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Dec 13, 2013 (3 years and 5 months ago)

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Foreign Investments

in Serbia


LEGAL FRAMEWORK

1

by

Vladimir Bojanovic

*

This

presentation

does

not

deal

with

every

topic

or

cover

every

aspect

of

the

topics

with

which

it

deals
.

It

is

not

designed

to

provide

legal

or

other

advice
.

Janković, Popović & Mitić

International Law Firm

2

Vladimir Bojanovi
ć


Attorney at Law, MBA

(Cambridge)





Membership
:


Serbian and Belgrade Bar Association admitted



Expertise
:


Commercial Law , Corporate/M&A, Foreign Investments, Privatisations



Industry Sectors
:



Energy & Infrastructure, Telecommunications and Pharmaceuticals



Janković, Popović & Mitić

International Law Firm

FULL SERVICE LAW FIRM



Corporate and Commercial



M&A


Privatizations


Competition / Antitrust


Banking and Finance / Capital Markets


Real Estate / Construction


Energy & Infrastructure


PPPs/PFIs


Dispute Resolution


IP


Employment & Labour



3

4

Presentation Summary

PART 1:

General Legal
Framework

PART 2:

Specific Legal Issues

PART 3:

Conclusion

5

PART 1:


General Legal Framework


Law on Foreign Investments


Law on Free Zones


Law on Foreign Exchange Transactions


Law on Foreign Trade Transactions


Customs Law


Privatization Law


Law on the Agency for Privatization


Share Fund Law


Company Law


Law on Securities and other Financial Instruments Market


Law on Takeover of Joint Stock Companies


Law on Registration of Commercial Entities


Law on Concessions


Insurance Law


Bankruptcy Law


Law on Games of Chance


Energy Law

6

PART 1:

General Legal Framework

1
.

Regulation


The

Foreign

Investments

Law

(
Official

Journal

of

the

FRY,

nos
.

3
/
2002

and

5
/
2003
,

the


FI

Law
”)

regulates

foreign

investments

in

legal

entities

engaged

in

profit
-
generating

activities

in

Serbia
.




Exceptions
:

F
oreign

investments

in

(
1
)

insurance

companies,

(
2
)

banks,

(
3
)

other

financial

institutions

and

(
4
)

free

trade

zones

are

regulated

in

conformity

with

the

laws

governing

their

establishment

and

legal

status
.


2
.

Foreign

Investors

1)
Foreign

legal

entity

whose

seat

is

abroad
;


2)
Foreign

natural

person
;


3)
Serbian

national

having

their

domicile

or

residence

abroad

for

a

period

1
+

year
.


3.

Foreign

Investments


A

foreign

investment

is

:


1)
an

investment

in

a

Serbian

company

by

which

a

foreign

investor

acquires

a

share

or

shares

in

the

company’s

capital
;


2)
acquiring

any

other

property

right

for

accomplishing

business

interests
.

7

PART 1:


General Legal Framework

4.

Custom

Exemptions


Import

of

equipment

representing

a

contribution

of

a

foreign

investor

is

exempt

from

customs

and

other

import

duties
.

Exceptions

are
:

motor

vehicles

and

amusement

and

game

of

chance

machines
.



Controversial
:

two

opinions

issued

by

the

Ministry

of

Finance

allowing

for

custom

exemptions

in

a

case

of

importing

equipment

bought

from

the

money

representing

monetary

contribution

of

a

foreign

investor
.



5
.

Legal

Security


F
oreign

investor
s


rights

acquired

on

registration

of

foreign

investment

cannot

be

subject

to

restrictions

by

subsequent

amendment

of

laws

and

other

regulations
.




Share

in

a

company

a
nd

assets

of

the

company

with

foreign

share
,

may

not

be

subject

to

expropriation,

unless

there

is

a

public

interest


established

by

the

law
.


6
.

National

and
Preferential
Treatment


F
oreign

investors

have

an

equal

treatment

as

domestic

investors
,

unless

more

favorable

treatment

is

established

by

bilateral

or

multilateral

treaty
.




8

PART 1:


General Legal Framework

9

PART 2:


Specific Legal Issues




SPECIFIC ISSUES

Corporate

Accounting and
Audit

Dispute
Resolution

Employment

Taxation

10

Part 2

-

Specific L
e
g
a
l Issues:


CORPORATE



F
oreign

investor

may

independently

or

in

association

with

other

foreign

or

domestic

investors
:


1)
establish

a

new

company

(
Model

A
)
;

or


2)
purchase

stocks

or

shares

in

an

existing

companies

(
Model

B
)
;













F
oreign

investor

may

establish

:
















11

1.

Partnership

Ortačko

Društvo

2.

Limited

Partnership

Komanditno

društvo

3.

Limited

Liability

Company

(“
LLC
”)

Društvo



ograničemom

odgovornošću

4.

Joint

Stock

Company

(“
JSC
”)



open

and

closed

Akcionarsko

društvo



otvoreno

i

zatvoreno

1.

Representative

Office

Predstavništvo

2.

Branch

Office

Ogranak

3
.

Direct

Strategic

Partnerships


䑩D敫瑮a

s
trateška

p
artnerstva”

LIMITED LIABILITY COMPANY
-

General



In practice, foreign investors usually prefer to incorporate an LLC because of its simple form and fast
incorporation.



Its advantages include the following:


1)
Capital increase may be made without supervision of the SEC


2)
Minimum share capital is EUR 500, as opposed to EUR 10,000 for a closed joint stock
company


3)
Registration is performed in
practice in 2
-
5

day
s
.








12

Part 2

-

Specific L
e
g
a
l Issues:


CORPORATE

LIMITED

LIABILITY

COMPANY

-

Registration



LLC

Registration

documents
:



Filled
-
in

BR
A

registration

form
;


Founder’s

certificate

of

incorporation

(for

legal

person)

or

copy

of

ID/passport

(for

natural

persons)
;


Decision

of

the

founding

company

on

establishing

a

limited

liability

company

in

Serbia

with

designation

of

the

persons

authorized

to

sign

Memorandum

of

Association

(the


MoA
”)

before

the

Serbian

court
;


MoA

with

the

notarized

signatures

of

founders

(or

their

authorized

representatives)

by

the

Serbian

court
;


Decision

on

appointment

of

the

company’s

legal

representative,

if

not

appointed

in

the

MoA
;


Copy

of

the

passport

(or

ID

for

domestic

citizens)

of

the

designated

representatives

of

the

company
;


Duly

notarized

OP

form

for

certification

of

the

representative’s

signature

(notarized

by

the

Serbian

court)
;


Duly

completed

application

forms

for

opening

of

a

temporary

bank

account

and

bank

certificate

on

payment

of

the

monetary

founding

contribution

in

the

temporary

bank

account
;




All the documents coming from abroad should be notarized, with apostil, accompanied with the official
translation into Serbian by a sworn
-
to
-
court interpreter.










13

Part 2

-

Specific L
e
g
a
l Issues:


CORPORATE













14

BUSINESS

ACTIVITIES
:


A.
COMPANIES
:



A

company

with

foreign

share

may

perform

all

activities
,

except

:


1)
In

the

field

of

production

of

and

trade

in

arms,

or

2)
in

areas

defined

as

restricted

zones

(e
.
g
.

border

zones,

national

parks)
.




F
oreign

investor

may

establish

the

company

in

the

above
-
mentioned

field,

or

invest

its

capital

in

it

together

with

a

domestic

entity
:



1)
without

acquiring

the

majority

rights

in

the

management

of

such

company,

and

2)

only

with

the

consent

of

the

Ministry

of

Defence

of

Serbia
.




Special

laws

also

regulate

business

areas

in

which

foreign

investors

may

not,

alone

or

with

another

foreign

investor,

establish

a

company

e
.
g
.

Broadcasting

Law
.



B.
REPRESENTATION

OFFICES
:



Foreign

company’s

rep

office

can

perform

only

activities

registered

as

the

prevailing

activity

of

the

main

company

(EXCEPTIONS



Rep

offices

of

the

companies

registered

in

Serbia)
.


Part 2

-

Specific L
e
g
a
l Issues:


CORPORATE








15


Legal

entities

are

to

apply

the

International

Financial

Reporting

Standards

(IFRS)

in

preparing

their

financial

statements
.




The

application

of

these

standards

and

accounting

framework

are

prescribed

by

Decrees

of

the

Minister

of

Finance

for

companies,

and

the

Governor

of

the

National

Bank

for

banks
.



The

Decrees

and

the

Law

differ

in

some

aspects

from

IFRS,

resulting

in

some

deviations

of

local

accounting

standards

actually

applied

from

IFRS
.



Company

with

the

foreign

share

may

decide

to

keep

books

in

accordance

with
:


1)
Serbian

regulations,

or



2)
I
nternational

A
ccounting

S
tandards

(IAS),

i
.
e
.

(IFRS)
.


Part 2

-

Specific L
egal

Issues:


ACCOUNTING AND AUDIT








16



Annual

Financial

Statements

are

prepared

on

December

31
,

with

two

exceptions
:



1)
Foreign company subsidiaries, for which the financial year differs from the calendar year
, may

prepare and submit their financial statements at the parent company's financial year end
,

with
the
prior
obligatory approval from the Ministry of Finance;


2)
Entities undergoing a change of status (e.g. merger, liquidation, or bankruptcy)

are required to
prepare their financial statements at the date on which this procedure is completed.



In

principle,

legal

entities

must

file
:



1)
financial

statements

by

28

February
;

2)
consolidated

financial

statements

by

31

April
;

3)
approved

financial

statements

by

30

September

(
30

October

for

consolidated

FS)
.



Audit

is

mandatory

for

all

medium
-
sized

and

large

companies
.

Medium
-
sized

companies

must

change

auditors

every

five

years,

large

companies

every

three

years
.

Part 2

-

Specific L
egal

Issues:


ACCOUNTING AND AUDIT

A.
DISPUTES

BETWEEN

THE

REPUBLIC

OF

SERBIA

AND

A

POTENTIAL

INVESTOR




The

RS

and

the

Kingdom

of

Spain

concluded

the

Bilateral

Agreement

on

mutual

investment

protection

on

25

June

2002
,

which
,

inter

alia
,

regulates

dispute

resolution

regarding

foreign

investment,

between

the

RS

at

one

side

and

a

foreign

investor

on

the

other

side
:



Step

1
:


disputes

are

declared

in

writting

by

a

foreign

investor

and

adressed

to

the

RS


represented

by

the

competent

authority
;



Step

2
:


the

RS

and

the

foreign

investor

shall

try

to

resolve

the

dispute

ammicably
;



Step

3
:


If

the

dispute

cannot

be

resolved

ammicably

within

6

months

as

of

delivering


the

written

notification

to

the

RS,

the

dispute

may

be

addressed

to
:


a)
competent

court

of

the

RS
;


b)
“ad

hoc”

arbitration

tribunal,

in

line

with

UNCITRAL

Rules
;

c)
International

Center

for

the

Resolvment

of

international

Disputes

(ICSID)
;


17

Part 2
-

Specific Legal Issues:


DISPUTE RESOLUTION

B.
DISPUTES

BETWEEN

FOREIGN

INVESTOR

AND

POTENTIAL

SERBIAN

PARTNERS



Any

dispute

related

to

foreign

investment

may

be

settled

either

before

the

Serbian

court

or

in

arbitration

as

agreed

between

the

parties
.

In

May

2006
,

Serbia

enacted

its

first

Law

on

Arbitration

permitting

the

use

of
:


a.
institutional

arbitration

b.
“a
d

hoc


arbitration

c.
international


arbitration

d.
domestic

arbitration
.




DOMESTIC

INSTITUTIONAL

ARBITRATION
:

The

Foreign

Trade

Court

of

Arbitration

(founded

in

1947
)

is

located

within

the

Serbian

Chamber

of

Commerce

and

is

a

domestic

arbitration

body
.


Arbitration

is

voluntary

and

conforms

to

the

UNICTRAL

model

law
.





18

Part 2
-

Specific Legal Issues:


DISPUTE RESOLUTION

R
ESIDENCE AND WORK PERMITS



Foreign national intending to work in Serbia under employment contract would have to obtain
:


a)

Temporary Residence Permit (
the “
TRP

)



TRP

is

necessary

for

foreign

national
s

intending

to

work
/
reside

in

Serbia
,

and

it

is

issued

in

2

steps
:



1.
Registration of the foreigner’s presence
at
the territory of Serbia
in a period of 24 hours

from
arrival by obtaining the "white card”. White card may be issued by the local police (if a foreign
citizen leased the apartment) or by a hotel (if a foreign citizen stays in a
hote
l
).


2.
Visit
to police and apply
ing

for residence permit with required documents,
within 90 days as
of the arrival

to Serbia.


b) Work Permits



An

employee

would

need

to

apply

for

issuance

of

work

permit

and

submit

documents

to

the

National

Employment

Service

(NES)

whereby

NES

issues

the

work

permit

within

several

days

provided

that

all

submitted

documents

are

satisfactory



19

Part 2
-

Specific Legal Issues:


EMPLOYMENT


TERMINATION OF EMPLOYMENT FOR BUSINESS REASONS:



The employment relationship can be terminated for various reasons, including decrease in the v
olume

of
work due to technological, economic or

organizational changes.




The employer is

obliged to pay redundancy compensation to the employee
, and it is prohibited to e
mploy

another person at

the same position in the period of six months following

termination.




If the demand for work on the same position

arises before expiry of the six months, preference

shall be
given to the employee whose employment on the

same position was terminated.



Adoption of a Redundancy

Programme

is the obligation of the employers if a certain

number of
employees, depending on the total number of

employees, are to be declared redundant
.

20

Part 2
-

Specific Legal Issues:


EMPLOYMENT

21

Part 2
-

Specific Legal Issues:


TAXATION

1.

Regulation


Corporate

Income

Tax

Law

(

CIT
”)


2.

Accounting
Period


Accounting

period

which

is

to

be

used

for

tax

purposes

is

the

financial

year
.

Financial

year

is

a

calendar

year,

except

when

the

business

is

dissolved

or

started

up

or

status
-
related

changes

are

made

in

the

course

of

a

year
.

3.

CIT Rate


10
%

4.

CIT Base


Income

from

the

Profit

and

Loss

Statement,

made

in

accordance

with

the

IAS

and

IFRS
.


Non
-
residents

that

do

not

have

the

permanent

establishment

pay

20
%

witholding

tax

on

income

from

dividends

and

participation

in

profits

of

legal

entities,

intellectual

property,

interest,

lease

of

real

estate

and

movable

property,

as

well

as

capital

gains


SUB
-
PART 1:

CORPORATE INCOME TAX

22

Part 2
-

Specific Legal Issues:


TAXATION

5.

Taxable Entities


Serbian

tax

resident

entities

are

taxed

on

their

income

generated

on

the

territory

of

the

Republic

of

Serbia,

as

well

as

on

their

worldwide

income
.

An

entity

is

considered

a

resident

of

Serbia

if

it

is

established

or

has

its

place

of

effective

management

and

control

at

RS
.




Non
-
residents

are

taxed

only

on

their

income

sourced

through

a

permanent

establishment

on

the

Serbian

territory
.

A

permanent

establishment

is

any

permanent

place

of

business

in

Serbia

through

which

a

non
-
resident

conducts

its

business
.



A

branch

constitutes

a

permanent

establishment

of

a

non
-
resident

taxpayer

per

default
.

Consequently,

CIT

is

payable

on

profit

attributable

to

the

operations

of

a

branch
.

Tax

transparent

entities

do

not

exist
.


6.

Holding
Companies


No

special

holding

company

regime

exists

in

Serbia
.

Holding

companies

operate

under

the

same

rules

as

any

other

company

23

Part 2
-

Specific Legal Issues:


TAXATION

9.

Tax
Holidays


Up

to

ten
-
year

tax

holidays

for

companies

investing

RSD

800

million

(approximately

EUR

8

million)

and

employing

at

least

100

workers,

in

proportion

to

investment
.



Up

to

five
-
year

tax

holidays

for

companies

investing

RSD

8

million

(approximately

EUR

80

thousand)

and

employing

a

minimum

of

five

workers

in

underdeveloped

regions,

in

proportion

to

investment
.

10.

Tax Credits


Tax

credit

of

20
%

(small

enterprises

40

%
)

for

investment

in

fixed

assets,

up

to

50

%

(small

enterprises

up

to

70
%
)

of

CIT

liability
.

Any

unused

tax

credit

can

be

carried

forward

for

ten

years
.

Transfer

of

tax

credits

in

mergers,

de
-
mergers,

spin

offs

and

other

corporate

group

reorganizations

is

not

possible
.



A

taxpayer,

classified

in

accordance

with

relevant

legislation

and

registered

for

conducting

business

in

certain

industries,

is

granted

a

tax

credit

for

80
%

of

its

investment

in

its

own

fixed

assets

in

the

current

year
.

There

are

no

limitations

related

to

taxable

profit

made

by

the

taxpayer
.

This

tax

credit

can

be

carried

forward

for

up

to

ten

years
.



A

company

generating

profit

in

a

newly

established

business

unit

of

a

Serbian

company

in

an

underdeveloped

area

has

the

right

to

decrease

its

tax

liability,

proportionally

to

the

share

of

total

profit

attributable

to

the

business

unit

over

a

period

of

two

years
.

The

newly

established

business

unit

must

keep

separate

accounting

records
.


24

Part 2
-

Specific Legal Issues:


TAXATION

11.

Double
Taxation
Treaties in force


Albania,

Belgium,

Belarus,

Bosnia

and

Herzegovina,

Bulgaria,

Czech

Republic,

Denmark,

DPR

Korea,

Egypt,

Finland,

France,

Holland,

Croatia,

India,

Italia,

China,

Cyprus,

Kuwait,

Latvia,

Lithuania,

Hungary,

FYR

Macedonia,

Malaysia,

Moldova,

Germany,

Norway,

Poland,

Romania,

Russia,

Slovakia,

Slovenia,

Sri

Lanka,

Switzerland,

Sweden,

Turkey,

Ukraine,

Great

Britain

12.

Double
Taxation
Treaties In
procedure


Austria,

Greece,

Spain,

Pakistan,

Azerbaijan,

Malta,

Republic

of

Ireland,

Estonia,

Libya,

Qatar




13.

Example:


Double

Taxation

treaties

with

the

Netherlands

and

Cyprus
.


Non
-
residents are only liable to tax on Serbian sourced income.



Double Tax Treaties between Serbia and expatriates’ residence

countries can limit the Serbian right to tax
or offer relief for the

double taxation of certain types of income.




Double Tax Treaties

provide for resolving tax residency disputes, i.e. situations in

which, according to the
local rules of the respective countries,

a person is deemed to be a tax resident of both countries.



In certain cases, remuneration of non
-
residents working for

diplomatic and consular missions or
international organizations

in Serbia is not taxable.

25

Part 2
-

Specific Legal Issues:


TAXATION

SUB
-
PART 2:

PERSONAL INCOME TAX

TAX AND SOCIAL CONTRIBUTIONS

REGARDING SALARIES



Formula for calculation of the total costs for an employer related to salary of one employee:


TC=G+0
.
179G


(
TC is total cost, G is gross salary and 0,179 is joint percentage of social contributions
).



Gross salary is calculated in the following way:


G=(N
-
786
.
48)/ 0,701



(N is net salary and 786,48 RSD is not taxable part of the salary applied on monthly basis to the
total amount of net salary in the relevant month. This figure is amended on an annual basis each
January)


26

Part 2
-

Specific Legal Issues:


TAXATION

SUB
-
PART 2:

PERSONAL INCOME TAX

27

PART
3
:


CONCLUSION

Part 3:


Conclusion

Investments


Equal treatment of foreigners


Statutory guarantees for the protection of investments


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印慩S


Corporate


Most common legal form is an LLC


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Ⱐ睩瑨

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Accounting


Possibility to change the duration of a business year


P潳獩扩汩瑹st漠o敥p b潯k猠慮d 晩n慮c楡氠r数潲瑳t慣c潲d楮i t漠o䙒匠st慮d慲ds


Dispute


Parties can agree to have arbitration in a case of dispute


Arbitration can be domestic or international, ad hoc or institutional


Flexibility

in

choosing the impartial forum in

a case of dispute with the state


Employment


Work permit required

for foreigners


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-
r敬et敤 t敲e楮i瑩潮t潦 c潮瑲慣瑳tp潳獩扬s


Taxation


CIT

10% Tax Rate


Double taxation treaties with many countries


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Cr敤楴猠
慮d Ta砠䡯x楤iys

28

Thank you for your Attention.

Q
& A


E
-
mail:



vladimir.bojanovic
@
jpm.rs

Phone:


+381.60.3.777.444

29