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Serbia

Serbia
Capital Belgrade
Population 7,030,000
Area 88,361 SQ KM (34,116 sq mi)
Currency serbian dinar (rsd)
GDP USD 41.48 billion
gdp per capita USD 5,901
FDI (2013-2017) USD 11,613 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...

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

North Macedonia

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

SPECIAL ECONOMIC ZONES

There are 14 active free economic zones in Serbia, functioning as PPPs between municipalities and (one or more) enterprises. The zones house 240 multinational companies. These zones currently produce 16% of all exports; employ more than 22 000 people, and had a combined turnover of EUR 4.6 million in 2015 (almost double the turnover in 2012).

Special economic zones in Serbia

Special economic zone Area in hectares Number of manufacturing enterprises main operating industry Number of people employed Total turnover (EUR millions)
Apatin 415 Zone is not fully active Petroleum 0 0.1
Subotica 44 5 Electrotechnics 3521 622
Zrenjanin 98 5 Plastics 3398 206
Novi Sad 75 6 Petroleum 251 82
Šabac 244 6 Automotive 56 9
Smederevo 143 6 Metal 1363 36
Svilajnac 33 1 Electric works 392 85
Kragujevac 176 7 Automotive 4354 2490
Užice 55 6 Copper 1950 393
Kruševac 64 1 Rubber/Chemical 1150 15
Pirot 116 16 Rubber-Pneumatics 5808 689
Vranje 123 Zone is not active Footwear 0 0
Beograd 98 Zone is not active   0 0

Note: The table contains the 12 free economic zones in Serbia except the 2 in Belgrade and Priboj for which relevant data is not available. The data are relevant as of the year 2014.

 

 

Types of incentives in Serbia

Incentives Awarded aid Eligibility criteria Condition for use of aid Length of incentives Zone specific
State grants based on the eligible costs of gross salaries for new jobs. 20-40% for investment projects (depending on the regional level of development) with specific limitations on the amount per new job created. Investors who have investment projects in sectors that are in accordance with the decree and apply for grants before the start of the realisation of the project.
- Investors who can provide a minimum of 25% of eligible costs from their own resources or from other sources, which do not contain any other state grants.
- Large investors are required to demonstrate incentive effects.
- Investors are required to maintain investment at the same locations once investment is realised for a specified period of time: at least 5 years after the implementation of the project for large enterprises, or at least 3 years for small and medium-sized businesses.
- Investors cannot reduce the number of employees after the implementation of the investment project, over a period of 5 years for large enterprises, and 3 years for small and medium enterprises.
- Create at least 20-50 jobs and invest at least EUR 150 000-600 000 of the eligible costs of investment (depending on the regional level of development).
n/a No
Increase in state grant based on the amount of eligible investment costs. Up to 30% increase (depending on the regional level of development). No
Increase in state grants for labour-intensive projects. Up to 20% increase of the eligible costs of gross salaries (for any increase in the number of new jobs created over 200 – 1000 new jobs No
The National Employment Service Grant. Employment Subsidies Programme (grant amount per employee: EUR 850 – 1,700), Apprentice Programme (grant amount per employee: EUR 170 – 210), Retraining Programme (grant amount per employee: EUR 850) No
Corporate Profit Tax Holiday. Exemption from corporate profit tax for period of 10 years Being a domestic or foreign company registered and operating in Serbia . - Start reporting taxable profits.
- Invest amount exceeding approximately EUR 8.5 million in fixed assets.
- Employ at least 100 additional employees.
10 years No
Carry forward of losses. Companies have right to carry forward tax losses in order to pay less taxes on their future profits Being a domestic or foreign company registered and operating in Serbia. State losses in tax returns over a period of 5 years. n/a No
ding double taxation. Corporate income tax credit. Being a domestic or foreign company registered and operating in Serbia. Pay tax on the profit generated abroad on the already paid amount. n/a No
Customs duty exemptions. Customs-free imports of raw materials and semi-finished goods, as well as imports of machinery and equipment. Being a domestic or foreign company registered and operating in Serbia. Undertake import activities. n/a Yes, but not mandatory
Value added tax exemptions in free zones. Exemption from VAT on income generated from commercial activities. Being a domestic or foreign company registered and operating in Serbia. Be located in the zone and undertake trading activities. No limitation while in the zone Yes
Local tax relief. City building land and development lease fees exemptions or deductions, as well as other local fee exemptions or deductions. Being a domestic or foreign company registered and operating in Serbia. Be located in a specific municipality. n/a No

 

Regulatory framework

- Law on Free Zones ("Official Gazette RS" No/. 62/06)
- Customs Law ("Official Gazette RS", No. 73/2003, 61/2005, 85/2005 - other law and 63/2006 - corrected other law)
- Subordinate legal acts delegated to these law

 

Zone name Size (ha) Number of investors Cumulative investment in EUR millions
Pirot 116 16 266
Zrenjanin 98 5 12
Subotica 44 5 77
Novi Sad 75 6 4
FAS Kragujevac 176 7 1278
Sabac 244 1 4
Uzice 55 6 39
Krusevac 65 1 1
Smederevo 143 6 6
Svilajnac 33 1 1

INDEX

Global Competitiveness Index RANK 65
Ease of doing business RANK 43
Starting Business rank RANK 32
Global logistics report RANK 65

Global competitiveness report 2017-2018

Rank Institutions Infrastructure Health Skills Labor market Product market Business dynamism Innovation
Serbia 76 48 67 56 52 66 59 56

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 (2017) € 395

Gross average monthly salary (2017) € 544

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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Partners

Ebrd

Strategic partner

Karanovic Nikolic

Content partner

Confida

Content partner

I&F McCann

Communications partner