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Copy linkWhat’s new in the process of allocation of incentives?
Serbia has made progress in the World Bank Doing Business report for 2017 by advancing 7 positions compared to the last year, and now ranks 47th on the global list. Whether this growth trend will continue depends on the attractiveness and the opportunities created by our country for investment, primarily the investment incentives.
A new Regulation on Terms and Conditions for Attracting Direct Investment entered into force on the last day of 2016 ("RS Official Gazette", No. 110/2016; hereinafter: the Regulation) providing for some important novelties. Whilst the new regulation builds on the previous one, it also brings some clarifications and refinements, as well as some novelties that we shall bring to your attention.
The Regulation abolishes the term “investment of local importance” contained in the previous regulation, which allowed for a local self-government to define, based on its programme of local economic development, the criteria by which an investment in its territory was the “investments of local interest”. However, the substantially similar mechanism has been preserved through the redefined term "investment of special importance for the Republic of Serbia", where the investments of special importance include those being implemented in the territory of a local self-government and encouraging implementation of development priorities in order to increase competitiveness. The decision defining a development priority is adopted by the Assembly of the local self-government. (Regulation, Art. 16, Paragraph 1, Item 2).
The most important novelty is related to the process of funds allocation, and the fact that the eligible investment costs are calculated from the date of filing the application for grants, and not from the date of conclusion of the contract (as used to be the case). This solution allows for a more dynamic economic life and considerable time savings for the investors. Bearing in mind that the negotiations, from the submission of application to conclusion of the contract, may take as much as 3 months, the very fact that the investments made from the date of applying are to be considered as eligible investment costs, is of utmost importance to the investor, who could lose as much as a quarter with respect to the business plan of the project under the previous regulation.
The level of funds that may be awarded is determined in relation to the eligible investment costs, defined as investments in tangible and intangible assets as of the date of submission of application, or costs of gross salaries for new jobs created during the two-year period after achieving full employment.
A new Regulation on Terms and Conditions for Attracting Direct Investment entered into force on the last day of 2016 ("RS Official Gazette", No. 110/2016; hereinafter: the Regulation) providing for some important novelties. Whilst the new regulation builds on the previous one, it also brings some clarifications and refinements, as well as some novelties that we shall bring to your attention.
The Regulation abolishes the term “investment of local importance” contained in the previous regulation, which allowed for a local self-government to define, based on its programme of local economic development, the criteria by which an investment in its territory was the “investments of local interest”. However, the substantially similar mechanism has been preserved through the redefined term "investment of special importance for the Republic of Serbia", where the investments of special importance include those being implemented in the territory of a local self-government and encouraging implementation of development priorities in order to increase competitiveness. The decision defining a development priority is adopted by the Assembly of the local self-government. (Regulation, Art. 16, Paragraph 1, Item 2).
The most important novelty is related to the process of funds allocation, and the fact that the eligible investment costs are calculated from the date of filing the application for grants, and not from the date of conclusion of the contract (as used to be the case). This solution allows for a more dynamic economic life and considerable time savings for the investors. Bearing in mind that the negotiations, from the submission of application to conclusion of the contract, may take as much as 3 months, the very fact that the investments made from the date of applying are to be considered as eligible investment costs, is of utmost importance to the investor, who could lose as much as a quarter with respect to the business plan of the project under the previous regulation.
The level of funds that may be awarded is determined in relation to the eligible investment costs, defined as investments in tangible and intangible assets as of the date of submission of application, or costs of gross salaries for new jobs created during the two-year period after achieving full employment.
Minimum investment requirements for which funds are awarded are determined according to the level of development of the local self-government units, as follows:
- a minimum of EUR 100,000 of the eligible costs of investment and at least 10 jobs created in the devastated areas, to be awarded incentives of up to 30% of the eligible costs of investment, or up to 40% of the eligible costs of gross salaries in a two-year period, however not exceeding 7.000 EUR per job;
- a minimum of EUR 200,000 of the eligible costs of investment and at least 20 jobs created in the units of local government that are classified in the IV group of development, to be awarded incentives of up to 25% of the eligible costs of investment, or up to 35% of the eligible costs of gross salaries in a two-year period, however not exceeding 6.000 EUR per job;
- a minimum of EUR 300,000 of the eligible costs of investment and at least 30 jobs created in the units of local government that are classified in the III group of development, to be awarded incentives of up to 20% of the eligible costs of investment, or up to 30% of the eligible costs of gross salaries in a two-year period, however not exceeding 5.000 EUR per job;
- a minimum of EUR 400,000 of the eligible costs of investment and at least 40 jobs created in the units of local government that are classified in the II group of development, to be awarded incentives of up to 15% of the eligible costs of investment, or up to 25% of the eligible costs of gross salaries in a two-year period, however not exceeding 4.000 EUR per job;
- a minimum of EUR 500,000 of the eligible costs of investment and at least 50 jobs created in the units of local government that are classified in the I group of development, to be awarded incentives of up to 10% of the eligible costs of investment, or up to 20% of the eligible costs of gross salaries in a two-year period, however not exceeding 3.000 EUR per job.
The deadline for implementation of investment projects and the creation of new jobs is 3 years from the date of applying for state grants, which may be extended for up to five years from the date of applying for state grants, subject to approval of the Council.
Beneficiaries of funds are required to provide a minimum of 25% of the eligible costs from their own resources.
- a minimum of EUR 100,000 of the eligible costs of investment and at least 10 jobs created in the devastated areas, to be awarded incentives of up to 30% of the eligible costs of investment, or up to 40% of the eligible costs of gross salaries in a two-year period, however not exceeding 7.000 EUR per job;
- a minimum of EUR 200,000 of the eligible costs of investment and at least 20 jobs created in the units of local government that are classified in the IV group of development, to be awarded incentives of up to 25% of the eligible costs of investment, or up to 35% of the eligible costs of gross salaries in a two-year period, however not exceeding 6.000 EUR per job;
- a minimum of EUR 300,000 of the eligible costs of investment and at least 30 jobs created in the units of local government that are classified in the III group of development, to be awarded incentives of up to 20% of the eligible costs of investment, or up to 30% of the eligible costs of gross salaries in a two-year period, however not exceeding 5.000 EUR per job;
- a minimum of EUR 400,000 of the eligible costs of investment and at least 40 jobs created in the units of local government that are classified in the II group of development, to be awarded incentives of up to 15% of the eligible costs of investment, or up to 25% of the eligible costs of gross salaries in a two-year period, however not exceeding 4.000 EUR per job;
- a minimum of EUR 500,000 of the eligible costs of investment and at least 50 jobs created in the units of local government that are classified in the I group of development, to be awarded incentives of up to 10% of the eligible costs of investment, or up to 20% of the eligible costs of gross salaries in a two-year period, however not exceeding 3.000 EUR per job.
The deadline for implementation of investment projects and the creation of new jobs is 3 years from the date of applying for state grants, which may be extended for up to five years from the date of applying for state grants, subject to approval of the Council.
Beneficiaries of funds are required to provide a minimum of 25% of the eligible costs from their own resources.
The investor is under the obligation to pay out a base salary at least equal to the minimum salary determined in accordance with the law, so that the total salary of an employee and other emoluments that have the character of a salary must equal at least 120% of the minimum salary.
The Regulation does not apply to the investments in the following sectors: transport, software development, hospitality industry, gambling, trade, production of synthetic fibres, coal and steel, tobacco and tobacco products, weapons and ammunition, shipbuilding, airports, utilities sector and the energy sector, broadband networks, as well as business entities in difficulties.
The allocation of funds is conducted in accordance with the public call published by the Ministry of Economy on its website http://www.privreda.gov.rs/
The Regulation provides that the allocated funds are paid out in three installments, an installment being determined as a percentage, in an amount proportional to the amount of the investment in fixed assets in each year of the investment project or in an amount proportional to the number of new employees in each year of the investment project.
The request for payment of each installment must be accompanied by a report of the authorised auditor having professional liability insurance and a bank guarantee for the repayment of such installment, as well as two registered blank promissory notes with a signed letter of authorisation for the payment of statutory default interest. The promissory notes may be replaced with a bank guarantee covering the amount of the possible statutory default interest. Please note that the report of the authorised auditor on the implementation of the investment project submitted 60 days before payment of the last installment, or expiry of the period of guaranteed investment and employment, must contain a report of the project audit and a verification of compliance with all the provisions of the agreement and a conclusion with a positive or negative opinion. This is a novelty, given that this can be interpreted as a different standard of audit than that from previous regulations, because this type of audit report will have a more detailed and more comprehensive approach. The results and clarification of the issues raised by audit report remain to be seen as this Regulation is put to practice.
Finally, it should be noted that, although the Government issues a regulation on incentives each year, there has been no public call since 2013. It is expected that the Serbian Government will publish a call to the investors under the present Regulation by the end of 2017.
Please address any further queries related to incentives in Serbia and requests for a detailed analysis to [email protected] or [email protected]
Author: Marko Janicijevic, Attorney-at-Law, Tomic Sindjelic Groza Law Office
The Regulation does not apply to the investments in the following sectors: transport, software development, hospitality industry, gambling, trade, production of synthetic fibres, coal and steel, tobacco and tobacco products, weapons and ammunition, shipbuilding, airports, utilities sector and the energy sector, broadband networks, as well as business entities in difficulties.
The allocation of funds is conducted in accordance with the public call published by the Ministry of Economy on its website http://www.privreda.gov.rs/
The Regulation provides that the allocated funds are paid out in three installments, an installment being determined as a percentage, in an amount proportional to the amount of the investment in fixed assets in each year of the investment project or in an amount proportional to the number of new employees in each year of the investment project.
The request for payment of each installment must be accompanied by a report of the authorised auditor having professional liability insurance and a bank guarantee for the repayment of such installment, as well as two registered blank promissory notes with a signed letter of authorisation for the payment of statutory default interest. The promissory notes may be replaced with a bank guarantee covering the amount of the possible statutory default interest. Please note that the report of the authorised auditor on the implementation of the investment project submitted 60 days before payment of the last installment, or expiry of the period of guaranteed investment and employment, must contain a report of the project audit and a verification of compliance with all the provisions of the agreement and a conclusion with a positive or negative opinion. This is a novelty, given that this can be interpreted as a different standard of audit than that from previous regulations, because this type of audit report will have a more detailed and more comprehensive approach. The results and clarification of the issues raised by audit report remain to be seen as this Regulation is put to practice.
Finally, it should be noted that, although the Government issues a regulation on incentives each year, there has been no public call since 2013. It is expected that the Serbian Government will publish a call to the investors under the present Regulation by the end of 2017.
Please address any further queries related to incentives in Serbia and requests for a detailed analysis to [email protected] or [email protected]
Author: Marko Janicijevic, Attorney-at-Law, Tomic Sindjelic Groza Law Office
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