines for e-commerce, for the purpose of stimulating the development of e-commerce in Serbia.

Sudden growth of the need for e-commerce was unavoidable in the times of the pandemic, hence most activities were redirected to an online environment, which largely helped the retention of social and economic operation in the pandemic circumstances.

What is the purpose of the guidelines and who is it intended for?

The aim of the Guidelines for e-commerce is to inform the business community about the importance of entering the e-commerce, particularly in the circumstances of changes and challenges for the traditional model of business caused by the pandemic, to provide clear procedures and examples for starting the e-commerce and to advise the market participants by addressing them with solutions that support that process.

Therefore, the guidelines will answer the questions as to how traders can register for e-sale, which form to register, which website and what platform to use, how to advertise, how to deliver products etc.

The Guidelines for e-commerce are primarily intended for beginners: both those who are about to register and start trading through the Internet, as well as the business entities that are already in business but wish to start e-business or to add e-commerce as a new sales channel in addition to the existing traditional sale.

Also, these guidelines also contain the initial experiences of individual traders and useful examples from e-business practice.

What is electronic trade?

In accordance with Article 17 of the Law on Trade (“Official Gazette of RS” no. 52/2019) electronic trade is a form of remote trade that is performed so that the goods/services are offered, ordered and sold through the Internet.

According to the Guidelines for e-commerce, the electronic trade includes the processes of purchase, sale, transfer or exchange of products, services and information through the Internet.

The Guidelines further make the difference between:

1. Electronic trade between business entities (B2B);
2. Electronic trade between a business entity and individual consumer (B2C)

Although B2B form of e-commerce still represents the dominant component of overall electronic trade, e-commerce is fully affirmed only with the flourish of B2C e-commerce. This is why the guidelines primarily focus on B2C electronic trade i.e. how a business entity should sell goods or services to consumers.

Advantages of trade in form of e-commerce

The Guidelines provide the advantages for business entities that opt to sell their products through electronic channels, including:

• Access to a much greater number of buyers;
• Lower costs of business start-up;
• Possibility to adjust to the requirements of buyers and other persons interested in e-commerce;
• Personalisation;

Issuance of electronic invoices

Namely, in accordance with Article 9, paragraph 3. of the new Law on Accounting (“Official Gazette of RS” no. 73/2019), starting from January 1, 2022, all legal entities and entrepreneurs will have to issue (prepare and deliver) invoices exclusively in electronic form.

As indicated in the guidelines, such change will further improve digitisation and provide another strong incentive to electronic business.

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 Natalija Djukic, Associate, PR Legal

Are you interested in investing and doing business in Serbia? A couple of taxation related facts good to have in mind.

A. Serbia has various incentives effectively decreasing 15% corporate income tax rate

1. R&D incentive

The doubled amount of costs directly connected to R&D activities conducted in Serbia incurred by taxpayer in a tax period can be treated as the expense for the purposes of calculation of taxable income.

In order for an activity to be eligible as research for the purposes of the above incentive, a research has to be planned or original research conducted in order to acquire new scientific or technical knowledge and comprehension. In order for an activity to be eligible as development for the purposes of the above incentive, such activity needs to consist of application of the research results or results of other scientific findings or production designs of new, significantly upgraded materials, devices, products, processes, systems, or services prior to commencing with commercial production or use.

• Incentives for investment into innovative activities

Investment of an existing taxpayer in capital of a newly founded company that conducts innovative activity, entitles it to apply for tax credit in the amount up to 30% of such investment.

A company that conducts innovative activity is a company that conducts, as prevailing business activity, activities in order to create new products, technologies, processes and services, or to significantly modify the existing ones in accordance with market needs, which are considered as innovative activities in accordance with the law that regulates the matter of innovative activities 

A newly founded company is a company that exists for no longer than 3 years and that fulfills the following conditions: (i) its annual income from last financial statements at the time of investment of tax payer does not exceed 500 million RSD; (ii) has not distributed dividends prior to investment and until the moment of realization of tax credit; (iii) center of its business activities is located in the Republic of Serbia; (iv) is not created through status change; and (v) from the moment of its incorporation until the day of investment has achieved following financial thresholds:

• R&D costs represented at least 15% of total expenses in each tax period; or

• Highly qualified employees represent more than 80% of all employees, in each tax period; or

• Is owner, i.e. user of deposited copyright or patent that is directly connected with its innovative activity.

The investment in a newly founded company that conducts innovative activity has to be made as pecuniary contribution in the capital of such newly founded company and cannot be withdrawn within at least three years period.

The relevant moment for determining the moment of investment is the moment in which the taxpayer has fully paid in its pecuniary contribution in the capital of the newly founded company that conducts innovative activity.

• IP income incentive 

Up to 80% of income from IP rights in a year may be exempted from the taxpayers’ income, provided that certain conditions for diminishing are fulfilled – that the copyright is registered in Serbia in the name of taxpayer or that the taxpayer holds a patent or has filled for registration of an invention as a patent.

Eligible income is calculated by taking the total income from IP in tax year which is first diminished for the amount of „qualified expenses“ and then multiplied by percentage representing the participation of qualified expenses in total expenses incurred in relation to subject IP i.e. (TI – QE) x (QE/TE x 100%). If the qualified expenses in the given year are greater that the total income, the result is 0 (i.e. TI – QE cannot be a negative number) and unused amount of qualified expenses can be used in the following years.

The taxpayer defines which expenses will be considered as qualified expenses, whereby it can include the salaries of employees, expenses for material and non-material assets, expenses of acquisition or lease of real estate, equipment etc, expenses related to expert opinions, consultancy services and transfer of know-how, all of them related directly to creation of IP, expenses related to protection of IP, expenses related to loans for the purpose of financing the creation of IP. The taxpayer cannot include the sale expenses, advertising expenses, administrative and other general expenses not directly related to creation of IP, expenses of training of employees, expenses of regular maintenance of equipment used for creation of IP.

The total expenses include qualified expenses increased for expenses towards non-resident legal entities or individuals (or when non-residents are ultimate beneficiary of such expenses), expenses towards residents which are related parties – in part exceeding the arm’s length prices, price for acquisition of IP, historic and current tax amortization and historic value of expenses from this paragraph if the IP is acquired by contribution to the capital of the company.

• Employment incentives

The Republic of Serbia encourages employment by providing three different types of employment related incentives: (i) applicable to corporate income tax; (ii) applicable to individual income tax; and (iii) applicable in case of direct investment in accordance with the Law on Investments. 

(i) Corporate income tax related employment incentives

A taxpayer which (i) invests into its fixed assets, or in which fixed assets other entity invests, more than RSD 1 billion, and which (ii) uses such assets to conduct its prevailing activity and other activities indicated in the incorporation act of the taxpayer (or in other act setting out the business activities that the tax payer is conducting) and which (iii) in the period of investment employs for indefinite period of time at least 100 employees, shall be released from the obligation to pay the corporate income tax for a period of 10 years, in proportion to the investment.

Investment by other entity should be understood as either investment in the initial capital of a tax debtor or increase of the initial capital pursuant to the law.

New employees are the individuals which were employed by the taxpayer in the investment period, so that, at the moment of fulfilment of the conditions for the tax holiday, the taxpayer has at least 100 additional employees employed for indefinite period of time compared to the last day of a period which preceded the investment period. New employees are not the employees that were employed, directly or indirectly, to a related party and the individuals that are not actually engaged to work at the tax debtor.

The 10-year period starts from the first year in which the taxpayer, following the fulfilment of the conditions set out above, realizes the taxable profits. 

(ii) Individual income tax related employment incentives

An employer who engages new employee is granted with the right of tax refund for a portion of income taxes paid for such newly employed person (a person with which the employer executed employment agreement, which is duly registered for social insurance, which was in unemployed status with the National Employment Service for interrupted period of at least 6 months, i.e. 3 months for interns, and which was not employed with a person connected with the employer), for the salary paid at latest until 31 December 2021. 

The value of this tax incentive depends on the number of newly employed persons – the tax refund amounts to 65% of paid taxes in case of engagement of one – nine new employees; to 70% of paid taxes in case of engagement of at least ten, and up to 99 new employees; and to 75% of paid taxes in case of engagement of at least 100 new employees.

Entrepreneurs and/or micro/small legal persons are granted with additional incentive in this regard – they are entitled to 75% refund of paid taxes in case of employment of two or more new employees. This advantage cannot be used together with the above described general incentive in regard to the same employee(s).

Even though this incentive refers to salaries to be paid until 31 December 2021, this form of incentive is regularly prolonged for a couple of years now for salaries paid until the end of the current year.

Finally, in case of engagement of disabled person as a new employee the incentive in form of tax refund for new employee is granted as 100% refund of paid taxes for the three-year period from the moment of engagement of such employee.

(iii) Incentives applicable in case of direct investment in accordance with the Law on Investments

Apart from the above described tax incentives, the Law on Investments also provides for different forms of subsidies in case of investments that inter alia involve engagement of new employees.

B. Important information in deciding where to invest – total burden on proceeds realized from the investment

5. Burden on profits realized from conducting business

Total burden includes corporate income tax payable by the company in which the investment is made and dividends tax payable by the investor.

A company’s profit is subject to 15 % corporate income tax. Taxable profit is calculated as a difference between income and expenses of the company shown in financial statements prepared in accordance with IFRS and IAS standards, adjusted as set down in the Corporate Income Tax Law.

In case that dividends are acquired by domestic company, the dividends are exempt from taxable profit of such company (in order to avoid domino effect). In case of foreign company, tax rate for dividends is 20%, unless different treatment is provided for under specific double taxation treaty. In case of acquisition of dividends by natural person (foreign or domestic) tax rate for dividends is 15%.

6. Sale of business burden

When the investor decides to divest, the income from divestment may be taxed as capital gain provided that capital gain is acquired thereof. 

In case of investor – domestic company, capital gain represents a part of company’s’ profit and is encompassed under income taxable with corporate income tax.

In case of investor – foreign company, tax rate is same as in case of dividends, unless different treatment is provided for under specific double taxation treaty.

In case of natural persons (domestic or foreign) this income is treated as income from capital gain taxed with 15% tax rate.

In each case, capital gain is calculated as a difference of selling price and acquisition price, with specificities for calculation of these prices depending on the assets transferred through divestment.

• Treatment of repayment of capital and interest; treatment of liquidation surplus

In case of repayment of capital, either as repayment of additional payments or through decrease of initial capital of the company, such repayment is not subject to taxes.

In case of interest from loan, interest acquired by: (i) domestic company, interest represents a part of company’s’ profit and is encompassed under income taxable with corporate income tax; (ii) foreign company, tax rate is 20%, unless different treatment is provided for under specific double taxation treaty; and (iii) natural person (foreign or domestic), tax rate is 15%.

In case of liquidation of company, liquidation surplus is taxed as dividends.

C. Other matters to consider

8. Property tax

Holders of any of the following rights over immovable property situated in the Republic of Serbia, are subject to annual property tax:

• Ownership title over immovable property;

• Usage of immovable property on the basis of financial leasing; and/or

• Usage of publicly owned immovable property in accordance with the Law on Public Property,

The tax base for calculation of this tax depends on whether the taxpayer is an entity that is obliged to prepare financial statements or not. In case of a taxpayer who prepares financial statements, the tax base is the immovable property value stated in the subject financial statements, while in case of taxpayers who are not obliged to prepare financial statements the tax base is calculated on the basis of the act of the local municipality, setting the value of various types of real estate in different parts of the municipalities (zones).

Maximum tax rate applicable to taxpayers who prepare financial statements is 0.4%, and in case of taxpayers who are not obliged to prepare financial statements maximum tax rate is 0.3% for land, while in case of facilities tax rate is defined as progressive and depends on the tax base.

• Transfer pricing considerations

For purposes of determining transfer prices a party that is considered as related party to a company is such individual or legal entity which can control that company (defined as having at least 25% of shares, directly or indirectly) or exercise significant influence on business decisions of that company (defined as having, directly or indirectly, at least 25% of voting rights in corporate bodies of that company).

In addition, related party to a company is also a legal entity in which the same individuals or legal entities, directly or indirectly, participate in management, control or capital (again, having at least 25%) as in that company. When related party is an individual, there is additional rule which prescribes that related parties are also spouse or partner, heirs, adoptees and its heirs, parents, brothers and sisters and their heirs, grand-parents and their heirs, as well as brothers and sisters and parents of a spouse/partners and their heirs, of an individual related to a company.

Also, any entity from “tax haven” is considered as a related party irrespectively of existence of any connection with the taxpayer. Currently, 49 jurisdictions are considered as “tax havens”.

Each taxpayer which had the transactions with related party is obliged to declare in its tax balance the transactions (including loans/credits) with related parties and the value of such transactions at arm’s length prices. The tax balance must be accompanied with the documents prescribed in a bylaw which support the calculation of the arm’s length prices. The documents are prepared in the form of the report which can be “full report” or “short report”. The short report is prepared if the transaction with related party is single and the value thereof is not higher than RSD 8,000,000 or if the transactions within a tax year do not exceed the value of RSD 8,000,000.

Transfer pricing methods mentioned expressly in the law are: i) CUP, ii) Cost-plus, iii) Resale price, iv) TNMM and v) Profit split method. There is also a general rule that any other method may be applied if mentioned methods cannot be applied or such other method is more appropriate taking into account the circumstances. When the prices from the transactions with related parties are different than the arm’s length prices determined by applying the appropriate TP method, the taxpayer must include in the tax base:

• the amount of positive difference between income from the transaction based on the arm’s length price and the income from the transaction based on the transfer price, or

• the amount of positive difference between expenses from the transaction based on the transfer price and the expense from the transaction based on the arm’s length price.

When the arm’s length price is determined by a range, the transfer price will be considered as arm’s length price if it is within the range. If it exceeds the range, the arm’s length price will be equal to the middle of the range.

Maximum amount of interest and expenses related to the credit/loan that can be recognized is equal to four times of the company own capital, being the difference between average value, as on 1 January and 31 December of the relevant year, of the assets of the company used for business operations and of the liabilities related to such assets. 

• Tax treatment of digital assets

Digital assets are recognized for the purposes of taxation with following taxes: (i) corporate income tax; and (ii) individual income tax, as capital gain. Digital assets are also recognized for the purposes of taxation of inheritance and/or gift. 

(i) The Corporate Income Tax 

Income acquired through transfer of digital assets is considered as capital gain for the purpose of corporate income tax.

The capital gain acquired by a company through sale of digital assets is not included in the tax base in cases when the funds acquired by sale of digital assets are further invested in the basic capital of a resident taxpayer or investment fund that has the center of business activities located in Serbia, within the same tax period.

(ii) The Individual Income Tax Law

It should be noted that the individuals are also entitled to exemption and the right to tax credit in cases when the funds acquired by sale of digital assets are further invested in the basic capital of a company or an investment fund – residents of the Republic of Serbia, within the prescribed period of time.

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

On April 21, 2021 The Law on Utilization of Renewables (the „Law“) was adopted by The National Assembly of the Republic of Serbia, after recently held  public discussion in which the new regulations that refer to producers and consumers of electricity were presented.

The Law stipulates that the usage of renewables is in the public interest of special importance for the Republic of Serbia, where this is a first time a special law on renewable energy sources is being adopted.

Most importantly, the Law defines the auctions for the allocation of the market premiums and fid-in tariff, adoption of a national energy and climate plan, legal regulation of prosumer status and the establishment of energy communities, as well as privileged producers and temporary privileged electricity producers and producers from renewables.

For the first time, the Law guarantees the stability of incentive measures and introduces market premiums that will expose renewables producers to market influence and competition. Therefore, the costs for citizens and the economy will be significantly reduced in regard to the costs of the existing incentive system.

Market premiums and fid-in tariffs are anticipated as the incentive measures. Incentive measures could be obtained for a power plant that uses renewable sources of energy (wind, sun, hydro, biomass, biogas, geothermal, biodegradable waste, etc).

The market premium is an addition to the market price of electricity delivered to the market by premium users and determined in eurocents per kWh in the auction process and it is calculated and paid on a monthly basis. By a public call, the Ministry initiates the auction procedure which is separated into 3 parts – qualification, bids and selection of the best offer. It then forms a committee for conducting the auction, enacts a decision on the most favourable offers and based on it, a decision on granting / rejecting the right to market premium.

Fid-in tariff is a kind of operational national aid that is granted in the form of incentive purchase price guaranteed per kWh for electricity delivered to the electricity system during the incentive period. Fid-in tariff system is provided for small plants and demonstration projects. The Ministry allocates the right to the fid-in tariff in the auction procedure on the basis of available quotas prescribed by the Government. 

The status of a customer – producer, i.e. prosumer as a person who is simultaneously a producer and a user of electricity presents a significant novelty. The Law prescribes that the prosumers will be able to install renewable energy sources on their facilities and use it to supply their consumption, as well as to deliver (sell) surplus energy to the network or storage it for future use.

By Boris Baklaja, Partner, and Milos Nikolic, Lawyer, Baklaja Igric Tintor

Harrisons has advised EBRD on its provision of a EUR 20 million loan to UniCredit Leasing Serbia.

According to Harrisons, “more than half of the total loan amount will finance investments in green technology and energy efficiency.” According to the firm, “the proceeds of the loan shall be on-lent to small and medium size enterprises for improvement of their competitiveness and upgrade their technology as well as processes and services to reach EU standards. This is particularly related to product quality, health, and safety and EU environmental requirements.”

Harrisons team was led by Principal Mark Harrison and Consultant Ines Matijevic-Papulin and included Associate Mina Markovic.

JPM Jankovic Popovic Mitic has advised Pertula Holdings Ltd. and Aleksandar Popovic on the sale of the remaining shares in Grand Production to Grand Slam Group. Moravcevic Vojnovic and Partners in cooperation with Schoenherr reportedly advised the buyers.

The Grand Slam Group is a member of the United Group, a multi-play telecom and media provider in Southeast Europe.

According to JPM, “Grand Production is a famous production and publishing house founded in 1998, whose business activity is recording and publishing of sound recordings and music, management of publishing rights, production of TV shows, [and] TV channels. Grand Production manages the publishing rights of tens of thousands of songs and produces TV shows that are broadcast on the TV channels Grand and Grand2, such as Grand Show, Zvezde Granda, Music Mix, TV Chef, and others.”

JPM’s team was led by Partner Nikola Poznanovic.

Concentrations of greenhouse gases (GHG) in the atmosphere as a result of human activities are the cause of more extreme climate changes than those caused by nature. In order to reduce the effects and to enable the survival of the living world, it is necessary to reduce emissions on a global level.

The worst effects of climate change need to be reduced or limited. It might not be too late. The response to climate change will consist of mitigation – reducing greenhouse gas (GHG) emissions into the atmosphere and adaptation –  learning to live with climate change and adapting to already existing changes. 

By adopting of the Paris Agreement to the UN Framework Convention on Climate Change in 2015 and its entry into force in year 2016, the international community has confirmed that economic growth and investment accompanied by reduced GHG emissions will quickly become one of the demands of the international economy. At the level of the Republic of Serbia, in addition to the fulfilment of obligations towards the international community, the establishment of a system for reducing GHG and adapting to changed climatic conditions are one of the conditions for sustainable economic development of the country and for reduce of the losses from natural disasters and catastrophes.

The Serbian Law on climate change was adopted on 18 March 2021, and its implementation will establish a system for reducing greenhouse gas emissions and ensure adaptation to changed climate conditions. This law applies to GHG emissions (i.e. carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), fluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)) caused by human activity, as well as to the sectors and systems exposed to the effects of climate change.

The law fulfils the obligations under the UN Framework Convention and the Paris Agreement and harmonizes domestic legislation with European Union regulation.

As stipulated in the Law, the low carbon development strategy of the Republic of Serbia with an Action Plan should be adopted within two years, which will be valid for ten years, including the Program for adaptation to changed climate conditions. The National Council for climate change was established as an advisory body to the Serbian Government.

This Law further regulates issuing of permits for GHG emissions to the plant operator, issuing of approvals for the aircraft operator’s monitoring plan, monitoring, reporting, verification and accreditation of verifiers and other issues of importance for limiting GHG emissions and adapting to changed climatic conditions.

Certain obligations are established for distributors and retailers of passenger vehicles. In order to inform consumers and make a decision on the choice when buying or leasing new passenger vehicles, it is necessary to ensure the availability of data on fuel economy and CO2 emissions from these vehicles. The retailer who places a model of a new passenger vehicle on the market is obliged to place or display a label on fuel economy and CO2 emissions of that vehicle at a point of sale or near the passenger vehicle, at his own expense, in a clearly visible manner. The supplier (manufacturer or importer) must send a list of models of all new vehicles that are subjects of sale on the territory of the Republic of Serbia to the Traffic Safety Agency in electronic form no later than December 31 of the current year. At least once a year, at its own expense, the supplier provides a guide on fuel economy, CO2 emissions and air pollutants and publishes it on its website and submits its electronic version free of charge to the retailer and to the Traffic Safety Agency. 

The retailer is obliged to visibly display a poster or display with the data on official fuel consumption and official specific emissions of CO2 and pollutants into the air for all brands of a new passenger vehicle exhibited or offered for sale or leasing.

It is forbidden to confuse potential buyers of new passenger cars by using signs, symbols or inscriptions related to fuel consumption or emissions of CO2 and pollutants into the air.

Furthermore, the Law regulates the issuance of permits for GHG emissions to the plant operator, the issuance of approvals for the aircraft operator’s monitoring plan and monitoring, reporting and verification. The government will prescribe the activities and gases for which a permit needs to be obtained. The permit for plant operators will be issued within a maximum of four months from the receipt of a complete application for the permit, based on a positive assessment of  the Environmental Protection Agency. The Ministry will, ex officio, reconsider the issued permit every five years and, if necessary, make amendments to it.

An aircraft operator that holds an operating license in accordance with the law governing air traffic will be obliged to submit a monitoring plan for approval. The government will prescribe aviation activities and gases for which it is not necessary to submit a monitoring plan. The Ministry shall approve the monitoring plan within a maximum of four months from the receipt of the monitoring plan, based on the positive assessment of the Serbian Civil Aviation Directorate.

The plant operator and the aircraft operator are obliged to monitor GHG emissions based on the approved monitoring plan. In addition to this obligation, the aircraft operator may also monitor tonne-kilometres data. Operators are also required to establish and document written procedures for the collection and use of data in monitoring and reporting emissions. The operator is obliged to keep all data and documents for at least ten years.

The operator is also obliged to submit a verified report on GHG emissions to the Agency or the Directorate by March 31 of the current year, with a verification report for the previous calendar year. 

Plant operators are obliged to provide data on historical activity levels for the reference period from 1 January to 31 December 2005, from 1 January 2008 to 31 December 2010 and from 1 January 2016 to 31 December 2017 – if they had performed relevant activities for at least one day in that period. This provision is retroactive, but is justified from the point of view of special importance for future obligations, i.e. the right of domestic operators to free allocation of emission units, which is determined in relation to emissions from the specified period.

The verification of the report is performed by accredited verifiers, according to the prescribed procedure. The Ministry will prescribe in detail the conditions that must be met by verifiers, the procedure and criteria for verification, as well as the content of the verification report.

The implementation of the law is supervised by the Ministry in charge of environmental protection, the Directorate, and the Ministry in charge of trade.

The environmental inspector supervises the application of the provisions of the law relating to the obligations of the plant operator, the aviation inspector over the application of the provisions relating to the obligations of the aircraft operator, and the trade inspector over the application of the provisions of the law related to the availability to consumers of the information on new passenger vehicles. For non-compliance with the provisions of the Law, corporate offenses and misdemeanours are prescribed.

Actions and duties established by this law shall be obligatory i.e. harmonization with this law must be carried out within certain deadlines from the adoption of by-laws which will regulate procedures, actions and obligations in more detail. These regulations shall be adopted within one year from the day this law enters into force. The provisions relating to aircraft operators shall apply from 1 January 2023.

In order to achieve the goals of this law, public bodies, in addition to adoption of specific by-laws and ordinances, should also adopt appropriate sectoral policies and measures. It remains to be seen how the provisions of this Law and other related regulations will be implemented in practice, especially having in mind the current problems of environmental pollution and particularly the growing problem of air pollution in Serbia.

By Jelena Stankovic Lukic, Partner, JPM Jankovic Popovic Mitic

The Government of the Republic of Serbia passed a new Regulation on rules and terms for granting state aid of small value (de minimis aid), which was published in the Official Gazette under no. 23/2021 (“Regulation”).

By entry into force of the Regulation on March, 24 2021, the provisions which prescribed that de minimis aid should be granted under the Regulation on rules for granting state aid, and provisions prescribing the requirements therefore, ceased to be in force.

State aid of small value – de minimis aid is defined as aid that does not significantly affect market competition and trade between the Republic of Serbia and European Union member states and therefore, granting the de minimis aid does not require the approval of the Commission for State Aid Control, but its justification is instead estimated by the grantor itself (municipality, city, ministry, autonomous province).

However, having in mind that the Commission for State Aid Control performs control over funds assigned to entities in the market of the Republic of Serbia, the grantor shall still be obliged to notify to the Commission for State Aid Control on the assignment of de minimis aid.

What is new compared to the Regulation on rules for granting state aid is the reduced number of cases where de minimis aid shall not be granted. The new Regulation stipulates that the aid must not be granted only for stimulation of export or for prioritizing domestic products compared to imported goods, however, the aid can be granted for covering the costs of participating in fairs or for reimbursing the costs required for introduction of new or existing products in new market in another state.

Before the adoption of the new Regulation, the awarding of de minimis aid was not possible for coal excavation activities and for economic entities facing difficulties.

1. Ceiling for de minimis aid

Grantor may award de minimis aid to one legal entity in the amount not higher than RSD 23 million at any moment in a period of three consecutive fiscal years, whereas this three-year period covers the current and preceding two fiscal years.

Legal entity or entrepreneur in the sector of road cargo transport can receive up to RSD 11.5 million of this type of aid at any moment within three consecutive fiscal years, however the aid must not be used for vehicle purchase.

The market participant which, in addition to road cargo transport, performs other activities, can receive up to RSD 23 million of de minimis aid if the grantor ensures, by separation of activities or costs, that the amount to be assigned for road transport will not exceed RSD 11.5 million in three consecutive fiscal years.

Also, it should be noted that the ceiling for de minimis aid will be applied regardless of the instrument, intention or grantor itself and that de minimis aid shall be considered granted at the moment when the market participant has acquired the legal right to receive the aid, regardless of the moment of aid payment.

2. Transparency of de minimis aid

De minimis aid shall be considered transparent if the exact gross amount of money counter-value of the aid can be calculated in advance, without need for a risk assessment.

In accordance with the Regulation, the following forms of de minimis aid meet the transparency criteria:

• Subsidies and subsidised interest rate for loans;
• recapitalisation;
• measures of risk financing in form of equity capital or in form of capital similar to equity;
• other instruments.

It is important to note that loans and guarantees, as forms of de minimis aid, do not meet transparency criteria as the abovementioned forms of aid, therefore the Regulation stipulates conditions for their transparency and calculation of gross amount of money counter-value.

3. Calculation of gross amount of money counter-value of de minimis aid

Loan

In order for de minimis aid in form of loan to be granted and considered transparent, a legal entity must not be in bankruptcy or liquidation procedure nor may fulfil the requirements for initiation of bankruptcy or liquidation procedure upon the request of its creditors. Gross amount of money counter-value of de minimis aid contained in loan is calculated in one of the following ways:

• based on reference interest rate that is applied at the moment of granting de minimis aid or
• as proportionate part of the ceiling of de minimis aid if the loan is ensured by the insurance instrument covering minimum 50% of loan amount.

If we opt for the calculation of gross amount of money counter-value in a way provided in item 2, the amount of de minimis aid equals the ceiling of de minimis aid if loan is RSD 115 million, with five-year repayment period, or RSD 57,500,000 with ten-year repayment period.

For market participants in the sector of road cargo transport, the defined amount of loan is half less – RSD 57.5 million with five-year repayment period, or RSD 28,750,000 with ten-year repayment period.

Guarantee

In order for de minimis aid in form of guarantee to be granted and in order for this type of aid to be considered transparent, a legal entity shall not be in bankruptcy or liquidation procedure nor may fulfil the requirements for initiation of bankruptcy or liquidation procedure upon the request of its creditors.

Gross amount of money counter-value of de minimis aid contained in guarantees is calculated in one of the following ways:

• based on “safe harbour premium” and other acceptable methodology in accordance with the provisions regulating requirements and criteria for compliance of state aid granted in form of state guarantees or
• as proportionate part de minimis aid ceiling.

If we opt for the calculation of gross amount of money counter-value in a way provided in item 2, the amount of de minimis aid equals the ceiling of de minimis aid if the guarantee does not exceed 80% of the subject loan and amounts to RSD 172.5 million (i.e. RSD 86.25 million for market participants operating in the field of road cargo transport), for the period of guarantee up to five years or RSD 86.25 million (i.e. RSD 43.12 million for market participants operating in the field of road cargo transport), for ten-year guarantees.

4. Conclusion

The adoption of Regulation that specifies in detail the requirements and criteria for granting de minimis aid, as one of the forms of state aid, is another step towards the establishment of the system for state aid control.

By establishing the system for state aid control, creating the clear state aid schemes, strengthening capacities of state aid grantors, as well as the authorities that supervise its granting, the ultimate benefit will be on the side of the legal entities operating in the market of the Republic of Serbia, having in mind that adequate state aid control enables the strengthening of free competition, establishes better conditions for business and regulates the manner of subsidisation and granting of other forms of aid.

This is a way to prevent placing individual legal entities in favourable position and create equal business conditions for all market participants, which will also stimulate the survival of legal entities and strengthening the market competition.

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 Sara Necic, Senior Associate, PR Legal

The adoption of the Law on Same-Sex Unions is expected soon in Serbia and it will, for the first time, regulate the existence and legal consequences of partnership between same-sex persons. Such persons will now be enabled to exercise certain rights that are guaranteed by positive legislation only to spouses and partners in extramarital unions, such as acquisition of joint property, inheritance, right to pension, hospital visits etc.

Based on the restrictions contained in the Constitution of the Republic of Serbia, the legislator placed the rules on same-sex unions in a separate regulation and not in the Family Law that regulates marriage and extramarital union between different-sex persons. However, alike the difference between marriage and extramarital union, the proposal for the law differentiates between registered and unregistered same-sex unions and generally copies the legal regime applied to spouses and partners in extramarital unions:

• Registered same-sex union is a union of family life between two persons of same sex that is concluded before competent public authority (registrar) in accordance with the provisions of the law.
• Unregistered same-sex union is a union of family life between two persons of same sex who have not concluded same-sex union before the competent authority and where there are no obstacles for entry into same-sex union as stipulated by law.

Property relations

The proposal of the law practically equalizes the partners in same-sex unions regarding rights and liabilities that are envisaged for spouses under applicable regulations, which means that in this case there are also have a difference between separate and joint property of partners in same-sex unions.

It is also prescribed that partners, during same-sex union or before the conclusion of such union, may regulate their property relations regarding current or future property by an agreement on partners’ property, alike the marital agreement. If such agreement refers to real estate it is entered into the public registry of rights to real estate (real estate cadaster).

Rights in case of partner’s illness

The draft of the law stipulates that in case of one partner’s illness, the other partner shall be entitled to:

• notification about their illness and health state, course of treatment and other facts relating to health state,
• participate in decision-making process regarding the selection of medical treatment,
• other rights that apply to spouses on basis of appropriate application of the law that regulates health protection and protection of patients’ rights.

It is also defined that, for the purpose of protecting the interests and welfare of partner who is not capable of giving consent to the proposed medical treatment as regulated by special legal provisions, same-sex partners shall have equal rights and liabilities as spouses.

In addition, a partner in same-sex union who is being treated in a hospital shall be entitled to equal visiting rights by their partners as spouses have, in accordance with the law stipulating the terms of hospital treatment. 

Right to inheritance

If this law is adopted, the matters relating to inheritance of partners in same-sex union shall be subject to the Law on Inheritance, while the partner in same-sex union shall be equalized with spouses in terms of inheritance rights, when it comes to the legal order of inheritance.

This means that they will be in the first order of inheritance (if the decedent has children) or in the second order of inheritance with the decedent’s parents (if the decedent has no children).

Right to pension

The proposal of the law stipulates that, in case of death of the insured person or pension beneficiary, a partner in same-sex union and the child supported by the partner in same-sex union shall be considered as the former’s family members, in addition to the persons stipulated in provisions regulating pension insurance. 

In this manner, the partners in same-sex unions would also be entitled to family pension in accordance with the Law on Pension and Disability Insurance.

Other rights and freedoms

The law proposal stipulates that same-sex union shall be equalized with marital union with regard to recognition of other rights and freedoms assigned to spouses, particularly with regard to the rights from employment, use of public services, stay in the territory of the Republic of Serbia by a partner who is foreign national, recognition of same-sex unions registered i.e. concluded abroad, international protection and acquisition of citizenship.

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 Jovana Milic, Senior Associate, PR Legal

It is 2017 and you are a foreigner (non-resident of Serbia) aiming to purchase a share of a Serbian company. After you negotiate principal terms, conduct the due diligence, set final terms, and negotiate transaction documents, at the closing you transfer the purchase price in euros to the Buyer’s euro bank account in Serbia, and all is well. Now it is 2021, you are again in Serbia undertaking the same steps, but this time, you are in breach of the Foreign Exchange Act (“FX Act”). Why is that?

In principle, the acquisition of a share in a Serbian company by a non-resident is considered as a direct investment of the non-resident from the perspective of the FX Act. As per the FX Act, transfers pertaining to direct investments of non-residents are performed in accordance with the act that regulates foreign investments in Serbia (“Investments Act”).

In 2015 the Investment Act stipulated that foreign investments may be in foreign currency (Article 3 Paragraph 1 Point 1). During the amendments of the Investment Act at the end of 2018, Article 3 Paragraph 1 Point 1 was amended so that the possibility for investments to be made in foreign currency was deleted.

With the deletion of the aforementioned article, FX Act’s reference to the Investment Act undoubtedly ceased to enable non-residents to make payments for the purchase of a share in foreign currency.

However regardless of the aforementioned fact, in our experience, certain commercial banks allow transactions in euros pertaining to the transfer of shares exposing themselves to regulatory risks and their clients to misdemeanor penalties under the FX Act. The assumption is that the bank’s unawareness strives from the unfamiliarity with the implications of the amendments to the Investment Act on the application of the FX Act, and the fact that the foreign exchange payment code 557 allows for the funds to be transferred, but it does not exist for those purposes (rather, as an example, to enable payment of share capital).

In order for the payment of the purchase price to be made in 2021 in accordance with the FX Act, obviously, the process is a bit more complicated as it involves the opening of multiple non-resident bank accounts in Serbia. However, neither of those steps represents a significant impediment for the transaction as with careful and in advance planning the aforementioned risks may successfully be avoided. 

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 Novakov, Senior Associate, Samardzic, Oreski & Grbovic

Jankovic Popovic Mitic has successfully represented Bridgestone Europe in an unspecified arbitral procedure conducted under the rules of the Belgrade Arbitration Center.

Jankovic Popovic Mitic’s team was led by Partner Djordje Novcic.