Investment in Serbia kpmg.rs
KPMG d.o.o. Beograd
© 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Investment in Serbia is one of a series of booklets published by KPMG to provide information to those interested in investing or doing business in various countries. This publication has been prepared by KPMG Serbia. It covers relevant areas, but it is not designed to provide detailed information necessary to make investment decisions. Its purpose is to provide some general guidelines on investment and business in Serbia. The information presented in this publication is carefully chosen to reﬂect the situation as at 1 October 2010. Considering the speed with which the economic situation is changing, there is a need for further advice before making speciﬁc decisions. Further information on matters discussed in this publication may be obtained by contacting KPMG Serbia in Belgrade. Belgrade, October 2010
Senior Partner: Nina Bulatovic
KPMG d.o.o. Beograd Kraljice Natalije 11 11000 Belgrade, Serbia T: +381 11 20 50 500 F: +381 11 20 50 550 E: email@example.com
© 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Contents Chapter 1 General Information About Serbia Geography and Climate History and Government Population and Language
Chapter 2 Opportunities for Foreign Investors Economic Trends Main Macroeconomic Indicators Real Wages Foreign Trade Balance Foreign Debt Foreign Direct Investment Government Policies EU Integration Forms of Foreign Investments Concessions
Chapter 3 Business Law Types of Business Entities Joint-stock Company (Akcionarsko društvo – a.d.) Limited Liability Company (Društvo sa ograničenom odgovornošću – d.o.o.) Representative Ofﬁce (Predstavništvo) Branch (Ogranak)
Acquisition of business entities Reorganization of business entities
Chapter 4 Bankruptcy Accounting Auditing Banking System
Chapter 5 Taxation of Business CORPORATE INCOME TAX Double Taxation Conventions INDIRECT TAXES Value Added Tax Excise Duties Customs Duties Property Taxes
Chapter 6 Taxation of Individuals Types of Taxable Income Mandatory Social Security Contributions
Chapter 7 Labour Employment of Expatriates
Chapter 8 Acquisition and Tenure of Property
Restitution Leasing Privatization Government Controls Antitrust Law
Foreign Exchange Regulations
Useful Addresses Governmental Ofﬁces Financial Institutions Other Institutions
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General Information About Serbia
Geography and Climate Serbia is located in south-eastern Europe, on the Balkan Peninsula. It lies between
latitude 46°11’ and 41°52’ North and longitude 23°01’ and 18°51’ East. The country
borders Hungary to the North, Romania and Bulgaria to the East, Albania and The
Former Republic of Macedonia to the South and Montenegro, Croatia and Bosnia and
Herzegovina to the West. The country’s total land area is 88,361 km2.
Serbia is placed at the crossroads between Central, Southern and Eastern Europe.
The geographical position of the country is favourable because it is situated on the
main routs, which connect Western Europe with Turkey and Middle East. International
motorway E-75, which partially goes through Serbia, is a signiﬁcant European rout.
This road is classiﬁed as TEM (Trans European Motorway).
The landscape of Serbia is heterogeneous. The northern area, the autonomous
province of Vojvodina is a rich and fertile plain (part of the Pannonian Plain), and offers
outstanding conditions for the agricultural production with the total agricultural area of
62,740 km2. The rest of the land is predominantly mountainous. The highest peak is
Djeravica on the Prokletije Mountain, rising to 2,656m.
Most of the country has a continental climate with hot summers and cold winters.
In the mountains of the interior the high altitude moderates summer temperatures and
makes winters more severe with colder temperatures and heavy snowfall.
Forests cover nearly 30,000km2 of the territory.
There are many rivers with huge hydro-energetic potential (the Danube, Tisa, Tamis,
Morava, Drina, Sava, etc.). The total length of navigable rivers and channels is 1,395
km. The Danube, one of Europe’s most important waterways ﬂows through Serbia
into Romania. Other rivers, (Sava, Drina, Morava) are also navigable and are used for
commercial transport. Hydro energetic potential of Serbia is around 70,000kWh and
near 60% of it is utilized through power plants.
The country is rich in geothermal waters as well, which are used in balneological
purposes. There are around 60 spas and they represent signiﬁcant tourist potential of
the country. Serbia ranks among European countries which are the richest in springs
of mineral waters. Mineral waters of Serbia rate as high quality in the world because of
the adequate elemental composition of the ground, as provided by soil rich in different
The primary natural resources of Serbia are minerals. There are signiﬁcant deposits
of antimony and lead. Serbia is also rich in coal, steel, copper, aluminium and other
strategic raw materials.
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Serbia has ﬁve national parks (Fruska Gora, Kopaonik, Tara, Djerdap and Sar Mountain) and many national natural reserves. These are regions with remarkable natural beauties. Some of these national parks contain archaeological sites and cultural monuments of great historical and national importance. The capital of Serbia is Belgrade with a population of approximately 1.7 million. Belgrade is situated at the conﬂuence of the Sava and the Danube, in the northern part of the country. Other major cities are Novi Sad, Kragujevac, Nis and Pristina. Within its territory, Serbia has two provinces. The Autonomous Province of Vojvodina is located in the northern part of the country. Its capital and the largest city is Novi Sad. Kosovo is a province in southern Serbia, which is under the European Union and the United Nations administration.
History and Government Over the centuries Celts, Thracians, Romans, Byzantium and Turks ruled the territory of present Serbia. The Serbs settled in the Balkan Peninsula in the VI and VII centuries. The Serbian state as known today was created in 1170 by Stefan Nemanja, the founder of the Nemanjic dynasty. At the time of Tsar Dusan, in the middle of the XIV century, the Serbian state was the most powerful political and cultural entity in the Balkans. The medieval Serbian state was greatly inﬂuenced by the Byzantine Empire, but its decline started with the Ottoman Empire invasion at the end of the XIV century and led to its ﬁnal collapse in 1459. Independence movements under Ottoman rule started with the two national uprisings in 1804 under Karadjordje and in 1815 under Milos Obrenovic. Serbia was internationally recognized at the Berlin Congress in 1878. The Balkan Wars in 1912 and 1913 brought the Ottoman presence to an end in the Balkans. After the First World War and collapse of the Austro-Hungarian Empire in 1918, the new state the Kingdom of Serbs, Croats and Slovenians was founded. In 1929 it was renamed into the Kingdom of Yugoslavia. The Kingdom of Yugoslavia abdicated under the attack of Germany in April 1941. The “second” Yugoslavia was created after the end of the war as a federal state. The Socialist Federal Republic of Yugoslavia (“SFRY”) consisted of six republics and two autonomous provinces. During the 1950s and 1960s, Yugoslavia established a strong international presence by establishing a signiﬁcant international position between East and West. The situation in the country started to change in the late 1980s due to growing economic, political and national disaffection between the six republics. This led to the violent disintegration of the SFRY in 1991 and 1992. Consequently, ﬁve new countries appeared on the world political scene: Slovenia, Croatia, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia and the Federal Republic of Yugoslavia (“FRY”). The FRY, the third republic, was promulgated on 27 April 1992; it consisted of Serbia and Montenegro. The FRY ceased to exist when the Constitutional Charter was enacted, thus creating the State Union of Serbia and Montenegro. On 5 June 2006 Serbia declared independence as the successor of the previous state, following the referendum held in Montenegro to decide the issue.
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The Serbian Parliament adopted the new constitution and submitted it in October 2006 to a referendum where citizens approved the constitution act. The President of the country is elected for a period of 5 years and nominates the candidate for Prime Minister whose appointment must be ratiﬁed by the Parliament. In February 2008, Mr. Boris Tadic was re-elected President of the Republic of Serbia. Parliament is the legislative body with a total number of 250 members. Last parliamentary elections were held in 11 May 2008 and yielded the following results: • Democratic Party (DS) – 38% • Serbian Radical Party (SRS) – 29% • Democratic Party of Serbia and New Serbia (DSS and NS) – 12% • Socialist Party of Serbia (SPS) – 8% • Liberal Democratic Party (LDP) – 5% The remaining 8% went to other running parties. The Democratic Party and Socialist Party of Serbia formed a left wing government in June 2008. Mr. Mirko Cvetkovic has been elected Prime Minister.
Population and Language The population of Serbia is 9,396,411 (2002 census). The average population density is 106 per square kilometre, and the most populated area is Vojvodina. Serbia is a multi-ethnic state. Serbs are the most numerous ethnic group accounting for 66% of the total population. Albanians make up 17% of the population, and other minorities include Bosnians, Hungarians, Croats, Romanians, Slovaks, Bulgarians, etc. Religious afﬁliation of the population is as follows: Orthodox Christian 85%, Roman Catholic 5.5%, Muslim 3%, Protestant 1%. Elementary education is obligatory and free for everyone. Approximately 11% of the population has college/university education. The ofﬁcial language in Serbia is Serbian and the ofﬁcial alphabet is Cyrillic. Latin alphabet is widely used as well. In areas inhabited by national minorities, the languages and alphabets of the minorities are also in ofﬁcial use.
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Opportunities for Foreign Investors
Economic Trends Following political changes in October 2000, Serbia headed towards recovery and further development based on open market economy and an EU compliant economic system. The two main goals of economic policy are macroeconomic stability and a high rate of economic growth. This implies economic reforms, democratic surroundings and rapid normalization of relations with international ﬁnancial institutions. One of the strategic goals of the country is accession to the European Union, which requires harmonization of the legal and economic system with EU standards and further economic growth.
Main Macroeconomic Indicators After the year 2000 the inﬂation was sharply cut by using measures of tightened ﬁscal and monetary policy. Signiﬁcant results have also been achieved in the area of economic growth. Table 1 – Breakdown of inﬂation, GDP growth and unemployment rate 2005 – 2009: Year
GDP growth rate
GDP per capita (EUR)
*Estimation by the Ministry of Finance **Based on April 2010 polls Source: Statistical Bulletin of the National Bank of Serbia, Bulletin of the Ministry of Finance, Bulletin of the National Employment Service
Unemployment in the 1990’s kept growing as production levels in the large state-owned enterprises kept decreasing. In the past six years, employment in the socially-owned sector had a constant 3% annual decrease, so that the total number of employees © 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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has been reduced by 20%. Therefore, the problem of unemployment remains a great challenge for the creators of economic policy in the forthcoming period. According to statistical and economic research conducted before the onset of the world economic crisis, future expectations concerning GDP growth rate and inﬂation rate are promising. It is expected that the GDP growth rate will become positive again in 2010. Increase in the level of foreign investments is the basic precondition of further economic development.
Real Wages After considerable decrease during the last decade of the 20th century, as of 2000 the level of real wages is increasing steady, in nominal as well as in real terms. However, during this period wages rose faster than productivity and GDP, which was the additional generator of inﬂation. Table 2 – Breakdown of average gross and net wages in the period 2005 – 2010:
Monthly average wage (RSD)
Average Exchange rate
Monthly average gross wage in EUR
*June 2010 data Source:Ofﬁcial Gazette of the Republic of Serbia, the National Bank of Serbia
Foreign Trade Balance Due to the lifting of economic sanctions, liberalization of foreign trade and the lack of competitiveness of the Serbian economy, in the period after year 2000 imports rose (in absolute terms) much faster than exports, which created a signiﬁcant foreign trade deﬁcit. Main export products are iron, steel, light metals, sugar, fruits, etc. Imports are dominated by oil, motor vehicles, industrial machines etc. The level of foreign currency reserves has also increased during the last ﬁve years, mainly due to the loans received from international ﬁnancial institutions, the revenue from privatization of socially-owned companies, as well as from individual transfers of Serbs living abroad to their families in Serbia. It is expected that the 2010 foreign trade deﬁcit will be reduced due to the effects of world economic crisis and sharper decrease of imports than exports, as well as depreciation of the dinar with respect to the euro.
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Table 3 – Breakdown of export, import, foreign trade deﬁcit and foreign reserves in the period 2005 – 2010 (in EUR million): Year
Foreign trade deﬁcit
Foreign currency reserves
*January–May 2010 data Source: Ministry of Finance and the National Bank of Serbia
Foreign Debt In January 2010 Serbia’s total foreign debt amounted to EUR 22.8 billion (approximately 64.7% of GDP). As of October 2000 several meetings were held with the London and Paris Clubs of Creditors concerning the restructuring of foreign debts. On 15 November 2002 the Paris Club of Creditors agreed with the then FRY to write off 66% of its debt. Furthermore, general agreement with the London Club of Creditors was signed on 7 July 2004 specifying write off of approximately 62% of total debt. The rise in total amount of foreign debt is related to the increase in the volume of corporate and retail loans in Serbia. Table 4 – Breakdown of foreign debt in the period 2005 – 2009: Year
Foreign debt (in EUR million)
Foreign debt (as % of GDP)
*Estimation by the Ministry of Finance Source: Statistical Bulletin of the National Bank of Serbia
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Foreign Direct Investment Owing to the acceleration of the privatization process and the efforts directed at the improvement of the overall investment environment, as of 2000 Serbia managed to attract a signiﬁcant amount of foreign direct investments. Table 5 – Breakdown of foreign direct investment in the period 2005 – 2010: Year
Net foreign direct investments (in EUR million)
*January–May 2010 Source: Ministry of Finance
Considerable increase in the level of foreign direct investment in 2006 is the result of the sale of the mobile phone operator (Mobi 63) to the Norwegian Telenor for EUR 1,513 million. In September 2008 the Serbian Government signed a contract with the Italian FIAT on establishing a joint venture company. Estimated value of the investment that will be undertaken amounts to approximately EUR 950 million. In 2010 YURA Corporation from South Korea started production of automotive parts in Serbia. In January 2008 Russia and Serbia signed an oil and gas agreement which includes the acquisition of state-owned oil company Naftna Industrija Srbije (NIS) by GazpromNeft. GazpromNeft paid EUR 400 million for 51% of shares in NIS, with payment realized in January 2009. Under the same arrangement GazpromNeft’s EUR 500 million investments in modernization of NIS, development of gas storage facility in Banatski Dvor in Serbia and the construction of the Serbian segment of the South Stream pipeline have been agreed. As a part of the South Stream project, a 400-km (248-mile) leg will be built in Serbia, for Russian natural gas supplies to the EU market. In order to boost the level of direct investments, the Government has issued the Decree on the Terms and Conditions of Attracting Direct Investments (ﬁrst time issued in 2006 and amended in the following years). The new Decree has been issued in 2010. Namely, the substance of this measure is assignment of the non-refundable funds to companies involved in manufacturing activities, the internationally marketable services sector and the research and development sector.
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Table 6 – Direct investment incentives: Sector
Internationally marketable services
Available funds in EUR per new employee
from 2,000 to 10,000
from 2,000 to 10,000
Source: Serbian Investment and Export Promotion Agency
In addition, the Government provides support for investments made into infrastructure. There is a quite detailed list of requirements needed in order to obtain the right for Government support.
Government Policies After political changes in October 2000 the Government adopted a comprehensive reform agenda. With rapid transition and the inclusion of the economy in the international community as the basic aims, attempts are made to strengthen the economy and modernize the country. Despite the complicated political situation in 2004 – 2008 Serbia managed to attract a signiﬁcant number of foreign direct investments. The forthcoming period is planned to be a period of accelerated reforms and increasing efﬁciency of the economy and government administration. The milestones of future economic policy include: • restrictive monetary policy and the strengthening of foreign exchange reserves; • tightening of ﬁscal policy; • abolition of administrative price control (only the prices of public monopolies and municipal services are still under control); • further trade liberalization (aimed at creating an environment harmonized with EU and WTO standards). Major institutions responsible for development and implementation of measures related to improvement of the investment environment are: the Ministry of Finance, the Ministry of Trade, the Ministry of Economy and Regional Development, the Serbian Investment and Export Promotion Agency and the Serbian Chamber of Commerce. Excellent geographical location, available, well trained and cheap labour force, the Free Trade Agreements with Russia, Turkey and Belarus, the Central European Free Trade Agreement (CEFTA) and attractive tax regime are some of the features of the Serbian investment environment that attracted large multinational companies (e.g. US Steel, Ball Packaging, Stada, Telenor, Mobilkom Austria, FIAT, Philip Morris, British American Tobacco, Gorenje, etc.) in choosing Serbia as a suitable place for investment.
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EU Integration In April 2005 Serbia and Montenegro received a positive Feasibility Study Report on its capacity to implement European standards required for EU accession. In October 2005 Serbia and Montenegro commenced ofﬁcial negotiations with the EU on the Stabilization and Association Agreement (SAA), which is the ﬁrst step toward full membership in the EU. In December 2006 Serbia signed the agreement on membership in the NATO program Partnership for Peace. In May 2008 Serbia concluded the Stabilization and Association Agreement with the European Union which is still subject to ratiﬁcation by EU Member States. At the end of 2009 the Government of Serbia submitted a request for membership in the EU.
Forms of Foreign Investments The following legal forms are available to foreign investors: • general partnership; • limited partnership; • joint-stock company; • limited liability company; • representative ofﬁce; • branch. All of the above forms of business activity need to be registered with the Serbian Companies Registry. Incentives for Foreign Investment A foreign investor may, after payment of liabilities in accordance with domestic regulations, freely and promptly transfer abroad all ﬁnancial and other assets concerning foreign investments, in a convertible currency, in particular: • gains from a foreign investment (proﬁt, dividends, etc.); • assets appointed upon termination of a company with a foreign investment or upon termination of a contract to invest; • amounts received from the sale of shares in a company with a foreign investment; • amounts received after reduction of the share capital of a company with a foreign investment, etc.; • the import of items which represent investment by a foreign investor is free, provided that such items comply with environmental protection regulations; • a foreign investor and a company with investment enjoy tax and customs beneﬁts in compliance with the law;
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• the import of equipment based on the investment by a foreign investor, except for passenger motor vehicles and slot machines for entertainment and games of chance, is exempt from customs and other import duties; • the liberalization of property laws made it possible for foreigners to own real estate; • the procedure for obtaining residence and work permits and for employing foreign experts has been simpliﬁed; • there are special incentives for foreign investment in free zones.
Concessions The Law on Concessions came into force on 4 June 2003. The Law prescribes conditions and procedures for obtaining a concession license for exploiting natural resources, state owned property and for performing activities of public interest. The Law introduces B.O.T. (build-operate-transfer) system concessions. The concessionaire can be a domestic, as well as a foreign entity. A concession is given to those entities which fulﬁl conditions speciﬁed by the Law, the concessions act and public tender. The maximum period for which a concession license is given is 30 years. A concession license is granted through public tender and is managed by a tender commission. The tender commission prepares a report which is submitted to the Government. The Government makes the ﬁnal decision on concessionaire selection within 30 days of receipt of the report. The concession contract is signed between the Government of Serbia and the concessionaire. The concessionaire is obligated to set up a company for conducting concessional activities, in the form of a limited liability company or a joint-stock company, within 60 days of execution of a concession contract. International or domestic arbitration is allowed for all disputes, excluding those relating to immovable property.
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The main laws regulating business activities in Serbia are the Law on Foreign Investments and the Company Law. The Law on Foreign Investments became effective on 26 January 2002. The Law on Foreign Investments deﬁnes the foreign investor as: • a foreign legal entity with headquarters in a foreign country; • a foreign individual; • a citizen of Serbia with permanent or temporary residence abroad for a period of more than one year. Foreign investors may conduct their business activities on the territory of Serbia under the same conditions as domestic investors (national treatment). The rights of foreign investors applicable at the moment of registration of foreign investment into the Companies Registry may not be restricted by subsequent amendments of laws and other regulations. In order to stimulate foreign investments, the Law on Foreign Investments enables import of equipment (except for motor vehicles, casinos and entertainment machines) to be exempted from paying customs duties. According to this Law, the contribution of a foreign investor and assets of an enterprise with foreign ownership interest cannot be subject to expropriation or another measure with equal effect, except in the case when public interest is speciﬁed in the law or on the basis of the law and with compensation. Foreign investments are protected by the Constitution, the Law on Foreign Investments, the Foreign Exchange Operations Law and the Law on Free Zones. The Law on Foreign Investments guarantees the following rights to the foreign investors: • the restitution of investment, or the remainder of investment in case of premature termination, expiry or termination of the investment agreement, or dissolution of company; • a share in equity and its restitution in case of dissolution of company; • unrestricted transfer of proﬁts abroad, restitution of investment and share in equity (also provided by the Foreign Exchange Operations Law) after all obligations towards the State are settled. The Company Law, which became effective as of 30 November 2004, introduced a great number of new solutions in the respective ﬁelds. The Law introduced a corporate © 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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governance framework which is principally in line with international practice. Principal intention of the lawmaker is to grant founders of a company more freedom with respect to their internal relations and relations of founders with the company. Companies are deﬁned as legal entities founded by individuals and/or legal entities on the basis of founding acts and for the purpose of generating proﬁt. The Company Law provides two types of corporations, the limited liability company and the joint stock company. As a result of the ﬂexibility it offers, a limited liability company is almost regularly chosen by closely related companies and subsidiaries of foreign corporations. The Company Law enables a company, regardless of where it is headquartered (in Serbia or abroad), to establish one or more branches.
Types of Business Entities Joint-stock Company (Akcionarsko društvo – a.d.) • a joint-stock company is a company founded by one or more legal entities/individuals; • its share capital is divided into shares at speciﬁed par value, which may not be less than EUR 5; • a joint-stock company is founded under the Memorandum of Association if there is more than one founder, and if it is founded by one founder – under the Deed of Incorporation; • the company exists independently of its shareholders, obligations incurred through this legal form could not be enforced on the assets of a parent company; • a joint-stock company can be either closed or open. Closed companies may not offer shares publicly and may not have more than 100 shareholders; • contributions of the shareholders may be pecuniary or in kind, and in the case of a closed joint stock company, they may be in the form of labour and services; • the pecuniary portion of initial capital of a closed joint-stock company cannot be less than the RSD equivalent of EUR 10,000, calculated at the exchange rate valid on the date of payment; • the pecuniary portion of initial capital of an open joint-stock company cannot be less than the RSD equivalent of EUR 25,000; • issued shares may be either common or preferred. Besides issued shares, a jointstock company may have authorized shares. The number of authorized shares must be stated in the Foundation document; • a shareholder of a joint-stock company is an individual or a legal entity inscribed as the owner in the record of ownership kept with the Central Registry of Securities; • existing shareholders have the rights of pre-emptive purchase in respect of shares of new issue;
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• closed joint stock companies have the following corporate bodies: the General Meeting and either the Managing Director or the Board of Directors; • open joint stock companies must have: the General Meeting, the Board of Directors, the Executive Board and the company’s Secretary. The listed open joint-stock company must also have an internal auditor or supervisory board or board of auditors; • a joint-stock company is entitled to increase and decrease share capital. As a rule, the General Meeting is authorized to pass such resolutions; • the business name of a joint-stock company must include the abbreviation “a.d.”. Limited Liability Company (Društvo sa ograničenom odgovornošću – d.o.o.) • a limited liability company is a company established for business activities by legal entities/individuals. Founders are responsible for debts and liabilities of the company up to the amount of their investment; • a limited liability company may have up to 50 members; • the capital of a limited liability company is divided into stakes – which are not securities and are not listed and traded in an organized market; • a limited liability company is founded under the Memorandum of Association – if there is more than one founder, and if it is founded by one founder – under the Deed of Incorporation; • members of a limited liability company are entitled to sign the Stakeholders Agreement in order to customize mutual rights and responsibilities to the needs of the company; • stakes of the members may be pecuniary, in kind and in the form of labor and services; • the pecuniary portion of initial capital of a limited liability company cannot be less than the RSD equivalent of EUR 500; • the Book of Stakeholders must be kept in the registered seat of a company; • the bodies of a limited liability company are: the General Meeting, the Director or the Board of Directors. The Internal Auditor or the Auditing Board are set up only if provided in the Memorandum of Association/Deed of Incorporation or Stakeholders Agreement; • the General Meeting is authorized to pass a resolution on increase or decrease of capital; • the business name of a limited liability company must include the abbreviation “d.o.o.”
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Representative Ofﬁce (Predstavništvo) • a representative ofﬁce needs to be registered with the Companies Registry; • this legal form is registered with a view to providing insight into economic developments in Serbia, as well as timely, complete and reliable information on the foreign trade regime, foreign exchange regime, foreign investment regulations, etc. to the founder; • a representative ofﬁce may not execute contracts, but may be engaged in preliminary and preparatory activities for concluding contracts between domestic entities and its founder; • a representative ofﬁce is not a taxpayer in respect of VAT and corporate income tax. Branch (Ogranak) • a branch needs to be registered with the Companies Registry; • when registering a branch, the foreign head ofﬁce needs to supply a certiﬁed statement whereby it assumes all obligations that may arise from a branch’s business activities; • as with the representative ofﬁce it is not endowed with legal entity status, but may conclude and execute contracts; • a branch is a taxpayer in respect of VAT and corporate income tax.
Acquisition of business entities In Serbia acquisition of business entities, particularly, limited liability companies and joint stock companies, is regulated by the Company Law, the Law on Registration of Business Entities and the Law on Securities. Foreign legal entities and individuals could acquire and sell up to 100% of ownership interest in a limited liability or joint stock company. In order to execute the procedure of selling shares of a limited liability company, the following documents should be prepared: • Share Purchase Agreement (SPA) concluded between seller and buyer of shares; • Amendments of the founding act (Memorandum of Association or Deed of Incorporation) of the company whose shares are sold. Upon purchase of the shares, the following steps should be taken: • Certiﬁcation of the SPA and amendments of the company’s founding by a court; • Inscription of a new shareholder into company’s book of shareholders and • Registration of the new shareholder with the Companies Registry.
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The procedure of executing the purchase of shares is pretty straightforward and takes approximately three weeks. The impact of anti-trust legislation also needs to be assessed in each situation. Namely, based on the criteria in the Law on Protection of Competition, it should be determined whether the particular transaction would require market concentration clearance of the Competition Commission. The transfer of shares of closed joint stock company may be restricted by a company’s founding act or Articles of Association. The transfer of shares of opened joint stock company is not restricted. The ownership over shares changes at the moment when the acquisition is recorded with the Central Registry of Securities. Regarding shares traded on the ofﬁcial securities market (stock exchange or regulated off-exchange market) of Serbia, the acquirer is obliged to notify the company (the issuer of shares), the Securities Commission and the Competition Protection Commission if his share of the company’s voting rights exceeds certain level.
Reorganization of business entities The reorganization of business entities in Serbia is governed by the Company Law. The reorganization of business entities includes status changes and changes of company’s legal forms. Status changes Status changes of business entities include mergers, demergers and spin-offs. Status changes usually include companies with the same legal form (e.g. mergers of joint stock companies or limited liability companies). However, companies which have a different legal form could also be involved in status changes. Status changes are possible even if companies are in liquidation. The most frequent status changes are merger by acquisition and spin-off. Merger by acquisition The merger by acquisition is a type of status change whereby a company continues to carry on its activities, while the other company ceases to exist, transferring its assets and liabilities to the successor company. The shareholders of the company which will cease to exist will obtain shares/stakes in the successor company and potentially cash consideration of up to 10% of the par value of shares/stakes. Mergers take place on the basis of a merger agreement which must be approved at the general meeting. The exchange ratios of the shares and potential cash consideration should be set in the merger agreement. Amendments of the successor company’s Founding Act should also be executed and the ﬁnancial statements of the companies involved in the merger should be obtained.
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The merger becomes legally effective once it is registered with the Companies Registry. The joint stock company should register with the Central Registry of Securities the shares given to shareholders of the company which ceased to exist by merger. Spin-off Spin-off is a type of status change where a new company is created from the divided company (which continues to exist). The divided company transfers a certain amount of assets and pertaining liabilities to a new company, and at the same time it decreases its share capital for the amount of share capital of the new company. The shareholders of the divided companywill obtain shares/stakes in the new company and potentially cash consideration up to 10% of the par value of shares. Spin-off takes place on the basis of a spin-off agreement which is also a founding act of a new company. The General Meeting of a divided company should pass a decision on adopting spin-off agreement and audited spin-off balance. Further, the divided company’s Founding Act should also be amended. Spin-off becomes legally effective once it is registered with the Companies Registry. Prior to registration of the spin-off with the Companies Registry, the decrease in the share capital of the divided company should also be registered. Further, the formation of a new company should also be registered with the Companies Registry. A company could also be divided through: 1) demerger by acquisition; 2) demerger by formation of a new company; 3) demerger by both acquisition and formation. Upon division of the company by acquisition or by formation of a new company, the divided company will cease to exist without liquidation and this is the main difference between a demerger and a spin-off. Changes of legal forms The Company Law allows a company to convert its legal form, whereby the company does not cease to exist but rather changes its legal position and structure. The conversion of a company’s legal form becomes legally effective upon registration with the Companies Registry. The most frequent changes of companies’ legal forms are when a joint-stock company converts into a limited liability company and vice versa. The company’s General Meeting should pass a Decision on conversion and amend its Founding Act. The way and conditions under which the company’s stakes will be converted in shares (and vice versa), in money or other assets, should be speciﬁed in the Decision on Conversion.
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The new Law on Bankruptcy became effective on 18 January 2010. According to this Law, bankruptcy procedure may be applied to an insolvent debtor if at least one of the following grounds for bankruptcy exists: • longer duration of inability to settle liabilities; • imminent inability to settle liabilities; • excessive indebtedness; • failure to act according to adopted plan of reorganisation, and when a plan of reorganisation is effected fraudulently or illegally. Longer duration of inability to settle liabilities exists when a bankrupt debtor cannot settle monetary liabilities within a period of 45 days as of their due date or completely stops all payments for a continuous period of 30 days. Imminent inability to settle liabilities exists when a bankrupt debtor gives probable grounds for doubt as to his ability to settle existing monetary liabilities as they mature. Excessive indebtedness exists when a bankrupt debtor’s liabilities exceed his assets. Failure to act according to adopted plan of reorganisation exists when a bankruptcy debtor fails to comply with a plan of reorganisation or acts in violation of the plan of reorganisation in a way that signiﬁcantly jeopardizes the execution of such plan. Bankruptcy procedure can be executed either as a bankruptcy or as a reorganization. Bankruptcy is performed when creditors’ claims are settled through sale of entire property owned by the debtor. However, reorganization represents settlement of creditors in accordance with the reorganization plan. The reorganization plan has to be submitted by authorized parties within 90 days from the day of opening of a bankruptcy procedure. Filing for bankruptcy procedure can be made by the creditor, bankruptcy debtor or liquidation administrator. The new Law prescribes a possibility of initiation ex ofﬁcio of the bankruptcy proceeding. Bankruptcy proceedings are initiated automatically for all companies whose bank accounts are frozen for three years continuously (for companies that fulﬁl this condition until the end of 2010), for all companies whose bank accounts are frozen for two years continuously (for companies that fulﬁl this condition in 2010 until the end of 2011) and also for all companies whose bank accounts are frozen for one year continuously. The Forced Settlement Department of the National bank of Serbia is
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obliged to provide the courts on a monthly basis with reports on accounts of companies whose bank accounts are frozen for the prescribed number of years. The court procedure has been simpliﬁed by cancellation of the bankruptcy council, leaving only a bankruptcy judge, receiver and creditors` bodies. The bankruptcy judge, among other things, decides on commencement of pre-bankruptcy and bankruptcy procedure and appointment and dismissal of the bankruptcy administrator. Starting from 1 July 2010, the bankruptcy administrator is chosen randomly from the list of active bankruptcy administrators for the territory of the competent court. The active bankruptcy administrator holds a license, obligatory insurance up to the amount of EUR 30,000 and is registered as an entrepreneur. The Agency for Licensing of Bankruptcy Administrators shall continue to issue and to cancel licenses, but now with wider authorizations in ``professional supervision`` of the bankruptcy administrators through, for example, declaring warnings and ﬁnes for receivers performing their activities in an unprofessional manner. The assembly of creditors and committee of creditors are bodies comprised of creditors. The assembly of creditors decides whether a procedure will be carried out as a bankruptcy or as reorganization. Creditors are divided by ranks, on the basis of the legal nature of their claims. Debtor’s assets may be sold through public auction, by public invitation for offers or through direct agreement with buyers. The bankrupt debtor may be sold as a legal entity or through sale of its functional parts, if the committee of creditors grants its consent.
Accounting The Law requires annual ﬁnancial statements of companies in Serbia, as well as branches of foreign companies, to be prepared in accordance with International Financial Reporting Standards (IFRS). In practice, there are fundamental variations between IFRS and standards applied in Serbia, mainly due to later translation and publication of new/amended standards, as well as opinions issued by the Ministry of Finance which sometimes allow treatments different from those provided by IFRS. The ﬁnancial year is the calendar year. However, legal entities related with foreign companies whose ﬁnancial year differs from the calendar year may have a different ﬁnancial year end, after permission is obtained from the Ministry of Finance (insurance companies, ﬁnancial leasing companies, pension funds, etc. obtain permission from the National Bank of Serbia). Banks are not allowed to have a ﬁnancial year that differs from the calendar year. According to the Law, all companies are divided into three groups (small, medium and large) by their number of employees, income and assets as stated in the annual reports of the previous ﬁscal year. The thresholds are the following: • average number of employees in the range from 50 to 250. • total annual income in the range from EUR 2,500,000 to EUR 10,000,000.
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• average value of assets (at the beginning and the end of the ﬁnancial year), in the range from EUR 1,000,000 to EUR 5,000,000. Companies recording amounts that are higher than the highest amounts set in at least two of the criteria are classiﬁed as large, while companies recording less than the lowest amounts in at least two of the criteria are classiﬁed as small. If none of these conditions is fulﬁlled, such entities are classiﬁed as medium sized. Under the Law, the company’s journals, general ledgers and subsidiary ledgers (cash books, ﬁxed assets register, sales, purchase and other ledgers) are mandatory. There are prescribed charts of accounts for companies and ﬁnancial institutions. All companies have an obligation to prepare and submit annual ﬁnancial statements to the Company Registry by the end of February of the following year. Financial statements consist of Balance Sheet, Income Statement, Cash-ﬂow Statement, Statement of Changes in Equity, Notes to the Financial Statements and the Statistical Annex.
Auditing The Law on Accounting and Auditing prescribes that the following enterprises are obliged to audit their ﬁnancial statements: large and medium sized companies, banks and other ﬁnancial organizations, insurance companies, stock exchanges, stock brokers and companies issuing securities. Companies are obliged to alter their auditing ﬁrm every ﬁve years. This period may be extended for another ﬁve years if the certiﬁed auditor who signs the audit opinion is changed. Banks are obliged to alter the auditing ﬁrm every three years (according to National Bank of Serbia’s regulations). Audit is performed in accordance with the Law on Accounting and Auditing, International Standards of Auditing and the Code of Ethics for Professional Accountants. An auditing ﬁrm is not allowed to audit a legal entity if it has already rendered bookkeeping services, prepared annual ﬁnancial statements to the same legal entity and if there is conﬂict of interest according to the Code of Ethics for Professional Accountants. Moreover, an auditing ﬁrm is not allowed to provide any non-audit services to a bank – its audit client. The Law lists conditions for establishing and running of audit companies. In order to perform audits of large companies the Law states that the auditing ﬁrm must have at least three certiﬁed auditors; for audit of medium sized companies – at least one certiﬁed auditor. Certiﬁcation of auditors is the responsibility of the Chamber of Certiﬁed Auditors, which is also responsible for setting audit standards. Audit reports are to be submitted by the audited entity to the Company Registry. The Ministry of Finance is entitled to supervise the fulﬁlment of statutory requirements by auditing ﬁrms.
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Banking System There are currently 34 commercial banks in Serbia. Radical reforms have been undertaken in the banking system of Serbia since October 2000. Consolidation and restructuring of the banking sector is underway. In January 2002, four large stateowned banks (accounting for 57% of the banking sector’s assets) have gone bankrupt. In February 2003, the Government issued a comprehensive Concept of Bank Privatization whereby the following aims were declared: • provision of funds for the discharge of the Republic of Serbia’s obligations toward the Paris and London Club of creditors; • provision of funds for the payment of the Republic of Serbia’s public debt related to the blocked citizens’ foreign currency deposits; • further development of the banking system in the Republic of Serbia through the efﬁcient sale of banks to strategic partners with appropriate credibility. As of that moment, the state sold its majority interest in most of the banks it controlled. At present, there are several banks with foreign ownership interest in the Serbian market: Societe Generale, Raiffeisen Bank, Erste Bank, Findomestic bank, Banca Intesa, Crédit Agricole, Bank of Moscow, National Bank of Greece, Piraeus Bank, Eurobank EFG, etc. There are also several representative ofﬁces of foreign banks: CitiBank, Deutsche Bank, BNP Paribas, etc. Banks in Serbia may function solely in the legal form of a joint-stock company. They can be founded by domestic as well as foreign entities. The bank’s founder(s) must obtain preliminary approval and operating license from the National Bank of Serbia prior to commencement of operations in Serbia. The minimum pecuniary initial share capital must be at least EUR 10 million (in RSD equivalent). Banks are typically engaged in the full range of banking activities, rather than being specialized or restricted to certain activities. A summary of the procedure for setting up a bank in Serbia includes the following points: • adoption of the Memorandum of Association; • drafting the Articles of Association; • transfer of funds to Serbia (future share capital of a bank); • obtaining preliminary approval and operating license from the National Bank of Serbia; • adoption of the Articles of Association; • registration of a bank in the Companies Registry. Pursuant to banking legislation, banks in Serbia can be engaged in: • deposit activities (accepting and placing deposits);
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• loan activities (granting and taking loans); • foreign exchange, foreign exchange currency transactions, and exchange operations; • activities regarding payment operations; • issuing of payment cards; • activities regarding securities (issuing securities, custody bank activities etc.); • brokerage – dealership activities; • issuing guaranties, sureties and other types of warranties (guarantee operation); • purchase, sale and collection of receivables (factoring, forfeiting, etc.); • insurance agency activities; • other activities which are essentially similar or connected to activities speciﬁed above.
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Taxation of Business
Introduction At the moment, tax laws comprise the following taxes: • income taxes (corporate and personal income taxes); • value added tax; • property taxes; • customs and excise duties. The right of the Tax Authorities to assess a tax liability is limited to ﬁve years from the day when the period of limitation has commenced. The absolute period of limitation is 10 years. An overview of taxation of companies in accordance with Serbian legislation is presented blow.
CORPORATE INCOME TAX General Corporate income tax is levied on residents and non-residents. Resident legal entities in Serbia are liable to pay tax in the country on their worldwide income. Non-resident entities pay tax on the income derived from local sources. Resident A resident is a legal entity which is incorporated or has a place of effective management and control on the territory of Serbia. Tax Base Taxable income is established on the basis of accounting proﬁt disclosed in the annual income statement in accordance with the International Financial Reporting Standards, further adjusted in the tax balance. Costs of material and costs of goods sold are recognized as costs for tax balance purposes in the amount calculated using the average weighted price method or FIFO method.
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Signiﬁcant Tax Adjustments For corporate income tax purposes ﬁxed assets are divided into ﬁve groups with depreciation rates prescribed for each group: Group
• Fixed assets classiﬁed into the ﬁrst group are depreciated using the straight-line method. A depreciation rate of 2.5% is applied on the purchasing value of the ﬁxed asset. Immovables are classiﬁed in the ﬁrst group. A declining method is prescribed for ﬁxed assets in other groups; • Non-documented costs are not tax deductible, as well as adjustments of individual claims from persons that are also creditors; • Marketing costs are tax deductible only in the amount of up to 5% of annual revenues, • Entertainment costs are deductible in the amount of up to 0.5% of annual revenues etc. Rates The tax rate is 10% in Serbia. Tax Credits The tax liability of a company which has invested in its own ﬁxed assets is decreased for 20% of the investment, but up to 50% of the total tax liability. For companies that are classiﬁed as small, this credit amounts to 40% of the investment, but up to 70% of the tax liability. The remaining tax credit may be carried forward for ten years. Fixed assets purchased in Serbia must be new in order to qualify for a tax credit. The tax credit for investment in ﬁxed assets is recognized up to 80% of the tax liability for companies registered for the following activities: agriculture; ﬁshing; manufacture of textile yarn and fabric, manufacture of clothing, processing and dying of leather; production of basic metals; production of standard metal products; production of machines and equipment; production of ofﬁce equipment and computers; production of electric machines and equipment; production of radio, TV and communication equipment; production of medical, optical and other precise devices; production of motor vehicles and trailers; production of other means of transportation; recycling and cinematographic and video production.
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Tax Holidays A company which invests into own assets or in which other entity invests more than RSD 800 million (approximately EUR 7.6 million) and employs additional 100 workers is tax exempted from tax for ten years proportionally to the investment. Concession investment (granted to both local and foreign entities) through a newly established concession company in Serbia, as well as a concession-holder who has already established a company registered for concession activity, is tax exempted for the period of up to ﬁve years since the date of the completed concession investment. The exact term is determined by the Government in the concession agreement. For the concession-holder who generates proﬁt before the termination of the concession investment, the tax exemption is allowed within the term speciﬁed by the Government in the concession agreement, but up to the break even date. Other Tax Incentives A Serbian resident company which generates proﬁts in a newly established branch in an underdeveloped region has the right to decrease its tax liability, proportionally to the share of total proﬁts attributable to this branch. This tax incentive may be used in the period of two years. Losses Losses generated from business, ﬁnancial and non-business transactions, excluding capital losses, may be carried forward for up to ﬁve subsequent tax periods to be offset with future taxable income (losses generated in the period 2003-2009 may be carried forward for 10 years). Losses carried forward into the future are not cancelled by mergers, acquisitions, spin-offs and other organizational changes. Capital Gains and Losses The capital gain is the difference between the sale and purchase price of assets (real estate, securities, intellectual property rights and investment units in open investment funds). If such difference is a negative one, a capital loss is recorded. Capital losses may be carried forward for ﬁve years and offset only against capital gains (capital losses generated in the period 2003-2009 may be carried forward for 10 years). Permanent Establishment The term Permanent Establishment (PE) is a ﬁxed place of business through which a company’s business is wholly or partly carried on. It includes especially: a place of management, a branch, a factory and a building site lasting longer than six months. The non-resident is obliged to keep records in a PE, in order to obtain data regarding proﬁt generated in that PE. Withholding Taxes Withholding tax at the rate of 20% is deducted from dividends, share in proﬁts, royalties, interest, capital gains, lease payments for real estate and other assets derived by non-residents on the territory of Serbia. In addition, withholding tax has to be paid
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on non-resident artists and sportsmen fees for the performance on Serbian territory if artists and sportsmen fees have not been taxes through taxation of personal income. Withholding tax may be reduced by double taxation treaties. Payment of intercompany dividends between Serbian companies is tax exempt.
Double Taxation Conventions As at 1 January 2010 Serbia has 37 effective double taxation conventions on income and capital. The agreements with Egypt, France, Great Britain and Malaysia cover the avoidance of double taxation of income only. The treaty chart is presented below: no.
Bosnia & Herzegovina
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* If the recipient company holds at least 25% (20% in DTT with Switzerland) of the paying company, the lower of the two rates shown applies. ** For the use or the right of use of any copyrights of literary, artistic or scientiﬁc work, including cinematograph ﬁlms, ﬁlms and tapes for television and radio, tax shall not exceed 5% of the gross amount of the royalties. For the use or the right of use of any patent, trade mark, design or model, plan, secret formula or process, or for the use or the right of use of industrial, commercial or scientiﬁc equipment or for information concerning industrial, commercial or scientiﬁc experience, tax shall not exceed 10% of the gross amount of the royalties. *** Provided by the Protocol to the treaty between Serbia and Switzerland. Valid until Switzerland imposes withholding tax on royalties.
Assessment and Payment The general rule is that the tax year is the calendar year. The tax balance has to be submitted to the tax authorities by 10 March of the following year. As of 2010 the tax year may be different from the calendar year upon receiving approval from the Ministry of Finance or from the National Bank of Serbia (for ﬁnancial institutions). Such tax year must last for 12 calendar months and must be maintained for at least ﬁve years. The tax return is submitted in the period of 10 days after the deadline for submission of ﬁnancial statements. Monthly advance payments and ﬁnal payment of corporate income tax is determined by the taxpayer in the tax return. Monthly advance payments are based on the tax balance for the previous year and are due on the 15th day of the month for the then previous month. © 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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INDIRECT TAXES Value Added Tax Value Added Tax (VAT) has been introduced in Serbia as of 1 January 2005 and has replaced previously applied sales tax. Serbian VAT law applies the destination principle to cross-border transactions. The VAT Law introduced a VAT system under which tax is levied at all levels of the supply of goods and services. VAT is levied on: • the supply of goods and services carried out by the taxpayer on the territory of Serbia in the course of its economic activities and • on the importation of goods into Serbia. Taxpayer The taxpayer is any person who independently carries out supplies of goods and services in the course of its economic activity. Each entity whose turnover in the previous 12 months (sales of goods and services excluding sales of immovables and equipment used in performing business activity) exceeds RSD 4 million is obliged to register for VAT. An entity whose turnover in the previous 12 months or forecasted turnover in the following 12 months is between RSD 2 and 4 million may opt to be registered for VAT (small undertakings). A foreign entity which does not have headquarters or permanent establishment in Serbia does not have obligation to register for VAT. If a non-resident entity without a permanent establishment makes supplies of goods and services taxable in Serbia, the taxable person is the tax representative appointed by a non-resident. If a tax representative has not been appointed, the taxable person is the recipient of goods and services. It is not possible for group companies to register as a single VAT entity (tax grouping). Tax Base The taxable base is the payment that a supplier receives or is entitled to receive for the supplies made. It includes any payment in cash or in kind, incidental expenses, as well as taxes, duties and charges other than VAT. The taxable base of imported goods includes customs value, incidental expenses and excise duties, customs duties and other import charges determined by customs authorities, as well as other public revenues with the exception of VAT. The taxable base of goods and services provided free of charge is the purchase price, i.e. cost of such or similar goods or services at the moment of supply.
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Tax Rates The standard VAT rate is 18%. The reduced rate of 8% applies to the supply of basic foodstuffs (bread, milk, ﬂour, cooking oil, fresh or frozen fruits, vegetables, meat, ﬁsh and eggs, ‘listed’ drugs, agricultural fertilizers, pesticides, textbooks, daily newspapers, hotel services, public utility services, gas, ﬁrst transfer of ownership on residential buildings, computers, etc.). VAT consideration payable to farmers amounts to 5% of the value of purchased goods and services. Exemptions The following supplies are VAT exempt with credit (zero rated): • export of goods and transportation and other services in direct relation to the export, transit or temporary import of goods; • transportation and other services related to the import of goods if the value of such services is included in the customs base; • the supply of goods in free zones (except goods for ﬁnal consumption in a free zone) and transportation and other services in relation to the supply of goods into the free zone; • supply, repair, maintenance, charter and lease of aircraft and river vessels predominantly operating in international trafﬁc, as well as shipment, repair, lease and maintenance of goods for these aircraft and river vessels; • supply of goods and services for the direct needs of the above-mentioned aircrafts; • international air and river transport of passengers, where the non-resident company is exempted under the condition of reciprocity; • the supply of goods and services to diplomatic and consular missions, international organizations, etc.; • services performed on movables obtained by a foreign user of the service in Serbia or imported for the purpose of inward processing, repairing or incorporating and then exported; • supplies of goods and services in relation to donation agreements concluded with the Republic of Serbia that state that tax is not to be paid from donation funds; • supplies of goods and services carried out in line with credit and/or loan agreements concluded between Serbia and an international ﬁnancial organization or another state or agreements between a third party and international ﬁnancial organization or other states, where Serbia is the guarantor or counter-guarantor if agreements state that tax will not be covered from the obtained funds.
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The following supplies are exempt without credit: • ﬁnancial, banking and insurance services; • supplies of land (agricultural, forest land, construction, developed or undeveloped) as well as renting of land; • operations involving securities, shares, postal orders, administrative fees and stamps by their value in Serbia; • the purchase of buildings and transfer of a share in new buildings, except ﬁrst transfer of buildings and ﬁrst transfer of a share; • the lease of immovable property for residential purposes; • public interest activities, e.g.: - postal services and related supplies of goods, - medical services, - education and professional retraining, - social, child and youth welfare services, - cultural services rendered by not-for-proﬁt organizations, - scientiﬁc, sport and religious services, - services of organizing games of chance, - public broadcasting, except services of a commercial nature, etc. Import VAT is not payable on goods imported on the basis of donation agreements, i.e. humanitarian aid, temporarily imported and exported goods, goods transiting the territory of Serbia, goods stored in customs warehouses and imported goods that are customs exempt according to the Customs Law, etc. Recovery of Input VAT Deduction of input VAT is allowed if a taxpayer uses the goods that are purchased in Serbia or imported, including the purchasing of equipment, as well as commercial buildings, or received services, for the supplies of goods and services which are: • subject to VAT, • exempted from VAT with right to deduction of VAT, • made abroad, but deduction of input VAT would be allowed if it had been made in Serbia. Deduction of input VAT is not allowed for certain purchases. If a taxpayer provides taxable supplies and without credit exempted supplies, then he is obliged to apply partial exemption. The VAT Law has introduced a system of direct attribution of input VAT on the basis of economic afﬁliation of costs. If input VAT cannot
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be attributed either to the sale of goods and services to which input tax deduction applies, or the sale of goods and services to which input tax is not allowed, than the taxpayer is obliged to apply apportionment calculation. The taxpayer is not entitled to deduction of input VAT contained in the value of goods and services acquired before registration for VAT. Adjustment of VAT Recovery If within a period of ﬁve years (for equipment) and ten years (for buildings) changes occur in the conditions that were crucial for the deduction of input VAT, a correction of the input VAT has to be made for the period following the change. Adjustment of VAT recovery is not applicable in the case of sale of equipment. Tax Period The taxable period is a calendar month for taxpayers whose turnover in the previous 12 months exceeded RSD 20 million. If turnover is lower than RSD 20 million, the tax period is a calendar quarter. VAT returns have to be ﬁled with the Tax Authorities within 10 days after expiration of the tax period (10th day of month for the then previous month in the case when the tax period is a calendar month). The deadline for settling VAT liability in the case of a positive balance between output VAT and input VAT is also 10 days after expiration of a tax period. Refund The period of refund for the positive balance between input VAT and output VAT is 45 days from the deadline for submitting the tax return. A shorter period of 15 days is prescribed for exporting companies (companies whose value of exports of goods exceeds 70% of the total value of their turnover or if the value of exports of goods exceeds EUR 10 million). VAT Refund to Non-residents VAT incurred by a non-resident company may be recovered under certain restrictive conditions. Special Schemes Special schemes for taxation are prescribed for: • small undertakings • farmers • tourist agents and • second-hand goods, works of art, collectors’ items and antiques.
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Excise Duties Excise duties are levied on the production and import of the following goods: • crude oil derivatives: all types of engine petrol (gasoline), all types of diesel fuel, other oil products obtained from oil fractions with a distillation range of up to 380oC1 and gas oil. • tobacco products • alcoholic drinks • coffee (green, roast, ground and coffee extract). The excise taxpayer is the producer and importer of excisable products. The “ad valorem” method is used for the calculation of excise duties on coffee, while the unit of measurement (litre, kilogram, etc.) represents the tax base for other types of goods. The amount of excise duties that the law denominates in RSD is subject to change that reﬂects changes in the consumer price index published by the Serbian Statistics Bureau. If excise duty on tobacco products is lower than minimum excise duty prescribed by the law then the minimum excise duty should be paid. The excise tax liability arises when excisable products are: • produced in Serbia; • imported to Serbia. Deferral of excise duty liability is possible by exercising the right to hold an excise warehouse. Calculation and payment of excise duty is deferred in the following cases: • dispatching of excisable products to the excise warehouse • dispatching of excisable products from one to another excise warehouse. The Ministry of Finance issues excise permits for keeping of excise warehouse, as well as the excise permit for dispatching excisable products to an excise warehouse. Dispatch/delivery of excisable products from/to the excise warehouse is under the supervision of the Tax Authorities.
1 The minister in charge of ﬁnance and the minister in charge of mining and energy publish the list of other oil products
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Therefore, the taxpayer is obliged to calculate excise duty at the moment of: • dispatching of excisable products from the production plant by a producer of excisable products for which he does not have an excise permit, • dispatching of excisable products from the excise warehouse, with the exception of dispatch to one’s own other excise warehouse, • declaration of shortage, • declaration of shortage (spillage, wastage, loss and breakage) in excess of the quantities speciﬁed in the regulations enacted by the Government. The taxpayer is obliged to pay excise duties every fortnight. Excise duties calculated on the import are payable in the terms and manner prescribed for the payment of customs duties. Tax returns should be ﬁled with the Tax Authorities quarterly. The producer and/or importer of cigarettes and alcoholic beverages is obliged to mark each product, except beer, with an excise tax control stamp which is prescribed and issued by the Ministry of Finance. Excise duty is not payable on: • export of excise goods by their producer, • sale of excise goods by their producer and/or importer to diplomatic and consular missions and foreign diplomatic staff and consular ofﬁcials based on certiﬁcates issued by body in charge for foreign affairs, under the reciprocity rule as well as in other cases stipulated by international agreements, • crude oil derivates and coffee stipulated by international donation agreements, with the excise tax exemption clause • excise goods dispatched by their producer and/or importer for the purpose of being sold on board of an aircraft and ships operating on international lines, as well as products dispatched to duty-free shops opened at international airports provided with passport and customs control facilities, for the purpose of being sold to passengers in conformity with customs regulations.
Customs Duties The Law on Customs Tariffs, the Customs Law and applicable Free Trade Agreements regulate the customs system in Serbia. The new Customs Law in Serbia entered into force on 3 May 2010. The basic aim of introducing the Law is harmonization of domestic customs regulations with rules of the
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World Trade Organization and the European Union. Therefore, this Law contains all main principles and institutes of relevant EU Law. The customs tariff is being annually harmonized with the EU Combined Nomenclature. This is done up until November of the current year for the then next year. Provisions of new Custom Law should result in simpliﬁcation of the customs procedure in order to make it more efﬁcient and faster in comparison to previous customs legislation. Implementation of this Law should also result in decrease of expenses in transactions with foreign companies. The Law, for example, allows the possibility of electronic submission of customs clearance documents. The Law introduces certain new institutes such as Authorised Economic Operator and Summary Declaration. Certain concepts are more precisely deﬁned, such as incurrence of the custom debt, as well as compensatory interest. The Law has kept certain regulations related to protection of intellectual property, which are not in line with EU regulations. For example, customs valuation of carrier media bearing software does not allow the value of the software to be excluded from the customs value. Until new related regulations are being adopted, the old decrees, rulebooks and decisions apply to the extent that they do not contradict the new Customs Law.
Property Taxes There are three types of property taxes: • tax on property; • tax on gifts and inheritance; • tax on transfer of absolute rights. In Serbia the tax on property is paid by the titular of property rights (ownership, right to use etc). Individuals are subject to progressive tax rate on property. Maximum rates are provided by the Law (exact rates are determined by the local municipality). Tax base
up to RSD 6 million
between RSD 6 and 15 million
24,000 + up to 0.8% on the amount exceeding RSD 6 million
between RSD 15 and 30 million
96,000 + up to 1.5% on the amount exceeding RSD 15 million
over RSD 30 million
321,000 + up to 3% on the amount exceeding RSD 30 million
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Companies pay property tax at the rate of up to 0.4% (the rate is determined by the local municipality). This property tax is paid in four equal instalments. Gift and inheritance tax rates are progressive. They depend on the value of the property and on the relationship with the deceased or the donor. All direct descendants and spouses are not taxed. The tax rate of 2% is applied for amounts not exceeding RSD 300 thousand. For amounts exceeding RSD 300 thousand a tax rate of 2.5% is applied. Transfer of cars that is not subject to VAT is taxed at 2.5%. Transfer of other absolute rights is taxed at a rate of 2.5%.
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Taxation of Individuals
Individuals are subject to income tax, property tax, inheritance and gift taxes, VAT, social security contributions and other duties. There are two stages of taxation of individuals in Serbia: taxation of income at the moment of generation and annual taxation. Residents An individual is deemed to be a resident of Serbia if she/he has a permanent home or centre of business and vital interests in Serbia, or stays in Serbia permanently or in intervals of at least 183 days during the 12-month period that begins or ends in the respective tax year. If an individual has an intention to stay in Serbia for more then 183 days, he would be treated as a resident from the ﬁrst day of his stay in Serbia. Residents of Serbia are subject to personal income tax on their worldwide income. Non-residents Non-residents are subject to income tax on their income from Serbian sources under the same rules as residents. Taxpayers Each individual is treated as a separate taxpayer. There is no possibility of joint tax return. Taxable Income Personal income tax is levied on each type of income separately at ﬂat rates, depending on the type of taxable income. The taxable base of each source of income is computed separately. According to the PIT Law there are certain deductible statutory costs that decrease the taxable base. The following types of income generated by an individual are subject to taxation: • Employment Income • Income from Agriculture and Forestry • Income from Self-Employment
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• Income from Royalties and Authorship Rights and Related Rights • Income from Capital • Real Estate Income • Capital Gains • Other Income. Exempted Income Due to economic and social reasons certain types of income are exempted from personal income tax. A brief overview of these exemptions includes the following: • state child support, scholarships and students’ grants up to a certain amount; • unemployment beneﬁts and other social welfare beneﬁts; • sums received from property and personal insurance; • death and funeral beneﬁts up to a certain amount; • compensation for damages from natural disasters; • pension severance payments up to a certain amount; • redundancy payments in the amount prescribed by the Labour Law considering years of service, etc. Non-taxable amounts are adjusted by the Government’s Decision once a year. Adjusted amounts are applicable for the following year, from the ﬁrst date of the following month after publication of the Government’s Decision. Double Taxation Avoidance Serbian PIT Law prescribes a tax credit method for avoidance of double taxation of residents. Namely, regardless of whether there is a double taxation treaty concluded between Serbia and another country, tax on income paid in the other country could be recognized as a tax credit up to the amount of tax that would be calculated according to the provisions of the PIT Law. If provisions of a double taxation treaty are more beneﬁcial, the treaty is applicable. Tax Returns and Assessment There are three ways of determining and paying income tax: • by withholding from each type of income separately by the payer of income; • by self-assessment. Tax returns should be submitted by the 15th of the month for the previous month; • by assessment issued by the Tax Authorities. Tax is due within 15 days from receiving the assessment.
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Types of Taxable Income Employment Income Employment income includes salary and other remuneration in cash or otherwise recognized as salary. Salary consists of net salary, salary tax and social security contribution on behalf of an employee. Remuneration in the form of fringe beneﬁts, debt cancellation, as well as coverage of the employee’s expenses (e.g. housing costs reimbursement etc.) is recognized as salary. Examples of beneﬁts that are recognized as salary and considered taxable are presented below: • Use of a company car for private purposes (taxable beneﬁt is equal to 1% of the car’s value determined as at 31 December of the previous year for the following year); • Use of a company owned ﬂat or house or payment of rent by the employer (in the amount of the rent that is or would be paid); • Voluntary insurance premium and pension contributions for voluntary pension funds paid by employer on behalf of employee (only amounts exceeding RSD 3,894) The taxpayer is the employee. The employer is obliged to calculate, withhold and pay employment income tax on behalf of the employee, at the moment when employment income is paid out. The employment income tax base is salary and other remuneration recognized as salary, decreased for the monthly non-taxable amount of RSD 6,554. Non-taxable amounts are adjusted annually for inﬂation by the Government’s decree, with application from 1 February of the current year (based on data from the then previous year). Tax Reliefs There is a number of tax reliefs prescribed for the employer if he employs: • a person who is deemed a trainee as referred to in the Labour Law, who is under 30 years of age as at the employment contract date and who is registered as unemployed with the Employment Bureau; • a person who is over 45 years of age as at the date of the employment contract and has the status of a recipient of unemployment beneﬁts with the Employment Bureau or has been registered as unemployed for at least six months running. An employer who employs the above mentioned employees for an indeﬁnite period of time is exempt from withholding and paying tax calculated on their earnings for a certain time period. Income from Agriculture and Forestry Income from agriculture and forestry generated in 2010 and 2011 is exempt from tax.
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Income From Self-Employment The taxpayer is an individual generating income from self-employment activities. The tax base is taxable proﬁt which is determined in the tax balance by adjusting income and expenses, capital gains and losses, losses from previous years etc. according to the Corporate Income Tax Law and the PIT Law. Methods of depreciation are regulated in the same manner as for corporate income tax purposes. The tax rate on income from self-employment is 10%. A taxpayer who does not keep business records has a right to pay taxes according to a lump-sum basis determined by the Tax Authorities. In that case, tax is paid by the 15th day in the month for the then previous month. Same incentives apply as for companies. Income from Royalties and Authorship Rights and Related Rights A taxpayer is a person who as an author or owner of an intellectual property right and related rights obtains income from those rights. The tax base is gross income decreased for statutory deductible costs or actual costs (if the taxpayer claims and proves these costs). Statutory deductible costs depend on the type of author’s work and may be determined as 34%, 43% or 50% of the gross income. The tax rate is 20%. Tax should be calculated, withheld and paid by the payer of the income, at the moment when income is actually paid out. Income From Capital The taxpayer is an individual who generates income recognized as income from capital. Tax base is the gross amount of: • income from interest on loans, savings and other deposits, bonds and other securities; • income from dividends and other income from proﬁt sharing; • remuneration of employees and company directors on a proﬁt-sharing basis – in money or company’s shares or option to buy the latter; • taking from company’s assets/consumption of company’s services by the owners and • remuneration of a member of an open-ended investment fund based on the right to a proportional share in income of that fund’s investment unit. The tax rate is 10%. Tax should be calculated, withheld and paid by the payer of income, at the moment when income is actually paid out / allotted.
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Interest on dinar deposits, government loans, securities issued by the Government, local municipalities or the National Bank of Serbia is tax exempt. Real Estate Income A person who leases or subleases land, business and residential buildings, premises and other real estate is recognized as a taxpayer. The taxable base is gross income reduced by statutory deductible costs (20% of gross income). Gross income consists of rent and all obligations fulﬁlled by a leaseholder. The tax rate on real estate income is 20%. Tax should be calculated, withheld and paid by the payer of the income if it is a legal entity or an entrepreneur. Otherwise, the tax liability is paid based on the assessment issued by the Tax Authorities. Capital Gains Capital gain is the difference between the sale and purchase price of ownership rights on real estate, the right of use and building on city construction land, intellectual property rights, securities and other bonds securities, other than debentures, shares in limited liability companies, investment units redeemed by an open-ended investment fund, investment units of an optional pension fund, etc. Capital gain arises only if ownership rights and securities were obtained after 24 January 1994. The tax rate is 10%. Tax liability is paid based on the assessment issued by the Tax Authorities. Other Income An individual who generates other income such as income from renting movable assets (equipment, vehicles, etc.), income from lotteries, income from insurance and income named as “other income” (e.g. income from authorship agreements, commercial representation, remuneration for members of boards of directors and supervisory boards of legal entities) is recognized as a taxpayer. The tax base is the gross income generated by the individual. Other income is taxed at the ﬂat rate of 20% (except income from insurance which is subject to a 10% tax rate). For certain types of other income, statutory deductible costs of 20% are prescribed. Income Generated Abroad A taxpayer who generates income abroad/from abroad is obliged to calculate and pay tax (and social security contributions if prescribed) within 30 days after receiving income from foreign sources. The prescribed PP OPO Form should be lodged by an individual with the Tax Authorities within 30 days after receiving such income.
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Annual taxation Annual income tax is paid by a resident individual whose income in a calendar year exceeds three times the average annual salary in Serbia. Data on average annual salary in Serbia is published by the Serbian Statistical Bureau in January and applied to the then previous year. The annual tax base is determined in the amount of the net annual income in excess of the non-taxable amount, decreased for personal deductions prescribed for the taxpayer (40% of the average annual salary in Serbia) and dependent family members (15% of average annual salary in Serbia). The total amount of deductions cannot exceed 50% of taxable income. If two or more family members are subject to annual personal income tax, deductions for dependants may be used by only one family member. Progressive tax rates are applied: • 10% (on income between 3 and 6 average annual salaries) and • 15% (on income above 6 salaries) The annual income tax return has to be ﬁled with the Tax Authorities by 15 March of the current year for the then previous year. Annual tax disclosed in the tax assessment is paid within 15 days from the day of receipt of the tax assessment.
Mandatory Social Security Contributions There are three types of mandatory social security insurance in Serbia: pension and disability insurance, health insurance and unemployment insurance. The base for mandatory social security contributions is the income generated by the insured individual such as: income from employment, taxable income from selfemployment, income from agriculture, income from royalties, etc. Mandatory social security contributions may not be paid on income that is lower than the prescribed minimum base (35% of average salary in Serbia in the previous quarter) or higher than the prescribed maximum base (ﬁve times the average monthly salary for the previous month). However, the maximum base does not apply to income from authorship agreements, free-lance contracts, etc. (which are limited on an annual level). Mandatory social security contributions have to be paid on each type of income separately up to the amount of the annual maximum base for social security contributions (ﬁve time the average annual salary in Serbia). The insured individual who generates the prescribed types of income is the payer of mandatory social security contributions. However, the employer is also considered to be the payer of the mandatory social security contributions on employment income generated by its employees. Mandatory social security contributions paid on behalf of an employee and employer are presented below:
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22.0% (11% each)
12.3% (6.15% each)
1.5% (0.75% each)
The employer is exempt from payment of mandatory social security contributions on employment income generated by new employees employed for an indeﬁnite time period who are new employees older than 50 years of age and trainees under 30 years of age. If there is a Social Security Convention concluded between Serbia and another country, an individual who holds mandatory insurance in the other country (based on the certiﬁcate of mandatory insurance coverage) may be exempt from payment of mandatory social security contributions in Serbia for the period deﬁned in the convention (usually three years).
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Working Hours Full working hours are 40 hours per week (eight hours per day). The employer has to introduce a shorter working week for employees working under environmentally adverse conditions. Overtime work is considered to be work performed outside of regular working hours. However, overtime work cannot be longer than four working hours per day and eight working hours per week. Retirement Age According to the Labour Law, employment is terminated upon reaching 65 years of age with a minimum of 15 years of service, unless otherwise agreed by employee and employer. However, the Law on Pension and Disability insurance prescribes that an employee is entitled to old age retirement upon reaching 65 (for men) and 60 (for women) years of age with a minimum 15 years of service or with a minimum 40 (for men) and 35 (for women) years of service and at least 53 years of age or when an individual reaches 45 years of service. Average Wage In August 2010 the average monthly gross wage amounted to RSD 51,115 (net RSD 36,789 ). Employment Contract Employers are required to conclude written employment contracts with all employees. All employment contracts must be documented in written form. Furthermore, it is the employer’s responsibility to acquaint the employee with his/her rights and obligations under the agreement, as well as the terms of payment for work performed. The contract must be signed before the commencement of employment. The probation period cannot be longer than six months. The employment contract can be concluded for a deﬁnite or an indeﬁnite time period. The employment contract for a limited period is terminated after the agreed period has elapsed. The unlimited employment contract may be terminated with the consent of the employee, without the consent of the employee and by force of the law.
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Employment with the consent of the employee can be terminated: • by request of the employee; • by agreement with the employer. Employment without consent of the employee (notice) can be terminated in the following cases: • if it is determined that the employee does not fulﬁl expected working results; • if it is determined that the employee does not have necessary knowledge and ability for performing the job that he is assigned to; • if the employee, through his/her own fault, violates work obligations speciﬁed in the employment contract; • if the employee disrespects work discipline; • if the employee commits a crime at work or in relation to work; • if the employee refuses to return to work within 15 days of the expiry of unpaid leave or temporary leave from work; • if the employee refuses to sign an annex of the employment contract offered by the employer due to a change in working conditions; • if the employee abuses his sick leave; • redundancy.
Employment of Expatriates The employment of foreigners is based on the Law on the Conditions for the Employment of Foreign Citizens and the Labour Law. The conditions for employment are listed below: • general work conditions (minimum 15 years of age and physical health); • special conditions only for foreigners; • Serbian temporary residence permit issued by the Ministry of Internal Affairs; • work permit issued by the Employment Bureau for which the employer has to apply in writing indicating the reasons for employing a foreigner. Under the Law on Foreigners, a foreigner who is coming to Serbia for the purpose of employment or for performing professional activities, is issued with temporary residence permit that is valid from three months to a year. Temporary residence can be extended as long as substantial reasons for this exist.
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Paid Leave An employee is guaranteed paid leave up to seven days in one calendar year under the following circumstances: • child birth; • wedding; • severe illness of a close family member; • other situations stipulated in a general act or employment contract. Additional ﬁve days of paid leave can be granted to an employee in the event of bereavement of a close family member. Right to a Holiday The statutory right to a holiday is at least 20 working days. An employee who has not exercised the right to a holiday by fault of the employer is entitled to compensation of damages. Sick Leave The law makes a distinction between sick leave up to 30 days and sick leave over 30 days. • sick leave up to 30 days – an employee is entitled to compensation from the employer of 100% of his/her salary in case of injury at work or professional disease, and 65% of the salary in case of sickness or injury outside of work. • sick leave over 30 days – the allowance is 100% of the salary in case of injury at work or professional disease and 65% in all other cases and is compensated from the Health Insurance Fund. Maternity Allowance The allowance is based on the salary amount the pregnant woman would have received had she worked normally. The employed woman has a right to maternity leave and leave for childcare in the total duration of 365 days. The general rule is that maternity leave begins not later than 28 days before delivery and lasts three months. After this period the employed woman is entitled to leave for childcare.
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Acquisition and Tenure of Property
Ownership Agreements on acquisition of real estate should be concluded in writing and certiﬁed by a court in Serbia. Ownership is acquired once inscribed in the Cadastral Registry. Signiﬁcant changes occurred in property-related legislation in 2009. Namely, the new Law on Planning and Construction, that came into force on 11 September 2009, made signiﬁcant changes aimed at speeding up the construction process and increasing legal certainty in the real-estate industry. One of the most important changes envisaged in the new Law is a possibility for construction land to be privately owned. Construction Land The new Law introduces two types of construction land: city construction land and construction land outside the construction area. Construction land is further divided either as constructed or non-constructed, and developed or non-developed. The possibility for conversion of usage rights on construction land into ownership without compensation is a consequence of land ownership liberalization provided by the new Law. Conversion of usage rights on construction land into ownership will be subjected to compensation if it was, inter alia, obtained via privatization or bankruptcy. Alienation or putting up for rent publicly-owned construction land for building purposes is possible only by public auction or by tender, under market conditions. Agricultural Land Agricultural land in Serbia is either privately or state owned. Privately owned agricultural land is freely transferable, based on a sale and purchase contract, or other ownership transfer documents. State owned agricultural land is used in accordance with the annual program on protection, regulation and usage of state-owned agricultural land. If envisaged under the annual program, land may be given into lease for a period not less than a year and not more than twenty years. A fact that a particular piece of land is being given has to be publicly announced.
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State owned agricultural land may not be sold. Agricultural land may not be owned by foreign legal entities and individuals. In practice, this restriction is circumvented by means of setting up a local entity by foreigners or foreign companies. Construction A new simpliﬁed, shortened process for issuing a construction permit is provided by the Law. The authority in charge is obliged to issue a location permit within 15 days from the day of submitting a request. However, in practice the period may be longer. A construction permit is issued within eight days from the day of submitting the request supplemented with all required documents. The procedure for obtaining a construction permit is simpliﬁed. For example, it is not the investor who is in charge of obtaining consents from public utility companies, as under the previous regime. These consents are now obtained ex ofﬁcio. Before commencing construction works, the investor is obliged to report this fact at least eight days before works commence. The new Law introduces the possibility to change a construction permit while construction is in progress, due to change of an investor. The new investor is obliged to submit a request for change of decision on location and construction permit within 15 days from the day when the investor is changed. Once construction works are ﬁnished, the construction is granted a usage permit.
Restitution Serbian Authorities have still not resolved this issue, i.e. there is still no appropriate legislation in Serbia governing restitution of private property conﬁscated during the World War II and during the communist regime. However, up to the end of June 2006 citizens were requested to apply for the return of their conﬁscated property. According to the Property Directorate, between 100,000 and 150,000 claims have been ﬁled. In June 2006, the Serbian Parliament adopted the Law on Restitution of Property Owned by the Church and Other Religious Communities. Under the new Law on Planning and Construction, 50% of remuneration for construction of right of use in ownership over land is to be paid into a Restitution Fund, but it is envisaged that the funds may not be used until the Restitution Law is enacted.
Leasing Financial Leasing The Law on Financial Leasing is in force as of 1 January 2004. The Law deﬁnes ﬁnancial leasing, stipulates certain contractual requirements, speciﬁes the rights and obligations of the parties and prescribes the creation of a ﬁnancial leasing registry. © 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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The ﬁnancial leasing contract must be for a minimum period of two years. Immovable property may not be subject to ﬁnancial lease. Parties in Financial Leasing The lessor must be a company registered to perform ﬁnancial leasing activities with minimum paid-in capital amounting to EUR 100,000. The lessor cannot be engaged in any other activity besides ﬁnancial leasing. The Law stipulates the creation of a ﬁnancial leasing registry. The ﬁnancial leasing registry is a public register containing information on lease agreements, the identity of lessors and lessees, detailed description of leased assets and contractual periods. Supervision of Financial Leasing Providers According to the amendments to the Financial Leasing Law enacted in July 2005 the National Bank of Serbia has been entrusted with supervision of this sector. Operational Leasing There is no speciﬁc legislation that governs operational leasing in Serbia, i.e. the general provisions of the Law on Contacts and Torts regarding leasing apply. Operational leasing is not scrutinized by the National Bank of Serbia.
Privatization General The package of privatization laws has been introduced in Serbia in July 2001 comprising: the Law on Privatization, the Law on the Privatization Agency and the Law on the Share Fund. According to the Law on Privatization, entities to be privatized are socially owned and state owned companies. Domestic or foreign legal entities and individuals can appear as potential buyers in the privatization process. The Privatization Agency is engaged in the sale of capital and/or property, initiation, promotion, implementation and control of the privatization process. Sale of Capital The sale of capital is made through public tender and public auction. Both methods stipulate public scrutiny and competition in the privatization procedure. The entity to be privatized offers 70% of its capital for privatization. Privatization of large companies is to be carried out by means of public tenders, while small and mediumsized businesses are to be privatized mainly by means of public auctions.
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Public Tender The tender sale procedure consists of: preparation of the tender sale, public invitation for offer submission, submission and acceptance of offers, opening and evaluation of offers, contract signing and other operations of importance for the tender procedure. The Privatization Agency is authorized to carry out the procedure of organizing a public tender, it proposes the announcement of the buyer and signs the contract with the buyer, while the Tender Commission monitors the entire procedure and approves the results of the public tender. A public tender ensures that potential buyers are provided with information. The Law also envisages the possibility for a participant in a public tender to submit objections to the lawfulness of the tender procedure. Public Auction The procedure of sale of capital and property by public auction contains: preparation of auction, submission and registration of participants, conducting the auction, contract conclusion and other operations of importance for auction. The Privatization Agency is authorized to carry out public auction. As it is possible that shares may be left over after the sale of capital through public auction and the transfer of shares free of charge, those shares are to be transferred to the Share Fund. Transfer of Capital Free of Charge The transfer of capital free of charge is performed upon completion of the sale of capital through transfer of shares to employees or citizens. The transfer of capital free of charge will be carried out in two ways: 1) by transferring shares to employees of the entity undergoing privatization according to criteria prescribed by this law, and 2) by transferring capital to citizens. The opportunity to acquire shares free of charge is given not only to employees and pensioners of the entity undergoing privatization, but to all adult citizens, except those who have taken part in the free distribution of shares, according to previous laws. The Privatization Register, which is kept with the ministry in charge of privatization, is the register that contains data on the portion of the company’s capital expressed in shares, which will later be issued free of charge to citizens who have not taken part in the free distribution of shares. The Law excludes the possibility for the same entity to realize the right to acquire shares free of charge on two bases, one as an employee of the entity undergoing privatization, and the other through the Privatization Register. As it is possible that shares may be left over after the sale of capital through public auction and the transfer of shares free of charge, those shares are to be transferred to the Share Fund. A large number of legal entities scheduled for privatization have negative business results and are unable to pay their debts over the long term or have an organizational or age structure that is unsuitable for privatization. Bearing these facts in mind, the Privatization Agency may decide to carry out restructuring so as to enable the sale of capital or property of these entities.
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Restructuring according to this Law implies changes in status or organization, or the settlement of debtor and creditor relations and all other changes within the entity scheduled for privatization, which will enable its privatization. Developments in Privatization Changes made to the Privatization Law, which were enacted in June 2005, introduced new solutions with the intention to clarify ambiguities that have arisen in the course of privatization so far. The Privatization Agency has been granted power to act as a bankruptcy administrator in bankruptcy proceedings, if the bankruptcy panel appoints it for carrying out such duties. Restructuring of companies subject to privatization includes: • status change (e.g. mergers, demergers), change of legal form, change of internal organization and other organizational changes; • writing off the debt principal, interest accrued and other claims, wholly or partly; • debt relief wholly or partly for the purpose of satisfying creditors from the sale of capital and/or assets of the entity undergoing privatization. The state bodies (e.g. the Tax Authorities, social security funds) are obliged to carry out conditional debt relief with respect to the debt of privatized companies towards them. Such debt is to be compensated from the price paid by an investor for the entity that is privatized. Other creditors (e.g. banks, companies) may, but are not obliged, to carry out conditional debt relief.
Government Controls Antitrust Law The new Law on Competition Protection is effective as of 1 November 2009. The new Law is intended to improve the regulatory environment in terms of competition protection, given the problems caused by application of the previous Law, passed in 2005 (e.g. inadequate terms of reference of the Commission for Protection of Competition, low thresholds for mandatory clearance by the Commission, etc.). Restrictive agreements and abuse of dominant position are regarded as breaches of competition. • Restrictive agreements Restrictive agreements are those agreements between market participants which have as their objective or effect the prevention, restriction or distortion of competition in the Serbian market. Such agreements are forbidden and void. Exceptionally, such agreements may be exempted from restriction if they encourage competition, for example by promoting technical progress or by improving distribution.
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• Abuse of dominant position Dominant position is presumed if an undertaking has 40% or more of the market share in the relevant market, or if two or more undertakings have no signiﬁcant competition between themselves while holding 50% or more of the market share. Abuse of dominant position is forbidden. • Economic Concentrations Economic concentration is deﬁned as: 1 Status change (i.e. merger, de-merger, spin-off); 2 Direct or indirect acquisition of control over one or more participants on the market by one or more participants; or 3 Joint-venture. Economic concentrations are subject to the Competition Commission’s pre-approval, if any of the following conditions are fulﬁlled: 1 Total annual of revenue in the previous year of all participants in the concentration, generated worldwide, exceeds EUR 100 million, with at least one of the participants having revenue of more than EUR 10 million in the Serbian market; 2 Total annual revenue in the previous year of at least two participants, generated in Serbia, is more than EUR 20 million, whereby at least two participants have more than EUR 1 million of income in Serbia for the same period; and 3 Economic concentration is carried out on the basis of the Takeover Law. In this case, the notiﬁcation is mandatory regardless of the earnings of participants. The deadline for notiﬁcation of concentration is 15 days as of the signing of an agreement, or publishing takeover bid, or acquiring control. Notiﬁcation can be ﬁled even on the basis of a letter of intent or similar documentation. A concentration is approved if within a month the Commission does not start an investigation process or if it passes a decision. If the investigation process is started, the Commission has obligation to issue a decision within three months. Under the new Law, the Commission has the right to impose ﬁnes and procedural penalties, to order de-mergers if it determines that an economic concentration has been made without appropriate clearance, to conduct on-site investigation of premises, etc. Also, only the Commission will have the authority to initiate proceedings for determination whether there has been an infringement of competition rules.
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Foreign Exchange Regulations The new Law on Foreign Exchange Operations applies as of 27 July 2006. Foreign currency may be brought into Serbia without any restrictions. It is mandatory to declare the foreign currency brought in cash or taken out of Serbia. Foreign citizens may take the foreign exchange out of Serbia only up to the amount declared, when entering the country. Citizens of Serbia may take out of country up to EUR 10,000 in foreign currency without any restrictions. Foreign currency may be deposited with an authorized bank, sold to the bank, or used for international payments. Proﬁts earned may be transferred abroad without any restrictions, once tax and other pertaining obligations that have arisen in Serbia are settled. The new Law stipulates that all payments and transfers of money within Serbia are to be made in local currency. However, the Law allows some exemptions from this rule, as follows: • foreign currency lending in the country for the purposes of import of goods and services from abroad and purchase of real estate in Serbia; • payment of deposit as collateral; • purchase of claims and payables; • insurance premium and transfer in respect of life insurance; • sale and lease of real estate. Non-residents are entitled to buy shares and long-term debt securities issued by an issuer-resident. They may also transfer funds for the purpose of acquiring immovable property in Serbia, provided that the condition of reciprocity is fulﬁlled. Residents are obliged to ﬁle quarterly reports on foreign direct investments in Serbia with the National Bank of Serbia. Reports are ﬁled electronically, while ﬁgures are expressed in USD. Further, foreign borrowings of local entities (bank credit or inter-company loan) are subject to registration with the National Bank of Serbia. Loans may be taken for predeﬁned purposes. If a loan is used for conversion in RSD, for acquisition of real estate in foreign currency, or direct investment abroad, then the repayment period may not be less than 12 months from the day when the use of loan has commenced. Repayment of a loan granted in instalments should commence after six months as of loan drawdown and should be done in proportional instalments. If a borrower fails to register a loan with the NBS, this will be treated as the borrower’s breach of the Foreign Trade Law for which both a borrower and a responsible person within the borrower could be ﬁned (i.e. borrower with RSD 10,000 to RSD 1,000,000; a responsible person with RSD 500 to RSD 50,000).
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Governmental Ofﬁces Government of the Republic of Serbia 11 Nemanjina Street 11000 Beograd T: +381 (0) 11 33 46 430 (36 17 580)
F: +381 (0) 11 33 46 377 (36 17 597)
Ministry of Finance 20 Kneza Milosa Street 11000 Beograd T: +381 (0) 11 36 14 972
F: +381 (0) 11 36 18 914
Ministry of Economy and Regional Development 15 Bulevar Kralja Aleksandra 11000 Beograd T: +381 (0) 11 33 47 251
F: +381 (0) 11 33 47 235
Serbian Chamber of Commerce 13-15 Resavska Street 11000 Beograd T: +381 (0) 11 33 00 900
F: +381 (0) 11 32 30 949
www.mpriv.gov.rs Privatisation Agency 23/6 Terazije Street 11000 Beograd T: +381 (0) 11 30 20 800
F: +381 (0) 11 30 20 828
Financial Institutions National Bank of Serbia 12 Kralja Petra I Street 11000 Beograd T: +381 (0) 11 30 27 100
Association of Serbian Banks Bulevar Kralja Aleksandra Street 86
T: +381 (0) 11 33 70 063
F: +381 (0) 11 33 70 179
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Other Institutions American Chamber of Commerce Vlajkoviceva Street 30/III/10 11000 Beograd T: +381 (0) 11 33 45 961
F: +381 (0) 11 32 47 771
Delegation der Deutschen Wirtschaft für Serbien und Montenegro Topličin venac 19-21
T: +381 (0) 11 202 8010
F: +381 (0) 11 3034 780
Foreign Investors Council Svetogorska Street 37, I Floor
T: +381 (0) 11 303 5550
F: +381 (0) 11 303 5560
www.ﬁc.org.rs Chambre de Commerce Franco-Serbe Bulevar Mihajla Pupina 115d 11070 Belgrade T: +381 (0) 11 312 07 32
F: +381 (0) 11 312 07 37
Austrian Embassy – Trade Sector Vladimira Popovica 6, Genex apartmani, apt.103 11070 Novi Beograd T: +381 (0) 11 3015850
F: +381 (0) 11 3112139
Contact us KPMG d.o.o. Beograd Kraljice Natalije 11 11000 Belgrade, Serbia T: +381 11 20 50 500 F: +381 11 20 50 550 E: firstname.lastname@example.org www.kpmg.rs
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2010 KPMG d.o.o. Beograd, a Serbian limited liability company and a member ﬁrm of the KPMG network of independent member ﬁrms afﬁliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.