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Serbia

Serbia
Capital Belgrade
Population 7,058,000
Area 88,361 SQ KM (34,116 sq mi)
Currency serbian dinar (rsd)
GDP USD 37.75 billion
gdp per capita USD 5,348
FDI (2012 - 2016) USD 9,994 million
corporate tax 15%
vat 20%

GENERAL OVERVIEW

Regarding the Republic of Serbia, political stability played an important role in the process of fiscal consolidation. Better performance on the revenue side led to the budget surplus for the first time in decade resulting in a lower debt to GDP ratio. Inflation is within the target, while dinar is among the best performing currencies on the global scale. Serbia has favorable inflow of foreign direct investment in the recent years expecting the trend to continue...

The important link in Siemens Serbia is wind generator factory in Subotica which counts over 1,200 employees, and for a decade and a half of its existence the factory is marked as a symbol of Siemens quality. The new and planned reinforcement in Siemens Serbia is acquisition of Serbian company Milanović inženjering specialized in producing aluminum car body components for rail vehicles.

Each region and each market has its own specifics, I see a huge business potential here, in terms of economy development and quality workforce. Looking at business relations with the clients, there is present a certain level of partnership and even friendship, which can help you create better business environment and results.

Serbia has massive potential in industrial production in various verticals. Siemens’ success stories prove that Serbia in general is a very good place for a production location. Productivity and quality of the qualified workforce who are motivated and adaptive, with long industrial culture provides an attractive basis for every foreign investor. Serbia has good geographic location which enables quick and easy access to other CEE and SEE countries. Additionally, the universities bring very good engineers to the markets.

Balkan is a region in a transition process, which with its many challenges also offers great opportunities for a future prosperity and chance to drive this part of Europe forward - to the new age - the one we can see in more developed countries in the world. This creates comparative advantage for this region, and the best indicator that the business climate is changing and enhancing is the increase in the number of major global companies choosing this location for their production site.

Serbia is definitely going forward but being a country in transition implies that digitalization of industry sector is still not on a high level and that investing in Industry 4.0 is a priority for further strengthening of country’s economy.

Region is moving forward in providing support to companies and their investments. Every year the situation is better, and we can all see clear improvements and new investments and creating stronger industrial base.

LEGAL SNAPSHOT

The Government of Serbia is committed to developing a stable and predictable business climate by implementing regulation which grants foreigners the same rights as its citizens to conduct business, with the benefits of a free market, favorable tax regime and investor incentives. On the other hand, gaps and ambiguities in the law are still present, the practice can sometimes change quite quickly and without warning and the changes are not always the ones that everyone would prefer.

The Stabilization and Association Agreement between the Republic of Serbia and the EU entered into force on 1 September 2013. It guarantees the alignment of national legislation with EU laws, conditions for investment and business are becoming recognizable and predictable for foreign investors.

TAX INCENTIVES

There are numerous tax incentives for investors such as corporate tax holiday for 10 years for investments over €8 million with 100 new jobs created, signed treaties on avoiding double taxation with 57 countries, partial compensation of taxes and social contributions paid on salaries under certain conditions, etc.

A) Reduction of tax and contributions paid on net salary

Reductions represent a refund for a part of total costs of employees’ salaries and they are implemented on the total value of tax paid for salaries (10% on gross) and contributions for mandatory pension and invalidity insurance (26% on gross),  in case new jobs were created in the following manner:

  • 1 - 9 new jobs created: 65% reduction;
  • 10 - 99 new jobs created: 70% reduction;
  • 100+ new jobs created: 75% reduction;
  • 2+ new jobs created for SMEs 75% reduction.

Consequently, the total cost of salaries which are paid by the employer, are reduced to half – (around 30%, instead of 64% of net salary calculated on the average salary in Serbia).  It is important to say that these reductions are applicable only for persons registered as unemployed at the National Employment Agency (labor office) for minimum 6 months continuously before the employment.

 

According to the Law on individual income tax, the gross salary is taxed at 10% rate. The tax base is gross salary reduced by the nontaxable sum of RSD11,790 (around €100), monthly for full-time employees. Law which regulates contributions for mandatory social security defines the rates by which the contributions are calculated and paid on gross salary (which is not reduced for previously mentioned RSD11,790 ):

  • for mandatory pension and invalidity insurance - 26%;
  • for mandatory health insurance - 10.3%;
  • for insurance in case of unemployment - 1.5%.

If an employer uses any other incentives, he cannot use this tax reduction for employing unemployed persons.

B) Relief from corporate income tax

Law which regulates corporate income tax provides the tax rate of 15%. However, if the taxpayer invests in fixed assets more than 1 billion RSD (about €8 million) and if in the period of investment additionally creates at least 100 new jobs, he can get corporate tax income holiday for a period of 10 years proportional to his investment, starting from the first year when taxable income is made.  Investing in equity and increasing equity of the company is also considered as an investment in fixed assets. Tax incentive cannot be achieved for acquiring equipment already used in the Republic of Serbia, neither for certain types of assets.    

C) Tax statement losses transfer to tax balance sheet in the next 5 years

The Law on corporate tax income provides that capital loss realized from the sale of property/equity right can be offset with capital gains, created during the sale of other property/equity right in the same year. If there is still some capital loss remaining after the offset, it is allowed to offset it with future capital gains for the next five years.

D) Agreements on avoidance of double taxation

The Republic of Serbia has signed the agreements on avoidance of double taxation with 58 countries which refer to the laws that regulate corporate income tax, property tax and individual income tax. Depending on the particular country, it is provided to pay certain taxes only in one country, if the taxpayer is operating a business in two countries which have signed the agreement. There is the list of countries  in the following table.

No. Countries Avoiding double taxation
1

Albania

In force

2

Armenia

In force

3

Austria

In force

4

Azerbaijan

In force

5

Belgium

In force

6

Belarus

In force

7

Bosnia and Herzegovina

In force

8

Bulgaria

In force

9

Canada

In force

10

China

In force

11

Croatia

In force

12

Cyprus

In force

13

Czech Republic

In force

14

Denmark

In force

15

Egypt

In force

16

Estonia

In force

17

Finland

In force

18

France

In force

19

Germany

In force

20

Georgia

In force

21

Greece

In force

22

Hungary

In force

23

India

In force

24

Ireland

In force

25

Iran, Islamic Republic of

In force

26

Italy

In force

27

Kazakhstan

In force

28

Korea, Dem. People's Rep. of

In force

29

Kuwait

In force

30

Latvia

In force

31

Libya

In force

32

Lithuania

In force

33

Luxembourg

In force

34

Macedonia, The former Yugoslav Republic of

In force

35

Malta

In force

36

Malesia

In force

37

Moldova

In force

38

Montenegro

In force

39

Netherlands

In force

40

Norway

In force

41

Pakistan

In force

42

Poland

In force

43

Republic of Corea

In force

44

Romania

In force

45

Russian Federation

In force

46

Slovakia

In force

47

Slovenia

In force

48

Spain

In force

49

Sri Lanka

In force

50

Sweden

In force

51

Switzerland

In force

52

Tunisia

In force

53

Turkey

In force

54

Ukraine

In force

55

United Arab Emirates

In force

56

United Kingdom

In force

57

Qatar

In force

58

Vietnam

In force

INDEX

Global Competitiveness Index INDEX 78
Ease of doing business 43
Starting Business rank RANK 32
Global logistics report 76

Global competitiveness report 2017 - 2018

Rank Institutions Infrastructure Health and primary education Higher education and training Labor market efficiency Technological readiness Business sophistication Innovation
Serbia 104 75 52 59 92 72 110 95

Electricity prices

EUR/kwh HOUSEHOLD NON HOUSEHOLD
  2015 2016 2017 2015 2016 2017
Serbia 0.058 0.064 0.066 0.060 0.067 0.064
EU - 28 0.209 0.205 0.204 0.121 0.116 0.114

Monthly salary

Net average monthly salary (2016) € 374

Gross average monthly salary (2016) € 516

FDI OVERVIEW

Number of jobs by industry of the economy for the period 2012-2016 (10 industries with the highest planned number of jobs)

  Industry Planned number of jobs
1 Automotive industry 27.483
2 Textile industry 6.335
3 Metal industry 5.564
4 International business services 4.041
5 Food industry 2.927
6 Leather and footwear industry 2.817
7 Electrical & electronics industry 2.629
8 Airplane industry 1.707
9 ICT 1.515
10 Financial services 1.397
Source: RAS (Serbian development agency)

In the mentioned period, according to the started FDI, the number of newly created workplaces was 62.963.

Top 10 largest foreign investors for the period 2001-2017 according to the planned values of the started investments

  Industry Planned number of jobs
1 Telenor 2.000
2 Intesa Saopaolo 1.355
3 Delhaize 1.028
4 Kohlberg Kravis Roberts 1.000
5 Telekom Austria 950
6 Gazprom 947
7 FCA Group (FIAT) 940
8 Phillip Morris 733
9 Stada 699
10 Agrokor 614
Source: RAS (Serbian development agency)

Review of the countries of the largest investors according to the value of the started investments in the period 2012-2016

   Country Country Planned investment value in millions of euros
1 USA 1.190,3
2 Italy 258,6
3 Israel 202,5
4 Germany 197,4
5 China 189,9
6 Austria 186,3
7 France 145,5
8 Sweden 70,0
9 UAE 66,4
10 Turkey 52,0
Source: SDA
Note: Due to the lack of official data on the amount of investments per individual companies, the data are obtained based on the research conducted by the RAS and include both realized and ongoing investments, which are realized over several years. Also, RAS records do not include infrastructure investments, but only investments in production activities, as well as services. Although the RAS is striving to provide as much information as possible on investment, the Agency does not accept responsibility for any inaccurate or incomplete information.

INVESTORS CONFIDENCE

Serbia has massive potential in industrial production in various verticals. Siemens’ success stories prove that Serbia in general is a very good place for a production location. Productivity and quality of the qualified workforce who are motivated and adaptive, with long industrial culture provides an attractive basis for every foreign investor. Serbia has good geographic location which enables quick and easy access to other CEE and SEE countries. Additionally, the universities bring very good engineers to the markets.

UDO EICHLINGER, CEO, SIEMENS
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