Regulatory framework
The Law on Investments provides general legal framework for direct investments in Serbia. It distinguishes between direct investment, involving tangible and intangible assets, and indirect investment, which covers share or stock acquisition in a company. Incentives are defined as cash funds granted to the beneficiary as support in financing direct investments. Whereas the investors can be both foreign and domestic entities, the beneficiaries of the incentives can only be Serbian companies.
Investors can explore various state aid options available under the relevant regulations, such as granting of incentives, tax incentives, tax reliefs and exemptions, customs exemptions, benefits related to mandatory social security, leasing and purchasing of immovable property and land in public ownership, etc.
The Law maintains a strict rule on the cumulation of state aid, preventing the total aid from exceeding set limits.
Cash incentives
Cash incentives for capital investments remain in focus of foreign investors when examining the investment potential and deciding on the investment location. The detailed legal regulations in Serbia have enabled many investors to effectively utilise cash incentives.
The overall legal framework tries to take into consideration investors’ interest, as well as economic growth and development needs of different regions and business sectors in the country. The regulator also provides additional specific guidelines for direct investment incentives in certain sectors, e.g. food production, hotel accommodation, automation, innovation, employment of new residents in Serbia, etc.
Funds
♦ can be granted for implementing investment projects in the
- production sector and
- service sector (specifically for services provided by service centres).
♦ cannot be granted for the implementation of investment projects in the
- traffic sector,
- hospitality industry,
- games of chance,
- trade,
- production of synthetic fibres,
- coal and steel mining,
- tobacco and manufactured tobacco,
- arms and ammunition,
- shipbuilding of self-propelled sea-going commercial vessels with more than 100 gross registered tonnage,
- airports,
- utility business activities,
- energy sector,
- broadband network sector,
- fisheries and aquaculture sector, and
- software development unless aimed at improvement of products, production processes or provision of services by service centres.
Investments can be made in both tangible and intangible assets, aimed at kickstarting a new business activity, scaling the existing capacities, or expanding production to include new products and manufacturing processes. These investments must ensure the employment of new workforce.
The value of incentive funds to be granted depends on several factors, including the number of new hires, the scale and size of the investment, and the investment location. This year's introduction of new categorisation of regions, depending on the level of their development, also plays a significant role in determining the incentives available.
Investments
- in tangible assets, such as land, buildings, production plants, machinery, and equipment, are considered eligible investment costs if utilised solely by the beneficiary of incentive funds.
- in intangible assets, like patents and licences, qualify as eligible investment costs when procured from third parties under market terms, if used solely by the incentive beneficiary, if subject to amortization, and if accounted for in the beneficiary's balance sheets over a minimum period of three/five years (depending on the size of the company).
As for the employment of new workforce directly tied to the investment project, newly hired employees are calculated as the net increase in the number of domestic nationals employed by the incentive beneficiary for an indefinite period of time, working full-time, throughout the period of implementation and monitoring of the investment project. This number is measured against the highest number of individuals employed for a definite period of time and for an indefinite period of time during the 12 months preceding the incentive application submission.
The project implementation window extends up to three years from the incentive application filing date and can be further extended to five years after the conclusion of the incentives agreement. However, for investments exceeding five million euros, the implementation period can be extended up to ten years.
To qualify for funds, the investor must:
- maintain the investment for a minimum of three years for small and medium companies or five years for large companies (known as the monitoring period),
- there must be no reduction in the number of employees in the monitoring period, and
- the agreed salaries must be regularly paid to employees.
The agreed salary is defined as a basic pay, which is at least 20% higher than the minimum wage set by labour regulations.
The process of granting incentives
The process begins with a letter of intent submitted to the Development Agency of Serbia (RAS), detailing essential information. RAS evaluates this letter and communicates potential incentive amounts to the prospective beneficiary. Following this, the beneficiary submits the application, including a comprehensive business plan and other necessary documents, to RAS. The final decision rests with the Council for Economic Development.
Upon approval of the grant of funds, an agreement is concluded between the beneficiary and the Ministry of Economy. Funds are disbursed annually, contingent upon evidence of meeting the investment and employment commitments for the respective year.
Before disbursement, the funds have to be fully secured by a bank guarantee, along with promissory notes covering potential default interest. For large companies, the last bank guarantee must remain valid for five years and six months after the project completion, while for small and medium-sized companies, it has to be valid for three years and six months following the project completion.
The Ministry oversees the fulfilment of obligations specified in the agreement throughout the project implementation and monitoring periods. Investors must consistently maintain their commitments in order to retain their state aid benefits.
Expert support to foreign investors
Accessing state aid funds can often be complex and challenging for foreign investors due to differences in regulations, specifics of application processes and local criteria.
CMS Belgrade team of experts understand the intricacies of state aid regulations, possess knowledge of qualifying criteria, and have a proven track record of successfully guiding foreign investors through the application process.
Our team’s expertise extends beyond mere familiarity with the rules; they can strategize, advise, and optimize the application to maximize the chances of securing state aid funds for their clients. This could involve providing insights on eligible projects, assisting in compiling necessary documentation, ensuring compliance with regulations, and advocating on behalf of investors throughout the process.
We have successfully supported many foreign investors in accessing state aid in Serbia. Having a specialized team of experts proficient in supporting foreign investors to access state aid funds is instrumental in facilitating smoother navigation of regulatory hurdles.
