Category: Serbia

Recently we have received many inquiries from our clients regarding the e-signature regulations applicable in Serbia. The possibility of using an electronic signature has been especially explored since the outbreak of COVID 19 pandemic, due to the fact that working from home and social distancing have become a part of our everyday life. Below you will find some key considerations regarding the use of electronic signatures in Serbia.

The Legal Status and Validity of Electronic Signature Under Serbian Law

Serbian Law on Electronic Document, Electronic Identification and Trust Services in Electronic Business (“Act”) distinguishes three different types of electronic signatures, namely:

• a simple electronic signature;
• an advanced electronic signature;
• qualified electronic signature.

In comparison to the simple electronic signature, an advanced electronic signature is an electronic signature that meets additional conditions for providing a higher level of reliability of verification of data integrity and identity of signatories in accordance with this Act. The Act requires that advanced electronic signature must meet the following requirements:

• Be uniquely linked to the signatory
• Capable of identifying the signatory
• Created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control.
• Linked to the data signed in such a way that any subsequent change in the data is detectable

Finally, a qualified electronic signature is an advanced electronic signature created by a certified institution, and it is based on a qualified electronic signature certificate.

Qualified electronic signature has the same legal effect as a handwritten signature.The Act provides that validity and probative force of an electronic signature cannot be denied only because it is in electronic form, or because it does not meet requirements for the qualified electronic signature.

In addition, pursuant to provisions concerning electronic signature, the Act stipulates that anelectronic documentcan be denied its validity, probative force, or the written form only because it is made in electronic form.

In case of a qualified electronic signature, its authenticity is presumed, while for the simple and advanced electronic signatures the burden of proof for proving the authenticity of the electronic signature lies with a person claiming its authenticity.

Use Cases

Electronic signatures can be typically used for signing:

• purchase orders, invoices;
• agreements (commercial agreements, lease agreements, consumer agreements, etc.);
• HR documents (*please see practical considerations below)

In some instances, the qualified electronic signature is expressly required. This is, for example, the case with the documentation submitted to the Serbian Business Registers Agency for the purposes of submitting annual financial statements, registration of an ultimate beneficial owner, and registration forms for the incorporation of a company.

However, the Act explicitly provides that the use of electronic signature is not possible in agreements and other legal affairs where a special regulation provides that the signature or a documents needs to be publicly certified or notarized. These are all legal transactions:

• for transferring property rights to real estate or establishing other property rights on real estate (for example mortgages);
• regulated by inheritance law (life care agreements, testaments);
• agreements governing property relations between spouses;
• share purchase agreements;
• share pledge agreements

Practical Considerations

In Serbia generally, there is little to no case law regarding the use of simple and advanced electronic signatures.

In recent years companies worldwide started moving away from virtual electronic signings in favour of electronic signature platforms (such as for example DocuSign and Adobe Sign). These platforms create electronic signatures that offer greater authenticity and security than a scanned signature. Most of these platforms offer their users simple and advanced signatures defined under the Act and eIDAS. However, there is no case law on this point, which makes it difficult to provide an accurate analysis of how the court would treat agreements that have to be executed in a written form pursuant to the statutory provisions but are signed within the electronic signature platforms. What is certain is that the signatures offered by the mentioned platforms cannot be considered qualified electronic signatures under Serbian law since these platforms are not recognized as authorized certification authorities in Serbia.

As for the HR documentation, the Serbian Employment Act (“SEA”) indirectly limits the use of electronic signatures. Namely, from the wording of the provisions of the SEA, the documents such as employment contract, amendments to the employment contract and termination letter should be signed by both parties and delivered personally or by recommended shipment service to the employee. This practically means that these documents should be signed with a qualified electronic signature by the employer and employee and electronically delivered in accordance with the provisions of the Act. Bearing in mind that qualified electronic signature and electronic delivery are generally not used by the companies and that there is no practice on this point, these documents should be signed with “wet ink signature”.

In the absence of an established practice regarding electronic signatures in Serbia, the electronic signatures should be used carefully. Simple and advanced electronic signatures should generally suffice for relatively simple and routine transactions. More complex transactions that require a higher degree of security will generally necessitate at least a qualified electronic signature or a wet ink signature in order to minimize the risks. It is important to bear in mind when considering the validity of an electronic signature the court would always look at the individual circumstances before adjudging if a particular document is validly executed. 

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 Radovan Grbovic, Partner, and Vanja Vujnovic, Senior Associate, Samardzic, Oreski & Grbovic

Bojovic Draskovic Popovic & Partners is advising PEPCO on its plans to enter the Serbian market this fall. 

PEPCO is a European discount chain offering clothing and home products. It plans to open around 30 stores in its first year in Serbia. It has over 16,000 employees in its more-than-2,000 stores in the Czech Republic, Croatia, Estonia, Latvia, Lithuania, Hungary, Poland, Slovakia, Slovenia, Romania, and Bulgaria. In September it will open its first stores in Italy.

Bojovic Draskovic Popovic & Partners’ team includes Partners Uros Popovic and Vuk Draskovic and Senior Associates Mario Kijanovic and Milos Andrejevic.

NKO Partners has advised industrial real estate developer CTP on a EUR 16.5 million financing for its real estate projects in Serbia from Raiffeisen Bank Serbia. CMS advised Raiffeisen Bank on the transaction.

According to NKO Partners, “four project companies of CTP and Raiffeisen entered into a secured term facilities agreement on June 25, 2020, for purposes of financing development and construction of four facilities and refinancing the existing loan with OTP bank Serbia. Two out of four facilities are located in Belgrade, one is located in Novi Sad, and one is in Kragujevac, and their total net leasable area amounts to approximately 72,000 square meters.”

NKO Partners’ team was led by Senior Associate Marina Nikolic.

Editor’s note: After this article was published, CEE Legal Matters learned that CMS’s team included, in Serbia, Partner Milica Popovic and Lawyer Ksenija Boreta, and in Sofia, Partner Elitsa Ivanova and Associate Katerina Hristova. More information about CMS’s involvement in the deal can be found here.

Zivkovic Samardzic has achieved a victory in the Appellate Court in Belgrade for the Crime and Corruption Reporting Network (KRIK), a non-profit organization established to improve investigative journalism in Serbia. 

According to Zivkovic Samardzic, “the Court of Appeal in Belgrade confirmed that KRIK journalists did not violate the honor and reputation of businessman Vladimir Sekrevski in the article ‘Serbian Citizens in Paradise Papers,’ which was published in November 2017.” According to the firm, “in its decision, the court confirmed that the journalists acted with due professional care, that they checked the information before publishing it, and that Sekrevski himself did not deny its truthfulness. The verdict in favor of KRIK is final and Sekrevski will have to pay the costs of the procedure. KRIK has been victorious in all of the proceedings instigated against them concerning the texts they wrote [regarding] the ‘Paradise Papers,’ an important international project involving 96 media from 67 countries.”

Zivkovic Samardzic’s team was led by Partner Kruna Savovic.

“Having our democratic system endure the dire (political) situation that the country finds itself in right now is a huge challenge,“ says Kruna Savovic, Partner at Zivkovic Samardzic in Belgrade, about the current goings-on in Serbia. 

“I’m afraid that it will be a battle for survival,“ Savovic says. She believes that the government that will be formed following the June 21 parliamentary elections will “keep working on the foundations of the previous one – which is to say that similar people will be the ones forming it.“ In addition, Savovic says, the ongoing COVID-19 situation only adds to the hardship. “I want to believe that everybody values human lives above everything else,” she says, “but I cannot shake the feeling that it too is becoming relativized.“

In fact, Savovic says, the government made one very “problematic“ move in particular. “A resolution was passed designating the government-controlled crisis HQ as the only relevant source of COVID-related information,” she says. “This, in effect, meant that any other source – in particular journalists and media outlets – could be breaking the law if they were to report information from any other source.“ According to her, this effectively cut the media out and put extra pressure on journalists to “slow down with reporting on the most important subject in the country at that time.“ 

This resolution was quickly withdrawn and voided by the government, Savovic says, but it left scars. “A reporter was arrested one night because she was covering a story about the lack of personal protection equipment in the Clinical Centre of Vojvodina, in Novi Sad,“ she says. This move was highly problematic, she says, not only because it “denied the public an avenue of information when they needed it the most,“ but also because it “obstructed journalistic freedom to report“ when it was most needed. 

Savovic says that she believes the new government will have the same goals for the future as its predecessor. “The crisis we’re facing is deep and wide,“ she says, “and I am not so optimistic, but I hope that we will have human rights as our main priorities.“ She thinks that those business activities that can be performed digitally will “endure for sure,“ but that the ones which require close personal contact are “under serious pressure and are likely to suffer a lot. Still, I feel that we must do everything we can to mitigate the health risks, while we are aware that the huge impending economic crisis is at the door.“

At the beginning of March 2020, the Law on determination of property origin and special tax (“LDPOST” or “the Law”) was enacted and entered into force in Serbia. The application of the law has been postponed and it is due on 12 March 2021.

The regulations on the matter of property origin and the related taxation have been adopted before. We recall the 2001 Law on lump-sum taxation of extra income and extra property acquired through special privileges, which was adopted during a wave of political changes in the Republic of Serbia. However, this law did not bring the expected results in application, while certain provisions were twice established as unconstitutional.

In addition, even before the adoption of the LDPOST, there were certain regulations in the Republic of Serbia whose proper application could lead to the establishment of unlawfully acquired property and appropriate penalisation. Therefore, it is understandable that we question the novelties introduced by the new law and even its necessity as such.

Who is subject to the LDPOST?

The law applies only to natural persons, leaving all legal entities outside its scope.

What is the objective of the LDPOST?

The objective of the law is the establishment of unlawfully acquired property and its taxation.

Unlawfully acquired property shall mean the difference between property increase and registered income that a natural person fails to prove to be lawfully acquired. Property increase shall mean positive difference between a natural person’s property value at the beginning and the end of a reference period.

What will be special taxation procedure under the LDPOST?

It is envisaged that a special organisational unit (“Tax administration unit”) shall be established to perform the activities under this law; such unit shall have a head appointed by the Government of the Republic of Serbia at the proposal of the Minister of Finance.

The procedure carried out under this law shall be subject to the Law on Tax Procedure and Tax Administration (“LTPTA”), with one exception since the provisions of the LTPTA on expired debts and tax collection shall not apply.

The procedure is carried out ex officio and comprises of two phases:

I.    In preliminary procedure, the Tax administration unit shall establish the property increase on basis of information it possesses and those collected from other bodies and organisations, legal or natural persons, and compare them with the reported income of a natural person in the reference period.

Preliminary procedure is undertaken in accordance with annual guidelines enacted by the director of the Tax Administration, on basis of risk analysis, whereas such annual guidelines are not available to public.

The manner and procedure for determining property value and income of a natural person shall be prescribed by the Government.

II.    In the procedure of control and establishment of special tax, the unlawfully acquired property of a natural person and its value shall be established.

Tax administration unit shall institute control procedure given that it deems after preliminary procedure that, in maximum three consecutive calendar years where a natural person has property increase, there is a difference between property increase and the reported income of such natural person exceeding EUR 150,000.00 in dinar counter-value at the middle rate of the National Bank of Serbia on the last day of the calendar year in a reference period.

The base for special tax shall be determined in the amount of the unlawfully acquired property, which comprises the sum of revalued amount of the established unlawfully acquired property for each calendar year subject to control.

Tax administration unit shall establish special tax for the overall control period, by applying special tax rate of 75% to tax base as established under this law.

The special tax decision is subject to complaint to the ministry responsible for finance, which delays enforcement of the decision. The decision of the ministry shall be final upon administrative procedure and it shall be subject to administrative dispute before the Administrative Court.

What is disputable in the new law?

a.   The detection of unlawfully acquired or unreported property and penalisation of persons in that sense is already the responsibility of several authorities and organisations (Tax administration through tax inspectors and tax police, special police units, public prosecutor’s offices, Administration for the prevention of money laundering and terrorism financing, Anti-corruption agency etc.). It is therefore reasonably question whether it is necessary for the new law to establish a special unit within Tax administration that would be tasked with application of only one piece of legislation.

Does that imply that the above mentioned authorities and organisations are not (sufficiently) doing their job, hence it is necessary for a new body i.e. unit to “mend” what they missed? Or is it perhaps necessary to redefine the organisation and scope of activity of the existing bodies so as to make them more efficient and independent in work?

What is additionally concerning is the fact that the head of the Special unit of Tax administration is appointed by the Government, which means that this person will not be selected through public competition in the procedure stipulated by the Law on Civil Servants.

b.   As we have seen above, the LDPOST only applies to the property of natural persons. One can reasonably suspect the scope of such regulation having in mind that natural persons can unlawfully acquire property through related legal entities, without being the legal owners of such property, which means that the law cannot be applied either to them or to thus acquired unlawful property

c.   The LDPOST applies to all natural persons. However, it was announced in media as anti-corruption law, which was also noted in the rationale for its adoption:

“Simultaneously, the taxation of property whose origin cannot be proved by lawful income represents one of the efficient anti-corruption tools. The law introduces a mechanism which, inter alia, enables for the property acquired through corruptive activities to be subject to the regime of special taxation. This also provides for the fulfilment of goals set out in the National Anti-corruption strategy.”

It would be therefore expected that LDPOST is primarily directed to public officials, which would be in accordance with the announcements from the abovementioned National Anti-corruption strategy, noting that our legal system still lacks the criminal act of illicit enrichment from the ratified United Nations Convention against corruption, which refers exclusively to the property of public officials.

The rationale for adoption of the LDPOST also notes that “the proposed legal solutions apply to all citizens, which excludes any selectivity in their application”. We would add – any selectivity, apart from the one already incorporated into the text of the law.

d.   What is particularly confusing is the prescribed threshold for application of the law. Namely, a natural person who unlawfully acquired the assets amounting to less than EUR 150,000.00 shall not be subject to the law. Unlawful property can be acquired either without legal basis or on defective legal basis, or by property disguising and tax evasion (evasion of full taxation), etc. Does that mean that the legislator communicates a message that such activity is not socially harmful and hence should not be penalised as long as the value of such assets is below the prescribed threshold?

e.   What is equally confusing is the fact that unlawfully acquired property is subject to tax rate of 75%. In this way, the legislator allows to the person who evidently acquired property in unlawful manner and thus most likely perpetrated a criminal offence, to retain one fourth of such property instead of it being fully confiscated as unlawfully acquired under the regulations in force.

f.    It is also interesting that the LDPOST envisages the adoption of a regulation, leaving to the Government to regulate the manner and procedure of determining the value of property and income of a natural person, but without any criteria and guidelines that would be elaborated through a by-law. In this way, the Government was left with a wide freedom to regulate these issues by its act.

g.   Finally, did we really need a new law to regulate this matter or do we already have certain mechanisms incorporated in other (relevant) regulations?

Since its adoption in 2002, the LTPTA recognises the institute of cross-evaluation of tax base (Article 59) that serves for detection of possibly unreported income of natural persons. These provisions changed over time, but basically if the Tax administration established in tax procedure conducted under the LTPTA the existence of unreported assets, the latter would be subject to taxation as other income in terms of the Law on Income Tax, and subject to 20% tax rate, without recognition of standardized costs.

We recall that the LTPTA also recognises so-called information tax return (Article 42), which contains the information relevant for establishing tax base, however the by-law necessary for its submission was only adopted once i.e. in 2012, and it referred to the assets as on 1 January 2013.

Since 2009, the Law on Seizure and Confiscation of Proceeds of Crime has been applied in our legal system (the 2013 law is currently in force), which supplements the Criminal Code in the part relating to assets imminently connected with criminal offence and it even provided for temporary seizure of assets during ongoing criminal proceedings.

Considering all of the above, it remains to be seen what will be the effects of the LDPOST application, if any. What is certain is that the list of objections is not final.

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, Managing Partner, PR Legal

NKO Partners has helped Konica Minolta Serbia, a part of a Japanese multinational technology company, obtain a favorable judgment from the Administrative Court of Serbia, which annulled a fine previously levied against the company by the Serbian Competition Commission for allegedly entering into restrictive agreements.

According to NKO Partners, the Court found that the Serbian competition watchdog had not proved its case and referred the case back to the Commission for reconsideration. 

NKO Partners’s team was led by Partner Djuro Otasevic and Senior Associate Andjela Mirkovic.

Serbian Chamber of Commerce has announced that the working group for drafting a proposal for legal framework to govern blockchain technology and trading with cryptocurrencies has been established.

The working group is comprised of the representatives of the Chamber of Commerce of Serbia, National Bank of Serbia, Ministry of Finance, Belgrade Stock Exchange, and the Government.

Within the next 6 months, the working group would draw up a document to be used as the base on which the future law governing blockchain technology and trading with cryptocurrencies could be drafted.

Currently, in Serbia, there is no regulation specifically regulating blockchain technology and cryptocurrencies. General laws governing the capital market, foreign exchange, anti-money laundering, payment services, tax, etc. are applicable to the blockchain technology and cryptocurrencies as well.

Up until now, the Securities Exchange Commission issued a warning notice to investors in crypto assets, as well as a public call for consultation on the regulation of crypto assets in 2019.

By Aleksandar Popovic, Senior Associate, JPM Jankovic Popovic Mitic

JPM Jankovic Popovic Mitic has advised sellers Milija Babovic and Apsara on the sale of a 67% stake in the Victoria Group to the MK Group.

The MK Group is a Serbian holding company with more than 30 companies performing a variety of services in the agribusiness, wholesale, real estate, and banking sectors. Victoria Group JSC is a Serbian exporter in the agro-food sector, exporting products to more than 50 countries on five continents with 80% of the export for European Union. The sellers Milija Babovic and Cyprus-based Apsara remain shareholders of the Victoria Group with 16.5% of shares each.

MK Group Financial Director Andrija Vukovic said that “the rich experience, stability of the business, and the company’s strategic guidance towards the implementation of the latest agricultural trends would contribute to further strengthening and growth of the Victoria Group. We are aware of the relevance of the MK group’s capacities and experience and the Victoria Group, and we are looking forward to future business ventures.”

“We continue our cooperation with our partners and co-operators,” said Stefan Babovic, the Victoria Group’s Executive Director. “I am very glad that the acquisition process is over and that in the next period we will be able to concentrate on the further development of business performance, with great assistance from the regional leader, as is the MK group.”

JPM’s team included Senior Partner Nenad Popovic and Senior Associate Bojana Javoric.