The business in Serbia may be conducted either by incorporation of the branch office (in Serbian: ogranak) or representative office (in Serbian: predstavništvo) of the foreign company. Branch or representative office are not considered as separate legal entities and therefore the foreign company remains liable for all obligations assumed by branch office or representative office.
Alternatively, the business may be conducted by incorporation of the company in one of the following legal forms:
General and limited partnerships are not that common in Serbia due to the unlimited liability of partners (general partnership) and general partners (limited partnership) for the debts of the company, whereas the incorporation procedure for joint stock company is rather complex and time-consuming and requires minimum share capital in the amount of approx. EUR 25,000, which makes this legal form not so often used in Serbia as well.
The limited liability company is by far the most common used legal form in practice. This is due to the rather straightforward incorporation procedure, minimum requirements in relation to the share capital of the company (approximately EUR 1), and the fact that the shareholders are not liable for the debts of the company (except in specific circumstances, e.g., if there are grounds for the piercing of the corporate veil). For this reason, below are outlined incorporation requirements and permitted activities related to the limited liability companies.
Incorporation requirements (registration, capital and management requirements)
A limited liability company is deemed incorporated upon registration with the SBRA. The required time for incorporation in most cases is up to five days from the date of submitting the appropriate documents (i.e., proof of identity on shareholders, the Memorandum of Association and evidence of payment of administrative fees). In order to become operational, there are few other registrations and formalities that have to be made following the registration – including general tax registration, VAT registration (if applicable and if not done as part of the registration procedure), registration with the public revenue authorities, customs registration and opening of a bank account. Required time for post-registration procedures is approximately two weeks (provided all the documents are collected in a timely manner).
Corporate governance of the limited liability company can be organized as one-tier (the shareholders’ meeting and one or more directors) or two-tier system (with additional supervisory board).
The limited liability company can engage in all legally permitted activities, but its predominant business activity must be contained in the Memorandum of Association and registered with the SBRA. There are certain activities (e.g. financial services and insurance services), that may only be performed by an entity incorporated in a certain legal form (e.g. joint stock company), and certain activities (e.g. trade in poisonous goods, medicines or weapons) that may be subject to licensing requirements.
Protected investments / investment guarantees
In November 2015, the new Law on Investment was enacted in order to, among others, improve investment surroundings in Serbia. One of the goals of the law explicitly stated is providing equal treatment to the domestic and foreign investors.
In this regard, the Law on Investment prescribes the following rights for both domestic and foreign investors: freedom to invest, protection of acquired rights, guarantees against expropriation, national treatment of foreign investors, freedom to effectuate payments towards foreign entities, the right to transfer profits and property of the foreign investor (this includes in particular the right of foreign investors to freely transfer financial and other assets in relation to the investment, after the payment of all taxes and other relevant obligations) and consensual dispute resolution.
The Law on Investment strictly prescribes the obligation of government bodies to act urgently, in regards to the effectuation and maintenance of investments and obligations of investors, and within their limitations to enable unhindered investments and follow and control the realization of rights of the investor and the effectuation of obligations by the investor, i.e. undertaken obligations of the Republic of Serbia in regards to the investment.
In addition, Serbia is a party to the ICSID Convention and has signed a relatively wide range of bilateral investment treaties (e.g., with Germany, Russia, Austria, etc.) generally containing consent to ICSID arbitration.
Regulatory and institutional framework
The terms and conditions for the award of subsidies for new investments are prescribed by the Law on Investments and two government decrees:
The administration of the process for the granting of the subsidies is entrusted to the Economic Development Council and the Agency. Council approves decisions on granting the incentives while Agency performs administrative, technical and professional activities for the Council.
The type of subsidies available under the Subsidies Decree
The most important type of subsidies available for direct investments under Subsidies Decree is direct cash subsidies.
In addition to direct cash subsidies, investors may also qualify for exemption of customs duties (save for import VAT) on import of equipment which will be contributed as non-monetary contribution in the share capital of an investor’s company in Serbia.
Criteria to qualify for the subsidies
To be eligible for the subsidies interested investors have to satisfy three types of conditions:
Conditions concerning the investor: eligible investors may be either a foreign, or a local company. The Subsidies Decree allows the possibility that the applicant is a foreign company, provided that if it obtains the subsidies it will have to establish a subsidiary that will act as a direct beneficiary. Companies which qualify as large companies (more than 250 employees and annual turnover over EUR 43 million) may be awarded the subsidies only if the subsidies will have a material impact on the investment project (the size, the total funding, or the speed of the completion of the project, or if the project would not have been made without the subsidies).
Conditions concerning industry sector: subsidies may be given only for investments in the production sector and sector of services which could be subject of international trading. International trading services include services which are provided through information and communication technologies primarily to users outside of the territory of the Republic of Serbia (development of computer programs, storage and processing of data, user and project centers). Certain industries such as transport, software development, lottery, tobacco, weapons and ammunition, energy sector, do not qualify.
Conditions concerning the financing of the project: under the Subsidies Decree the investor has to fund at least 25% of the total cost of investment from its own sources.
Conditions concerning the investment project: to qualify for the subsidies the investment project has to satisfy criteria in relation to the amount of investment and the number of new employees. The qualifying criteria depend on the level of development of the area where the investment will be made, as follows:
The amount of subsidies
The amount of subsidies to be awarded to the eligible investor is assessed on the basis of criteria prescribed by the Decree, provided that the total amount of subsidies cannot exceed prescribed maximal amounts depending on the volume of the investment.
The amount of subsidies which may be awarded to individual investor are assessed against the cost of employment. The cost of employment includes the total cost of gross salaries (including tax and social security contributions) paid by the investor/beneficiary to his new employees in a 2-year period after the completion of the investment. The amount of subsidies ranges from 20% (for the most developed municipalities) to 40% (for the least developed municipalities) of the cost of employment, providing that the subsidy cannot exceed EUR 3,000 (for the most developed municipalities) to EUR 7,000 (for the least developed municipalities) per employee.
The amounts listed in paragraph above may be increased on the basis of the following two factors:
The cost of investment – On the basis of the cost of investment, the amount of incentives in already mentioned paragraph above may be increased for between 10% (for the most developed municipalities) to 30% (for the least developed municipalities) of the total amount of cost of investment.
Workforce intensive projects are projects which result in employment of at least 200 new employees. For these projects, the amounts of subsidies from already mentioned paragraph may be increased in the following manner:
Against these criteria, the maximal amounts of subsidies are as follows:
The exact amount of subsidies which will be given to a specific investor within thresholds listed above will be assessed on the basis of the following criteria:
Terms under which subsidies may be used
The subsidies may be awarded to the investor subject to the following conditions:
If the investor/beneficiary breaches any of conditions listed above (or other conditions which may be prescribed in the agreement with the Government) the investor/beneficiary will lose the right to subsidies, and will be required to pay back the amount of subsidies which has already been paid to it, together with interest for late payment.
The investor is required to submit a bank guarantee issued in favor of the Government, as a security for fulfillment of obligations set out in the agreement. The bank guarantee has to be active up until the investor/beneficiary fulfils all his obligations from the agreement with the Republic of Serbia.
The application, payment of subsidies and monitoring process
The application process includes the following main stages:
The payment of subsidies is executed at the request of the beneficiary, which is delivered to the Ministry in charge of commerce (“Ministry”) in accordance with the dynamics set out in the Subsidies Decree and the Subsidies Agreement. Subsidies are paid in installments:
The Subsidies Decree prescribes a number of reporting and monitoring procedures aimed at fulfillment of beneficiary’s investment commitments. Beneficiary’s report must be submitted:
The Ministry performs the overall monitoring over the fulfilment of the investment project and prepares its report. The report of the Ministry should be delivered to the Agency. The Agency shall send report to the Council if finds that it is necessary that Council review the report.
If the beneficiary breaches any of its obligations set out in the Subsidies Agreement, the Government may activate the bank guarantee to collect the subsidies drawn by the beneficiary, together with interest for late payment.
Specific rules for investments of special interest for the Republic of Serbia
Investments of special interest for the Republic of Serbia (Large Investments) are subject to different rules concerning qualification conditions, procedure and deadlines for the completion of the investment.
Investments qualify for the Large Investments if they meet one of the following criteria:
Rules for awarding subsidies described in respect of direct investments in previous sections (including the maximal amount of incentives which may be awarded) generally apply also on the Large Investments, with few exceptions.
Because of the volume and importance of the Large Investments, the deadline for the completion of investments is longer – the Large Investments have to be completed within 10 years (compared to 3 years for other direct investments).
As an exception to the procedure described in section 6.1, the investor may apply for subsidies for the Large Investments even without Ministry’s public invitation (i.e. even if Ministry has not published public invitation).
Relevant authority for capital market operations in Serbia is the Securities Exchange Commission (“SEC”). The operations of the SEC are regulated under the Law on Capital Markets (“CM Law”) as well as relevant bylaws. The SEC is an independent authority responsible to the National Assembly. The SEC provides for the orderly and lawfully functioning of the capital market, enhancing investor protection and ensuring integrity, efficiency and transparency of the market. In addition, the SEC maintains supervision over the participants in capital market in Serbia (e.g. market operators, investment companies, authorized banks, etc.). The SEC usually takes restrictive approach when it comes to the interpretation of the provisions under the CM Law and may sentence very severe punishments under its supervision.
Relevant authority for capital market operations in Serbia is the Securities Exchange Commission (“SEC”). The operations of the SEC are regulated under the Law on Capital Markets (“CM Law”) as well as relevant bylaws. The SEC is an independent authority responsible to the National Assembly. The SEC provides for the orderly and lawfully functioning of the capital market, enhancing investor protection and ensuring integrity, efficiency and transparency of the market. In addition, the SEC maintains supervision over the participants in capital market in Serbia (e.g. market operators, investment companies, authorized banks, etc.). The SEC usually takes restrictive approach when it comes to the interpretation of the provisions under the CM Law and may sentence very severe punishments under its supervision.
Insider trading rules
Under the CM Law, inside information includes a precise nature information which has not been made publicly available and directly or indirectly relating to one or more issuers of financial instruments or to one or more financial instruments and which, if made publicly available, would be likely to have a significant effect on the prices of those financial instruments or on the parties of derivative financial instruments. A significant effect is a legal standard which will be deemed existing if a reasonable investor would likely use such information as part of basis for his investment decisions.
The CM Law provides for the prohibition on misuse of inside information and sharing those information to any person who in any way may have an access to the inside information (e.g. member of the management board, holder of a capital in the issuer, a person performs criminal activities, etc.). The CM Law also provides for the obligation of the securities issuer to maintain a list of persons working for the issuer which have an access to the inside information.
For use, disclosure and recommendation of inside information, a person might be sentenced for a criminal act with an imprisonment up to three years (or five if a criminal act resulted in acquiring material gain or caused damages).
The CM Law defines market manipulations in accordance with the definition provided under the Directive 2014/57/EU (Market Abuse Directive):
The CM Law prohibits engaging in market manipulation by providing for a criminal offence and punishment by imprisonment up to five (5) years.
CM Law prescribes the closed period in which the directors are prohibited to trade with equity or debt securities of the issuer in which they are engaged, or with other financial instruments which are related to such equity or debt securities. In particular, the director is prohibited to trade in its own name or on behalf of third party, whether directly or indirectly, within the period of 30 days prior to publication of the annual, semi-annual and quarterly financial statements of the issuer at hand.
However, the issuer may provide consent in written form allowing director to trade for its own name or on behalf of third party within the closed period if there are exceptional circumstances. The SEC regulates in detail the circumstances in which an issuer may permit trading during a closed period, including the circumstances that would be considered exceptional and types of transactions that would justify the permission for trading.
In addition to this, there is an obligation for the director to notify the SEC on any acquisitions or disposals made for its own account, of shares of the issuer admitted to trading on a regulated market or Multilateral Trading Facility (“MTF”) in Serbia and acquisitions and disposals of other financial instruments linked to shares. The notification should be made within five days following the day of the acquisition or disposal.
Save for the notification addressed in the previous clause and related to the director dealings, CM Law and pertinent bylaws impose various notification requirements on the public company, which is defined as an issuer which meets at least one of the following conditions:
Among others, these notification requirements include:
Notification is also required to the SEC, public company at hand and regulated market, or MTF, in cases where a natural or legal person directly or indirectly reaches, exceeds or falls below the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of voting rights of the joint stock company the shares of which are traded on regulated market, or MTF.
Foreign investment notification requirements
Under the FX Law, foreign investments include resident's investments into a legal entity abroad and non-resident's investments into a legal entity in the Republic of Serbia for the purpose of becoming involved in the management of such legal entity's activities (e.g. incorporation of a legal entity, branch or representative office, purchase of share(s) in the capital of a legal entity, any other form of investment whereby the investor acquires more than a 10% share capital/voting rights in a period not longer than one year, etc.). The foreign investments shall also include credits and loans with a maturity of five (5) years or longer provided they have the characteristics of subordinated loans.
According to the FX Law and relevant NBS decisions, foreign direct investments are subject to post reporting obligations towards the NBS on quarterly basis.
The Law on Takeover of Joint Stock Companies (“Takeover Law”) and the pertinent bylaws regulate the takeover rules, i.e., the procedure for takeover bid (“TOB”) and the rights and obligations of participants in a TOB procedure in Serbia. In particular, the Takeover Law applies to takeover of joint stock companies, meeting at least one of the following requirements:
The Takeover Law distinguishes the voluntary and mandatory TOB, but provides identical procedure for both of them. The mandatory TOB has to be made in case the person:
The cases in which there is no obligation to make a mandatory TOB are also regulated by the Takeover Law.
The minimum price for the voting shares in TOB is prescribed and it depends from the fact whether the shares at hand are considered as liquid or non-liquid within the meaning of the Takeover Law.
In particular, for the liquid voting shares the price is at least the highest price of the following:
In case the voting shares are considered as non-liquid, the price is at least the highest price of the following prices:
The Serbian Law on Obligations recognizes institute of agency through the commercial agency.
Participants in the commercial agency are agent and principal, and they are obliged to conclude written agreement regulating their mutual rights and obligations. Under the applicable law, an agent is obliged to permanently take care that third parties enter into agreements with his principal, as well as to conclude agreements with third parties in a principal’s name (if obtains prior authorization). Agent has right to receive compensation for services performed for the principal.
Principal is entitled to engage more than one agent for the same type of business on the same territory. On the other side, agent is not allowed to represent more than one principal on the same territory for the same type of business, without a prior consent of its principal.
Agent has to act with the attention of a good businessman in performance of its activities. If not agreed otherwise, agent will not be responsible to the principal for execution of the obligations arising from the agreements concluded as the result of agent’s activities. In order to secure its receivables towards the principal, the agent has right of pledge on the collected payments on behalf of principal or pledge on principal’s things in the agent’s possession.
Termination of the agreement on commercial agency is subject to the following specifics:
The Law on Obligations provides two more types of agency: commission business and intermediation, but these two types do not correspond to the common law interpretation of the term agency. Commission business refers to the representation of a client by a commission agent in its own name and for the client’s account. On the other side, intermediary refers to the representation of principal by an intermediary in order to find and make connections between its principal and third party with the aim of negotiation on the conclusion of a particular agreement between these parties.
It is important to emphasize that agreements on commercial agency must be always reviewed from the prospective of the local competition law.
The Serbian law does not regulate distribution agreements, but the general principles of contract law would be applicable on these agreements. There are no specific requirements regarding the mandatory form of a distribution agreement, as well as regarding the manner of regulation of contractual relations between the parties.
Distribution agreements have certain common characteristics with agency agreements, however distribution agreements differ from the agency agreements due to fact that distributor acts in its own name and on its own account.
There are no specific rules regarding termination of the distribution agreements.
Distribution agreements should be always subject to the review from the prospective of the local competition law, since certain provisions in distribution agreements may amount to restrictive agreements governed under the local competition law.
Legal treatment of foreign investors in Serbia
On 23 October 2015, the Serbian Parliament adopted the Law on Investments (the “Law”). The new legislation replaced the Law on Foreign Investments and established a new institutional framework for subsidizing foreign and domestic investments. Within four months from 4 November 2015 (the date when The Law came into force), the Development Agency of Serbia and the Council for Economic Development were supposed to be established with the aim of, amongst other, promoting, developing and managing the investments.
According to The Law, the term “investment” includes shares in Serbian companies, branch opened by a foreign company, proprietary rights on movable or immovable assets (ownership, pledge, easement), intellectual property, right to perform an activity in accordance with public-private partnership arrangement, activity pursued on the basis of an authorization issued by a public authority. The law specifies that trade receivables, receivables under a loan extended for “trade financing” and portfolio investments are not captured by the term “investment”.
The Law has several provisions with the aim to protect the investors. For instance, The Law prescribes the protection of acquired rights (Article 5) stating that the investor shall enjoy full legal security and legal protection with regard to rights stemming from the investment. An important novelty is a provision according to which, in case of expropriation of real estate, investor will be entitled not only to compensation for the seized property (at its value before the announcement of the intention to expropriate), but also to compensation for the decreased value of the business caused by expropriation (Article 6). In case of distribution of state aid to investments of special importance, no public invitation to investors is required (Article 11).
Additionally, according to the Law, public authorities should treat applications from investors as a priority. If public authorities, except for the Commission for the Protection of Competition, fail to issue a necessary approval stated in the investment program upon complete and timely application of an investor, the latter will be able to address the Development Agency. To further stimulate expeditiousness of public servants, the new law introduces fines in the amount of up to RSD 150,000 (approx. EUR 1,300) if they fail to resolve complete applications of investors in due time. Finally, investors can also expect some benefits such as state aid, tax incentives, relief from payment of administrative fees, customs incentives and incentives related to compulsory social insurance.
As for the resolution of potential disputes for breach of investors’ rights, the Law stipulates that parties may try to resolve amicably disputes arising from the investment, but also that the disputes arising from the investment can be resolved before the courts or arbitral tribunals, in accordance with the law.
In terms of expectations and protection of foreign investors, there are more than 50 Bilateral Investment Treaties that Serbia signed (“BITs”). BITs give additional protection to the investors and they are signed with the following countries: Albania, Algeria, Austria, Azerbaijan, Belarus, BLEU (Belgium-Luxembourg Economic Union), Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Ghana, Greece, Guinea, Hungary, India, Indonesia (signed, not in force), Islamic Republic of Iran, Israel, Italy (signed, not in force), Kazakhstan, Democratic People's Republic of Korea, Kuwait, Libya, Lithuania, The former Yugoslav Republic of Macedonia, Malta, Montenegro, Morocco (signed, not in force), Netherlands, Nigeria, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Arab Emirates, United Kingdom and Zimbabwe.
All these BITs stipulates additional protection for the foreign investors in Serbia. Additionally, they all prescribe several levels of possible solutions for potential dispute resolution. The first level implies an attempt for amicable solution (usually through negotiations, if necessary by seeking expert advice, or by conciliation between the Contracting Parties through diplomatic channels).
In the absence of amicable settlement, the dispute shall be submitted, at the option of the investor, either to the competent jurisdiction of the contracting party where the investment was made, or to the arbitration as an alternative dispute resolution forum. Most of the BITs contain an option for the investor to address the following forums:
Dispute resolution options – arbitration vs state court
In terms of resolving the commercial disputes between foreign investors and their contractual partners, the foreign investors may choose to stipulate in their agreements whether their disputes will be resolved by the state courts or arbitration.
Arbitration proceedings in Serbia today are governed by the Law on Arbitration (Republic of Srpska Official Gazette No 46/2006), adopted in 2006. Taking into consideration the disputes that arose after the Law on Arbitration was passed in 2006, more than 250 parties from around the world took part in international commercial arbitration on the territory of the Republic of Serbia. The Law is fully compliant with the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration of 1985. However, the Law on Arbitration does not completely conform to the latest (2006) version of the UNCITRAL Model. Additionally, Serbia is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (signed and ratified by 150 states) and it has fully implemented the convention with its Law on Arbitration.
Arbitration represents an alternative to resolving disputes before the state courts. Parties can agree to arbitrate a dispute arising out of a domestic or international business transaction, or any private law matters which the parties can freely dispose of, except for disputes that are reserved to the exclusive jurisdiction of the courts.
The cornerstone of a successful arbitration lies in the independence and impartiality of arbitrators appointed to settle a dispute, providing a guarantee that an arbitral award will be an unbiased one. The outcome of arbitration is an arbitral award that is final and binding upon the parties. Given that the state courts where the arbitration is seated have jurisdiction for the proceedings for annulment of the award, the investor should consider what would be the most appropriate seat of arbitration they will choose. Award rendered in Serbia has the power of final and enforceable court decision and does not need to go through the process of recognition, thus it is directly enforced as any court decision of the state courts. Additionally, the Serbian courts are very liberal when it comes to the proceedings for annulment of arbitral awards, i.e. it would annul the arbitral award only when very static reasons from the Law on Arbitration are met. Furthermore, in the proceedings for annulment of the award the Serbian court will not go into the merits of the case decided by the arbitral tribunal unless the breach of the public order of Serbia is in question.
There are numerous reasons for choosing arbitration over the judicial dispute settlement system, such as:
On the other side, potential disputes can be resolved by the Serbian courts. Commercial courts in Serbia (which would be competent for commercial disputes between commercial entities), usually resolve the case in two or three years as of the initiation of the proceedings. Compared to other courts and/or disputes, Commercial courts are pretty efficient. However, the weak point is lack of the training of the judges for this type of the proceedings which affects the quality of the judgements. Keeping that in mind, we certainly recommend arbitration as a dispute resolution forum.
The choice of law is subject to autonomy of parties’ will. By choosing Serbian law as competent, investors may avoid potential unconsciousness of the fact that chosen law may not be applied, due to the fact that there are several situations where choosing the competent law other than Serbian can be forbidden (e.g. if the effects of the foreign law are contrary to the fundamentals of the social system established by the Constitution of the Republic of Serbia, or if the law of a foreign country which might be applicable was chosen just with the aim of evasion of application of Serbian law). If the parties choose the state court as a dispute resolution mechanism, we certainly would recommend the Serbian law as applicable, given that the judges are often reluctant to obtain the content of the foreign law and that application of the Serbian law by the local judge is a far more efficient option.
Enforcement of the decisions
The new Law on Enforcement and Security (Republic of Srpska Official Gazette No 106/2015) entered into force in December 2015 (most of the provisions of this Law were applicable only as of 1 July 2016) (“Enforcement Law”). The Enforcement Law has introduced a number of innovations compared to the previous law in this matter with the aim to speed up the proceedings, but also to harmonize the court practice. Adoption of the Enforcement Law was a step forward in the already established system since 2012 - when the private enforcement agents were introduced. Conducting the enforcement proceedings by public enforcement agents affected the duration of the proceedings, so the entire enforcement can be performed for less than a year (if the debtor has the property which can be subject to enforcement). However, several problems in this area remained, but some of them has been resolved upon initiative of lawyers and bankers. The greatest problem in this area was about the provision concerning the transfer of claims and the right of the acquirer of the claim to initiate the enforcement proceedings as the creditor. The Serbian courts tended to interpret the Enforcement Law in the way that the acquirer of the claim can only appear as the enforcement creditor if his right to acquire the claim derives from the court decision or the law. The Serbian courts denied the right to enforcement to creditors who acquired the claims by contract on assignment. However, after a number of discussions, round tables and conferences, the Serbian Parliament issued a new interpretation of this debatable article of the Enforcement Law on 17 December 2017 – leaving no doubt that the transfer of claim refers both to transfer based on law (or court decision) and contract.
The law which governs public procurement procedures in Serbia is the Law on Public Procurements (“Official Gazette of the Republic of Serbia”, nos. 124/2012, 14/2015 and 68/2015) (“Procurement Law”). It entered into force on 6 January 2013 and its last amendments were adopted in August 2015.
The Procurement Law governs all relevant issues relating to the realization of public procurement procedures in Serbia. It prescribes, amongst other, detailed rules on the types of these procedures, as well as on their course and awarding of a procurement contract to a winning bidder.
Under the law, the Public Procurements Administration (in Serbian, Uprava za javne nabavke) (“Administration”) is the special organization competent for, amongst other, monitoring the implementation of the Procurement Law and supervising the conduct of public procurement procedures by procuring entities.
Procuring entities are the entities which are generally obliged to conduct a public procurement procedure whenever they need to obtain any goods, services and/or work from third persons.
Under the Procurement Law, the following entities are regarded as procuring entities:
These entities are not obliged to conduct procurements under the Procurement Law only in the exceptional cases explicitly governed by the law (so-called procurements exempt from the law). For example, if they acquire or lease real estate, or if they need certain types of legal services, or when procurements are funded entirely by international organizations or international financial institutions (in which case they are conducted pursuant to the rules of such international organizations or international financial institutions), etc. Although in these exceptional cases procurements do not need to be conducted in accordance with the Procurement Law, general principles envisaged by the law (such as ensuring competition, equal treatment of bidders, etc.) have to be observed.
Types of public procurement procedures
The Procurement Law introduces a variety of these procedures’ types, whereas open and restricted procedures are the standard types. These procedures are open for participation by all interested persons, but restricted procedure is divided into two phases: (1) in the first phase, a procuring entity invites all interested persons to submit applications and recognizes qualification to those applicants which fulfil previously determined conditions, and (2) in the second phase, a procuring entity invites only those applicants to which it recognized qualification to submit bids.
Subject to fulfilment of special conditions envisaged by the Procurement Law, public procurements can also be realized through one of the following types of procedures:
Additionally, special forms of public procurement procedure are framework agreement (concluded between one procuring entity and one or more bidders) and dynamic procurement system (established by a procuring entity using only electronic means and applying, in general, the rules for open procedure, whereas these electronic means have to be widely accessible to interested parties and may not result in the limiting of competition).
The Procurement Law also prescribes special rules for conducting public procurement procedures in the fields of water management, energy, transport and postal services, and defense and security, as well as with respect to public procurements for eliminating consequences of natural and technical-technological disasters - accidents.
Course of public procurement procedure and awarding of procurement contract
In general, a public procurement procedure is consisted of the following phases to be conducted prior to and upon awarding of a procurement contract:
If a procuring entity chose the criterion of economically most advantageous bid, offered price is only one of the elements for the submitted bids' evaluation. Other possible elements are, for example, delivery term, after-sale service and technical assistance, warranty period, obligations concerning spare parts, technical, technological and environmental advantages, number and quality of engaged staff, functional characteristics, etc. Each of the elements has a certain number of “points” assigned to them by a procuring entity in the tender documentation, whereas the total sum of these points should be 100. All the elements have to be logically related to the subject of a particular public procurement and must not be discriminatory;
Amendments and annulment of awarded and concluded procurement contract
A procuring entity is entitled to amend an awarded and concluded procurement contract.
More precisely, a procuring entity may increase the size of the procurement subject (although it cannot alter the procurement subject itself). In general, the limit for the contract value's increase is 5% of the total value of the originally awarded contract, whereas the total value of a particular increase may not exceed RSD 5 million (i.e. approx. EUR 40,943). The precondition for this increase is that such option is clearly and precisely defined in both the tender documentation and particular procurement contract.
A procuring entity may also allow change in price and other essential contractual elements due to objective reasons. These reasons have to be clearly and precisely defined in the tender documentation and particular procurement contract, or set forth by special regulations.
In the above cases, a procuring entity has to pass a decision on modifying the contract and to publish this decision on the Portal within three (3) days from the day of its passing, as well as to submit a report on this matter to the Administration and to the State Audit Institution (in Serbian, Državna revizorska institucija).
Further, the Procurement Law also governs the cases when a procurement contract is considered null and void (e.g. when a contract was concluded without previously conducted public procurement procedure although such procedure had to be conducted) and the cases when this contract can be annulled (e.g. when a contract was concluded upon conducted bargaining procedure without publication of an invitation for submitting bids although no statutory conditions for this type of procedure were fulfilled and a procuring entity did not publish either notification of commencing the procedure or decision on the agreement's award). The state authority competent for such annulment is the Republic Commission for Protection of Rights in Public Procurement Procedures (in Serbian, Republička komisija za zaštitu prava u postupcima javnih nabavki).
The privatization of the companies in Serbia is prescribed by the Law on Privatization. Privatization is regulated in more detailed manner by certain Government decrees:
In the privatization proceedings, the relevant authorities are:
The buyer in the privatization may be a domestic or foreign legal entity or natural person. On the other hand, the buyer of the agricultural land may only be a domestic legal entity or natural person. It should be noted that potential buyers or strategic investors may join together in order to purchase a company under privatization or form a strategic partnership i.e. to make the consortium. In such case, the buyers or strategic investors need to authorize a single person to represent them.
The privatization of the company may be performed through different privatization models. The Law on Privatization provides four models of privatization:
Depending on the privatization model, the privatization method will be determined. If the privatization is going to be conducted as the strategic partnership, the privatization process will be performed through the public collection of bids. On the other hand, in the event of the sale of the capital or assets there will be also the public collection of bids but with public auction after the mentioned collection is finished. In most cases, the model is determined by the Ministry, save for the certain situations in which this falls in the competence of the Government. It should be noted that strategic partnership can be implemented: as a (i) joint venture, by establishing a new company; or (ii) capital increase in the company under privatization.
The Government can determine the measures for preparation and relief of liabilities of the company under the privatization which may include:
These measures may only be determined in the event of the privatization models sale of the capital or strategic partnership by recapitalization of the company under privatization. The Government may determine these measures if the company under privatization meets at least one of the following criteria: (i) strategic importance for the region; (ii) size of assets; (iii) number of employees; (iv) amount of income earned from the registered prevailing activity; and (v) market potential. In addition, it should be noted that the funds for repairing the damage caused to the environment by the company under privatization prior to the conclusion of contract on sale or contract on capital increase will be provided from the budget of Serbia.
The privatization procedure will be considered effected if a contract on sale of the capital has been concluded and if all conditions for the transfer of capital ownership required by the contract (e.g. payment of purchase price, delivery of bank guarantee, registration of change of ownership in the competent register) are fulfilled, or if the program for the sale of the assets has been realized.
Contracts in the event of the sale of the capital or assets are adhesion contracts. Buyer’s obligations under this contracts usually last for two years. Contrary, if the privatization is conducted through strategic partnership model, contractual obligations of the strategic investor, as well as terms, manner and legal consequences of the contract termination will be mutually agreed between the parties and regulated under the strategic partnership contract. In both cases, the Ministry is entitled to control the fulfilment of the contractual obligations.
Also, before the conclusion of the contracts, the Ministry will obtain an opinion from the competent anti-money laundering authority regarding the absence of the obstacles for the conclusion of the contract on the side of the buyer or strategic investor.
Public-private partnerships are regulated by the Law on Public-Private Partnerships and Concessions (Republic of Srpska Official Gazette Nos 88/2011, 15/2016 and 104/2016; the “PPP Law”), which was adopted in late 2011, with the aim to regulate both concessions and public-private partnerships under a single legislative framework.
While prior to adoption of the PPP Law concessions were regulated by the Law on Concessions (which has in the meantime been replaced by the Law on PPP), only upon the adoption of the PPP Law the term “public-private partnership” was introduced into Serbian legislation, and state and local authorities became for the first time able to tend to their infrastructural and other public needs by resorting to a public-private partnership model.
Public-private partnerships and concessions
Under the PPP Law, a public-private partnership is determined as a long-term cooperation between the public and a private partner, for the purpose of securing financing, development, reconstruction, management or maintenance of infrastructural or other facilities of public interest, and providing services of public significance.
The public-private partnership may be implemented based on the two models:
The public-private partnership may be a partnership with or without elements of concession.
A concession itself is defined by the PPP Law as a public-private partnership (contractual or institutional) in which the commercial exploitation of a natural resource (or the resource in general use that is public property / property of a public body), or conducting an activity of general interest, is delegated to a private partner. A private partner in return pays a concession fee, and assumes the risk related to the commercial use of the subject matter of concession.
The PPP Law gives a non-exclusive list of areas in which a concession may be granted: exploring and exploitation of mineral resources, energy, harbors, public roads, airports, communal services, health services, tourism etc.
Setting up a public-private partnership and concession
A public-private partnership agreement without elements of concession is awarded through the public procurement procedure, prescribed under the Public Procurement Law (Republic of Srpska Official Gazette Nos 124/2012, 14/2015 and 68/2015; herein: the “Public Procurement Law”), while a concession is awarded through the procedure determined by the Law on PPP. Exceptionally, the concession related to public works or public services (whereby compensation for public works / provision of public services is right of their commercial exploitation) is also awarded through the public procurement procedure.
The realization of the public-private partnership, without elements of a concession, may be initiated by a competent public body. A public body is defined as:
A public body submits a proposal of the public-private partnership project without elements of a concession for approval to the Government of the Republic, the Government of an autonomous province, or to the assembly of a local self-governance, depending on whether the public partner should be the Republic, an autonomous province, or a municipality / city (or a public body subordinated to one of these entities).
The concession is granted by:
(In cases when a concession is granted by a public enterprise or a legal entity from points 4) and 5) above, the act by which the concession is awarded is being passed by the authority from points 1) to 3) above, which is competent for mentioned public enterprise / legal entity.)
An agreement on public-private partnership, or a concession, will be awarded based on one of the following criteria:
Before the approval of a project of the public-private partnership, or a concession by a competent authority, the Commission for Public-Private Partnership (herein: the Commission) gives its opinion on the project and whether it is suitable to be implemented as the private-public partnership or concession.
If the public partner is the Republic, or a public body subordinated to it, and if estimated value of the project / concession is above EUR 50 million, before the Commission issues its opinion, it has to obtain the opinion of the Ministry of Finance.
Lastly, a procedure for realization of a public-private partnership, with or without elements of concession, may also be initiated by a public body upon the proposal of an interested party. The party who proposed initiation of the procedure may participated in it, except if its role in preparation of the procedure is such that it has competition advantage over other candidates, which may not be neutralized even by sharing all relevant information with them.
A private partner may be any person, natural or legal, resident or non-resident, or a group of persons. As a rule, a public-private partnership is realised by a special purpose vehicle established for this purpose.
A consortium may apply for awarding of the public-private partnership, unless a public body conducting the award procedure does not decide otherwise, due to objective reasons. Also, if not decided differently by a relevant public body, at least one member of a consortium has to be unlimitedly responsible for the consortium’s obligations.
Provided that a public partner envisages it in tender documentation or allows it afterwards, a private partner may perform part of its undertakings by engaging sub-contractors. The sub-contractor has to meet all conditions required by under tender documentation and needed for performance of undertakings contracted to him. In this case, the private partner is fully responsible for acts of its sub-contractor, as if they were performed by himself.
Term of the public-private partnership
A public-private partnership may be established for the period between five and 50 years. The term of the public-private partnership may not be extended, save as for the case in which a private partner was prevented from fulfilling its undertakings, but the partnership can be renewed, subject to nominating of a private partner in line with the PPP Law.
An agreement on public-private partnership can be financed by a private partner through a combination of direct investments in capital or through lending, including the structured or project financing, provided by international financial institutions, banks, or other third parties.
With prior consent from the public partner, and subject to the PPP Law and the legislation regulating public ownership, the private partner may allocate, mortgage, or pledge any of its rights and obligations from the agreement with the public partner, or other assets related to the project, in favor of the financier, with the aim of securing payment of any receivables related to the construction and financing /refinancing of project.
Upon request from the financier and private partner, the public partner may provide certain reasonably required securities or assume certain responsibilities that are necessary for the private partner in relation to its obligations under the public-private partnership, providing that such requirements do not distort the allocation of project risks defined in the public-private agreement.
As in the most of the CEE jurisdictions, consortia and joint ventures are not explicitly regulated, and such terms in Serbia are used to describe a variety of the agreements between the collaborative parties pursuing particular joint business venture. For this reason, there are no major general restrictions applicable to consortia and joint ventures.
The parties will usually form a separate legal entity (i.e. joint vehicle) in Serbia in order to pursue the joint business interest. In this case, the mutual rights and obligations of the parties will be regulated in most part by the Shareholders Agreement, as this document is not made publicly available and is binding for the parties. The Shareholders Agreement will regulate in particular the management of the joint vehicle, profit distribution, future exit of the parties and associated drag-along and tag-along rights, etc. Also, one of the main reasons for using the joint vehicle structure is that it limits the liability of the parties and is interpreted as a serious commitment to the joint business interest.
The other form used in practice involves purely contractual relationship between the parties to the joint venture or consortia. Thus, there is no separate legal entity through which the joint venture is or will be conducted and the collaboration of the parties is subject solely to the contract at hand and general contract rules. Notwithstanding, in case consortia are intended for the purpose of participating in the procedure of awarding public contract in accordance with the Law on Public-Private Partnerships and Concessions, certain additional requirements may be imposed by the competent authority. This relates in particular to the number of the parties, limitation to changes of structure, liability of the parties and merging or dissolving the consortia.
In any case, consortia and joint ventures, if certain conditions are met, could be considered as concentration on the market, and the rules governing the competition protection should be considered when planning the consortia and joint ventures.
The tax system in Serbia is established so as that each main type of tax is regulated by separate piece of legislation and a number of bylaws issued based on them, including:
These laws primarily deal with substantial issues in their respective tax areas, provided that they also prescribe certain specific procedural rules of importance for that tax are.
The current Serbian tax system was mainly modelled in 2001, by enacting main tax laws governing taxation of legal entities and individuals as well as taxation of property. The system of the VAT was introduced in 2005. The tax laws are subject to constant changes, the latest ones came into force on 1 January 2018.
In addition to the above, there are a number of laws establishing numerous so-called para-fiscal charges, such as court and administrative fees and other local fees.
The main characteristic of the Serbian tax system are low to moderate tax rates. The profit of resident legal entities is subject to corporate income tax at 15%, while the income of individuals is subject to tax at rates between 10% and 20%, depending on the type of income. The rates of social security contributions for employment income are rather high, as they are set in aggregate rate up to the 37.8%.
Certain types of income generated by non-resident legal entities are subject to special tax regime. The interests, royalties, dividends, income from services as well as capital gains are subject to tax at rate of 20%. Income of legal entities from tax haven jurisdictions (except dividends) is subject to tax rate at rate of 25%.
All tax returns in Serbia may be submitted electronically as of 1 January 2018.
The Serbian VAT system is modelled after the EU VAT Directive, and majority of general VAT principles applicable throughout the EU apply also in Serbia. Serbian VAT is regulated by the Law on Value Added Tax (“VAT Law”), and a number of VAT regulations that prescribe detailed rules for implementation of general rules of the VAT Law.
The standard VAT rate is 20%. Certain goods and services (such as the supply of groceries, medicines, newspapers, utility services, etc.) are taxed at a reduced VAT rate of 10%.
Non-resident entities supplying the goods and services to Serbian consumers (B2C) are required to register for the VAT in Serbia. The VAT obligations of non-resident VAT payers are settled through the VAT representative, that has to be a Serbian legal entity or the individual registered for the VAT.
Generally, the foreign entities are entitled for the refund of the VAT paid in Serbia. However, the refund is limited to legal entities from very few countries under the reciprocity principle.
Personal income tax
Serbian system of personal income tax is based on the so-called cedular system of taxation: different types of income are taxed at the different tax rates and different rules for assessment of tax base. At the end of the year, tax payers whose annual income generated throughout the year from all sources exceed certain thresholds are required to pay additional annual income tax.
The main types of income for which the PIT Law prescribes specific rules of taxation include salaries, income from immoveable property, income from capital (dividend, interest, capital gains), income generated from IP rights, and “other income” which is in a residual category including all other income not included in one of the specific categories (including also income generated by natural persons under service agreements).
The income tax and social contributions on employees’ salaries are paid on a withholding basis, so that the employer is liable for reporting and payment.
Holding of the immovable property situated in Serbia is subject to tax at 0.4% tax rate. The tax base is generally the fair value of immovable property, or market value of property assessed by the local tax authorities if a taxpayer does not evaluate property under the fair value. The market value is assessed on the basis of sales prices of immovable property in similar location as respective property. The local tax authorities publish the information on market values.
The transfer of immovable property is subject to property transfer tax at rate of 2.5%.
Tax treaties network
International treaties are important part of Serbian legal system, including in the area of tax and social security contributions. Ratified international treaties (bilateral and multilateral) have supremacy over national legislation.
Serbia has extensive network of more than 50 (58 at the moment) treaties on avoidance of double taxation treaties (DTT), including DTTs with almost all EU countries, Russia, all regional countries and number of Asian countries. DTTs applicable in Serbia are based on OECD Model Convention. In 2017, the Serbia signed a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The process of adoption of MLI into the Serbian legal system is in full swing as the implementation procedure is initiated before the Serbian Parliament.
Serbia also ratified social security conventions with some 28 countries, governing the rights and obligations in relation to social security of citizens of these countries in Serbia and vice versa.
Important source of tax law in Serbia are also international treaties governing other issues – primarily status of international organizations and financial institutions or development and financing of important infrastructural projects, which provide for specific tax rules in the areas covered by treaties. These rules are primarily related to various tax exemptions.
The laws regulating the taxation of the income of legal entities and individuals prescribe various tax exemptions. The supplies exempted from the VAT are mainly the same as exemptions granted in the EU.
The resident legal entities which invests or in whose new fixed assets other entity invests more than RSD 1 billion (app. EUR 8.3 mil.), and which employs at least 100 new employees during the period of investment, has the right to the reduction of tax proportionally to the participation of new fixed assets in the existing fixed assets, for the period of ten years. This is significant tax exemption, which, in practice, may lead to the full tax relief.
Tax losses may be carried forward and offset against taxable profit in the future tax periods, but not more than 5 years.
The refund of salary tax and social security contributions (“SSC”) for new employees is an incentive that was introduced with the Law on Personal Income Tax and Law on Mandatory Social Security Contributions. Depending on the number of new employees, the eligible employer has the right to the refund of the 35% - 75% of paid taxes and SSC (both, employer’s and employee’s portion) depending on the number of new employees.
In addition, micro and small enterprises are entitled to the refund of the 75% of salary tax and contributions if they employ at least two employees. The newly incorporated companies may apply for exemption from salary tax and SSC for salaries paid to first nine employees as well as to the employed shareholders and entrepreneurs. The exemptions will start to apply from 1 October 2018. Salaries will be exempted from tax for the first 12 months of employment.
The salary of employed disabled individuals is exempted from taxes and contributions for the first three years of engagement.
The VAT Law prescribes the list of exemptions from VAT including two main principal groups of exemptions:
Exemptions with the right to deduction of input VAT (0% rates supplies) such as the export of goods, supplies made under international loan or donation agreements, international transport and similar.
Exemptions without the right to a deduction of input VAT including primarily public and financial services, but also a supply of land (agricultural, forest, or construction land).
The legal deadline for the refund of the excess input VAT is 45 days, but this deadline is usually not followed in practice by the Serbian tax authorities.
Taxation procedure and disputes
The Law on Tax Procedure and Tax Administration governs general rules governing the tax procedure, including the assessment and collection of tax, rights and obligations in relation to the tax system. Since the tax procedures are essentially administrative procedures, they are also governed by the Law on General Administrative Procedure, in parts that are not covered by the Law on Tax Procedure and Tax Administration and separate tax laws.
The tax disputes are resolved in front of the Ministry of Finance as a second instance authority. The final instance for tax cases is the Administrative Court that resolves the cases in the administrative dispute process.
The tax returns for main taxes are filed only electronically which reduces the costs and make the administration of the tax easier.
 If the tax rate under double taxation treaty does not apply.
 The proposal of the Law on adoption of MLI was initiated on 29 December 2017.
Foreign nationals intending to work in Serbia or to reside in Serbia for more than 90 days within 6 months period must obtain a temporary residence permit. The foreigner should apply for temporary residence permit before the Ministry of Internal Affairs i.e. the police within 90 days as of the arrival to Serbia.
The list of documents submitted to the police differs depending on the fact whether foreign national will establish employment in Serbia or not. In the case the foreign national will not be employed in Serbia, the foreign national must submit the documents supporting the purpose of his/her staying in Serbia. E.g. for the employees who are seconded from abroad to Serbia (whereby they remain employed abroad), the secondment agreement or the secondment letter should be submitted and in the case of registered local directors the excerpt from the local registry should be submitted etc.
Issuance of the temporary residence permit is in competence of the police which is supplemented with discretion right and may require any additional documents they deem necessary. Once documents are submitted, the police will issue respective temporary residence permit within approximately one month from the date of submitting the documents. If a foreign national applies for the temporary residence permit for the first time the issued permit will last up to six months, with the possibility of its extension without any restrictions (duration of each extended permit may be up to one year).
As a general rule, every foreigner who exercises the right to work in Serbia is obliged to obtain a work permit. Foreigner cannot legally start to work on a Serbian territory until he/she is provided with the adequate work permit. However, there are certain exceptions to this rule, the most important ones being that foreigners who reside in Serbia for less than 90 days within 6 a month period, and who: (i) are shareholders, representatives or members of corporate bodies who have not entered into an employment relationship, or (ii) seconded employees who perform work on the basis of a contract for the purchase of goods, the lease of machines or their installation, delivery, or repair of a combination thereof, or for training purposes, or (iii) participate at business meetings, are not required to obtain a work permit.
Once the temporary residence permit is approved, the local company i.e. local employer should apply to the National Employment Service (NES) for issuance of the work permit for the foreign national. The list of documents to be submitted differs depending on the type of work permit required, i.e. whether the employer applies for (i) employment permit; (ii) secondment work permit, (iii) work permit for moving within the company, (iv) work permit for an independent professional, (v) work permit for training and specialization or (vi) work permit for local entrepreneur. The NES usually issues the work permit within 2-3 weeks as of submission of documents, and the work permit is usually issued for the period of validity of the temporary residence permit.
Contract form requirements
Different formal requirements apply for employment contract and for out-of-employment contracts for work engagement, as described below.
Employer is obliged to enter into an employment contract with the employee before the commencement of work. Employment contract must be concluded in writing and should contain all the compulsory elements required by the Labor Law, such as: qualification required for performance of job, title and description of job, place of work, type of employment (definite/indefinite term), working hours (full time/part time) and their daily/weekly duration, commencement date, monetary amount of basic salary and elements for determining other legal payments (performance part of the salary, allowances, increased salary etc.).
Employment may be established for indefinite or fixed term. Fixed term employment (up to 24 months, with or without interruptions) may be established in case duration of employment is predetermined by objective reasons justified by deadline, performance of specific work, or occurrence of the event, during these needs. Exceptionally, fixed term employment may be established for a longer period:
In the case of foreigners who are employees, they need to obtain residence and work permit before establishing employment in Serbia.
Engagement of director
The director or other legal representative of the company can be engaged on the basis of employment agreement or alternatively through non-employment Management Agreement.
If director is engaged through employment agreement such agreement may be concluded either for indefinite term or for definite term – for the duration of his/her term of office. Director engaged through employment agreement is entitled to the same basic employment rights as all other employees – including the salary and all other mandatory payments, vacations and leaves, limited reasons for termination of employment etc.
If director is engaged through out-of-employment Management Agreement, limitations of employment relation do not apply to such agreement. The parties are free to agree the amount of remuneration and any other mutual rights and obligations that they deem adequate.
Other types of work engagement
There is also option to engage staff based on out-of-employment contracts, subject to conditions prescribed by the Labour Law. The main difference is that these agreements do not establish the employment relation. Therefore, limitations of employment relation do not apply to such agreement. The parties are free to agree the amount of remuneration and any other mutual rights and obligations. These agreements include:
Minimum employment terms and conditions
The Labour Law establishes a general framework for the legal regime applicable to labour relationships and a number of minimal employment rights and entitlements presented below.
Salary and other compensations
It is not possible to determine a fixed amount of the salary, as the Labour Law provides for rather complex mandatory structure of the salary and numerous mandatory payments:
Working hours, vacations and leaves
Full-time working hours are set at 40 hours per week. Full time employees are entitled to paid daily break during the working hours in duration of minimum 30 minutes, which is calculated towards the working hours. Employees are also entitled to certain minimum daily (12 hours between two working days) and weekly resting periods (24 hours between two working week, in addition to daily 12 hours rest), without interruption.
Overtime may be required only in certain cases determined in the Labour Law: 1) vis major; 2) unexpected increase of volume of work; and 3) in cases when the unplanned work has to be done within certain period of time. Overtime work cannot exceed 8 hours per week. Each overtime work has to be paid at increased rate of 26% on the basic salary. There are no exceptions for managerial employment contracts. Also, employers are obliged to keep a daily record on overtime working hours.
Night work is work between 10 p.m. and 6 a.m. Night work is subject to certain statutory restrictions such as: employee can work at night for more than one working week only with his consent in writing and employer must enable the employee to work during the day, in the event that employee’s health could be harmed due to work at night, etc. Night work has to be paid at increased rate of additional 26% on the basic salary, unless it has been considered within the basic salary.
Vacations and leaves
Annual vacation: The employee is entitled to annual vacation of minimum 20 working days per calendar year. The employee is entitled to proportional portion of annual leave (1/12 of annual vacation per month of work) in the calendar year when he/she commences employment or when he/she terminates employment. The length of annual vacation is increased based on criteria determined by the employment contract or internal employment rules/collective bargaining agreement (e.g. contribution to work, working conditions, years of experience, qualification etc.). Annual vacation can be used in two parts – two consecutive weeks during the relevant calendar year and the remaining part up to the June 30th of the following year, at the latest. Employee is entitled to compensation for unused annual leave if, at the time of employment termination, he/she has unused annual leave.
Paid leave: Employee has the right to a paid leave for a maximum of 5 working days in total in a calendar year in case of: marriage, child birth (for the spouse), serious illness of an immediate family member and in other cases determined in the internal employment rules/collective bargaining agreement and employment contract. The employee is also entitled for an additional 5 working days of paid leave in case of death of an immediate family member and for 2 consecutive days in each case of blood donation (including blood donation day).
The Employee also has the right on a leave during non-working national holidays - there is a total of 10 national holidays. In addition to the national holidays, employees are entitled not to work on certain personal religious holidays (only the employees, members of the respective religion): e.g. Roman-Catholics and other Christians - on Christmas day and Easter holidays, members of Jewish community – on Yom Kippur etc.
Maternity leave: Employees are also entitled to maternity leave and child care leave. Maternity and child care leave last for 365 days for the first and second child, and two years for the third and each following child. The maternity leave commences 28- 45 days prior to expected delivery date, based on the medical findings. Additionally, there is a special child care leave in case of serious illness or disability which may last until child reaches 5 years of age. Funds for these leaves are provided from the budget of the Republic of Serbia and employer is reimbursed for salary compensations it pays to employee during this period.
Sick leave - An employee is entitled to a sick leave every time there are appropriate medical grounds. Sick leave cannot be limited in time. During the sick leave, employee is entitled to compensation of the salary amounting to 65% of the average monthly salary for the preceding 12 months in case of work non-related injury or illness and 100% of the salary in case of work related injury or illness. Employer pays salary compensation during the first 30 days of work unrelated sick leave and for the entire duration of sick leave in case of work related sick leave.
Unpaid leave - The employer may also grant the employee an unpaid leave, during which leave the employee's rights and obligations are dormant, save for those rights and obligations for which the employment contract, the Labour Law or the employer’s enactments stipulate differently.
The employer and the employee may terminate employment relations in the manner and in cases prescribed by the Labour Law. In general, employment can be terminated in the following cases: upon expiry of the agreed term; when the employee fulfils pension retirement conditions; by mutual consent of the employer and the employee; by dismissal (only in cases specified in the Law); upon death of the employee; at the request of parents or guardians of an under-aged employee and in other cases prescribed by the Labour Law (loss of working ability, official prohibition of further work activities, prison sentence, termination of employer's business activities). We present below in more details some of the termination reasons used more frequently in the practice:
Agreement on termination of employment: The procedure for termination of employment by way of mutual agreement is rather straightforward – once the parties have negotiated the terms of termination, documents can be signed and employment immediately terminated (unless the agreement provides for some notice period). The Agreement on Termination has to be prepared in a special written form required by the Law. It has to be accompanied by a formal written Notification on unemployment benefits – a special notice confirming that employee who signs agreement is not entitled to state unemployment benefits.
In general, the agreement on termination does not entail the obligation of the employer to make the severance payment (unless otherwise provided by the internal enactments or employment contract). However, depending on the exact circumstances, it is possible that employer would need to motivate the employee to accept the agreement by offering incentive severance payment, subject to free negotiations.
Retirement: The employer can unilaterally terminate the employment once the employee reaches 65 years of age and at least 15 years of pensionable service. This is the only situation when the employee is obliged to retire, unless otherwise agreed between the employer and the employee. The employee may be also eligible for pension even earlier in line with pension regulations (e.g. when the employee meets 45 years of pensionable service, or based on a complex scale for early retirement, which is changed on a yearly basis). However, in these other cases for retirement, the employee is not obliged to retire and may freely decide whether he/she will retire or not once the conditions are met.
Unilateral dismissal: Employer may terminate employment agreement only if there is a justified reason related to employee’s work abilities or his/her behavior, as follows:
The Labour Law contains a list of few basic violations of work obligation and work discipline but employer’s enactments or employment contract can provide for more comprehensive list of disciplinary misbehaviors.
In order to effect a valid termination of the employment, the employer must observe a number of procedural issues that differently apply depending on the circumstances of the particular case: prior written warning, period for the employee to reply, time-bar for dismissal, special delivery requirements, specific form of each document in termination procedure, redundancy related procedural issues, etc. As the Labour Law is still protective with respect to employees, it is of utmost importance, in order to ensure that no valid employees' claims with regard to dismissal procedure emerge, to strictly abide by the procedural requirements in each particular case.
For example, the main steps of the process of employment termination in the case of breach of work discipline/work obligation include:
General time-bar for unilateral employment termination notice is 6 months as of information on the grounds for dismissal but not later than 12 months as of those grounds occurred. In case of a criminal act as a ground for dismissal, termination notice may be executed at the latest until the expiry of the statute of limitation for this criminal act.
When dismissed for professional inadequacy, the employee will be entitled to be firstly informed on the noted inadequacy and will be provided with additional period for improvement. Only if such period expires without improvement, his/her employment can be terminated. In this case employee is entitled to notice period of between 8 days and 30 days (depending on the total amount of work service in life).
Severance pay is legally mandated only in the case of retirement (2 monthly salaries) and in the case of redundancy. Redundancy severance is 1/3 of monthly gross salary per each year of work with the employer (and its affiliates); having in mind average total monthly salary paid in the last 3 months (including bonuses and other mandatory payments considered as the salary).
Termination by the employee: The employee can terminate his/her employment in any time by a written statement. The employee is not obliged to justify the reasons for such termination, although he/she is free to do so. Employee has to obey the minimum 15 days’ notice period, which may be prolonged up to maximum 30 days, but not more – no exception is envisaged for managerial positions.
Local regulations enable certain restrictive covenants in the employment contract, the most important being non-competition clause.
Under the Labour Law, employment contract can provide for non-competition clause i.e. can provide for activities related to employer's business that the employee cannot perform on his/her behalf or behalf of someone else, without employer’s consent during the term of employment. This prohibition can be provided only if the employment shall enable the employee to acquire (i) new, highly important technological knowledge, or (ii) wide circle of business partners, or (iii) exceptionally proprietary and confidential information and secrets of the employer.
Prohibition of competition can be valid also for up to two years upon termination of the employment. In this case, the employer has to undertake by the employment contract an obligation to pay to the employee certain agreed amount. The law does not provide anything regarding the amount which has to be paid, but based on some general principles of the law it has to be a just award. Regarding the choice between lump-sum payment and monthly payments, monthly payments are more practical, i.e. if the employee breaches the prohibition employer may cease with any further payments and minimize his damages.
Apart from the non-competition clause, local employment contracts often contain confidentiality clause during employment and some time following employment termination (usually unlimited), which prohibits disclosure of company’s business secret.
As for the non-solicitation clause, Serbian regulations do not regulate this type clause. It is sometimes seen in practice, especially in managerial agreements, but its application is still somewhat vague. Namely, due to the fact that it limits the right to work (of the individuals that cannot be recruited due to such clause) it is possible that court might find such clause illegal and contrary to the Constitution and therefore not applicable in practice.
Competent courts and authorities
In Serbia there are no special labour courts, but labour disputes are dealt with by the regular civil courts – Basic Courts, Higher Courts (first instance for harassment or discrimination cases), Appellate Courts and the Supreme Court of Cassation as the final court instance. The Supreme Court of Cassation is in charge on deciding on extraordinary legal remedies against the final rulings. Employee who finds that his employment right was violated is entitled to submit a claim before the competent court within 60 days as of the receipt of the disputable resolution or as of the date when he/she finds out on the breach of right. Monetary claims deriving from employment have 3 years statute of limitation.
Employees may choose to peacefully resolve their labour dispute by way of arbitrage. The arbitrator is determined by the parties jointly and the arbitrage process is urgent. The arbitrator’s decision is final and binding for the parties. Arbitrators are usually selected from the licensed arbitrators registered before the Serbian Republic Agency for Peaceful Settlement of Labour Disputes, who may be engaged for dispute related to discrimination or harassment at work, termination of employment or minimum salary. Arbitrage on individual labour disputes is quite rare in Serbia as employees usually refer to courts.
The Ministry of Labour supervises application of the labour regulations through the Labour Inspection, which often performs field controls – regular or extraordinary controls, based on an individual’s application (which can also be anonymous). If the labour inspection identifies certain failure of the employer to abide by the laws, it may initiate a misdemeanour procedure against the employer.
This Agency for Peaceful Settlement of Labour Disputes also resolves collective disputes related to trade union relations with the employer – but in this case the role of the Agency is only to be mediator and does not provide for final and binding decision.
In addition, there are certain authorities whose field of activity may include some aspects of employment relations (though not exclusively), such as: Commissionaire for Protection of Equality (in case of discrimination claims), Commissionaire for Information of Public Importance and Personal Data Protection (in case of personal data breaches).
Relevant authorities for the protection and enforcement of intellectual property rights arising from trademarks are the following:
In Serbia, any natural or legal person is eligible to for the registration of a mark granting them trademark protection. Foreign applicants, except for the representative offices who pursuant to the relevant Company law are not eligible to apply for trademark protection, enjoy the same rights regarding trademark protection as domestic applicants, provided that such rights derive from international treaties or principles of reciprocity. Foreign applicants however need to be represented in proceedings before the IPO either by a professional representative such as a registered IP representative or a lawyer.
Under the Serbian Law on Trademarks ("Official Gazette of the Republic of Serbia", no. 104/2009 and 10/2013), any mark that is used to distinguish goods and services in trade and that may be graphically presented can be granted trademark protection. Marks subject to protection may comprise the following: words, slogans, letters, numbers, images, drawings, combinations of colors, three-dimensional shapes, and combinations of such marks and of graphically presentable musical notes.
Trademark application procedure commences by filing of the application for trademark registration to the IPO, either via post office or directly at the IPO premises. Application, containing duly filled form, valid power of attorney (should it be filed via legal representative), graphic representation of the mark (if the application is for a mark with a figurative element), complete list of relevant goods and services under the Nice Classification of Goods and Services, and proof of payment of administrative fees, will be entered into the register of applications, where the note of a filing number, date and the time of the receipt will be given by the IPO. The filing date is also a priority date.
Benefits of registering a trademark are multiple, but the main benefit lies in the protection it grants. Thus, the trademark holder has the exclusive right to use the trademark for goods and/or services to which it relates, and to prohibit others from an unauthorized use of an identical or similar mark for marking identical or similar goods or services on the market, should such use be likely to cause confusion in commerce. Additionally, the Trademark Law specifically governs that, in the event of intentional infringement of a trademark, the injured party may, instead of simply being remunerated pecuniary damage, request from the infringing party compensation of up to three times the usual license fee it would have obtained for the use of the infringed trademark.
The trademark registration procedure, where a mark is not found to be in opposition to any other previously registered trademark, usually takes somewhere from two to six months, thereby comprising any potential examination reports rendered by the IPO leading to the extension of the procedure.
However, should there be a parallel court procedure initiated for the infringement involving a filed mark, the registration procedure might be extended to several years as the registration procedure would be suspended until the decision is rendered in the court proceedings.
The average total cost for the registration proceedings excluding any potential additional costs for responses to the examination report amounts to approximately EUR 350.
The examination report of the registration procedure consists of formal requirements and of material conditions for the trademark registration.
The formal examination consists of verifying the validity of the filed trademark application (consisting of the trademark application form, the mark claimed, list of goods and services to which the mark applies, and power of attorney, should the applicant be represented by someone). Should the examiner find that an application is improper, he/she will notify the applicant by dispatching an examination report to him specifying the irregularities noted and inviting the applicant to remedy the deficiencies within a 30-day time limit. If the applicant fails to remedy the deficiencies in the application within the time limit assigned, or if he/she fails to pay adequate administrative fee for remedying such deficiencies, the examiner will issue a procedural order rejecting the application.
Material examinations take place once the application is found formally to be in order. Such procedure aims at examining the existence of any potential conflicts with other previously registered trademarks. If there are objections, the IPO will notify the applicant of this in writing, asserting the reasons for which the mark cannot be registered and requesting from the applicant to submit its comments within the specified time limit of 30 days (which may be extended upon a request by the applicant for a period deemed appropriate, provided that prescribed administrative fees have been paid). If the applicant fails to act upon the IPO’s request, or if it does but the IPO nevertheless finds that the mark may not be registrable, it will reject the application.
The trademark lasts for 10 years as of the date of filing of the application for registration, and is indefinitely renewable for further 10-year periods upon payment of prescribed administrative fees.
Enforcement of IP rights and particularly trademarks are performed on several different levels.
On one hand, border control mechanisms are available via Customs Administration, allowing for trademark holders, applicants or exclusive license holders to file a demand for trademark protection at the state borders. Acting upon rights holders’ request, or ex officio, the authorities are empowered to temporally seize all goods that are either the object or means of an IP rights infringement, whenever there is prima facie evidence establishing that an IP right has been infringed. Following the seizures, the customs officers notify without delay the rights holders, the IPO (if it is necessary to obtain relevant information) and any other interested parties (if any such parties are known) about the measures taken.
The notification is crucial as it includes an invitation to the holder of the IP rights to initiate the proceedings for protection of its rights in the court proceedings and to inform the customs authorities about such proceedings or of the preliminary injunction issued by the court.
On the other, control of the internal markets is also at hand to the applicants or trademarks holders suspecting that their marks/trademarks are being infringed. Controls are performed via Market Inspectorate either upon holders request or ex officio, resulting in seizure of goods that are either the object or means of an IP rights infringement. The procedure itself is very similar to the one performed by the Customs Administration in is usually followed by court proceedings, unless out of court settlement was reach through the mechanisms of ADR.
Court proceedings, as the third means of enforcement, are initiated by filing a complaint with the competent court. The infringement complaint is usually filed with a demand for preliminary injunction. After receiving such a complaint, the court quickly decides on preliminary injunction. Furthermore, before rendering the final decision on the complaint, the court schedules a hearing to receive the statements of the parties. The judge will schedule as many hearings as is deemed necessary before rendering a decision.
Finally, a criminal enforcement mechanism is also at hand to the applicants/trademark holders, allowing them to file a criminal complaint to the Public Prosecutor’s Office for unauthorized use of a firm, which also includes use of trademarks. The sanctions prescribed are monetary fines or imprisonment for up to eight years.
Litigation costs depend on the value of the claim, length of the proceedings and number of hearings. In Serbia, litigation costs comprise the costs of filing of the complaint, to which are added the costs of rendering the decision of the first instance court, and in case of appeal, for rendering the decision on the appellate level. As the range between cases can be very different, it is impossible to determine a typical range of costs in an infringement action.
The Serbian legal regime recognizes private ownership of real estate, including land and buildings. Serbia’s 2006 Constitution, together with the Law on Basics of Property Relations, the Law on Planning and Construction and other laws, uphold and protect the right to own private property. Publicly-owned property (property owned by the state, the autonomous province and municipalities) is subject to special regulation, the main source of law being the Law on Public Property.
A property may be expropriated or ownership restricted if so required in the public interest, in accordance with the Law on Expropriation. The public interest for expropriation may be determined by the law or by a Government decree for specific development projects in the areas of: education, health care, social welfare, culture, water distribution, sports, traffic, energy and utility infrastructure, state, provincial and municipal institutions, defense, environment and disaster protection, mineral resources exploitation as well as public housing projects. In case of expropriation, market price compensation is payable to the person whose property is the subject of expropriation.
A foreign entity can purchase construction land and buildings in the Republic of Serbia necessary for its business operations, subject to reciprocity, or, as the case may be, in accordance with the terms set out in a treaty between Serbia and the country of the foreign entity. Foreigners are explicitly banned from acquiring ownership of agricultural land.
If a foreign entity establishes a subsidiary in the Republic of Serbia, such subsidiary is treated equally to any other local entity acquiring land and buildings, regardless of the origin of the founder or its controlling share. This means that foreign persons and entities may indirectly own real estate in the Republic of Serbia through their Serbian subsidiaries without any distinguishing limitations.
It is expected that the regime of foreign ownership of real estate in Serbia will be further liberalized in the coming period. The Stabilization and Association Agreement between Serbia and the EU, which entered into force in September 2013, prescribes that within four years from the entry into force of the SAA Serbia shall progressively adjust its legislation concerning the acquisition of real estate in its territory by nationals of EU Member States, to ensure the same treatment as compared to its own nationals. This deadline expires in September 2017 and there have been indications that Serbia will try to negotiate an extension of this deadline.
Real estate rights
Ownership is the most common form of Serbia commercial real estate title. The ownership of land, buildings and special units within the building are separable. However, in accordance with newly implemented unity of ownership over real estate rule, transfer of the ownership title to objects without simultaneous transfer of title to the land necessary for the use of such objects is not possible.
All three, the agricultural, forestry and the construction land in Serbia may be in private ownership subject to certain limitations.
Following expropriations in the 1950s, construction land became state-owned land, granting land use rights to former owners or to state-owned companies. Until 2009, the state owned construction land, while right of use or a long-term lease of 99 years was granted to other stakeholders.
In 2009 granting private ownership became propriety. he right of use is still widespread in Serbia on construction land within city boundaries. However, nowadays, the right of use does not entitle its holder to dispose or construct buildings over the subject land unless the land is already developed. Persons/entities granted with the right of use over the public land under previous laws are entitled to convert such right of use into the ownership right. Conversion may be executed either with or without compensation. Alternatively, holders of the right of use may convert their right to the right of long term lease, whereby they would be obliged to develop a location within pre-agreed deadline. Long term lease right may also be converted into the ownership right, subject to paying the entire lease fee.
Land may also be subject to various types of unregistered rights of access by public utilities, including rights of way, passage and easement over individual parcels, contiguous properties and watercourses in favour of such public utilities (in its capacity as a public utility acting in the public interest).
The easement right, as a sui generis right, provides narrower scope of rights than ownership title. Generally, easement is a right of the owner of one immovable property (dominant estate) to perform certain activities for the benefit of this property on an immovable property of another (servient estate), or to demand from the owner of the servient estate to refrain from doing on his estate something otherwise lawful.
The easement rights may be instituted based on an agreement or the law. The easements instituted based on the law usually include right of passage through the neighbouring plot in ownership of another in order to access own plot. On the other hand, there are two types of easement rights which may be instituted based on an agreement:
Ownership rights over land or buildings are generally obtained upon registration of the right in the relevant registry (the Cadastral Registry). Acquirers are deemed to be aware of all matters which are registered. In practice, it is considered acceptable to acquire a title from an unregistered owner and the registries will register such title, if there is sufficient evidence linking the acquirer with the currently registered owner as the previous transferor.
The ownership transfer document must be in written form, with signatures authenticated before the notary public. The document must contain explicit consent of the transferor that the acquirer may be registered as the owner (clausula intabulandi).
Data on real properties is maintained in the publicly available Cadastral Registry. The Cadastral Registry contains both “technical” and “legal” data on immovable properties.
Apart from real estate in the narrow sense (land and buildings), the Cadastral Registry also contains a cadastre of grids, which is supposed to contain data on waterworks, sewage and drainage, heating, electro-energy, telecom, oil and gas grids, respectively. The cadastre of grids is not yet fully operational, since not all of the relevant data on the existing grids has been registered in it.
Buyer and seller liability
Commonly, the buyer has only one liability\obligation arising from the real estate sale-purchase agreements – payment of the purchase price and payment of potential interests, if any. The seller is responsible for material and legal defects of the property.
The Seller is liable to the buyer in case there are any claims of the third parties which may exclude, diminish or restrict rights of the buyer acquired from the seller. If such claims arise, the seller is obliged to protect the seller. This means any assistance which would result in rejection of the claim or right of the third party. If not, the sale agreement is considered automatically terminated by the law and the buyer is entitled to compensation of damages. Seller’s liability may be contractually restricted or excluded except in case when the seller was aware of the defect.
The seller is liable for material defects in case for example that the property is not fit for regular use, or the property is not fit for the special purpose of which the seller was aware, or the property does not have the characteristics explicitly or implicitly agreed by the parties.
This seller’s liability may result in automatic termination of the agreement, in case the seller failed to remedy existing imperfections in the additional term provided by the buyer. The buyer is also authorised to require damages compensation.
In addition, according to the Serbian Law on Contracts and Torts, when a certain pool of assets is being transferred, together with the assets, the buyer also becomes jointly and severally liable alongside the seller for all liabilities in relation to that pool of assets, up to the value of the assets transferred.
Banking and financing
There is no typical Serbia-market model of real estate project financing. In general, a simple financing structure which is common in Serbia would consist of a secured loan provided by a lender, typically a bank (the Lender) to the project company, i.e. the Borrower.
The loan would be usually secured by (i) a security interest over the assets (including land) and the bank accounts of the Borrower; (ii) a pledge of the shares of the Borrower and possibly its parent company; and (iii) an assignment by way of security of the receivables under the construction contract and other transaction documents including the insurance and reinsurance policies. Usually, in development finance deals there would be multiple drawdown while the development budget is typically agreed prior to signing the loan agreement.
The undertakings include all standard undertakings relating to information such as provision of financial statements, compliance certificates, property monitoring and undertakings on the title, maintenance and development of the property, right to remedy borrower’s failure to perform, insurance, environmental matters and similar.
The list of conditions precedent to drawdown would depend on project due diligence results and development specifics of the project. Key conditions to the drawdowns usually focus on the property title, secured construction permits, secured agreements with customers which would ensure revenue stream(s) for the project, value, insurance and similar.
Due to the Serbian banking regulations, especially those dealing with the foreign exchange, some instruments which represent common practice in project financing currently do not work in Serbia.
For example, Serbian companies generally cannot open and hold bank accounts offshore (except in very limited prescribed cases). The pledge may be established over local bank accounts, however under the current practice of the Pledges Registry it may capture only the funds existing on the account the moment of pledging (future funds not covered).
Lease agreements for real estate property in Republic of Serbia are executed in a free form. Written form, verified before public notary, is required only in the event the lessee desires to registered existence of the lease agreement in the cadastral records.
Execution of the lease agreements creates tax obligation for the parties. Depending on the status of the parties (whether one or both of them are legal entities or whether one or both of them are VAT taxpayers, etc.), it is determined whether the VAT or the tax on income from the lease rights is paid. Furthermore to this, it is decided on the same grounds which party is obliged to pay subject tax.
Most usual provisions of the lease agreements include precise determination of the subject of lease, rent amount, manner of payment of rent amount, lease period (but there are lease agreements executed without lease period determined), sub-letting possibility, manner of use of the leased premises, possibility\restrictions to change one or both of the parties, securities (deposit amount, bank/corporate guarantees, promissory notes), indexation, reasons for early termination, etc.
Specific kind of lease agreements are long-term lease agreements for the construction land executed with the competent authority for the purpose of developing the location. In City of Belgrade these documents are executed with Beoland as a representative of the City. Lease rights deriving from Long-term lease agreements are recognized as adequate rights over the land for obtaining of the construction permit.
The issuance of building permits is conditional on the existence of a sufficiently detailed urban plan. Such plans are adopted by the relevant authorities for the state, regional or local level. In order to prevent the situation where the investor cannot obtain a building permit due to inaction of the state body which is supposed to adopt the required urban plan, it is under certain conditions possible to obtain the permit even without such urban plan, in accordance with the Planning Law.
The most notable recent developments in this area are that in 2016 the City of Belgrade adopted a new General Urban Plan and the Plan of General Regulation. In addition, Belgrade has also adopted detailed plans of regulation for certain parts of the city, with more such detailed plans on the way.
To commence construction works, the developer must obtain a construction permit from the relevant authorities.
In 2014, amendments to the Planning Law significantly changed the procedure of issuing building permits, simplifying it considerably. Now, most of the documents an investor needs to obtain from the relevant authorities are issued in a uniform procedure, with the objective of enabling the investor a one-stop-shop in this process. Another important novelty is the introduction of an electronic system of application for the necessary building permits – even though the system is relatively new, it has come into life and building permits are now being issued electronically.
The introduction of the new system has had very positive effects in practice – during the period March-December 2015, when the application of the new system started, the number of issued construction permits rose by a third compared to the same period in 2014. Further, 2015 saw a rise in the construction industry output of around 20%, which is significantly higher than the increase of Serbia’s total GDP for that year (which was around 0.8%). This is a sign that the Serbian construction industry is in expansion and that the state is resolved to further foster this growth by cutting red tape surrounding the issuance of building permits.
In general, in order to obtain a construction permit, the developer must have a proper title to the land on which he intends to build (the right of lease or the right of ownership). After 28 July 2016, the right of use is no longer considered as the proper title for obtaining a construction permit – holders of such rights must first convert their rights of use to ownership (or enter a long-term lease) in order to obtain the necessary permits.
The competent authority needs to issue a construction permit within five working days from the date of application for such permit. A construction permit ceases to be valid if within two years as of its issuance the investor does not commence construction works. As a rule, a construction permit also ceases to be valid in cases where the investor does not complete the construction and does not obtain a usage permit for the new structure within five years from the issuance of the construction permit. An additional two year extension may be granted if the investor shows that a minimum of 80% has been constructed and/or that that the constructed building is in such state which allows the connection of the building to the external infrastructure network. If these deadlines are not observed, the investor is supposed to pay the property tax for the building in the entirety, as if the building was completed in accordance with the issued construction permit, until a new construction permit is issued for that location.
Once the building is completed, the competent technical commission is required to assess if the building has been completed in accordance with the technical designs, permits and consents. The technical commission is engaged by the investor. In case of a positive assessment by this commission, the investor can apply for a usage permit (necessary for use of the constructed building). If the competent body does not decide on the request within five working days of the application, the constructed building can be used even without such permit, provided that the assessment of the technical commission was positive.
Once the usage permit has been obtained, the authority which issued the permit ex officio registers the right of ownership in the Cadastral Registry.
Since October 2015 opening and maintaining the accounts is regulated under the provisions of the Law on Payment Services (Republic of Srpska Official Gazette No. 139/2014, the “PS Law”) and relevant bylaws of the National Bank of Serbia, local financial regulatory authority (the “NBS”), such as the Decision on Detailed Conditions and Manner of Opening, Maintaining and Closing Current Accounts (Republic of Srpska Official Gazette No 55/2015), the Decision on the Unique Structure of Current Accounts (Republic of Srpska Official Gazette No. 55/2015 and 82/2017), etc. Natural persons may perform payments also through payment accounts within banks, payment institutions and electronic money institutions in accordance with the provisions of PS Law. Beside questions related to the accounts, the PS Law and related bylaws regulate providing of payment services, electronic money, and payment systems.
The Law on Conduction of Payments by the Legal Entities, Entrepreneurs and Natural Persons which do not perform Business Activities (Republic of Srpska Official Gazette No. 68/2015, the “Payments Law”) provides for the obligation of legal entities and entrepreneurs to open bank current accounts and to perform all their business activities only through bank current accounts opened within the domestic commercial banks.
The Law on Foreign Exchange Operations (Republic of Srpska Official Gazette Nos. 62/2006, 31/2011, 11972012 and 139/2014, the “FX Law”) and its relevant Decision on the Conditions of Opening and Manner of Maintaining Foreign Exchange Accounts of Residents and Dinar and Foreign Exchange Accounts of Non-Residents (Republic of Srpska Official Gazette No. 51/2015) prescribes the conditions subject to which banks open foreign exchange accounts of residents and foreign exchange and dinar accounts of non-residents, and the manner of maintaining and closing such accounts. In addition, the Decision on Terms and Conditions under which Residents may hold Foreign Exchange in Bank Accounts Abroad (Republic of Srpska Official Gazette Nos. 31/2012, 71/2013, 98/2013, 125/2014 and 102/2015 ) sets out the terms and conditions under which residents may hold foreign exchange in bank accounts abroad separated in two different regimes: type of resident which may hold foreign exchange in bank accounts without any further requirements (such as diplomatic, consular and other representative offices of the Republic of Serbia, persons appointed to work in state missions abroad, owners of real estate abroad for the purposes of selling such real estate, etc.) and residents which may hold foreign exchange in a bank accounts abroad subject to prior approval of the NBS in particular cases explicitly enlisted therein (e.g. for financing construction works abroad, for financing exploration works abroad, etc.).
The Law on Payment Transactions (Republic of Srpska Official Gazette Nos. 3/2002, 5/2003, 43/2004, 62/2006, 111/2009, 31/2011, 139/2014) which partially ceased to be in force after the adoption of PS Law, still regulates blockade of bank accounts and the procedure of the compulsory collection on the basis of the enforcement titles, bills of exchanges and authorisations on direct debiting which is conducted by the NBS.
Under general provisions of the Law on Banks (Republic of Srpska Official Gazette Nos. 107/2005, 91/2010 and 14/2015), only entity duly organized and licesned as a bank may provide loans in Serbia.
Besides banks, there is a possibillity under the PS Law for a payment institution (regulated and licensed as described under point a) above) to grant a loan to the payment service user in connection with the payment services it regulary provides, but only if the following conditions are met: (i) a loan has been granted exclusively for the execution of a payment transaction; (ii) the loan repayment period does not exceed 12 months; (iii) a loan has not been granted from the funds of payment service users received by a payment institution for the execution of payment transactions of these users; (iv) own funds of a payment institution are at all times appropriate to the total amount of the loans granted. That type of loans also relate to an authorised overdraft facility and credit cards issuance.
Provisions of the FX Law and relevant NBS decisions regulate the conditions of granting of cross-border loans and credits making the difference between the terms „credit“ which refers only to cross-border debiting by banks (both domestic and foreign) and „loan“ which refer to cross-border debiting by entities which primar business activity does not include granting the loans (e.g. cross-border shareholder loans, etc.).
The FX Law also makes difference between financial and commercial loans and credits. Under the FX Law cross-border financial credits and loans include credits and loans granted by a creditor and/or lender to a borrower by crediting the borrower’s account. Financial credits and loans are also understood to mean all types of financing granted by banks, foreign banks and other financial institutions. In addition, financial credit is also understood to mean the financing, granted by a bank, of trade in goods or the provision of services in which no resident is participating.
On the other side, commercial credits and loans in foreign exchange and dinars under the FX Law are the credits and loans related to foreign trade in goods and services, which include deferred and advance payments of goods and services up to one year with contractual interest, and/or over one year. Commercial credits and loans are also understood to mean the financing of deferred and advance payments of goods and services granted by a creditor or lender to a borrower – buyer in foreign trade in goods and services by settling the liability directly to the seller at the order of the buyer.
The FX Law sets out the obligation for Serbian resident to report the NBS on each cross-border debiting and/or granting a credit or a loan (both financial and commercial) within ten (10) day as of the day of entering into credit/loan agreement. Reporting procedure with the NBS is regulated by relevant NBS decision and it is usually formal and straight forward procedure which lasts a few business days. The FX Law and relevant NBS decision also stipulates the obligation for the Serbian resident to report the NBS on each amendment in the loan/credit agreement within ten days as of amendment is made.
Payments and security
Payment operations between Serbian residents are regulated under the PS Law and Payment Law (including relevant NBS bylaws), including all means of payment through banks, payment institutions and electronic money institutions without prescribing any specific requirement in that regard.
Payment transactions between Serbian residents and non-residents are regulated under the FX Law. Pursuant to the FX Law, cross–border payments can be done solely under: (i) Current transactions (“Tekući poslovi” in Serbian) and/or (ii) Capital transactions (“Kapitalni poslovi” in Serbian). Capital transactions are transactions the purpose of which is transfer of capital. Capital transactions include: direct investments, investments in real estate, transactions with securities, credit transactions, etc. Current transaction include: payments based on foreign trade transactions and other current foreign transactions (as determined in the law governing foreign trade), payments on the basis of repayment of the principal and interest deriving from loans, repatriation of investments, as well as transferring abroad and bringing-in the profits stemming from direct investments, transfers to individuals on the basis of pensions, and other public welfare benefits, transfers based on taxes and fees, inter-government cooperation, indemnity on the basis of insurance contracts, transfers on the basis of enforceable and effective decisions, transfers based on lottery winnings, concession fees, membership fees and fines and other transfers, as well as transfers of funds needed for family sustenance costs.
The NBS Decision on Conditions and Manner of Performing Foreign Payment Transactions (Republic of Srpska Official Gazette Nos. 24/2007, 31/2007, 38/2010 and 111/2015) and respective guideline provides that each cross-border payment transaction should be documented with appropriate evidence of legal ground. The documents specifying ground payment in case of capital transactions may be e.g. contract with a foreign partner, decision or decree of a competent authority on the specific transaction or other transaction-specific documents proving that the transaction is not fictitious or simulated.
Apart from being documented with appropriate evidence of legal ground, each payment transaction has to be booked under one of payments codes the list of which is prescribed by the NBS. Payment codes have been determined in reliance on a general division of FX Current and Capital transactions and no cross border payment can be executed / received if there is no appropriate code for booking of such operations.
The NBS Decision on Cases and Conditions of Payment, Collection of Payment, Pay-in and Pay-out in Foreign Cash (Republic of Srpska Official Gazette Nos. 51/2015, 3/2016, 29/2016, 91/2016 and 24/2017) sets forth the cases in which payment, collection of payment, pay-in and pay-out in the Republic of Serbia may be made in foreign cash and stipulates the conditions under which they are made.
Regarding the securities, establishment of securities is regulated under different laws depending on the type of security instrument (e.g. mortgage, registered pledge over share(s), movables, receivables, bills of exchange, guarantees, etc.). As a mutual obligation for almost all types of security instruments granted under the Serbian law, the respective laws set out the registration requirements with the relevant registers (e.g. Pledge Registry, registration of bills of exchanges within the NBS register, Real Estate Cadastre, etc.).
Regarding the establishment of security instruments in cross-border transactions, the FX Law stipulates that Serbian residents may not provide guaranties or security for non-residents (except for their majority directly owned foreign subsidiaries). The FX Law also provides specific cases when the guarantees may be taken/granted in cross-border transactions (e.g. a Serbian resident legal entity may obtain guarantees and warranties from a non-resident against claims from another non-resident under exports of goods and services and performance of construction works abroad, as well as against claims arising from the operations between that resident and another resident legal entity in the Republic of Serbia) and provides the reporting obligations with the NBS for those types of guarantees which will be deemed as cross-border loans under the provisions of the FX Law.
All payments in the Republic of Serbia should be executed in dinars, the official currency of the Republic of Serbia. The FX Law stipulates that payments in the Republic of Serbia may be executed in foreign currency in specific cases provided under the FX Law (e.g. payments a deposit as a security, selling/leasing of real estate, foreign exchange credits between residents, etc.). Payment operations between Serbian residents and non-residents abroad may be executed in dinars as well as in foreign currencies through bank accounts.
The NBS Decision on Types of Foreign Exchange Currencies and Foreign Cash to be purchased and sold in the Foreign Exchange Market (Republic of Srpska Official Gazette Nos. 98/2012, 143/2014 and 51/2015) sets forth the types of foreign exchange and foreign cash to be purchased and sold in the foreign exchange market by banks, the NBS and a public postal operator. For example, the following types of foreign exchange and foreign cash may be purchased and sold in the foreign exchange market: Australian dollar, Japanese yen, Russian ruble, US dollar, Euro, etc.
As mentioned, the company is deemed incorporated upon registration with the SBRA, whereas the few other registrations and formalities have to be made following the registration – including general tax registration, VAT registration (if applicable and if not done as part of the registration procedure), registration with the public revenue authorities, customs registration and opening of a bank account. In the course of registrations the following should be considered:
Liability of local managers (i,e. directors) could be observed from perspective of: (i) civil liability to the company and third parties resulting from breaches of various duties and responsibilities of director imposed by the laws and regulations; and (ii) liability for offences.
Civil liability is liability for the damage sustained by the company and by the shareholders, which is caused by breach of the fiduciary duties by the directors (e.g. duty of care, duty of loyalty, duty of confidentiality, etc.). The main consequence of the civil liability is compensation of damage caused. Action by the company itself or any shareholder holding at least 5% of company`s share, on behalf of the company, can be filed. For the damage sustained by the shareholders, a shareholder can file an action. Claims may be brought against director within six months as of getting knowledge of the breach and at latest five years as of the breach.
Liability for offences is liability for breach of the statutory provisions. There are different types of offences:
Acts perpetrated by director can be attributed to the company as well (meaning that the company will be prosecuted on the basis of Corporate Criminal Liability Law), if the conditions for criminal liability of a legal persons are met (inter alia if the offence was committed with the intention to gain benefits for the company).
According to the Criminal Code, Misdemeanour Code and Company Law, liability is provided for the “responsible person” within the company (and not explicitly for director of the company). As a matter of general practice, director of the company is considered as a responsible person, unless there are clear evidences that some other person in the company is responsible for certain segment of operations.
The rules governing the system of foreign trade in goods in Serbia are established by several laws, including in particular the following:
The rules governing the system of foreign trade in goods in Serbia are established by several laws, including in particular the following:
Main principles governing the foreign trade established by the Law on Foreign Trade include the following:
Serbia has a wide range of free trade agreements which provide for preferential customs treatment of goods originating from the signatory countries. The most important free trade agreements include the following:
The main authority in charge for enforcement of customs regulations in Serbia is the Customs Administration, being the authority within the Ministry of Finance. The Customs Administration is in charge for: customs clearance, customs supervision and other activities in relation to the control of foreign trade in goods and services.
The Customs Administration performs its authorities primarily through customs inspectors, operating within regional organizational units of the Customs Administration.
As a general rule, in order to be imported in Serbia, foreign goods have to go through customs procedure prescribed by the Customs Law.
After the goods cross the Serbian border, the entity which brought the goods on the territory of Serbia is required to present them to the customs authorities and take them to the organizational unit of the Customs Administration or other place designated by the Customs Administration. Together with the delivery of goods, summary declaration has to be submitted to the Customs Administration.
After the goods have been presented to the Customs Administration, they are being in temporary storage until they are assigned to a customs approved treatment, or their use is approved. There are several types of customs approved treatment, including:
The customs procedure is subject to the submission of the customs declaration to the customs authorities by the importer on record. The importer on record may be only a Serbian entity. Foreign entities participating in the customs procedure have to appoint their representative in Serbia.
The customs declaration has to be prepared on the “JCI” form prescribed by the Serbian regulations. All goods which are placed under the customs procedure have to be included in the customs declaration. The declaration should contain sufficient information (type of goods, quantity, value, etc.) for calculation of customs duties. Information in the customs declaration has to be supported by appropriate documents, such as agreements, invoices, purchase orders, waybills, etc.
The customs duties are calculated by application of the appropriate customs rate on the customs value of the goods.
Customs rates are established by the Law on Customs Tariff and bylaws issued on the basis of this law, and depend on the type and purpose of the goods.
Custom rates established by the national legislation may be lower or eliminated on the basis of free trade agreements concluded between Serbia and the country of origin of the goods which are being imported (so called preferential origin). Most important free trade agreements are SSA, FTAR, CEFTA, FTAT and FTAK (please see Section 12.1). Terms and conditions for recognition of the preferential origin are prescribed by the free trade agreements, respectively. The free trade agreements also prescribe documentation which is used as evidence of the preferential treatment, such as “EUR1” form under SSA or “A” form under FTAR.
The customs value of goods is consideration paid (or to be paid) by the importer in return for the goods (transaction price), increased for the following costs:
In transactions between related parties, the Customs Administration will accept the transaction price as customs value only if the relationship between the importer and exporter did not have impact on establishment of the transaction price. Otherwise, the Customs Administration will not accept the transaction price as the customs value and will establish customs value itself, in line with the Customs Law.
The customs duties become due at the moment the Customs Administration accepts the customs declaration.
Modalities of import
Two main modalities of import regime in Serbia are the permanent import and temporary import.
Permanently imported goods are granted the status of domestic goods and therefore may be placed in free circulation on the Serbian market. Importer on record is required to pay the full amount of customs duties and import VAT due on the import of goods under the general rules.
Temporary import is allowed for the goods which are brought in Serbia with the intention to be exported in unchanged condition. Temporarily imported goods do not acquire the status of domestic goods.
The goods may be temporarily imported subject to the approval granted by the customs authorities. The approval will be granted only if the goods are readily identifiable. Otherwise, the goods may only be permanently imported.
The customs authorities decide about the duration of the temporary import, provided that it cannot exceed 24 months. As an exemption this deadline may be extended if necessary to realize the purpose of import. If the goods are not exported within the time limit, the importer has to pay the customs duties and VAT that would have been payable if, when the goods were imported, the goods had not been treated as temporary imports.
The customs duties for temporary import are set at 3% of customs duties which would have been paid on the permanent import, for each month in which the goods were under the temporary import regime. Exceptionally, certain goods explicitly prescribed by the Government are exempt from customs duties in case of temporary import.
Persons subject to the tax
Companies incorporated in Serbia are Serbian tax residents and therefore required to pay the tax on their worldwide income.
Serbian non-residents have to pay CIT only for the part of the income which is attributable to the activity of the permanent establishment constituted in Serbia and on certain types of income deemed generated in Serbia (see section Withholding Tax and Permanent Establishment below).
Tax rate and tax base
Corporate income tax is levied at a 15% flat rate.
The tax base is assessed on the basis of the profit (revenues and expenses) declared by the taxpayer in his annual income statement (profit and loss account), prepared in accordance with International Accounting Standards (IAS), and adjusted in accordance with the rules prescribed by the CIT Law.
Generally, an expense will be recognized for tax purposes if it is documented and incurred for business purposes.
Certain types of expenses specifically listed in the law are non-deductible, while deductibility of certain expenses is limited, so as that the threshold for deductibility is set as percentage of taxpayer’s annual revenues (for example expenses for health, cultural, educational, scientific, humanitarian, purposes and similar). Expenses on the basis of impairment of assets are not deductible, but may be deducted in the year in which the asset was transferred, used, or in which such asset was damaged due to force majeure.
Deductibility of other expenses is limited in accordance with specific rules on tax depreciation, transfer pricing, rules governing thin capitalization, etc.
An asset may be depreciated for tax purposes if it is recognized as a fixed asset under relevant accounting regulations (IAS) and subject to the condition that its useful life is longer than one year. Goodwill cannot be depreciated.
All assets (except intangible assets) are categorized in five depreciation groups with different rates and methods of depreciation for tax purposes. Tax depreciation rates range from 2.5% (for immoveable assets) to 30%. Immoveable assets are depreciated using a proportional method, and all other assets under the declining method.
Transfer-pricing obligations of the Serbian taxpayers include, primarily, the obligation to disclose the value of expenses and revenues generated in transactions from related parties at agreed (transfer) prices and at arm’s length prices, and to include the difference in the taxable profit. Transfer pricing obligations apply equally to both transaction between Serbian resident taxpayers and cross-border transaction between Serbian taxpayers and their foreign related parties.
For purposes of transfer pricing rules, a party related to the taxpayer shall be deemed to be any entity which holds, directly or indirectly, more than 25% share in capital or voting rights in the taxpayer. Likewise, an entity shall be deemed to be related to a taxpayer if such entity is controlled, directly or indirectly, by the same entities which exercise control over the taxpayer by means of minimal 25% (direct or indirect) participation in their capital or voting rights.
The arm’s length prices should be established in accordance with one of the transfer pricing methods allowed under the CIT Law, which are the methods prescribed by the OECD Guidelines for Transfer Pricing.
For transfer-pricing purposes, the amount of deductible interest from related party loans (deposits) may be established in two principal ways: on the basis of the market interest rates established by the NBS and published by the Serbian Ministry of Finance, or on the basis of some of the transfer-pricing methods allowed under the CIT Law.
Deductibility of interest generated from related party loans is subject to limitation on the ground of thin capitalization. Under the thin capitalization rules, debt to equity ratio for deductibility of interest on related-party loans for the companies is four times the taxpayer’s capital (exceptionally ten for banks and financial institutions). The coefficient of deductible interest is calculated by dividing the amount of four times the average amount of capital by the average daily amount of loans from related parties.
For tax purposes, capital gains may result from disposal against consideration of immoveable assets, shares, IP rights and investment units. Note that capital gains/losses generated in transactions with related parties are also subject to transfer pricing rules, so as that the sale price of asset sold to a related party is the arm’s length price (if agreed price is lower than market price).
Capital gains may be offset only against capital losses incurred in the same year. Unused capital losses in the current tax year may be carried forward and offset against capital gains in the following five years.
Tax incentives and tax credits
CIT Law provides tax credit for investment in new fixed assets and employment of new employees.
The taxpayer which invests or in whose new fixed assets other entity invests more than RSD 1 billion (app. EUR 8 mil.), and which employs at least 100 new employees for indefinite period of time and during the period of investment, has the right to the reduction of tax proportionally to the participation of new fixed assets in the existing fixed assets, for the period of ten years, provided that 100 new employees remain employed during this period. The tax credit starts to apply in the year in which the taxpayer starts to generate taxable profit.
The dividends received by the mother company are not included into the income for corporate income tax purposes.
If the subsidiary is located abroad, any foreign income tax and withholding tax on dividends may be used as a tax credit by the Serbian mother company. Similarly, foreign withholding tax paid on royalties and interest may be credited against the Serbian tax up to the 40% of foreign tax. The tax credit is not available for foreign withholding tax paid on received service fees.
Tax losses may be carried forward and offset against taxable profit in the future tax periods, but not more than 5 years.
Administration and payment of CIT
Corporate income tax is paid on the basis of the annual tax balance and tax return in which the taxpayer should declare the amount of his taxable profit (tax balance) and the amount of tax due.
The tax period for which the tax is assessed and paid is a calendar year, provided that in certain cases the tax year may be different than the calendar year.
The deadline for submission of tax balance and tax return is 180 days starting from the end of the year for which the tax is assessed, i.e. until the end of June of the current year for the preceding year. Along with the CIT return, the taxpayer is required to file transfer pricing documentation. Newly incorporated companies are also required to file to provisional CIT return within 15 days following the registration.
CIT is paid in advance, in monthly (provisional) instalments, calculated on the basis on the amount of tax declared in the previous year. Monthly instalments have to be paid by the 15th of the current month for the previous month.
Withholding tax is payable on the following types of income paid by resident taxpayers to non-resident entities abroad:
Taxable base for withholding tax is a gross income which incorporates withholding tax.
The standard withholding tax rate is flat 20%. The higher 25% tax rate applies to interest, royalties, rental income and service income paid to an entity from the jurisdiction that has the status of a tax paradise.
Withholding tax may be eliminated or reduced on the basis of a double tax treaty between Serbia and recipient’s country of residence. Most of tax treaties prescribe lower tax rates for dividends, interest, royalties, and rental income. Also, most treaties prescribes that the service income is subject to tax only in country of residence of the service provider. The tax return has to be filed even in cases when the relevant income is exempted from the withholding tax.
Beneficial tax rates available under the double tax treaties apply subject to the condition that a non-resident recipient of income obtains the certificate of tax residency (confirming that the recipient of income is a resident of a treaty country) and delivers it to the Serbian payer of income. In addition, a non-resident has to demonstrate that it is a beneficial owner of the income.
Withholding tax has to be paid in the same moment when income is transferred to a non-resident entity. Starting with 1 April 2018, the withholding tax should be paid within three days after payment of the income to non-resident.
Capital gains tax of non-residents
Capital gains generated by non-resident legal persons from the sale of assets in Serbia are also subject to tax at the 20% tax rate provided that the non-resident taxpayer is required to pay tax by himself (through fiscal representative), i.e. in this case tax is not paid on withholding basis.
DTTs in place in Serbia usually provide that the capital gains from disposal of property in Serbia will be taxed in country of residence, save in case of disposal of real property when they are taxed in Serbia. Certain DTTs provide that capital gain form share in Serbian companies will be taxed in Serbia if assets of the company primarily consists of real property.
The Serbian Law on Corporate Income Tax prescribes the standard definition of a permanent establishment (“PE”): the PE is a permanent place of business through which a non-resident taxpayer conducts its business activity.
In the practice only recognized form of a PE is a branch of a foreign entity. In this respect, from taxation perspective, the company undertaking the project should establish a branch in Serbia through which it will carry out the project. The establishment of the branch is also governed by practical reasons, as the company undertaking the project will not be able to effectively carry out the project without establishing some sort of registered presence in Serbia (such as to import equipment necessary for the project, employ staff, acquire necessary permits and licenses and similar).
The branch is required to maintain the same financial reports as fully incorporated companies. Likewise, taxable profits of a branch are established in much the same manner as the taxable profit of a company: by the adjustment of expenses and revenues disclosed in the financial reports in accordance with the International Accounting Standards under the adjustment rules set by the Law on Corporate Income Tax.
In addition to standard adjustments, PE (branch) is required to make certain specific adjustments of expenses, including the following:
Interest and accompanying expenses on loans given to the branch by its parent company are not recognized as tax deductible expense.
Royalties payable by the branch to its parent company are not recognized as deductible expense.
Unlike fully incorporated companies, the branch is not required to pay withholding tax on profits distributed to its parent company, which provides the possibility for significant tax savings.
Accounting standards: The Law mandates the use of IFRS for the preparation of separate and consolidated financial statements of public-interest entities (PIEs) defined as large entities, financial institutions, public companies under the Capital Markets Law, and legal entities categorized as PIEs by the government regardless of the entity’s size. Small and medium-sized entities are required to use IFRS for SMEs, although medium sized entities may elect to apply IFRS. Micro entities may apply IFRS for SMEs or the requirements in the National Rulebook for Accounting and Financial Reporting for the preparation of statutory financial statements.
Accounting regulation bodies: Ministry of Finance
Accounting report currency and language: Accounting reports must be in Serbian and figures must be in Serbian dinars (RSD).
Publication requirements: International Financial Reporting Standards (IFRS) apply for certain companies (full version and the version for SME)
Reporting periods: Business year is equal to calendar year. At request of a company, upon the approval of the Ministry of Finance, the business year may be deviated.
Timeline of submission: Legal entities are required to file their financial statements at Commercial register within 6 months of the accounting reference date. The consolidated financial statements are required to be filed within 7 months of the accounting reference date. For statistical purposes, preliminary figures have to be reported to the Business Register Agency by end of February for the previous year.
Professional accountancy bodies: Chamber of Authorized Auditors of Serbia (KoR), Audit Public Oversight Board (APOB), Serbian Association of Accountant and Auditors (SAAA)
Certification and auditing: In accordance with the Audit Law, the following entities are obliged to audit of financial statements:
Audit appointments in Serbia are not normally for a fixed period. An auditor can normally be appointed every year, latest by 30 September (the deadline can be prolonged in the case of agreeing on the audit of consolidated financial statements). Serbia does not have any rules relating to mandatory rotation of audit firms but there are rules regarding certified auditor in charge rotation of every 7 years, with at least 2 years of "holiday" before reappointment of the same certified auditor in charge.
Subject to the above, most small private limited liability companies do not need an audit of their annual accounts - unless the company's articles of association say it must or enough shareholders ask for one. Alternatively, there may be a requirement specified by other third parties for an audit (i.e. in a bank loan/overdraft agreement). For a subsidiary company there are no exemptions from audit or other advantages
Audit activity can also be conducted by the independent auditors-entrepreneurs.
Classification of legal entities by size:
Classification per size
1) Average no. of employees up to 10
2) Revenue 700.000 EUR in RSD counter value
3) Average value of the business assets 350.000 EUR in RSD counter value
1) Average no. of employees 10 – 50
2) Revenue 700.000 – 8.800.000 EUR in RSD counter value
3) Average value of the business assets 350.000 – 4.400.000 EUR in RSD counter value
1) Average no. of employees 50 – 250
2) Revenue 8.800.000 – 35.000.000 EUR in RSD counter value
3) Average value of the business assets 4.400.000 – 17.500.000 EUR in RSD counter value
1) Average no. of employees above 250
2) Revenue above 35.000.000 EUR in RSD counter value
3) Average value of the business assets above 17.500.000 EUR in RSD counter value
Transfer pricing scope: Transfer pricing documentation file should be submitted by all entities who had transactions with related parties during a fiscal year, irrespective of these transactions were domestic or cross-border.
Related parties: An entity is deemed a related party if it has the possibility of control or considerable influence on the business decisions made. Ownership (direct or indirect) of at least 25 percent of the shares in the capital is considered as the possibility of control. Possessing at least 25 percent of the voting rights is considered as having an influence on business decisions. Furthermore, companies are deemed to be related if the same persons directly or indirectly participate in the management, ownership or control of both companies in the manner described above. Members of the immediate family of shareholders who own at least 25 percent of shares or hold at least 25 percent of voting rights are also deemed as related parties (but the companies owned by those family members are not).
In addition, any company-resident of a jurisdiction with a preferential tax system is deemed to be a related party regardless of the percentage of direct or indirect ownership or voting rights in a Serbian company.
Transfer pricing methods: Serbian transfer pricing provisions and documentation requirements are generally based on the OECD Guidelines. There is no priority in the selection of methods; the priority is to use internal comparable data. If there is no internal comparable data available, taxpayers may choose any of the defined traditional transaction methods (CUP, cost-plus and resale-minus) and transactional profit-based methods (TNMM or profit split method).
The taxpayer is also allowed to use any other unspecified method that is reasonable to apply in a given circumstance, assuming that the specified methods cannot be applied. Tax authorities are familiar with the Amadeus database usage, which is unofficially recommended source of comparable.
Transfer pricing study: A transfer pricing documentation study must be submitted along with the tax balance sheet. The tax balance sheet needs to disclose the volume of transactions with related parties, as well as the amount of the tax base adjustment relating to transfer pricing if any. Transfer pricing study must contain information on the group, industry, functional and economic analysis, as well as the assessment of “arm’s length” nature of all of the transactions. In case a transaction is assessed not to be at “arm’s length”, the calculation of respective adjustment has to be made. The prescribed elements of the transfer pricing documentation are:
Transfer pricing study must be filed in Serbian language.
Transfer pricing regulations allow taxpayers to submit a so-called “short transfer pricing report” (containing only information about the related party and the type and amount of the transaction) for all transactions (except loans) that meet one of the following conditions:
Interest rates can also be assessed using an interest rate prescribed as arm’s length by the Ministry of Finance. Taxpayers can opt to use another transfer pricing method to set an interest rate, but this implies an ‘all or nothing’ approach i.e. all intercompany loans can either be assessed by using the published interest rates or by using transfer pricing methods.
The Rulebook on Transfer Pricing states that the search for comparable must start with local companies and only if insufficient companies are found, the search for comparable can be broadened to other jurisdictions. The consequence of not starting the search with local comparable can be that the comparable sample may be viewed as inadequate allowing the Tax Authorities to assess the arm’s length nature of transactions by themselves.
Who is obliged to prepare: All entities conducting transactions with related parties are obliged to present the volume of transactions and explain the basis for adjustments or for not having adjustments by using any of the methods prescribed. The entities that have transactions with related parties up to 8 million RSD are obliged only to present a summary stipulating main data on (a) nature of transaction, (b) related party and (c) the volume of transaction.
Submission dates: The documentation needs to be submitted along with the CIT return. However, an additional deadline may apply for amending the documentation as well as for providing additional information. Such additional deadline is defined as ‘adequate’ or ‘appropriate’ and may vary from 30 to 90 days.
Thin capitalization rules: Interest and accompanying expenses are not recognized on loans in excess of 4:1 debt-to-equity ratio (10:1 for banks and leasing companies).
Advance transfer Pricing Agreements (APA): Not possible.
BEPS Actions – Implementation timeline
No timeline has been announced.