Guide to doing business and investing in Serbia - PwC

Guide to doing businessand investing in Serbia2010 EditionThe information in this book is based on taxation law, legislativeproposals and current practice, up to and including measurespassed into law as of 1 May 2010. It is intended to provide ageneral guide only on the subject matter and is necessarily ina condensed form. It should not be regarded as a basis forascertaining the tax liability in specific circumstances.Professional advice should always be taken before actingon any information in the booklet.Guide to doing business and investing in Serbia 1

ContentsPartner letter4Office location in Serbia51. Country Profile81.1. Introduction1.2. Government Structure1.3. Legal System1.4. People1.5. Economy2. Business Environment102.1. Business climate2.2. International agreements2.3. Regulations for businesses3. Foreign Investments143.1. Foreign investments3.2. Regulatory legislations3.3. Foreign Investment Law3.4. The Law on Foreign Trade Transactions3.5. Foreign exchange3.6. Concessions4. Banking, Finance and Insurance184.1. Banking system4.2. Insurance4.3. Leasing4.4 Capital market5. Importing and Exporting225.1. Trends in customs policy5.2. Import restrictions5.3. Customs duties5.4. Temporary importation relief5.5. Customs duties incentives5.6. Documentations and procedures5.7. Warehousing and storage5.8. Re-export6. Business Entities6.1. Legal framework6.2. Choice of entity6.3. Joint stock company (a.d.)6.4. Limited liability company (d.o.o.)6.5. Partnerships and joint ventures6.6. Branches6.7. Representative offices7. Labour Relations and Social Security7.1. Labour market7.2. Labour relations7.3. Working conditions7.4. Social security system7.5. Foreign personnel8. Accounting and Audit Requirements8.1. Accounting8.2. Chart of accounts8.3. Audit requirements9. Tax System and Administration9.1. Tax system9.2. Direct and indirect tax burden9.3. Principal taxes9.4. Legislative framework9.5. Tax treaties9.6. Tax returns and payments9.7. Assessments9.8. Appeals9.9. Withholding taxes9.10. Tax audits9.11. Penalties283034382 Guide to doing business and investing in Serbia

10. Taxation of Corporations10.1. Corporate tax system10.2. Incentives10.3. Taxable income10.4. Deductibility of expenses10.5. Related party transactions10.6. Foreign exchange10.7. Tax computations10.8. Other taxes10.9. Branch versus subsidiary10.10. Holding companies11. Taxation of Individuals11.1. Territoriality and residence11.2. Taxable income11.3. Non-taxable income11.4. Taxation of non-residents11.5. Tax compliance12. Value Added Tax12.1. Introduction12.2. Scope of VAT12.3. Zero-rating supplies(exemptions with credit)12.4. Exempt supplies(exemptions without credit)12.5. Supplies to Kosovo and Metohija12.6. Taxable amount (base)12.7. Non-deductible input VAT12.8. VAT compliance13. Introduction to PricewaterhouseCoopersPwC in SerbiaAssurance servicesAdvisory servicesTax servicesTraining AcademyLegal services – PwC Legal4248505414. Appendices60Appendix A – Macroeconomicindicators of SerbiaAppendix B – Tips for business visitorsAppendix C – Useful sources of informationGuide to doing business and investing in Serbia 3

Office location inSerbiaPricewaterhouseCoopersOmladinskih brigada 88a11000 BelgradeSerbiaHungarySuboticaRomaniaTelephone: +381 11 3302 100Fax: +381 11 3302 101Internet: www.pwc.rswww.traningacademy.rsCroatiaNovi SadBeogradPancevoBosniaandHerzegovimaValjevoKragujevacBorUziceNisMontenegroPristinaBulgariaAlbaniaMacedoniaGuide to doing business and investing in Serbia 5

6 Guide to doing business and investing in Serbia

Guide to doing business and investing in Serbia 7

Chapter 1Serbia: Country Profile1.1. IntroductionHistorySerbia has a long and turbulent history wrought with conflict andstruggle for independence. The most recent example was thewar-torn 1990’s which saw the collapse of communist Yugoslaviaand the emergence of its former republics as independentstates. The conflicts ended in 1999 with NATO led air strikeswhich resulted in Serbia agreeing to the introduction of UNadministration in Kosovo and Metohija province in accordancewith the UN Security Council Resolution 1244.October 2000 saw Serbia defeat Slobodan Milosevic’s regimeand establishment of a democratic government led by PrimeMinister Zoran Djindjic that set a firm reformist course gearedtowards privatization and free market economy.Following a referendum held in Montenegro in 2006 (whichsignalled the dissolving of the State Union of Serbia andMontenegro) and the adoption of a new constitution in the sameyear, Serbia has re-established its status as an independentstate. In 2008 Boris Tadic was re-elected President andhis Democratic Party leads a coalition that formed the newgovernment headed by Mirko Cvetkovic.In February 2008 Kosovo unilaterally declared independencefrom Serbia, which Serbia vehemently opposes. The issue hasbeen brought before the International Court of Justice in an effortto determine the legality of such an action.The current government follows the path of economic andsocial reform centred on transition to free market economy andprivatisation of the public sector. Ascension to the EuropeanUnion remains a top priority for Serbian administration. Effortstowards realising this goal are made through adopting newlegislation as well as through bilateral application of the InterimTrade Agreement (which is a part of the Stabilisation andAssociation Agreement signed with the EU) as of February 2010.Geography and climateThe Republic of Serbia is located in South East Europe, centralpart of the Balkan Peninsula and covers 77,474 km 2 (excludingKosovo and Metohija). It is situated at the intersection of PanEuropean Corridors Nr. 10 and Nr. 7 linking Europe and Asia.River Danube runs through Serbia (588 km).The climate is temperate continental, with gradual transitionbetween the four seasons of the year, warm summers and snowywinters. The average annual temperature is around 12 o C.The temperatures in January and June average 0 o C and 22-23 o Crespectively. The average annual precipitation ranges from 660mm to 800 mm in the plains to between 800 mm and 1,200 mmin the mountains.Major cities are, the capital Belgrade (population around1.6 million), Novi Sad (popn. 300,000), Nis (popn. 250,000),Kragujevac (popn. 175,000).1.2. Government structureThe national legislature of Serbia is a unicameral assembly of250 deputies chosen in direct general elections for a period offour years. The deputies in the National Parliament elect theGovernment of the Republic of Serbia, which, together with thePresident of the Republic, represents the country’s executiveauthority. The judiciary is independent.1.3. Legal systemal systemLegislative frameworkSerbia has a civil law system, meaning the courts interpret legislationrather than being bound by preceding rulings on the issue.The Parliament is the supreme legislator. Certain bodies withexecutive powers, such as the government and ministries,are competent to pass decrees and by-laws in specific areas.Decrees and by-laws must be in compliance with parliamentarylegislation. Legislative acts, decrees and by-laws come into forceafter publication in the Official Gazette of Serbia.CourtsThe organisation of the court system in Serbia and jurisdictionof courts is regulated by the Law on Organisation of Courts,applicable as of 1 January 2010.The court system consists of the Constitutional Court,courts of general jurisdiction and courts of special jurisdiction.The courts of general jurisdiction are the following: basic courts,higher courts, appeal courts, and the Supreme Cassation Court.The courts of specific jurisdiction are the following: commercialcourts, Commercial Appeal Court, misdemeanour courts, HigherMisdemeanour Court, and Administrative Court.Constitutional Court decides on constitutionality and legality of lawsand bylaws, and protects human and minority rights and freedoms.8 Guide to doing business and investing in Serbia

Basic courts are courts of first instance and are established tocover one or more municipalities. Higher courts are establishedto cover the territory of one or more basic courts and are alsocourts of first instance, while in limited numbers of cases theyact as courts of second instance to basic courts. Commercialcourts adjudicate commercial matters, with the CommercialAppeal Court being the second instance court for these matters.Appeal courts are second instance courts to both basic andhigher courts (except in limited number of cases when highercourts act as second instance courts to basic courts), SupremeCassation Court is the highest court in Serbia and is competentto decide on extraordinary judiciary remedies and conflicts ofjurisdiction.Misdemeanour courts are second instance courts formisdemeanours ruled by state authorities in first instance, aswell as first instance courts for misdemeanours for which stateauthorities are not competent in the first instance. AdministrativeCourt is competent for adjudicating in administrative disputes.Since in certain cases it may take several years to receive afinal judgement, many business entities opt for arbitration,providing for it in their contracts. There is a Foreign Trade Courtof Arbitration at the Serbian Chamber of Commerce in Belgrade.It is international, general (all conflicts arising from internationalbusiness relations are considered), open (domestic and foreigncitizens are on its list), independent and autonomous.Its judgments are final. Specific rules of procedure can be agreedbetween the parties and specialist arbitrators can be chosen.The United Nations Commission on International Trade Law(UNICITRAL) book of rules may be applied.1.4. PeoplePopulationAccording to the recent data the population of Serbia (notincluding Kosovo and Metohija) is approximately 7.4 million,around 64% of which is of working age. Statistics show thatSerbia has, on average, an old population (the average year ofage being cca. 40.2 according to recent information) which hasbeen identified as a leading concern and is attributed mainly toemigration.The country’s population is mostly Serbian (82.86%) with themost significant ethnic minorities being Hungarian (3.9%),Bosnian (1.8%) and Roma (1.4%).LanguageSerbian is the only official language while members of ethnicminorities are entitled to use their own language. English is taughtas a compulsory foreign language, while in many areas studentschoose an additional language from German, French or Russian.ReligionReligion is practiced freely and Orthodox Christianity is thedominant confession (84.1%). Other prominent religions areRoman Catholic 6.24%, Islam 4.82% and Protestant 1.44%.Most Catholics reside in Vojvodina, Serbia’s northern province,while Muslims are predominant in the region of Raska to thesouth of the country.EducationElementary and high school education in Serbia is free with eightyears elementary schooling being compulsory. Around 78%of the population completes elementary schooling while 11%achieves higher education.Living standardsThe total percentage of the population living below the poverty lineis 7.9%, according to 2008 estimates. The distribution of povertyis uneven with the gross average income being significantly higherin cities (Belgrade in particular) than in rural areas.According to the recent data average monthly gross salary inSerbia amounts to RSD 48 thousand, while in Belgrade amountsto RSD 60 thousand.1.5. EconomyGeneral descriptionSerbia is considered an upper-middle income economy by theWorld Bank, with a GDP for 2008 estimated at $78.36billion($10,400 per capita PPP). Since the political reforms of 2000,the country has experienced fast economic growth and has beenpreparing for membership in the European Union.CurrencySerbian official currency is Dinar (RSD). On 1 January 2010 theexchange rates were 1 EUR = 95.97 RSD and 1 USD = 67.06 RSD,according to the National Bank of Serbia (NBS).TransportIn Serbia all means of transportation are present. The total lengthof roads is 40.845 km. Railway network enables cost effectivetransportation thanks to good communication with all majorEuropean destinations through the Pan European Corridor 10.There are 3 major airports in Serbia: Belgrade Nikola TeslaAirport, Nis Airport and the Vrsac international airport. Serbianrivers belong to the basins of the Black, Adriatic and AegeanSeas. Three of them, the Danube, Sava and Tisa, are navigable.The longest river is the Danube, which flows for 588 of its 2,857kilometre course through Serbia. Serbia does not have access to sea.Guide to doing business and investing in Serbia 9

Chapter 2Business Environment2.1. Business climateAims of government policyThe key goals and instruments of the economic policy are:• Maintaining exchange rate stability and curbing domesticaggregate demand through restrictive monetary policy,• Further reduction of public spending, freezing public sectorwages through tight fiscal policy,• Price stability,• Stimulative subventions for the economyIn January 2009, the Government of the Republic of Serbiaadopted a package of measures aimed at mitigating the effects ofthe global economic crisis on the Serbian economy, maintainingthe competitiveness of the Serbian economy, preserving jobs andstimulating domestic demand. These measures include directlysubsidizing interest rates on liquidity loans, co-financing loans forinvestments with guarantees from the Guarantee Fund and directsubsidies for interest rates on consumer and housing loans.The policy principles will continue to be used in 2010.The Government has also adopted a strategy for thedevelopment of Serbian trade, strengthening competition ofcommercial companies in the local market with the aim ofcreating a modern market and trading system and acceleratingSerbia’s accession to the EU.Economic developmentOver the past five years of extensive political and economicreforms, Serbia has developed into a stable democratic countrywith a fast growing market economy. Western–oriented,democratic political parties have a strong majority among citizensand the Government is shaping an attractive environment forbusiness activities, while legislative activities are intenselybringing the legal framework in line with the EU regulations.As a member of the International Monetary Fund, Serbiaexercises a sound and consistent economic policy resulting in astrong economic growth, state budget surplus, and rapid exportexpansion. The country’s progress is fully supported by leadinginternational development institutions, such as the World Bankand the European Bank for Reconstruction and Development,while the processes of the European Union and the World TradeOrganization accession are under way.2.2. International agreementsCurrent status:• Serbia’s application for the WTO accession accepted;accession is expected in 2010,• The Stabilization and Association Agreement andInterim Trade Agreement with the EU was signed inApril 2008; membership candidacy request was submittedin December 2009;• Regional free trade agreement (CEFTA), ratified by Serbiain 2007, integrates the countries of the South East Europe,thus creating a possibility for companies to place their goodscustoms free to a market of close to 30 million people,• Serbia is the only European country with free tradeagreements with the EU, Russia, Belarus and Turkey.• The trade with US is pursued under Generalized System ofPreferences (GSP). The GSP program provides preferentialduty-free entry for more than 4,650 products,• Serbia is a member of the Black Sea Economic Cooperation(BSEC).2.3. Regulations for businessesCompetition LawThe new Competition Law was adopted in September 2009.The Law applies to all market players, including state authoritiesand public companies undertaking activities of public interest(except in the case when application of the Law would preventsuch activities).Thresholds for concentration are set at:1. Worldwide annual income of all concentration parties inprevious year exceeding EUR 100 million, where at least oneconcentration party has generated income in Serbian marketexceeding EUR 10 million.2. Annual income of at least two concentration parties generatedin Serbian market in previous year exceeding EUR 20 million,10 Guide to doing business and investing in Serbia

where at least two concentration parties generated income inSerbian market exceeding EUR 1 million each.The deadline for notifying the Competition Commission of anevent falling within the scope of a concentration event is set to15 days as of the SPA signing date or the date of taking control.The Competition Commission has the power to impose fines(of up to 10% of a company’s annual income) in case of a breachof competition rules. In the past, a breach of competition ruleswas regarded only as misdemeanor, for which proceedings hadto take place through a relevant court.The Law introduces new procedural penalties such as orderingof de-concentration and/or other structural/behavioural remedies.In accordance with the Law, the Competition Commission hasbroad procedural powers such as site investigation and accessto companies’ premises.The procedure for determining a breach of competition rules maybe initiated only ex officio, therefore, third parties have no longerthe right to initiate proceedings. In accordance with the Law,third parties have the right to submit an initiative for determininga case of a breach of competition rules while the CompetitionCommission decides whether or not it will initiate proceedings.Consumer protectionThe New Law on Consumer Protection was adopted inSeptember 2005, replacing the existing Federal Law onConsumer Protection adopted in 2002.Under this Law, the competent Authorities involved in theconsumer rights protection are the Serbian Ministry of Tradeand Services (the Ministry) and the Council for ConsumerProtection (the Council).The Law prescribes the fundamental rights and protection of theConsumer’s economic interests. It regulates, inter alia, provisionson water and air quality, issuing of invoices, warranty clausesin commerce, consumer credits, packaging issues and timesharing. Protection of the Consumer is possible both in andout-of-courts. The Law also regulates operations of a consumerprotection organization.The Ministry is currently preparing a new Draft Law on ConsumerProtection which is planned to be harmonized with the EUlegislation.Intellectual Property (IP) RightsProtection- Patents, Trademarks, CopyrightsAll existing IP laws were enacted during the 2009 and aregenerally in compliance with the international standards.The laws dedicated to the protection of IP rights are:The laws dedicated to the protection of IP rights are as follows:• The Law on Copyright and related rights 2009• The Law on Protection of Topographies ofIntegrated Circuits 2009• The Law on Patents, adopted on 2 July 2004 andamended in 2006• The Law on Trademarks, adopted on 22 December 2009• The Law on Legal Protection of Industrial Design (2009)• The Law on Geographical Indications (2010)• The Law on Special Powers for Efficient Protection ofIntellectual Property Rights (2006) amended in 2009Guide to doing business and investing in Serbia 11

The most important IP conventions relating to IP protectionratified by Serbia are the Berne Convention, the ParisConvention, the European Patent Convention, Madrid and NiceArrangements and other.The authority involved in IP protection is the Intellectual PropertyOffice of Serbia.AcquisitionsAcquisitions of limited liability and joint stock companies aresubject to different legal treatment.Transfers of stakes in limited liability companies are not subject torestrictions unless otherwise stipulated by the company’s Articlesof Association or the Company Law, meaning that stakes can besold or otherwise disposed of freely. The specific requirementsof the Law relate to the right of first refusal of other stake-holders.Acquisitions of shares in joint stock companies are subjectto the Company Law and the Law on Takeover of Joint StockCompanies (Takeover Law). Acquisitions can be effected eitherthrough the purchase of shares in a capital increase procedure(new release of shares), a takeover bid or through the purchaseof shares on the Stock Exchange.acquire the shares of a target company or exercise voting rightsattached to the shares of the target company ,or where oneperson holds shares on behalf of the other person or where oneperson, directly or indirectly, exercises control over the otherperson.The Takeover Law recognizes the mandatory takeover bid(acquisition of 25% of shares or more), the voluntary takeoverbid (acquisition of less than 25% of shares), the conditional/unconditional takeover bid (acquisition of the minimumpercentage (number) of shares), the takeover bid/counter bid(offer made by a competitor after the publication of the firsttakeover bid and within its validity period).When a legal entity/individual acquires at least 95% of sharesof the target company it is entitled to purchase shares of thoseshareholders who have not accepted the sale of shares inaccordance with the takeover bid (forced sale) or to purchaseshares from other shareholders at their request, under theconditions set out in the takeover bid (forced purchase).The minimum share price set in a takeover bid cannot be lowerthan the average share price within the three months periodpreceding the publication of the Notice of the Takeover Intention,determined on the basis of reports on trade on an organized market.The Takeover Law defines the notion of concerted action statingthat that persons (legal entities or individuals) are considered tobe acting jointly if they agree, by an agreement (verbal or written),explicitly or implicitly, to combine their activities in order to either12 Guide to doing business and investing in Serbia

Chapter 3Foreign Investment3.1. Foreign investmentInvestment climateSince January 2001, Serbia has shown a strong commitmentto establishing a modern market economy and re-enteringEuropean and global markets. Substantial reforms have beeninitiated to that end, particularly in creating a business-friendlyenvironment. These include legal and economic reforms in allareas, aimed at ensuring legal security and harmonization withEU legislation and economic policies.Within this process, foreign investments have been encouragedand restrictions are negligible.The institutions responsible for foreign investment regulationsare the following:• The Ministry of Foreign Affairs• The Ministry of Economy and Regional Development• The Serbian Investment and Export Promotion Agency• The Ministry of Trade and Services• The Chamber of Commerce and Industry• The Serbian Chamber of CommerceThe geographical position and the low cost of labour makeSerbia a competitive environment for investment. With thedevelopment of a Balkan Free Trade Zone, this regional marketwill exceed 65 million people. In addition to intensifying trade,this integration may also contribute to political stabilization inthe region. As a result of both political and economical, regionaland international integration of the region into Europe continueddynamic growth is expected over the medium term, which willaccelerate the economic catching-up process of South EasternEurope with the EU member countries. Recording averagegrowth rates of 5 percent and above, the region is the mostpromising market on the European continent, provided thatpolitical stability is maintained, political problems are resolved,economic reforms proceed rapidly, the legal framework improvesfurther, and legal security increases.Foreign and multinational companies have begun to appear onthe Serbian market as of 2002. According to the official data ofthe National Bank of Serbia, the institution authorized to reporton foreign direct investment (FDI), FDI in 2007 amounted to USD2,195 million.3.2. Regulatory legislationThe legal framework relevant for foreign investmentencompasses the following acts:• Law on Foreign Investment (enacted in January 2002,amended in January 2003)• Law on Free Zones (enacted in 2006)• Law on Foreign Exchange Transactions (new law enacted inJuly 2006)• Law on Foreign Trade Transactions (enacted in May 2009)• Customs Law (enacted in 2003, amended in 2005 and 2006)• Set of privatisation laws:• Privatisation Law, (enacted in 2001, amended in 2003,2005 and 2007)• Law on the Agency for Privatisation (enacted in 2001,amended in 2004)• Share Fund Law (enacted in 2001, amended in 2005)• Company Law (enacted in 2004)• Law on Securities and other Financial Instruments Market(enacted in June 2006)• Law on Takeover of Joint Stock Companies (enacted in June2006)• Law on Registration of Commercial Entities (enacted in 2004,amended in 2005)• Law on Concessions (enacted in 2003)• Insurance Law (enacted in 2004, amended in 2005)• Bankruptcy Law (enacted in 2004, amended in 2005)• Law on Games of Chance (enacted in 2004, amended in 2005)• Energy Law (enacted in 2004)14 Guide to doing business and investing in Serbia

3.3. Foreign Investment LawForeign investments in Serbia are regulated by the Law onForeign Investment (LFI). The fundamental aim of the SerbianGovernment is to create a business-friendly legal, economic andpolitical environment for all foreign individuals and companiesinterested in doing business in Serbia, by equalizing the rightsand responsibilities of domestic and foreign investors, andproviding other necessary conditions. A long-term goal is also tocreate a legal system compatible with European Union legislationas a first step towards future integration.The LFI regulates foreign investment in enterprises and otherforms of establishment engaged in profit generating activitiesin Serbia.According to the LFI, a foreign investment may be made either byfounding a new company or by increasing the capital of existingdomestic companies through the acquisition of stocks or sharesin the initial capital of that company and/or acquiring any otherproperty rights in a company.DefinitionsA foreign investor is:• A foreign entity whose headquarters are located abroad,• A foreign natural person,• A national of Serbia who is resident abroad for a periodexceeding one year.A foreign investment is:• Investment in a domestic company, granting a foreign investora stake or shares in the initial capital of that company,• Acquisition of any other property rights in the sense ofa realisation of a business interest in Serbia.Legal statusA foreign investor is guaranteed national treatment, which meansthat any legal entity and natural persons who are investing inSerbia enjoy full legal security and protection, equal to those ofdomestic companies.The LFI guarantees legal security to the foreign investor.Consequently, if a change is made to the law under which anagreement was concluded after the investment agreementis registered, the provisions of the agreement, articles ofassociation and the law in force on the date of the registrationof that agreement shall apply to the relations regulated byit. It is important to emphasize that a stake held by a foreigninvestor or a company with a foreign investment cannot be thesubject of expropriation, except when so required by the publicinterest as established and determined by the law. Moreover, incase of expropriation, the foreign investor or the company withforeign investment is entitled to compensation not lower than itsmarket price. The provisions relating to expropriation are newto the Serbian legal system and bring together issues related toforeign investment, with provisions of bilateral contracts on theencouragement and protection of foreign investment.Parameters of foreign investmentWithin the scope of Company Law and the Foreign InvestmentLaw, a foreign investor is authorised to:• Manage or take a part in managing the company he hasfounded or in which he has invested his capital, proportionallyto his capital contribution and in accordance with theCompany Law,• Transfer the rights and obligations, which are incorporated inthe investment contract or founding act, to the other foreignor domestic legal entities or persons,• Inspect the company books and supervise the businessactivities of the company in which he has invested,• Found and invest funds in an insurance joint stock company,• Audit the interim and annual financial statements eitherpersonally or by engagement of an authorised representative.The contribution of a foreign investor may be in the form offoreign currency, contribution in kind, intellectual property rightsand securities. The contribution can also be in local currencybut only if these funds, in accordance with the foreign exchangeoperations regulations, may be transferred abroad, includingremittance of any profit. Although not explicitly regulated bythe LFI, the services of foreign investors can also be investeddue to an explicit provision of the Company Law allowing thatto all entities. A foreign investor may also convert confirmedreceivables into capital i.e. shares in a company.Repatriation of capital and earningsIf the prescribed tax requirements and other outstandingcommitments have been settled in Serbia, the foreign investormay, without any further limitation or delay, transfer financialassets relating to the foreign investment such as:• Profit that was realised through the business activities of thecompany,• Remaining property of the company, after dissolution of thecompany,• Money assets relating to purchase of stocks and shares,• Money assets after decreasing the initial capital of thecompany with foreign investments,• Compensation in the case of expropriation of the companyproperty, as well as any indemnity.Guide to doing business and investing in Serbia 15

Equipment representing the foreign investor’s stake isunrestricted, subject only to environmental protection regulations.Imported equipment is exempt from customs duties andother import charges, except for motor vehicles and gamblingmachines.Procedural obligationsCompanies are obligation to keep books and financial statementsin accordance with Serbian legislation which has been brought inline with International Financial Reporting Standards (IFRS).All investments must be registered at the Register of Companies,using the procedure for the establishment of a new company oramendment of the Foundation Act of an existing company, andthe Agency for Registration of Business Entities will then informthe competent ministry.Any dispute related to foreign investment may be settled eitherbefore the Serbian court or in domestic or international arbitrationas agreed between the parties.Foreign investors’ rights and protectionThe legal security of investments is guaranteed. No entity can bedeprived of property nor can the property be limited, except inthe case of invocation of a vital and indisputable public interest,in full respect of the procedure in which the existence of suchinterest is determined, and followed by the immediate payment ofcompensation, in the amount of the market value of the propertybefore expropriation. In the event of any change in the law underwhich the founding or investment contract is approved andregistered, the investor has the right to maintain the relationsregulated in the contract according to the statute and law whichwere in force when the investment was made, if he considersthese more favourable.A foreign investor has the right to make payments underinternational business arrangements and to maintain accounts inaccordance with international accounting standards. If a bilateralor international treaty provides for conditions more beneficialfor a foreign investor, its implementation has primacy over theprovisions of relevant domestic legislation. The equipment whichrepresents an investment may be imported free of customs andother import duties.RestrictionsForeign entities are not permitted to own a majority interestin companies or enterprises engaged in the production orsale of armaments or located in special geographical zones(e.g. border zones, national parks). These kinds of foreigninvestments are subject to approval from the competent ministry.Meeting environmental protection standards and regulations iscompulsory.Investments regulated separately by specific laws include:• Banks• Insurance companies• Stock exchanges• Stock broking companies• Free trade zone managing companies• Broadcasting companies3.4. Foreign exchangeThe Law on Foreign Exchange Operations (LFEO) providesrules for current transactions, capital transactions, the foreignexchange market and supervision.Current transactionsPayments based on current transactions are free and withoutlimitations. LFEO specifies which transactions should beregarded as current (payments in foreign trade– sale of goodsand services, repayment of a portion of the principal sum plusinterests on credits, return payments of investment funds, aswell as transfers abroad and repatriation of profit from directinvestments).Serbian residents are obliged to bring into Serbia means ofpayment with regard to the export of goods and/or services.Under the LFEO, the deadline is set to be 180 days followingthe export goods clearance. The deadline remains the same forresidents importing prepaid goods and/or services.16 Guide to doing business and investing in Serbia

Payments or transfers towards non-residents based onagreements lacking real price or concluded on the basis of falsedocumentation may not be executed.Banks and resident legal entities may purchase or sell claims andpayables arising from residents’ foreign trade activities. This legalsolution is aimed at enabling companies to have cheaper andeasier access to additional financing.Under the terms and conditions prescribed by the Government,a resident legal entity may compensate the realized exportof goods and services with the realized import of goods andservices.Profit made abroad from the performance of constructionworks, as well as foreign currency kept by the ordering party asa guarantee of the correctness of performed works, has to bebrought into the country by the resident upon the completion ofconstruction works, and/or expiry of the guarantee deadline.Capital transactionsPayments and transfers of capital with regard to directinvestments, investments in real estate and transactions withsecurities are executed freely, in accordance with regulations.All direct investment made by residents must be reported to theMinistry of Economy and Regional Development within 30 days.Also, residents can freely purchase shares available on foreignexchange markets as a minority stake (up to 10 percent).Residents can freely transfer the money for the purchase of realestate abroad and non-residents for the purchase of real estatein Serbia.Payments for the purpose of purchasing financial derivativesabroad may be effected by the NBS and banks. Residents andnon-residents may effect such payments only under the termsand conditions prescribed by the NBS.Payment transactionsContracting in foreign currency in the country is allowed, butpayment and collection has to be effected in Serbian dinars(RSD). By way of derogation from this rule, LFEO enumeratescases when payment and collection can also be effected inforeign currency. These cases include transfers in respect of lifeinsurance and sale and lease of real estate.3.5. ConcessionsA foreign investor may be granted a concession for theexploitation of natural resources, goods in general use or forperforming an activity of public interest. Permission may begranted to build, operate and transfer (BOT) a particular building,facility or plant as well as infrastructure and/or a communicationfacility. The Law on Concession of Republic Serbia covers therelevant subjects.Foreign investors are not allowed to obtain concessions in certainrestricted fields of business or in areas specified as restrictedzone.The Law on Concessions stipulates that the duration of aconcession may not exceed 30 years, depending on the subject,the estimated profit, the level of assumed business risk, thedemand for construction at an early stage and the demand formarket development in the field of the concession.The concessionary must establish a company registered in theRepublic of Serbia within 60 days following the ConcessionAgreement date.For arbitration of disputes, a foreign concessionaire may chooseinternational arbitration, provided that the subject matter of thedispute is not real estate.Furthermore, LFEO now regulates international credit operations.For resident legal persons and entrepreneurs, banks mayapprove foreign currency loans for the payment of import ofgoods and services. For resident natural persons, banks mayapprove foreign currency loans for the purchase of real estate inSerbia.Banks can keep foreign currency deposits on bank accountsabroad without any restrictions. Residents may keep foreigncurrency deposits on bank accounts abroad in the mannerand under conditions prescribed by the NBS, however theseprovisions are undergoing continuous liberalization.Non-resident and resident branches of a foreign legal entity,which transact business through a non-residential account, mayconduct transfers from such an account abroad, provided thatits tax liabilities towards the Republic of Serbia, arising from itsbusiness activities, have been settled.Guide to doing business and investing in Serbia 17

Chapter 4Banking, Finance and Insurance4.1. Banking SystemBanking systemThe banking system of Serbia consists of the central bank i.e.the National Bank of Serbia (NBS), commercial banks and otherfinancial organisations. The founding, organisation, businessactivities and governing of banks are regulated by the BankingLaw and the corresponding bylaws of NBS.Domestic and foreign legal entities and natural persons maybe founders of a bank in Serbia, which must be established inthe form of a joint stock company. The NBS is authorised tosupervise the activities of commercial banks and to issue orrevoke operating licences for commercial banks in Serbia.The operating licence is issued within 30 days by the NBSfollowing the issue of the preliminary approval (90 days) and filingof the request for issuing of this licence. The initial capital of thebank can be contribution in both money and in kind, which mustbe evaluated by an authorised person. The monetary portionof the share capital of the bank must be a minimum of EUR10,000,000 in RSD counter value.Banking regulationsSignificant characteristics of the Banking Law are:• Prescribed foundation procedures• Strong role (ultimate) of the NBS as a regulatory andsupervising authority• Low shareholding threshold approval requirement• Corporate Governance• Supervision on Consolidated basis• Merger Control• Definitions and Management of Risks• Definition of CreditMinimum capital requirements prescribed by the Banking Law aresimilar to Basel regulations and NBS is currently in the process ofdrafting bylaws that will be adjusted to Basel II regulations.The most significant requirements are listed below:• The monetary portion of the share capital in RSD equivalentshould at all times amount to at least EUR 10 million,calculated at the daily average exchange rate.• A minimum capital adequacy ratio of 12 percent has to beretained, calculated as the ratio of the bank’s capital to its riskweightedassets.• Large exposure of a bank means exposure of the bank to asingle person or a group of related persons amounting to atleast 10 percent of the bank’s capital.• The largest exposure of a single borrower is restricted to 25percent of capital.• The largest exposure of an affiliated borrower is restricted to 5percent of capital.• Aggregate exposure of the bank to persons related to the bankmay not exceed 20 percent of the Bank’s capital.• Total of all large exposures of a bank, which may not be lessthan 400 percent or more than 800 percent of the bank’scapital.• Total foreign exchange risk position is restricted to 30 percentof capital.• Investment of a bank in a single non-financial sector personmust not exceed 10 percent of the bank’s capital.• Permanent investments (in the capital of legal entities andfixed assets) are restricted to below 60 percent of capital.• Banks to have the stock of gross household dinar lending atthe end of each calendar month lower than or equal to 200percent of the value of their share capital.Compliance with these ratios is supervised by the NBS on aquarterly basis.The NBS may determine a higher capital adequacy ratio thanthat prescribed for a bank (12 percent). Banks that do not meetcapital adequacy criteria are divided into three groups:• Undercapitalized bank• Significantly undercapitalized bank• Critically undercapitalized bankSpecial measures for undercapitalized banks and significantlyundercapitalized banks are imposed by NBS.18 Guide to doing business and investing in Serbia

Banking marketThe Serbian banking market is still characterized by a largenumber of commercial banks. A large number of private bankshave been successful in finding foreign partners such as Delta(Banca Intesa – Italy), Meridian (Credit Agricole- France), Atlas(Piraeus Bank- Greece), Nova Banka (Findomestic Banca - Italy),Centrobanka (Laiki group –Cyprus), Kulska, Niska and Zepterbanka (OTP – Hungary), Nacionalna stedioncia (EFG Eurobank –Greece), A banka (KBC Group-Belgium) Vojvodjanska (NationalBank of Greece). In 2008, the NBS granted its first green fieldlicense to Moskovska banka AD Beograd which is 100% ownedby Bank of Moscow-Russia. Other banks are in the processof finding foreign partners or merging with other local banks.There are 10 state-owned banks, whilst the merger and sale ofPostanska stedionica Banka, Privredna banka Pancevo, JUBMESand Srpska banka, planned for 2008/2009, have been postponeddue to the economic crisis.Banking productsThe Serbian banking system has yet to reach western standardsin the scope and quality of its services and capital marketoperations. The following types of operation are currentlyavailable:• Deposit operations (acceptance of all kinds of deposits),• Credit operations,• Foreign exchange and foreign currency transactions,• Issuing operations (issue of securities and credit cards),• Treasury operations (money market foreign exchange),• Custody operations (safekeeping and handling securities),• Stock exchange related operations (purchase and sale ofsecurities),• Guarantee operations (extending warranties, guarantees,endorsements),• Documentary operations,• Cash management,• Intermediation i.e. assuming the role of a broker in trading insecurities,• Purchasing and collection of claims,The availability of banking services is not consistent throughoutthe country, with the highest concentration of banking facilitiesand services being in Belgrade.The financial instruments market is currently undeveloped. It isexpected to expand in the near future.National Bank of SerbiaThe role of the NBS is regulated by the Constitution and the Lawon the NBS (enacted in 2003 and amended in 2004). The NBS isan autonomous institution.In accordance with the Law, the NBS is authorised to perform thefollowing functions:• Determine and implement monetary policy;• Autonomously pursue the dinar exchange rate policy anddetermine the dinar exchange regime with the consent of theGovernment;• Hold and manage foreign currency reserves;• Issue banknotes and coins;• Regulate, control and promote unhindered functioning ofinternal and external payment operations;• Issue and revoke operating licenses, carry out supervisionof banks, insurance and leasing companies and enactsregulations in this field;• Issue and revoke licenses, i.e. authorization for carrying outinsurance operations; perform control, i.e. supervision overinsurance operations; carry out other duties in line with legalregulations governing insurance operations;• Perform statutory tasks for the Republic of Serbia;• Provides for the minimum scope of auditing and the minimumaudit report content for banks, insurance and leasingcompanies;• Perform other tasks provided for by this and other laws inaccordance with the principles of central banking.The NBS co-operates with the Serbian Government and otherstate institutions in order to execute its functions. The Republicof Serbia guarantees all NBS’s liabilities.• Other financial services,• External payment operations and external loan operations,both of which are subject to special licences, issued in linewith the federal law on foreign exchange operations,• E-banking.Guide to doing business and investing in Serbia 19

4.2. InsuranceThe Insurance law, introduced in May 2004 and amendedin 2007, entrusted the NBS with supervision of insurancecompanies.Within its function, the NBS carries out surveillance of insuranceactivity; issue licenses for performing insurance, reinsurance,intermediation and agency operations as well as those directlyassociated with insurance activity; gives approval for legallyrequired enactments and actions; adopts regulations prescribedby law; processes statistical and other data, and considerscomplaints filed by the insured and other insurance beneficiaries.The Insurance Law divides the insurance business into lifeand non-life insurances, in line with EU directives. Insurancecompanies will not be able to perform both life and non-lifeinsurance business within one legal entity.Minimum capital requirements were also increased, dependingon the activity performed by the company: EUR 1 million –accident and voluntary health insurance, EUR 2 million – lifeinsurance and other property insurance, accident and voluntaryhealth insurance, EUR 2.5 million – motor vehicles insurance– full coverage, railway vehicles and obligatory traffic liabilityinsurance; EUR 3 million – voluntary superannuation insuranceand EUR 4.5 million – re-insurance operations.The local insurance market remains relatively under-developedand needs more structural changes. Insurance products such aslife, health, real estate, remain highly underdeveloped.The total premium in the Serbian insurance market has reachedEUR 440million in Q3 2009.The predominant share i.e. 86.5%oftotal premium is held by non life insurance. Premiums from lifeinsurance have increased from10.9% in 2008 to 13.5% in Q32009 reaching EUR 59.4 million.• Consumer protection and education,• Efficient implementation of consolidated supervision offinancial sector participants.The following requirements are imposed to companies which areto be engaged in financial leasing:• A company incorporated in conformity with the law governingthe legal status of companies,• A company whose paid-in share capital is at least EUR100,000 in the dinar equivalent value at the median rate ofexchange of the NBS on the date of payment, and• A company that has been issued a license to engage infinancial leasing by the NBS.In 2006 the NBS passed a new Decision on regular monthly andquarterly reporting to NBS by leasing companies.There are 17 registered leasing companies, with total assetsamounting to EUR 1,330 billion, operating in the Serbian market.Eleven leasing companies are owned directly or indirectlyby foreign investors, five companies are owned wholly orpredominantly by local owners, whereas one company is owned50/50 by a local and foreign owner.Four major leasing companies comprised 61.8 percent of thetotal market as at Q3 2009 (2008: 63.7 percent).Corporate customers make up to 86.4% percent of the totalleasing portfolio. Furthermore, motor vehicle leasing contractsmake up to 62.2 percent of all leasing contracts whereasequipment contracts figure 26.2 percent of all leasing contracts,as per Q3 2009 data .4.3. LeasingIn May 2003, the Law on Financial Leasing was introduced,which defines financial leasing and basic rights and liabilities ofparticipants in financial lease operations. It also entrusts NBSwith supervision of financial lessors’ operations as well as issuingof financial leasing licenses, approvals of appointment of financiallessors’ managing bodies and enforcing corrective measuresin respect of lessors if supervision reveals illegalities andirregularities in their operations. The NBS also enacts secondarylegislation as provided in the Financial Leasing Law, whereby itregulates more closely the operations of financial lessors.The principal objectives of the supervision of financial lessors are:• Strengthening public confidence in the financial sectorand leasing,4.4. Capital marketBelgrade has a stock exchange and a money market, but theseinstitutions are still small and underdeveloped. Market trade insecurities is conducted on the Belgrade Stock Exchange Market(Belex) through authorised stock market intermediaries (brokers)who are members of the Central Registry and Depository ofSecurities.Distribution of and trading in securitiesThe Law on Securities and Other Financial Instruments Marketwas adopted in June 2006 and regulates three main fields: theprocess of distribution of and trading in securities, the activitiesof authorised participants on the market and the role of theSecurities Exchange Commission.• Ensuring financial market transparency,• Financial market development based on fair competition,20 Guide to doing business and investing in Serbia

Issuing of new shares through public offeringThe process is initiated by publishing a public announcementand prospectus on issue of new shares, followed by a series ofactions required for subscribing and paying for the shares andobtaining authorisation on the issue of shares from the SEC. Itends with the transfer of shares to the securities account of thenew owner.Trade in securities through the stock exchangeTrade in securities on the stock exchange can be performed onlythrough broker-dealer companies or authorised banks.Authorised participants on theorganized marketAuthorized participants on the organized market are thebroker-dealer companies, authorised banks and Custody Banks.The Law provides the general framework for their foundation andoperations, and rights and obligations. These issues are moreclosely regulated through the by-laws and rulebooks of the SEC.Security exchange commissionThe SEC has a crucial role and significant power. It isresponsible for, among other things, the rules relating to theapplication of the Law, issuing licences and supervising theoperations of authorised participants in the market, settingstandards for registration of stock exchange trade operations,establishing the contents of mandatory information that is to besubmitted to it and published, monitoring the state of and trendsin the securities market and undertaking corrective action.Guide to doing business and investing in Serbia 21

Chapter 5Importing and ExportingThe main principles of the foreign trade in Serbia are regulated bythe Foreign Trade Law (the Law). This Law regulates foreign tradein a rather liberal way especially in comparison with the previousversion of the same Law.Import is the entrance of goods i.e. delivery of goods on theterritory of Serbia from the territory of another state and shouldbe made in accordance with Serbian customs regulations.This means, amongst others, that received goods should bedeclared for free circulation. However, this general rule hasexceptions in cases when goods, although paid and deliveredinto Serbia, do not have to be imported if declared for one of thespecial customs procedures (e.g. customs warehousing, inwardprocessing relief, transit, etc.).The flow of goods designated for import is supervised by theSerbian Customs authorities. Customs supervision generallyends when goods are customs cleared and import duties paid.Customs rules must also be adhered when carrying out exportoperations. Export (including re-export operations) is stimulated bythe various incentives e.g. exemption from import duties on rawmaterial that is processed in and re-exported from Serbia, moreefficient VAT refund procedure for predominant exporters, etc.5.1. Trends in customs policyThe new Serbian Customs Law (the Law) entered into force on3 May 2010. This Law represents a step forward in the aligningSerbian customs legislation with Community Customs Code ofthe EU, and incorporates relevant customs standards, regulationsand practice of the European Union (EU).In the areas of the customs valuation, origin of goods, tariffclassification and customs procedures, Serbia also tendsto apply recommendations and views of the World TradeOrganisation (WTO), World Customs Organisation (WCO), andto implement global trading rules set by the General Agreementon Tariffs and Trade (GATT). Continuing trend is to bring customsregulations and practice fully in line with those of the EU and alsowith guidelines set by international organizations, as much aspossible in the forthcoming periods.For example, the Customs Tariff Law provides that Decisionson the classification of goods enacted by the HarmonizedSystem (HS) Committee, as a body of the WCO, as well as thoseenacted in the EU and published in the Official Journal of EU,are enforceable in Serbia. These decisions are published in theOfficial Gazette of the Republic of Serbia.Additionally, the Serbian Government is annually reconcilingnational Customs Tariff with the Combined Nomenclature (CN)of the EU.Serbian Customs authorities are still focusing their control ongoods during importation procedures. The main reason is arelative under-development of risk management procedures aswell as the lack of the methodology and expertise to performpost-importation audits. However, they are inclined to shift thefocus of the control to the post-importation period (five yearsfollowing import) in order to speed up the importation processand to set controls on the basis of an on-going risk analysis.One of the main customs issues in Serbia in the past was the factthat simplified customs procedures (e.g. simplified declaration,authorised exporter, etc.) were not implemented althoughprovided by the regulations. The situation improved since thebeginning of 2010 as simplified procedures and authorizedexporter status started to be approved under the instructionsissued by the Serbian Customs Administration.Currently, regulations do not allow simplification of the importcustoms procedures for excisable goods. This is not in line withEU regulations but this is a consequence of the strong controlthe Serbian authorities tend to have over excisable goods.It remains to be seen whether Decree for implementation ofthe new Customs Law, which is expected to be adopted in thenext couple of months, will entail simplification provisions forexcisable goods.With regard to regional integrations, Serbia ratified CEFTA inSeptember 2007. In April 2008 Serbia signed the Stabilizationand Association Agreement (SAA) and the Interim Agreement onTrade and Trade Related Matters (the Interim Agreement) with theEU. The Interim Agreement started to fully apply as of 1 February2010. Serbia is also in the process of accession to the WorldTrade Organisation (WTO), and it is expected to becomeits member by end of 2010.5.2. Import restrictionsSerbian regulations do not impose significant restrictions onforeign trading. However, there are some restrictions on theimport of certain types of goods, i.e. import licenses are requiredfor certain pharmaceutical substances, precious metals, armsand dual-use goods.Furthermore, restrictions are imposed on import/export paymentand collection operations as defined by the Law on ForeignCurrency Transactions.22 Guide to doing business and investing in Serbia

On imports prepaid and bought abroad, goods are importedwithin 180 days of the payment date. Where goods are notimported within this term, the money is returned to the foreignexporter within five days of this term’s expiration date.Advance payments made abroad with deliveries taking longerthan 180 days of the payment date are considered as loansgranted to foreign customers and as such have to be registeredwith the National Bank of Serbia.On exporting goods, proceeds from the sale abroad are collectedwithin 180 days of the export customs clearance date. The samerule applies in the case of direct trading with foreign goodsabroad.Stipulated payment terms with due dates longer than 180 daysof the export customs clearance date are considered as foreignloans and as such have to be registered with the Central Bank ofSerbia.5.3. Customs dutiesClassification of goodsSerbia is a member of the WCO as well as a signatory to theConvention on Harmonized Commodity Description and CodingSystems (HS Convention). Furthermore, the Serbian CustomsTariff Law requires the Government to perform the reconciliationof the national Customs Tariff and the Combined Nomenclature(CN) of the EU on an annual basis. The current version of theSerbian Customs Tariff system is in line with the CN 2010providing up to eight digits of the HS tariff codes.A Binding Tariff Information (BTI) is a means available to Serbianimporters which helps ensure proper tariff classification.The Customs Administration’s Head Office is in charge ofissuing BTIs.Valuation rulesCustoms duties are charged on the customs value of importedgoods. In view of the said, Serbia is applying globally acceptedcustoms valuation rules i.e. those defined in the Agreementon Implementation of Article VII of the GATT. These rules aretransposed in the Serbian Customs Law.Tariff ratesGoods imported in Serbia are subject to customs duty ratesprovided in the Law on Customs Tariff. These rates are advalorem (with certain exceptions) and apply on goods originatingin countries which have the Most Favoured Nation (MFN) statusin trading with Serbia. Goods originating in other countries aresubject to MFN rates increased by70%.At the moment, only Taiwan is out of the MFN clause in tradingwith Serbia.Specific duties expressed in minimum and maximum amountsare introduced as an alternative to ad valorem duties. Wheneverspecific minimum duty is higher than ad valorem duty, specificminimum duty will apply. If ad valorem duty is higher than specificmaximum duty, the latter will apply.At the moment, this dual regime is provided only for othercigarettes containing tobacco (tariff code 2402 20 90 00).Customs duty rates in Serbia are in the range between 0% and57.6% and are as follows: 0%, 1%, 3%, 5%, 7%, 8%, 10%,12%, 12.5%, 15%, 18%, 20%, 22%, 25%, 30% and 57.6%(the last rate currently applies only to other cigarettes containingtobacco - tariff code 2402 20 90 00).The customs policy aims to protect the following sectors withhigh duty rates, but mainly on finished products:1. Agriculture2. Leather industry3. Furniture industry4. Textile industry5. Electrical household machines industryOn the other hand, customs rates are fairly low for the followinggroups of goods:• Raw materials and semi-finished goods not produced inSerbia• Inputs for export-orientated organisations as well as thoseproducing for domestic market where there is high demand,especially in the following sectors:1. Black metallurgy2 . Colored metals3. Aluminum4. Wood industry5. Textile industry6. Graphics industryFree trade agreementsIn April 2008, Serbia signed SAA and the Interim Agreementwith the EU, however, their entering into force is delayed due topolitical reasons. In January 2009, Serbia decided to unilaterallyabolish or gradually reduce import duties for goods with EUpreferential origin as envisaged by the Interim Agreement. Finally,as of February 2010, both Serbia and the EU started to fully applythe Interim Agreement, thus enabling preferential trading betweenSerbia and the EU to become a two-way regime instead of theearlier two autonomous ones.Guide to doing business and investing in Serbia 23

As previously mentioned, Serbia also ratified CEFTA inSeptember 2007. This FTA should be the first step for all theparties concerned in their accession to the Pan-Euro-Medsystem of origin and a step forward in the EU accession process(Albania, Bosnia and Herzegovina, Croatia, Macedonia, Moldova,Montenegro, Serbia and UNMIK/Kosovo). The rules of origindefined in CEFTA are based on the Pan-European preferentialrules of origin.The main purpose of CEFTA is that its parties establish a freetrade area in accordance with its provisions and in conformitywith the relevant rules and procedures of the WTO. This freetrade area will be established in a transitional period ending on 31December 2010 the latest.Serbia has in force the FTA with the Russian Federation, which isnot the case with other Balkan countries and this is also one ofSerbia’s advantages for attracting foreign investors. However,this FTA is not modelled by FTA template based on thePan-European preferential rules of origin, and therefore it hascertain specificities that have to be considered.As an example, rules of origin are rather simplified. For thepurpose of obtaining preferential Serbian origin, goods areconsidered to be sufficiently worked or processed if these goodsare worked or processed as a result of which the value ofnon-originating materials (raw materials, semi-finished goodsand final products) used in that process does not exceed 50%of the EXW price of goods exported from Serbia.As of 31 March 2009, the FTA signed with Belarus started totemporarily apply, with rules similar to those envisaged in the FTAbetween Serbia and the Russian Federation.Finally, on 24 December 2009, Serbia signed and ratified theFTA with Turkey. The ratification of this FTA by the Turkishside is expected to take place in the following months, whichwould enable its entering into force by end of 2010. ThisFTA is modelled in accordance with the Pan-European Rulesof Preferential Origin and envisages annulment or gradualreduction of customs duty rates for industrial products as well aspreferential customs duties within agreed quotas for importationof certain agricultural products.Excise taxThe Serbian Customs authorities are also in charge of assessingthe excise duties payable for the importation of excisable goods– oil derivatives, tobacco products, alcoholic beverages andcoffee (green, roasted and ground coffee and coffee extracts).Excise duty in Serbia is specific (for oil derivatives, alcoholicbeverages, cigars and cigarillos), ad valorem (for coffee and pipetobacco), and combined (for cigarettes - specific + ad valorem onretail price).One of the main issues in practice was a refund of anyoverpayment of excise duty paid on imported goods. Even herethe Customs authorities’ decision were favourable, confirmingthat the duties had been over-assessed and overpaid, the Taxauthorities (who are generally responsible for refunding theoverpaid excise duty) considered they were not competentfor refund issues since relevant regulations were not entirelyreconciled in this area. However, only recently have the Taxauthorities started to accept responsibility for refundingoverpayment of both excise duty and import VAT.Import VATVAT is payable on all imports, assessed together with customsduty. For most types of goods, the general VAT rate of 18%applies, calculated on the customs value and inclusive ofcustoms and excise duty (if any). For the importation of certaingoods (e.g. fruit and vegetables, meat, cereals, pharmaceuticals)the reduced VAT rate of 8% is applicable.Customs processing feesThere are a small number of specific types of administrativefees relating to Customs processing, charged when customsdeclarations or requests for certain customs procedures aresubmitted. However, these fees are relatively low, generallyranging approx. EUR 10-20 per declaration or request.Payment of customs dutiesImport duties are payable after customs declaration is acceptedand customs bill with calculated amount of duties is issued bythe relevant customs office. The assessed duty amount shouldbe paid within eight days on the special budget account forimport duty payments. Import goods can be released afterpayment is being evidenced in the Customs IT system,or appropriate instrument for securing payment of duty amountis submitted (bank guarantee or cash deposit).5.4. Temporary importation reliefTemporary importation, with total or partial relief from mportduties, is possible for foreign goods intended for re-exportwithout having undergone any change except normaldepreciation due to the use made of them.The amount of import duties payable in respect of goods placedunder the temporary importation procedure with partial relief fromimport duties is set at 3%, on a monthly basis, of the amount ofduties which would have been payable on the said goods hadthey been released for free circulation on the date on which theywere placed under the temporary importation procedure, in otherwords, the import duties will be due for approximately 34 months.The amount of import duties to be charged should not exceedthat which would have been charged if the goods concerned hadbeen released for free circulation on the date on which they wereplaced under the temporary importation procedure, leaving out ofaccount any interest which may be applicable.Prior to allowing temporary importation, the Customs authoritiesshall determine the period within which import goods musthave been re-exported or assigned a new customs approved24 Guide to doing business and investing in Serbia

treatment or use. Such period must be long enough for theobjective of authorised use to be achieved, but not longer than24 months. If the goods which were placed under the temporaryimportation procedure with total exemption from import dutiesare released for free circulation, compensatory interest would bedue by the holder of the approval for the temporary importation.One of the most important requirements when declaring goodsfor temporary importation is to present legal basis for receivinggoods that are to be temporarily imported. Usually this is in theform of the rental agreement.Additionally, when placing goods under temporary importation,it is highly recommended to present customs authorities with aninvoice for customs purposes only, showing the value of rentedgoods, in order to make the procedure as efficient as possible.In this way they will be able to easily assess partial 3% importduties. However, if it is impossible to assess customs value in thisway, the Customs authorities shall apply the customs valuationrules 2–5, and if that too is impossible, they shall determine thecustoms value as the rent for the agreed period of lease.Temporary importation with partial relief from payment of importduties is subject to VAT. When this procedure is approved forleased goods with no option for purchase, VAT shall be payableon a monthly basis together with customs duties set at 3% of theVAT amount which would have been payable on the said goodshad they been permanently imported on the date on which theywere placed under the temporary importation procedure. By May2010, the total VAT for goods imported temporarily under leaseagreements envisaging option for purchase was charged uponacceptance of the request for temporary importation by relevantcustoms office. However, according to new instructions issuedby the Serbian Customs Administration, goods which enter intoSerbia under financial lease or other contract envisaging optionfor purchase have to be imported (released for free circulation) ona regular basis with full payment of customs duties and import VAT.The temporary importation procedure with total relief from importduties shall be granted, amongst others, in respect of goodssuch as containers, various types of packaging equipment(e.g. pallets etc.) moulds, sketches, special tools, means oftransport (road, railway, air and river), if registered or ownedby foreign legal entities and used for the purpose of singlecommercial transportation undertaking that begins and endsoutside of the Republic of Serbia.However, the temporary importation procedure with total relieffrom import duties may not be applied for the equipment usedfor production and construction operations or, in any otherway, for conducting business operations on the territory of theRepublic of Serbia.5.5. Customs duties incentivesIn addition to previously prescribed incentives for investments(contribution in kind) in the capital of Serbian companies, thenew Serbian customs regulations also incentivise import of newequipment and local production intended for export.Contributions to capitalImportation of equipment which represents contribution in kindof foreign investors to the share capital of Serbian companies isexempted from customs duties, with the exception of passengercars and gambling and amusement machines. This equipmentmay not be sold, given for use, or used for purposes other thanexemption from customs duties within three years of the dateof importation unless customs duties are paid. Additionally, thisequipment may not be pledged.In order to use this privilege, the company concerned shouldapply to the Ministry of Economy and Regional Development (theMinistry) for endorsing the list of equipment to be contributedand imported exempt from customs duty.The state authorities have so far issued two contradictory rulings:the first one stipulates that only equipment contributed in kindis qualified for customs exemption, whereas the second onestipulates that the equipment bought from the monetary fundscontributed by foreign investor is also eligible for exemption.It appears that the first opinion is more in line with the spiritof the relevant regulations, since, by applying the secondscenario, investor would realise double benefit i.e. both customsexemption and corporate profit tax investment credit (the latter isnot possible in the first scenario).Upon the importation of equipment representing capitalcontribution of a foreign investor, the Customs authorities usuallyaccept values from the specification of the equipment endorsedby the Ministry as no customs duty is payable on this import.In case of duty free import of equipment contributed by a foreigninvestor, VAT will nevertheless be due, but generally recoverable.Import of new equipmentThe new Customs Law envisages exemption of customs dutiesfor import of new equipment intended for improvement andmodernization of production process or for introduction of newtechnology, provided this type of equipment is not produced inSerbia.This exemption is not applicable for import of passenger motorvehicles and apparatus for conducting games of chance.The procedure for application of this incentive is relatively simple:besides written statement that the equipment in question isintended for improvement and modernization of production orfor introduction of new technology, the importer has to submitexcerpt on company’s registration and confirmation from theSerbian Chamber of Commerce that the type of equipment forwhich exemption is requested is not being produced in Serbia.Guide to doing business and investing in Serbia 25

Toll manufacturingThe Internal Processing Relief (IPR) procedure is a specialcustoms regime enabling foreign goods designated for re-exportto enter Serbia for processing purposes, either free of importduties (suspension system) or with a possibility of remission ofthe paid import duties (drawback system).Processing of goods under IPR is possible within toll or contractmanufacturing scheme. Within toll manufacturing scheme, thetitle over goods does not pass to the processing entity, whereaswithin the contract manufacturing scheme goods are sold tothe processing entity. Further sale of compensating products(either back to the seller or to the third party) should be agreed inadvance i.e. before the approval for IPR is required.IPR is limited in time, i.e. the approval for certain quantity ofgoods can be granted for the period up to 12 months.If import goods or compensating products are released for freecirculation in Serbia, the holder of the approval would be liable topay, apart from the customs debt, the annual compound interestof 23.5% on the customs debt payable on import goods.Compensating products obtained within IPR could qualify forpreferential Serbian origin.Entrance of import goods, either within toll or contractmanufacturing scheme, declared for IPR in the suspensionsystem is not subject to Serbian VAT, i.e. VAT is not due.Furthermore, re-export of goods is exempt from Serbian VAT withthe right to credit input VAT.Processing fee charged for the processing service within tollmanufacturing scheme is VAT exempt with the right to creditinput VAT provided the compensating products are re-exportedfrom Serbia.Usually, the approval for IPR can be obtained very quickly.The main reason is the fact that local production is stimulatedthrough IPR. Therefore, the state has interest to make thisprocedure for local entities as efficient as possible.5.6. Documentation andproceduresRegistration of importers and exportersSerbian regulations do not require importers and exporters to beregistered for customs purposes within the special register.DocumentationThere is no prescribed list of mandatory documents that has tobe filed with the customs declaration and declaration of customsvalue. There is only a general provision saying that Customsauthorities could ask from importer/exporter any documentsthey consider necessary to confirm information stated in thecustoms declaration. Customs are also allowed to take samplesof goods on import/export. In practice, invoice is one of themain documents within the customs procedure. Therefore, it isadvisable to present proper invoice to Customs office containingall relevant elements (buyer, seller, description of goods, value,terms for payment and delivery). It is also quite common andusually required to enclose transport documentation, i.e. CMR.The Customs authorities may often require declarants to providethem with a contract which would represent legal basis forcertain transaction.Declaration of customs valueThis declaration is mandatory in the customs procedure and itsform is based on the EU customs declaration form.As previously explained, WTO valuation rules are followed bySerbian regulations, but quite often not properly implementedin practice. In case the Customs house challenges transactionvalue, it will issue the protocol containing arguments for suchreasoning and also the new customs value. Importer can fileobjection within three days on which Customs office will decide.The whole process falls under the first instance proceedings.In case the importer is not satisfied with the decision of Customsoffice, they are entitled to file an appeal to Commission forAppeals within Customs Head Office, which is the secondinstance body. The second instance decision is final and the onlyavailable legal remedy is to file an appeal to the Supreme Court.Proceedings before the Supreme Court may last between oneand two years.5.7. Warehousing and storageSerbian regulations provide for two types of bonded warehouses(BWs), which are:• Public BW• Private BWPublic BW means a customs warehouse available for use byany person for warehousing of goods, including the warehousekeeper.Private BW means a customs warehouse reserved for thewarehousing of goods by the warehouse keeper who is the sameperson as depositor, but not necessarily the owner of goods.Goods placed in a private BW are designated for the warehousekeeper.Under the Customs Law, the warehouse keeper is the personauthorised to operate the customs warehouse i.e. he isthe titleholder of the authorisation granted by the CustomsAuthorities. In Serbia, the authorisation to operate the customswarehouse may be granted only to persons with a seat orresidence in Serbia. Therefore, it is not possible for a foreignentity to obtain an authorisation to operate a customs warehousein Serbia.26 Guide to doing business and investing in Serbia

The depositor is the person bound by the declaration placing thegoods under the customs warehousing procedure or to whomthe rights and obligations of such person have been transferred.In the case of a public BW, the depositor can be both domesticand foreign entity on the basis of the contract concluded with thewarehouse keeper. In the case of a private BW, the warehousekeeper is the depositor.Where a foreign entity is the depositor, it is required that rightsand obligations are transferred to e.g. warehouse keeper orforwarding agent due to Serbian restrictions for foreign entitiesto participate in the customs procedure. As this is the onlyprocedural requirement, it will not affect in any way ownershipover goods i.e. it will remain with the foreign entity.5.8. Re-exportsImport goods which have not been released for free circulationbut have been placed under one of the customs procedureshaving a suspensive effect (customs warehousing, temporaryimportation with total relief from import duties, inward processingrelief with suspension system, processing under customs control)may be re-exported from Serbian customs territory withoutpayment of import duties.Guide to doing business and investing in Serbia 27

Chapter 6Business Entities6.1. Legal frameworkCompany and commercial lawThe current Company Law (the Law) was enacted and cameinto force in November 2004. This Law regulates the setting upand operation of businesses in a much more market orientatedmanner that the previous Law on Enterprises did.Commercial relations between companies are regulated by theLaw on Contracts and Torts.6.2. Choice of entityForeign investors may establish a company in the form of:• Associations of capital: Joint-Stock Company (a.d), LimitedLiability Company (d.o.o)• Partnerships: General Partnerships (o.d), Limited Partnerships(k.d)divisible by ten in RSD counter value, according to the middleexchange rate on the date of applying for inscription of thecompany, i.e. the date of applying for change of an incorporatedcompany capital. A minimum of 50 percent of the foundingcapital of each shareholder must be paid in before incorporation,whilst the remaining 50 percent has to be paid in within twoyears of incorporation. Contributions of founders may be made inmoney, property or rights. Contributions may be made in labouror services only if envisaged by the foundation act of a closeda.d, while contributions in labour or services are not permitted inan open a.d.The mandatory bodies of a closed a.d. are: the Shareholders’General Assembly and Managing Director or Board of Directors.A closed a.d. may also have an Executive Board, and/or anInternal Auditor / Board of Auditors. The mandatory bodies ofan open a.d. are: the Shareholders’ General Assembly, Boardof Directors, Executive Board, and the Company Secretary.Furthermore, an a.d. listed at stock exchange must have aSupervisory Board, Internal Auditor, or Board of Auditors, whilean a.d. performing a business activity prescribed by a separatelaw must have a Supervisory Board.In addition to the above, a foreign company may set up a branchor representative office in Serbia.In practice, foreign investors usually prefer to incorporatea d.o.o., because of its simple form and fast incorporation.Its advantages include the following:• Capital increase may be made without supervision of theSecurities Exchange Commission• Minimum share capital is EUR 500, as opposed to EUR 10,000for a closed a.d.6.3. Joint Stock Company (a.d.)A Joint Stock Company can be founded by one or more naturalpersons and/or legal entities in the capacity of shareholders.The maximum number of shareholders in a closed a.d. is 100.A closed a.d. having more than 100 shareholders, maintained forthe period of over one year, is transformed into an open a.d.The initial capital is divided into shares of specific value.The minimum initial capital of a closed a.d. is RSD equivalent ofEUR 10,000, and of an open a.d. RSD equivalent of EUR 25,000.The minimum par value of a share cannot be lower than theamount obtained by rounding up EUR 5 to the highest number6.4. Limited Liability Company(d.o.o.)A d.o.o. may have 1 to 50 members (natural persons and/orlegal entities).Minimum pecuniary part of the initial capital is RSD equivalentof EUR 500. A minimum of 50 percent of the initial capital mustbe paid in before incorporation, while the remaining 50 percentmust be paid in within two years of incorporation. Contributionsin a limited liability company may be made in money, property orrights, as well as in labour and services. The latter include onlylabour and services that have already been performed and notthose that are to be performed in the future.The liability of members is up to the value of their investment.The bodies of a d.o.o. are: (1) the Shareholders’ GeneralAssembly composed of founders and (2) Managing Director orBoard of Directors. A d.o.o. may, but is not obliged to, have anInternal Auditor or Board of Auditors. The sole shareholder of ad.o.o. performs the duties of the General Assembly.28 Guide to doing business and investing in Serbia

6.5. Partnerships and JointVenturesGeneral Partnership (o.d.)General partnership may have two or more partners – legalentities or natural persons. There are no requirements forminimum/maximum contribution. Contribution can be made inmoney, property and rights, as well as in labour or services.All partners bear unlimited liability for partnership debts andobligations.Limited Partnership (k.d.)A Limited Partnership may be founded by two or more legalentities and/or natural persons, out of which at least one (thegeneral partner) bears unlimited liability for the obligations of thepartnership, and at least one (the limited partner) bears liability forthe obligations of the partnership limited to the value ofhis/her equity.There are no requirements for minimum/maximum contribution.Contributions of a limited partner may be made in money,property or rights, as well as in labour or services.6.7. Representative officeA foreign entity may establish a representative office in Serbia.The basic provisions regulating Representative Offices in Serbiaare contained in the Law on Foreign Trade Operations and theDecree on registration of representative offices of foreign entitiesinto the Business Registers Agency.A representative office is usually established to survey thecommercial, financial, banking, and insurance segments of themarket, as well as to perform the preliminary and preparatoryoperations to the execution of contracts, and to represent theforeign entity engaged in such transactions. A representativeoffice is deemed an integral part of the concerned foreign entityand, therefore, does not have the status of a legal entity.It does not have the capacity to conclude any agreementsother than those arising from and concerning the representativeoffice’s own needs.To register the representative office, the founder shall submit anofficial application and documents required for registration.The application is submitted to the Business Registers Agency.Joint ventures, strategic partnershipsThere are no restrictions on joint ventures and strategicpartnerships. The choice depends on the terms established bythe contractual parties. The amount of the investment and thepercentage of share ownership are set out in a Memorandum ofAssociation.Generally, local partners will seek a partner who can:• Preserve or extend their market position• Provide financing (e.g. resolve liquidity and local financingproblems)• Leverage international brand power• Provide know-howA strategic alliance can be negotiated subject to the normalcontract rules.6.6. BranchesA branch is considered to be a legally dependent part of abusiness entity (company), and does not represent a separatelegal entity. It operates as a detached organizational part of aforeign legal entity dealing only with those business activitiesthat the founder company is registered for in the country of itsregistered seat. A branch office performs business activitiesin the name and on behalf of the founder company. It isincorporated upon the decision of the founder company andmust be inscribed in the Business Registers Agency.Guide to doing business and investing in Serbia 29

Chapter 7Labour Relations andSocial Security7.1. Labour MarketThe Serbian labour force is skilled and well trained, particularlythose under 45 years of age. It is also still relatively inexpensive,although this is likely to change as salary expectations rise,especially with employers who are foreign investors.According to the last available data published by the RepublicStatistics Office, the officially registered unemploymentrate in April 2010 was 19.2 percent. Accurate statistics onunemployment are difficult to obtain, as a significant proportionof the population works in the grey economy.7.2. Labour RelationsEmployer/employee relationsThe employment is established by concluding an employmentcontract. General work ability assumes that an employee is over15 years of age. Special requirements may be determined at thediscretion of the employer, depending on the type of job.UnionsRepresentative labour unions (organised on different levels: state,territorial unit, branch, and the employer) have the capacity tobargain and conclude collective agreements on respective levels.Union activity including the criteria for representativeness ofunions is regulated by the Labour Law.Labour CodeThe Serbian Labour Law (the Law), enacted in 2005, regulatesrights, obligations and liabilities of employers and employees.The Law applies on all employment relations, except those instate institutions where there is a specific regime established bythe Law on State Officials.The Labour Law complies with EU standards andrecommendations of the International Employment Organisation.The Labour Law does not regulate many issues in detail, butleaves them to be regulated by collective agreements (CAs) oran internal act of the employer, that must be in compliance withthe Law. CAs are concluded as a result of bargaining betweenthe labour union and employer/union of employers, and can beconcluded at different levels (within a company/employer, for aparticular sector of economy, for a unit of local government orterritorial autonomy, or for the territory of the Republic of Serbia.The General Collective Agreement was signed in 2008, and asof 11 February 2009 it is binding for all employers in Serbia.In general, it stipulates more favourable conditions for employeesby imposing additional financial obligations for the employer.7.3. Working ConditionsSalaries and WagesSalaries are normally paid at least once a month. The minimumsalary is determined by the Social Economic Committeefollowing the criteria prescribed by the Law. Minimum net salaryfor the period January – June 2010 is RSD 90 (approx. 0.9 EURper working hour).According to the Law, the base salary has to be defined in theemployment contract. An employee is entitled to increased salaryon the basis of overtime, work at night, work during holidays andwork in shifts and to an increase of 0.4 percent for each year ofemployment.Employment contractsEmployment contracts set the rights and obligations ofthe employee and must be concluded in writing, beforecommencement of work. The required minimum of contents ofan employment contract is prescribed by the Labour Law.An employment contract may be concluded either for indefiniteperiod of time, or for definite period of time (up to 12 months,and only in the cases prescribed by the Labour Law).Working HoursFull time employment may range between 36 and 40 hours aweek, subject to the decision of the employer. Overtime cannotexceed four hours a day and eight hours a week.Paid holidaysThe minimum annual vacation is 20 days. Employees are entitledto annual leave after six months of continuous employment. Thegrounds and duration of the paid leave in other cases is specifiedin the Labour Law and the General Collective Agreement.Equal opportunitiesEmployees are to be paid the same for equivalent work, or for thesame value of work, with the same employer. The Labour Lawprohibits discrimination on any grounds towards employees aswell as candidates for employment.30 Guide to doing business and investing in Serbia

Obligatory employing of disabled personsAs per the legislation in force as of May 2010, employers having20 or more employees are obliged to employ a certain number ofdisabled persons, depending on the total number of employees.An employer may be exempt from this obligation by executingpayments towards funds for professional rehabilitation andemployment of persons with disabilities, or payments based oncontract concluded in the procurement procedure, all under theconditions and in the minimum amounts defined by legislation.Termination of employmentEmployment may be terminated unilaterally by either employeror employee, or by mutual agreement of employer and employee.An employer may terminate employment with an employee incase there are justified reasons related to employee’s workingability, behaviour or the employer’s needs, i.e. in the following cases:• Underperformance or lack of required knowledge and skills• Violation of working duties• Violation of working discipline• An employee committing a crime at or in connection withthe workGuide to doing business and investing in Serbia 31

• Failure of an employee to return to work within 15 days fromexpiry of paid leave or dormancy of employment• Misuse of sick leave by the employee• Refusal of an employee to sign the annex to the employmentagreement offered in accordance with the Labour Law, i.e. onspecific legal grounds• Cessation of the need for performance of a job or decreaseof the volume of work due to technological, economic ororganisational changes at the employer. The employer isobliged to pay redundancy compensation to the employee.Furthermore, if employment is terminated on these grounds,the employer is prohibited to employ another person atthe same position in the period of six months followingtermination. If the demand for work on the same positionarises before expiry of the six month period, preferenceshall be given to the employee whose employment on thesame position was terminated. Adoption of a RedundancyProgramme is the obligation of the employers if a certainnumber of employees, depending on the total number ofemployees, are to be declared redundant.7.4. Social security systemCompulsory social security insuranceCompulsory social insurance in Serbia covers pension anddisability insurance, health insurance, and insurance for case ofunemployment. Social security contributions are levied on boththe employer and employee.Residence permitThe new Law on Foreigners became effective as of 1 April 2009,regulating inter alia visa regime and residence of foreigners.Temporary residence enables a person to stay in Serbia for morethan 90 days, up to one year, with the possibility of extension. Ifa foreigner holds a temporary residence visa (type D visa), thereis no additional need to obtain residence permit upon arrival inSerbia. However, foreigners not holding such visa, who intend tostay in Serbia for more than 90 days, must apply for a residencepermit with the Police Office for Expatriates.The conditions for issuing visas for temporary residenceand temporary residence permits are the same. Grounds fortemporary residence are: work, employment, execution ofcommercial or professional activity, education and trainingpurposes, family reunion, and other justified reasons. In orderto be issued a temporary residence certificate, a foreigner mustdemonstrate proof of health insurance, sufficient means forsupport, and grounds for temporary residence.Extension of residence permit may be submitted 30 days beforeexpiry of such permit at the latest.A foreigner is required to register with the Police Station in theplace where he/she intends to reside for more than 24 hours,within 24 hours of coming to that place. When staying in ahotel, or staying with someone, the hotel/host shall register theforeigner within 24 hours.Work permitThe general preconditions for foreigners getting employed inSerbia are:• Temporary residence permit/permanent residence permit; and• Work permit.7.5. Foreign personnelRestrictions on employmentThere are no general restrictions as to the number of foreignemployees or duration of their employment in Serbia. There isno nationality that will encounter unusual difficulties enteringthe country for business purposes, nor will any enjoy favourabletreatment.ID number for foreigners and TaxIdentification NumberUpon the issue of residence permit, an evidence ID number isgiven to the foreigner, which is further used for obtaining TaxIdentification Number for natural persons.However, work permit is not required for holders of temporary/permanent residence permit, entering into employment in Serbiafor the purpose of executing work determined in a businesscooperation agreement, long-term production cooperation,technology transfer, and foreign investment.Work permit is issued by the Agency for Employment. For lders oftemporary residence permit, request for work permit is submittedby the employer.32 Guide to doing business and investing in Serbia

Chapter 8Accounting andAudit Requirements8.1. AccountingIntroduction of IFRSIn 2006, the Serbian Government adopted the Law onAccounting and Auditing by which legal entities are to apply theInternational Financial Reporting Standards (IFRS) in preparingtheir financial statements. The application of these standards andaccounting framework are prescribed by Decrees of the Ministerof Finance for companies, entrepreneurs, and broker-dealers,and the Governor of the National Bank of Serbia for banks.The Decrees and the Law differ in some aspects from IFRS,resulting in some deviations of local accounting standardsactually applied from IFRS.This Law is applicable to: all legal entities, entrepreneurs whokeep accounting records, subsidiaries of Serbian companiesabroad if the host country does not require them to keepaccounting records, branches and representative offices offoreign legal entities in Serbia (unless stipulated otherwise inother regulation), banks and other financial institutions.Preparing financial statementsFor the purpose of determining the legal requirements in termsof accounting and auditing, all entities are classified as Small,Medium and Large as follows:Company SizeMediumSmallLargeCriteria for Classification1) Average number of employees: 50 - 250;2) Annual total income: EUR 2.5 – 10 millionin RSD equivalent;3) Average assets value: EUR 1 – 5 millionsin RSD equivalent.If the value of at least two criteria is lowerthan those for Medium size entities,the entity is classified as Small.If the value of at least two criteria is higherthan those for Medium size entities, an entityis classified as Large. Banks, insurancecompanies, stock exchanges and stockbrokers are considered as large legal entities.An entity determines its size in accordance with the above criteriaat the date of preparing financial statements and uses it in thefollowing accounting period. Newly established entities areclassified based on the information from the current accountingperiod and the number of months of operation and theclassification is used for the current and the following accountingperiod. Entities are obliged to submit the information on theirclassification together with the financial statements for theprevious accounting period to the National Bank of Serbia whichverifies the classification.Small legal entities may, and Medium and Large legal entities areobliged to prepare financial statements in accordance with IFRS.The Minister of Finance prescribes recognition, measurement andvaluation rules for Small legal entities which do not apply IFRS.Annual financial statements must be submitted to the NationalBank of Serbia by 28 February and consolidated financialstatements by 30 April. Approved financial statements togetherwith the auditor’s opinion must be submitted by 30 September(30 October for consolidated financial statements).All companies which are required to have an audit must publishtheir financial statements together with the auditor’s opinion by30 September.Statutory requirementsEntities are obliged to perform inventory of assets and liabilitiesat the end of each financial year and to send a list of openinvoices to its customers and reconcile balances with them.Any unreconciled balances should be disclosed in the notesto financial statements. The financial year for all entities endsDecember 31. Serbian subsidiaries of foreign entities with adifferent financial year end may, with the permission of theMinister of Finance or the Governor of the National Bank ofSerbia, have a financial year end conterminous to the year-endof the parent company.Financial statements consist of:• Balance sheet• Income statement• Cash flow statement• Statement of changes in equity• Notes to financial statements, and• Statistical annex34 Guide to doing business and investing in Serbia

Entities are obliged to file the prescribed forms for balance sheet,income statement, statement of changes in equity and statisticalannex. The classification and presentation of certain balancesheet and income statement items as required by these forms isnot in accordance with IFRS. Cash flow statement form is basedon the direct method. Statistical annex contains some generalentity information (number of months of operation, size, foreignshareholders, average number of employees) and an analysis of anumber of balance sheet and income statement positions. Thereare no restrictions on the structure and content of the notes tofinancial statements.Entities with one or more subsidiaries are obliged to prepareconsolidated financial statements unless their consolidatedassets and revenues (excluding intercompany transactions andbalances) show that the consolidated entity would be classifiedas Small.Small companies submit only balance sheet, income statementsand statistical annex.Significant accounting differences betweenSerbian standards and IFRSAlthough the Law on Accounting and Auditing requires full scopeIFRS to be applied, due to additional regulation issued by theMinistry of Finance the following Serbian accounting proceduresdiffer from IFRS:• Off-balance sheet assets and liabilities are recorded onthe face of the balance sheet. According to accountingframework, off-balance sheet assets should include: leasedassets, consignment stock, other third party’s inventory heldat the company’s premises and guarantees. Counter entries ofthese items are off-balance sheet liabilities. Such items do notmeet the definition of either an asset or a liability under IFRS.• Where total shareholders’ equity is less than zero, an assetis recorded in the balance sheet under the caption Lossexceeding equity, so that the total shareholders’ equity equalszero. This asset does not meet the definition of an asset underIFRS.• Exchange rate gains or losses on unpaid subscribed capitalare credited /debited to equity in the balance sheet. Suchtreatment is not consistent with IFRS.• The prescribed format of financial statements does not complywith the requirements of IAS 1 – Presentation of FinancialStatements.• Entities are obliged to prepare financial statements usingSerbian Dinar (RSD) as a functional currency even where IAS21 –The Effects of Changes in Foreign Exchange Rates wouldrequire them to use different functional currency.• Consolidated financial statements for the current year arerequired to be filed by the of April the following year, whileseparate financial statements are required to be filed by theof February the following year. Under IFRS, separate financialstatements of an entity which has subsidiaries are onlyallowed if consolidated financial statements are also preparedand issued at the same time.• In 2009, the Ministry of Finance issued a rule by which inpreparing 2008 financial statements entities were allowedto defer foreign exchange differences in the balance sheet.The rule is optional and if applied, net foreign exchangedifferences are recorded within accruals and prepayments inthe balance sheet and released to the income statement whenrelated asset or liability is realised. If an entity decides to applythis rule, that fact should be disclosed in the notes to financialstatements.Profile of accounting professionThe Chamber of Certified Accountants issues certificates toCertified Accountants. In order to obtain the certificate, a personmust have a university degree, three years of external or internalaudit experience or five years of accounting experience, andmust take the certification exam. The Chamber of CertifiedAccountants publishes the list of members on their website.8.2. Chart of accountsChart of accounts for companies is prescribed by the Ministryof Finance, and chart of accounts for banks and other financialinstitutions is prescribed by the National Bank of Serbia.Separate charts of accounts are issued for:• Companies• Banks• Stock exchanges and brokerage firms• Voluntary pension funds• Companies for management of voluntary pension funds• Insurance companies• National Bank of Serbia• State budget• Investment fundsThe current chart of accounts was published in 2006 andupdated in 2008. It is used (i) for working out typical accountingentries and (ii) as the basis in the preparation of financialstatements. The main categories included in a chart of accountsare presented below.Guide to doing business and investing in Serbia 35

The main categories of balance sheet accounts:DescriptionSubscribed capital unpaidIntangible assetsProperty, plant and equipment and biological assetsLong-term financial investmentsInventories and advances paid to suppliersNon-current assets held for sale anddiscontinued operationsReceivables, prepayments and short-termfinancial investmentsDeferred tax assetsOff-balance sheet assetsShareholders’ equityLong-term liabilities and provisionsShort-term liabilities and provisionsDeferred tax liabilityOff-balance sheet liabilitiesNumber0001020310 -13, 151420 -282888830 - 3540 - 4142 - 49498898.3. Audit requirementsLarge and Medium-sized entities are obliged to audit theirfinancial statements. Audit reports must be submitted to theBRA by 30 September (31 October for consolidated financialstatements). If financial statements filed by 28 February areadjusted based on auditor’s recommendation, companies shouldsubmit adjusted financial statements together with the auditreport. If no adjustments have been made to the originally filedfinancial statements, only audit report is submitted.Audit of financial statements is performed in accordance withthe International Standards of Auditing (ISA). Audit must beperformed by certified auditors, members of the Chamber ofCertified Auditors and employed by an audit company.Audit companies must have at least three licensed auditors tobe allowed to perform an audit of a Large entity or at least onelicensed auditor for an audit of a Medium-sized entity. Audit maybe performed by the same audit company for no more than fiveconsecutive years or, exceptionally, if licensed auditor is rotatedafter that period, for another five years. Audit companies areobliged to submit to the Ministry of Finance a list of concludedaudit contracts by the end of the current financial year.The main categories of income statement accounts:DescriptionRevenuesOperating expensesFinance incomeFinance expensesOther incomeOther expensesNet profit /loss attributable todiscontinued operationsCurrent corporate profit taxDeferred taxNumber60 - 6250 - 55665667 - 6857 - 5769/59721722The prescribed chart of accounts is based on three digitaccounts but companies may have more detailed accounts withinthese categories if they consider it necessary.36 Guide to doing business and investing in Serbia

Guide to doing business and investing in Serbia 37

Chapter 9Tax System andAdministration9.1. Tax system9.3. Principal taxesSerbia’s tax environment has become highly competitive comparedto other Central and Eastern European countries in recent years.Below is a brief overview of major tax rates in Serbia.Investors seeking room to reduce their overhead costs can takeadvantage of the numerous benefits, the following being the majorones:• Corporate income tax of 10% among the lowest in Europe• VAT and personal income tax among the lowest in Central andEastern Europe• Tax credits for investing in fixed assets of up to 80% of theinvested amount• State subsidies for new employmentAdministration of the tax systemIn principle, taxes are administered by the central government,with a few exceptions such as property taxes.Registration requirementsA legal entity applies for a Tax Identification Number (PIB) at themoment of registration with the Business Registers Agency. Theapplication is forwarded by the Agency to the Tax Administrationwho is also in charge of issuing a PIB to natural persons.TaxValue Added TaxCorporate Income TaxWithholding TaxPersonal Income TaxAnnual Income TaxProperty TaxSocial SecurityContributionsTax RateStandard rate – 18%Lower rate – 8% and 0%Uniform rate – 10%20% (for dividends, shares in profits,royalties, interest income, capital gains,lease payments for real estateand other assets)Salaries – 12%Other income – 20%10% to 15% (for annual incomeabove three average annual salaries)Individuals – Progressive ratesranging between 0.4% to 3%Companies – Flat rate up to 0.4%depending on municipalityIndividuals – 17.9%Employers – 17.9%9.2. Direct and indirecttax burdenAccording to the information presented by the official Governmentstatistics, the largest percentage of public revenues is collectedfrom VAT and social security contributions, followed by personalincome tax and excise duties. The trend of Serbian fiscal policy isto disburden payers of direct taxes through lower rates of personalincome tax and corporate income tax.9.4. Legislative frameworkSerbian legislation is based on continental law; therefore, basiclegal framework for taxation in Serbia encompasses the followingacts:• Personal Income Tax Law (enacted in 2001, amended in 2002,2004, 2006, 2009, 2010)• Corporate Income Tax Law (enacted in 2001, amended in2002, 2003, 2004, 2010)• Value Added Tax Law (enacted in 2005, amended in 2007)• Law on Tax Procedure and Tax Administration (enacted in2003, amended in 2005, 2006, 2007, 2009)38 Guide to doing business and investing in Serbia

• Property Tax Law (enacted in 2001, amended in 2002, 2004,2007, 2009)• Excise Duty Law (enacted in 2001, amended in 2002, 2003,2004, 2005, and 2007, 2009)• Customs Law (enacted 2004, amended in 2005, 2006,2007, 2010)• Local Self-Government Financing Law (enacted in 2006)• Law on Taxation of Non-Life Insurance Premiums(enacted in 2004)9.5. Tax treatiesSerbia imposes 20% withholding tax on the following income ofnon-residents: dividends, interest, royalties, leasing fees, incomefrom entertainment, sporting, artistic and similar performancesthat was not subject to personal income tax. Also, capital gainsof non-residents realized on the sale of immovable property,shares and industrial property in Serbia are subject to 20% tax.Serbia continues to honour the double taxation treatiesconcluded by the former Yugoslavia (The Socialist FederalRepublic of Yugoslavia, Federal Republic of Yugoslavia and theState Union of Serbia and Montenegro). The chart below showsthe tax rates on dividends, interest and royalties.In addition to acts and accompanying by-laws, legal frameworkincludes opinions of the Ministry of Finance which are not legallybinding, but they can help in clarification of tax regulations.Laws are enacted by the Parliament, and are appliedprospectively. In principle, retroactive application of law is notpermitted by the Constitution. However, a few amendments tothe tax legislation were enacted retrospectively during the pastfew years.Guide to doing business and investing in Serbia 39

Country Dividends 1Interest RoyaltiesAlbania15/5Austria 515/5Belgium15/10Belarus15/5Bosnia and Herzegovina 10/5Bulgaria15/5China5Croatia10/5Cyprus10Czech Republic10North Korea10Denmark 315/5Egypt15/5Estonia 510/5Finland15/5France15/5Ghana 515/5Germany15Greece 515/5Hungary15/5Italy10Iran 510Ireland 510/5India15/5Kuwait10/5Latvia10/5Libya 710/5Lithuania10/5Macedonia15/5Malaysia0 8Malta 710/5 9Moldova15/5Netherlands15/5Norway15Poland15/5Qatar 710/5Romania10Russia15/5Slovak Republic15/5Slovenia10/5Spain 710/5Sri Lanka12.5Sweden15/5Switzerland15/5Turkey15/5Ukraine10/5United Kingdom15/5Zimbabwe 7 15/510101581010101010101001510/0 4001001010101010/0 41010101010101010/0 4100010101010101010/0 41001010410/0 510101010/5 21010101010101010/5 210101510/5 210010101010101010/5 2101010/5 61010101010/5 6101010101010101010/5 610/5 61001010101010Applicable from2006N/A19821999200620011998200519872006200219832007N/A19881976N/A1989N/A20031986N/AN/A200920042007N/AN/A19981991N/A2007198319861999N/A1998199820022004N/A198719822007200820021983N/A1 If the recipient company owns/controls at least 25 percent of the equity of the paying company, the lower of the two rates applies.2 A tax rate of five percent will be applicable to literary, artistic and scientific works, including films and works created like films or other sources of sound and picture reproduction.A tax rate of ten percent will be applicable to: patents, petty patents, brands, models and samples, technical innovations, secret formulas or technical procedure.3 A new double taxation treaty was signed with Denmark in 2009, but it is not applicable yet. Meanwhile, the old treaty is still applicable.4 A zero percent rate is applicable in cases when the income recipient is the Government or government owned banks.5 The other treaty country did not send official notification on the ratification of the treaty.6 A tax rate of five percent will be applicable to literary, artistic and scientific works, including films and works created like films or other sources of sound and picture reproduction.A tax rate of ten percent will be applicable to: patents, petty patents, brands, models and samples, technical innovations, secret formulas or technical procedure.1 The other treaty country did not send official notification on the ratification of the treaty.8 Only in cases when dividends are to be paid to Serbian residents. If paid to Malaysian residents, they are taxable at twenty percent in Serbia.9 Withholding rate refers solely to dividends distributed from Serbia. In Malta, withholding tax cannot be higher than corporate tax on profit before dividend distribution40 Guide to doing business and investing in Serbia

9.6. Tax returns and paymentsThe tax year in Serbia is consistent with the calendar year.Tax returns must be signed and submitted on a prescribed form,together with other necessary documentation. Tax return canbe submitted electronically or in hardcopy format. For “largetaxpayers” the legislation prescribes shorter time limits and adifferent procedure.The tax procedure allows filing of amended tax return within12 month of the submission of the first tax return. Amended taxreturn can be submitted only once, and must be submitted inhard copy. Under these conditions, the error in original tax returnwill not be considered a tax offence. Taxpayers are prohibitedfrom submitting an amended tax return once the audit of theconcerning tax period has commenced.The Tax Procedure andthe Tax Administration Law prescribe an absolute statute oflimitations of ten years for all tax liabilities, except for pensionand disability insurance contributions, starting from the end ofthe year in which the tax became due.Tax collection can be performed on a regular basis or enforced.Regular tax enforcement is performed when tax liabilitybecomes due; otherwise enforced collection rules are applied.Tax collection is performed by depositing the amount of tax duein the prescribed Tax Administration account within prescribedpayment date.9.7. AssessmentsAssessment of most taxes is performed either based on a selfassessment or a tax decision issued by tax authorities.Tax authorities are entitled to issue the tax decision where selfassessment is not prescribed by law or during the tax controlwhere a taxpayer did not comply with the applicable laws andregulations.Tax authorities are entitled to use the parification method, i.e.method of indirect assessment of the tax base. The parificationmethod encompasses investigation of relevant taxpayerdocumentation upon which tax authorities determine the taxbase. In addition to this, tax base can be determined as adifference between the net value of property at the end and at thebeginning of calendar year respecting corrections prescribed bythe legislation – indirect method.In relation to PIT base, tax authorities are entitled to apply theindiciary method according to which certain indices are appliedto factors related to luxury lifestyle.9.8. AppealsTaxpayers are entitled to file an appeal against decisions andconclusions as written decisions regarding individual rights andliabilities. General deadline for filing an appeal is 15 days of thedate of receiving the act. However, in some situations legislationmay constitute a different deadline.Upon conducted second-levelprocedure, the second level tax authority may:• Reject appeal;• Annul administrative act entirely or in part;• Amend the act.The appeal generally does not delay execution of the appealed act.9.9. Withholding TaxesSerbian Corporate Income Tax Law imposes 20% withholding taxon a passive income of a non-resident realized from a Serbianresident. The following types of passive income are taxable:dividends, interest, royalties, capital gains, leasing and rentalfees, as well as income from entertainment, sporting, artistic andsimilar performances that was not subject to personal incometax. The withholding tax rate may be reduced or even eliminatedby a bilateral Double Taxation Treaty between Serbia and thecountry of residence of the recipient of such income.One of the requirements for use of the lower Double Tax Treatyrate is that the recipient present a valid tax residency certificate.Only Serbian bilingual form prescribed by the Ministry andstamped by the relevant tax authorities of the recipient’s countryof residence represents a valid certificate.Under the Serbian legislation, corporations paying income to anindividual are obliged to asses and withhold tax at the moment ofpayment of such income. For example, an employer needs towithhold both salary tax and SSC at the moment of payment ofsalaries.9.10. Tax auditsTax Audit can be performed as:• Office control;• Field control;• Activities in order to reveal tax crimes.Office control encompasses verification of the data presented intax returns and other relevant documentation by tax inspector. Inorder to verify the presented information, tax inspector comparesdata declared in tax return to the information of a taxpayer keptin the Tax Administration official records.The aim of field control is to verify legality of business activity andaccomplishment of tax liabilities. Field control is performed bytax inspector in the business premises of a taxpayer or personalpremises presenting a court warrant. The taxpayer is obliged topresent to tax inspector all necessary documentation as per hisrequest.The Tax Police has authorities similar to those of the InternalAffairs. It is in charge of revealing tax crimes and performingvarious activities prescribed by the Criminal Law (interrogation,inquest of premises etc). Based on collected evidence, the TaxPolice is entitled to initiate criminal procedure by informing thePublic Prosecutor of the crime committed..9.11. PenaltiesVarious penalties are prescribed if a taxpayer fails to submit a taxreturn, calculate and pay tax within the prescribed period.Tax penalties range from 5% to 20% of the tax due. Penaltyinterest of 23.5% p.a. also applies to late payment of taxGuide to doing business and investing in Serbia 41

Chapter 10Taxation of Corporations10.1. Corporate tax system10.2. IncentivesTaxation of corporations in Serbia is regulated by the CorporateIncome Tax (CIT) Law (last amended in March 2010) and bysubordinate bylaws issued by the Ministry of Finance.Taxable EntitiesA taxable entity includes a company registered as a joint stockcompany, a limited liability company, a general partnership,a limited partnership, a socially owned company, or a publicenterprise, as well as a co-operative or any other legal entitygenerating income from the sale of goods or rendering itsservices on the market. Serbian tax legislation does notrecognise the concept of tax transparent entities.DividendsDividends paid to a non-resident entity are subject to 20%withholding tax, unless an applicable Double Tax Treaty stipulatesotherwise. Dividends paid to a Serbian tax resident company arenot subject to withholding tax.TerritorialitySerbian tax resident entities are taxed on their income generatedon the territory of the Republic of Serbia, as well as on theirworldwide income. An entity is considered a resident of Serbiaif it is established or has its place of effective management andcontrol in the territory of the Republic of Serbia. Non-residentsare taxed only on their income sourced through a permanentestablishment on the Serbian territory.Permanent establishment/branchesA permanent establishment is any permanent place of businessin Serbia through which a non-resident conducts its business.Profits attributable to the permanent establishment are subjectto CIT.A branch constitutes a permanent establishment of anon-resident taxpayer per default. Consequently, CIT is payableon profit attributable to the operations of a branch. The conceptof branch was introduced in Serbian legislation in November2004 and there is still little practice in relation to the operationand taxation of branches in Serbia.In addition to the low 10 percent CIT rate, the following taxincentives are provided in the Serbian taxation regime:Tax Incentives• Up to ten-year tax holidays for companies investing RSD 800million (approximately EUR 8 million) and employing at least 100workers, in proportion to investment.• Up to five-year tax holidays for companies investing RSD8 million (approximately EUR 80 thousand) and employinga minimum of five workers in underdeveloped regions, inproportion to investment.Tax Credits• Tax credit of 20 percent (small enterprises 40 percent) forinvestment in fixed assets, up to 50 percent (small enterprisesup to 70 percent) of CIT liability. Any unused tax credit can becarried forward for ten years. Transfer of tax credits in mergers,de-mergers, spin offs and other corporate group reorganizationsis not possible.• A taxpayer, classified in accordance with relevant legislation andregistered for conducting business in one of the industries listedbelow, is granted a tax credit for 80 percent of its investment inits own fixed assets in the current year. There are no limitationsrelated to taxable profit made by the taxpayer. This tax creditcan be carried forward for up to ten years.The industries to which this paragraph refers are:01 – Agriculture05 – Fishing17 – Manufacture of textile yarns and fabrics18 – Manufacture of clothing, reprocessing and dying of leather19 – Processing and manufacture of leather27 – Production of basic metals42 Guide to doing business and investing in Serbia

28 – Production of standard metal products29 – Production of machines and devices30 – Production of office machines and calculators31 – Production of electric machines and devices32 – Production of radio, TV and communication equipment33 – Production of medical, optical and otherprecise instruments34 – Production of motor vehicles and trailers35 – Production of other traffic means37 – Recycling92 – Group 9211 – Cinematographic and video production• A company generating profit in a newly established businessunit of a Serbian company in an underdeveloped area has theright to decrease its tax liability, proportionally to the shareof total profit attributable to the business unit over a periodof two years. The newly established business unit must keepseparate accounting records.Carry forward of operational losses• Operational losses can be carried forward for five years.This incentive should not be terminated in the case ofcorporate group reorganizations (e.g. mergers, de-mergers,spin offs etc).Exemptions• Special rules for tax exemption apply to non-profitorganisations. Any surplus of income should not exceed theamount prescribed by Law (i.e. RSD 400 thousand). Thissurplus is not allowed to be spent on wages or transferred tothe founders. In addition, employee wages should not exceeddouble the average wage paid in the industry branch to whichthat non-profit organisation belongs;• The tax liability for companies employing disabled persons isdecreased in proportion to the percentage of such persons tothe total number of employees;• Profit earned on the basis of a concession is tax exempt for aperiod of five years.10.3. Taxable incomeAccounting periodAccounting period which is to be used for tax purposes is thefinancial year. Financial year shall mean a calendar year, exceptwhen the business is dissolved or started up or status-relatedchanges are made in the course of a year.Financial year and calendar year can be different on a taxpayer’srequest, with the approval of the Minister of Finance (governor ofthe National Bank of Serbia), but the tax period must cover a 12month period and once changed it has to be applied for at leastfive years.Accounting methodsThe Serbian tax regime provides for accrual based accounting.Business profitsBusiness profits for tax purposes are determined by adjustingthe accounting profit, as stated in the profit and loss account anddetermined in accordance with IFRS and accounting legislation,in accordance with the provisions of the CIT Law.Capital gainsCapital gains are taxed separately from operating profits.The tax rate is 10 percent. Capital losses can be carried forwardfor five years.Accounting for incomeRevenue recognition generally follows IFRS.Inventory valuationCost of materials and the purchase value of merchandise are taxdeductible up to the amount calculated by applying the averageweighted cost method or FIFO method. If other methods areused, an adjustment for tax purposes should be made.Passive incomeThe total amount of interest earned is considered part of taxableincome and taxed with 10% CIT. Interest income is recognizedon accrual basis as per IFRS.Dividend income distributed by a non-resident subsidiary is partof taxable income. Respective tax liability can be decreasedby tax credits equal to profit tax paid abroad. Tax credit cannotexceed the amount of (corporate) tax that would have been paidin Serbia. Tax credit can be carried forward and utilized over a tenyear period. In order to use dividend tax credit, taxpayer needs tohold at least 25% interest in non-resident subsidiary.Dividends and share in profits received from a Serbian taxresident subsidiary are exempt from taxation.Guide to doing business and investing in Serbia 43

Exempt incomeThe following types of income are exempt:• Profit earned on the basis of a concession over a five yearperiod, and• Income received from shares in profit of resident subsidiaries.10.4. Deductibility of expensesBusiness expensesGenerally, business expenditures declared in the incomestatement in conformity with IFRS and accounting regulations arerecognized in the determination of taxable income.However, the CIT Law stipulates that certain expenses should notbe recognized for income tax purposes or should be recognizedup to a certain amount. Partially deductible expenses arepresented in a separate sub point.Accounting for expensesExpenses should be recognized in the period in which relatedrevenue is recognized.Companies are not obliged to keep separate accounting for taxpurposes.DepreciationAccording to the CIT Law, fixed assets are both tangible andintangible assets with useful life longer than one year and theindividual acquisition price higher than average monthly grosswage at the moment of acquisition according to the latest datapublished by the Republic of Serbia Statistical Bureau.Fixed assets are divided into five groups, with the followingdepreciation rates:1. Group I: 2.5 percent;2. Group II: 10 percent;3. Group III: 15 percent;4. Group IV: 20 percent;5. Group V: 30 percent.A straight-line depreciation method is prescribed for the assets(mainly property) classified in the first group. A declining balancemethod is prescribed for assets classified in other groups.Further guidelines on the assessment of tax depreciation areprovided in by-laws issued by the Ministry of Finance.InterestThe total calculated interest other than interest charged foruntimely payment of taxes, contributions and other publiccharges is recognized as expenditure for income tax purposes.However, in order to be tax deductible, interest should beborne for business purposes, i.e. meet general conditions forexpenditure recognition.Interest expense is recognized on accrual basis.Deductibility of interest expense incurred from related party loansis subject to new thin cap rule, applicable since 2010. The ruleis not very clear and can be interpreted ambiguously. It appearsthat the intention was that full amount of interest and relatedcosts on loan which exceeds four times the taxpayer’s equity(ten times for banks) will not be deductible, but this remains to befurther clarified officially.In addition, no carry-forward of non-deductible interest due tothin-cap rule is possible.DividendsAs derived from profit after tax, dividends are not deductible forincome tax purposes.Bad and doubtful debtsProvisions (indirect write-off) for bad and doubtful debts are taxdeductible if at least 60 days have expired from the due date.Provision has to be made individually for each receivable.Write-off of individual debts, except for those from debtors whoare at the same time creditors, is recognised as expense underthe following conditions:• the related revenue has already been accrued,• they were written off as uncollectible, and• the evidence of the failure to collect debts through courtorders is provided.Taxable income shall be increased for receivables that are writtenoff and do not meet the above requirements and for which taxdeductible provisions were previously made.Royalties and service fees should be fully deductible in case theymeet general tax deductibility requirements, i.e. they are incurredfor business purposes and properly documented.LeasingLeasing fees should be fully deductible in case they meet generaldeductibility requirements for business expenditures recognition.Employee remunerationTotal salary costs, as disclosed in company’s books, are fullydeductible for income tax purposes. Salary expenditures shouldbe recognized on an accrual basis, i.e. regardless when/whetherthe effective payment has been made.Accrued and unpaid remuneration to employees is not tax44 Guide to doing business and investing in Serbia

deductible. However, an expense will be recognized for taxpurposes in the year when the actual payment is made(“cash principle”).Insurance premiumsInsurance premiums should be fully deductible in case they meetgeneral deductibility requirements for business expendituresrecognition.Other deductionsLong-term provisions are recognised for tax purposes if they aremade for the renewal of natural resources, warranty period costsand retained caution money and deposits and other mandatorylong-term provisions in accordance with the Law.Revenues recognized on the basis of reversal of long termprovisions which were not deductible in the period when theywere created are not taxable.LossesOperational losses can be carried forward for five years.Such facility should not be terminated in the case of corporategroup reorganisations of the company.Non-deductible expenses1. Following expenses are not recognized for CIT purposes:• Expenses which cannot be documented;• Bad debt provisions for individual receivables from personswho are at the same time creditors;• Gifts and contributions to political organisations;• Gifts and other advertising expenditures that are notdocumented, or if the recipient is an associated entity;• Interest payable for the late payment of taxes, contributionsand other public charges;• Expenses arising from tax enforced collection procedures;• Fines and penalties;• Share in the profit paid to employees or other individuals;• Non-business related expenses;• Expenses incurred on the basis of impairment of assets,except in the case of damage resulting from force majeure.However, these expenses will be recognized as an expensefor the tax purposes in the tax period when impaired assetsare disposed of or used.2. Following expenditures are partially deductible for CITpurposes (up to prescribed threshold):• Depreciation computed in accordance with taxdepreciation rules;• Expenses for health care, scientific, educational,humanitarian, religious, ecological and sport-relatedpurposes are tax-deductible up to 3.5 percent oftotal revenue;• Expenses for cultural purposes are tax-deductible up to3.5 percent of total revenue;• Membership fees paid to chambers of commerce and otherassociations (except political parties) are deductible up to0.1 percent of gross receipts;• Advertising and promotional expenses are tax deductible upto 5 percent of total revenue;• Business entertainment expenses are tax deductible up to0.5 percent of total revenue.3. The following expenses are recognised on a cash basis:• Accrued but not paid retirement remuneration andremuneration payable on the basis of employmenttermination; and• Provisions for issued guarantees and other securities.10.5. Related party transactionsThe price of transactions between related parties is taken tobe the transfer price. According to the CIT Law, related partiesexist if there is a possibility of control or influence on businessdecisions between them. The ownership of 50% or moreor individually the largest portion of shares is considered aspotential control. Furthermore, business decisions are subjectto influence where an associated party holds 50 percentor more or individually the largest portion of votes in thetaxpayer’s management bodies. If the same persons participatein management or control of both companies, a connectionbetween the companies will be deemed to exist.A company must separately disclose transactions with relatedparties in the tax balance sheet and compare them with arm’slength transactions. Any difference is included in taxable profit.Comparable market prices are considered as arm’s length prices.If the use of comparable prices is not possible, cost plus usualmargin or re-sale price method is used.Guide to doing business and investing in Serbia 45

10.6. Foreign exchangeForeign exchange gains and losses have the same tax treatmentas any other financial gain or loss. That means that foreignexchange gains or losses should be taken into account whencomputing income tax liability.Foreign exchange gains and losses are recognized on anaccrual basis.In the case of a loan received from the related party, foreignexchange gains / losses should be taken into account when thincap is calculated.10.7. Tax computationsGeneral aspectsThe amount of tax payable should be computed in the taxreturn and tax balance sheet by adjusting accounting profit inaccordance with CIT Law rules. Tax liability is computed byapplying 10% CIT rate on the taxable income calculated in thedescribed way.Capital gains are taxed separately from operating profit.The tax rate is 10 percent.Tax returns and tax balance sheets including all necessarydocuments (e.g. tax depreciation and tax credit forms) must befiled with the tax authorities by 10 March of the following year.A newly established company needs to register with the taxauthorities within fifteen days of the date of registration with thecourt.Corporate income tax is payable in advance in monthlyinstalments (based on previous year’s tax return) by the 15th ofthe following month. The difference between monthly advanceinstalments paid during the year and final tax liability asdetermined in the tax return is payable on submission of thetax return.ConsolidationTax consolidation is allowed for a group of companies whereall members are Serbian residents and one company directlyor indirectly controls at least 75 percent of shares in anothercompany. Each company files its own tax balance sheet andthe parent company files a consolidated tax balance sheet forthe whole group. In a consolidated tax balance sheet, losses ofone or more companies are offset by the profits of other relatedcompanies. However, there is no possibility for any companywithin the group to use operational losses generated in the pastperiod to offset its taxable profit in consolidated tax return.Each company is liable to tax proportional to its share in thetaxable profit of the whole group. Tax consolidation mustcontinue for at least five years; otherwise each company willhave to pay all taxes that it would have paid if there had notbeen any consolidation.10.8. Other taxesExcise taxExcise taxes are levied on import and production of goods withthe price inelastic demand (measured by responsiveness of thedemand to the change of price). Excise duties are levied on thefollowing goods:• Oil derivatives• Tobacco products• Alcoholic beverages• CoffeeExcise duties on oil derivatives range from RSD 15 per kilo ofliquid oil gas up to RSD 44 per kilo of gasoline. Tobacco productsare taxed using specific (ranging from RSD 17 per pack ofcigarettes to RSD 15.5 per piece for cigars) and proportional(35% of retail price) excise duties. Duties on alcoholic beveragesrange from RSD 9 for low-alcoholic beverages to RSD 201,32for brandies made from grains and other agricultural products.Excise duty on coffee is determined as 30% of the import value.An excise tax liability arises at the moment when the excisableproduct is put on the market. Deferral of excise duty liability ispossible by exercising right to hold a registered excise duty and/or customs warehouse.Property tax and transfer taxProperty tax is levied on the following rights relating to realestate: ownership right, right of occupancy, lease of propertylasting longer than one year as well as the right to use urbanand/or public building land. For taxpayers that keep books, taxbase is generally the market value of the property. The tax rate isdetermined by local authorities and cannot exceed 0.40%.Transfer tax is levied on the transfer (with consideration) of realrights over real estate, intellectual property rights, ownership overused vehicles, vessels and aircrafts (unless owned by the state),right to use urban and/or public building land as well as rightsrelating to expropriated real estate. The contracted price is usedas a tax base unless it is determined to be lower than the marketprice (in which case the market price is used). Once the tax baseis determined, the 2.5% tax rate is applied.Owners of motor vehiclesAccording to the Law on Taxes on using, holding and carrying ofgoods, an entity or individual who is the owner of a passengercar is obliged to pay tax on use of motor vehicle. This tax ispayable upon registration, renewal of registration or replacementof registration plates. The amount of tax payable is prescribed bythe Law as fixed amount and depends on owner of the vehicle(legal entity or individual) and vehicle’s engine capacity.This amount is annually adjusted for consumer price index.46 Guide to doing business and investing in Serbia

Tax on use of cars and vansEngine capacity in cm 3up to 1150over 1150 to 1300over 1300 to 1600over 1600 to 2000over 2000 to 2500over 2500 to 3000over 3000Individuals8501.6503.6507.50037.00075.000155.000Tax (RSD)Companies8501.6503.6507.50037.00075.000155.00010.9. Branch versus subsidiaryThe following table summarises the main tax features of asubsidiary compared to those of a branch.ItemAccounting and administrationCIT rateDetermination of taxable profitsTax incentiveWithholding tax on distributionof profitDeduction of interest paid toparent/head officeDeduction of royalty payable toparent/head officeSubsidiaryGenerally straightforward.10%Rules and practice generally clear and defined.Overall, favorable for a taxpayer.Services charged by the parent entity are,in principle, deductible if at armslength and documented.Various tax incentives for investments intangible assets and employment of new staff.20%, unless otherwise stipulated by theapplicable DTT. However, a tax residencycertificate needs to be obtained before thepayment is made in order to apply DTT.Deductible up to thin cap andtransfer pricing rules.Fully deductible, subject to transfer pricing.BranchPractice is almost non-existent, while thelegislation is vague and non-comprehensive.10%Tax return is ambiguous and not consistentwith the Law.Allocation of management and administrationcosts incurred by the head office for thebranch may be disputable in practice.Unclear if applicable.Repatriation of branch profit is not consideredas a dividend payment, implying that thereis no withholding taxNon-deductible (clearly stated by the Law).Non-deductible (clearly stated by the Law).10.10. Holding companiesNo special holding company regime exists in Serbia. Holdingcompanies operate under the same rules as any other company.Guide to doing business and investing in Serbia 47

Chapter 11Taxation of individuals11.1. Territoriality and residenceTax residenceAccording to Serbian Personal Income Tax (PIT) Law, individualsare regarded as Serbian tax residents if they:• Have a domicile in Serbia, or• Have their habitual place of abode in Serbia (i.e. if they stay inSerbia at least 183 days, whether or not consecutively, withina period of 12 months beginning or ending in the respectivetaxation year), or• Have the centre of their business and vital interests in Serbia, or• Are seconded abroad to carry on business there for aSerbian resident legal entity, a Serbian natural person, or aninternational organization.Residents are taxable on their worldwide income, whereasnon-residents are only liable to tax on Serbian sourced income.RegistrationIndividuals do not have to register as taxpayers. Individualentrepreneurs do have to register themselves.11.2. Taxable incomeTypes of taxable income and applicable PIT rates are as follows:• Income from employment (12%);• Income from agriculture and forestry (10%);• Income from independent activity (10%);• Income from copyright, rights related to copyright andindustrial rights (20% rate with actual/standard costsdeduction);• Income from capital – interest, dividends (10%);• Other income – sportsmen, games of chance, leasing ofmoveable property, etc. (20% with actual/standard costsdeduction) with exception of revenue from personal insurance(tax rate is 10%).Exceptionally, no PIT is applicable on income from agricultureand forestry in 2010 for cadastral revenue.Income from employmentPersonal income taxThe taxable person is the employee, but the employer isresponsible for calculating and withholding personal income taxon behalf of its employees. The taxable base is the gross salaryincluding fringe benefits.The PIT Law provides a non-taxable monthly threshold of RSD6,5541 per month. It is adjusted annually in accordance withConsumer Price Index changes.Social security contributionsSocial security contributions are calculated and withheld by anemployer from the salary paid to an employee up to specifiedcap. These contributions are payable by the employer andemployee at equal rates. The amount borne by the employeris treated as an operating cost, while the portion payable bythe employee is taken from the gross salary. The rates are asfollows:• Pension and disability insurance 11 percent• Health insurance• Unemployment insurance6.15 percent0.75 percentThe minimum social security contributions base is 35 percent ofthe average monthly salary in the Republic of Serbia, regardlessof the qualifications of individual employees.The maximum tax base for social security contributions remainsfive times the average monthly salary in the Republic of Serbia.The new maximum base for social security contributions isapplied, starting from the first day of the month following themonth in which the data is published.• Income from immovable property (20% with actual/standardcosts deduction);• Capital gains (10%);48 Guide to doing business and investing in Serbia

Supplementary annual taxationAnnual tax is the additional tax in Serbia. If the individual isa Serbian tax resident he is subject to Serbian annual tax onhis net worldwide income exceeding a prescribed threshold.The progressive rates apply depending on the income levelspresented in the following table:Tax creditsSerbian residents are taxed on their worldwide income. Whenincome generated in another country is taxed there, the taxpayerhas the right to decrease the tax liability by claiming a tax creditto tax authorities in Serbia.Taxable income exceedingprescribed thresholdBetween three and six times theaverage annual salaryFor income exceeding six times theaverage annual salary 1Tax rate10%15%This tax credit is equal to the tax paid in another country, but itcannot exceed the amount of the tax that would have been paidin Serbia.11.3. Non-taxable IncomeCertain statutory allowances, such as disability living allowance,unemployment benefits, parenthood allowance, health insurance,state pensions, redundancy payments (within certain limits) andsimilar are exempt from PIT.The non-taxable threshold for income earned in 2009 was RSD1,589,292 (approximately EUR 15,900) for Serbian citizens andRSD 2,648,820 (approximately EUR 26,500) for foreign citizens.As of 2010, the threshold for foreign citizens is the same asapplicable for Serbian citizens (three times average annualsalary).Taxable income may be reduced by personal deduction andallowances for supporting dependent family members. Personaldeduction is 40 percent of the average Serbian annual salary inthe year concerned and the allowance for each dependent familymember is 15 percent of the average Serbian annual salary in theyear concerned. Total deductions cannot exceed 50 percent ofthe taxable income.Applicable deductions for 2009 were RSD 211,905.60(approximately EUR 2,100) per taxpayer and RSD 79,464.60(approximately EUR 800) per dependent.Tax and social security contributions incentivesProvided that certain conditions are met, tax exemptions areavailable for employers which hire:• New employees younger than 30 years,• Disabled persons,• Persons older than 45 registered with National EmploymentService,11.4. Taxation of non-residentsNon-residents are only liable to tax on Serbian sourced income.Double Tax Treaties between Serbia and expatriates’ residencecountries can limit the Serbian right to tax or offer relief for thedouble taxation of certain types of income. Double Tax Treatiesprovide for resolving tax residency disputes, i.e. situations inwhich, 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 fordiplomatic and consular missions or international organizationsin Serbia is not taxable.11.5. Tax complianceObligations of withholding agentsFor employment income the taxable person is the employee,but the employer is responsible for calculating and withholdingpersonal income tax on behalf of its employees.Other types of income are generally payable by method ofwithholding at the moment when the income is paid.Tax returns for individualsExceptionally, capital gains, income from independent activityand income from agriculture and forestry are payable on thebasis of a Decision issued by the tax authorities. The taxpayer isobliged to file the tax return.1 As per official data published by the Statistical Office of the Republic of SerbiaSupplementary annual PIT is also payable on the basis ofDecision issued by the tax authorities. The deadline for filing thetax return is 15 March of the following year.Guide to doing business and investing in Serbia 49

Chapter 12Value Added Tax12.1. IntroductionSerbian VAT Law has been adopted in 2004 and the latestamendments were made in 2007. It is in general based on therules set out in the EU’s Sixth Directive.The standard VAT rate is 18% and it is applied on all suppliesof goods and services that are not zero-rated or do not qualifyfor a reduced rate or exemption. The reduced rate is 8% and itis applied to certain goods and services that include but are notlimited to the following: basic foods, supply of drinking water,natural gas, the first-time transfer of residential property, personalcomputers, teaching aids, tickets to cultural and entertainmentvenues.12.2. Scope of VATFor VAT purposes, a taxable transaction is considered to be thesupply of goods and services within Serbian territory, as well asthe importation of goods into Serbia.A taxpayer is considered to be a person who independently, andin the course of their business activities, undertakes the supply ofgoods or services, or imports goods. Business activity is definedas the permanent activity of a manufacturer, salesman or serviceprovider for the purpose of realizing income.A branch or other operating unit can also be a taxpayer.A non-resident without a head office or permanent establishmentin Serbia cannot register for VAT purposes and can only appointa tax representative. In case a non-resident appoints a taxrepresentative, it is considered to be the tax debtor; if there is notax representative appointed, the debtor is the recipient of goodsand services.Place of supplyGoods are considered to be supplied within Serbian territory ifthe following conditions are met:• Goods are located in Serbia when the transport begins or isarranged;• Goods are located in Serbia when they are supplied withouttransport;• Goods are installed in Serbia by or in the name of the supplier;• If the recipient of supply of water, electricity, gas and heating islocated in Serbia.Under the general rule, the place of supply for services is theplace where the service provider is established. Exceptions to thegeneral rule are connected with:• Services relating to immovable property, where the place ofsupply is where the property is located;• Services of transport or those relating to culture,entertainment, movable property are deemed to be suppliedwhere they are actually carried out;• Intellectual services, services provided electronically, dataprocessing, transfer of copyright, licences, banking andinsurance services, supply of personnel and other similarservices are considered to be provided where the recipient islocated.Reverse charge servicesIf a non-resident, who has no presence or a tax representativeappointed in Serbia, supplies goods or provides services to aSerbian entity, the Serbian entity shall performself-assessment ofSerbian VAT on goods acquired and/or services received from anon-resident (“reverse charge mechanism”).If the recipient has the right to deduct input VAT (provided theexpense is business related and relates to a taxable activity),no additional VAT liability arises from prompt application ofreverse charge mechanism.Import of goodsThe place of import is the point of entry into Serbian territory.The rate of VAT applicable on import is the rate that applies to adomestic supply.12.3. Zero-rating supplies(exemptions with credit)Supplies which are exempt with credit include the following:• Export of goods, transport and other services in direct relationto export, transit or temporary import of goods (not beingexempted without recovery right) as well as transportation andother services relating to import of goods if the value of suchservices is included in the customs base;50 Guide to doing business and investing in Serbia

• International air or river (by boat) transport of passengers,where non-resident air/shipping companies are exemptedunder the reciprocity rule;• Delivery of aircraft and ships and servicing, repairs,maintenance, charter and renting of aircrafts/vessels usedmainly for international air/river traffic; delivery, renting,repair and maintenance of goods used for equipping suchaircrafts/vessels;• Sale of goods and services for the direct needs of the aboveaircraft/vessel;• Goods carried in personal luggage up to the value of EUR 150and dispatched abroad prior to the expiration of three calendarmonths from the delivery of such goods;• Entry of goods into a free zone, but only for which thetaxpayer would have the recovery right if the supply has beencarried out outside the free zone;• Dispatch of goods to duty-free shops;• Work performed on movable property obtained by a foreignuser of the service in Serbia or imported for the purposeof refinement, repair or installation, and which is to betransported or dispatched abroad upon completion of the work;• Supplies of goods and services carried out in conformity withdonation and credit agreements stating that tax is not to bepaid from the funds received, as well as supplies of goodsand services in relation to other International agreements thatprovide tax exemption;• Mediation services in relation to the above.12.4. Exempt supplies(exemptions without credit)The following supplies are exempt without credit:• Most banking transactions;• The business of investment and pension fund managementcompanies in accordance with the relevant regulations;• Insurance and reinsurance services, including theaccompanying services of an insurance mediator and agent(representative);• Shares, securities, postal orders, administrative fees andstamps by their value in Serbia;• Supply of medical equipment and services;• Public interest activities performed by non-profit organisations(e.g. education, welfare, culture, scientific research, sports, religion);• Property (flats and buildings) rental services, if used forresidential purposes;• Postal services rendered by a public company, as well asdelivery of the related goods;• Public broadcasting, except services of a commercial nature; and• Services of organizing games of chance.12.5. Supplies toKosovo and MetohijaIn accordance with the relevant VAT Decree and during theperiod to which the UN Security Council Resolution 1244applies, supplies carried out by taxpayers from the territory ofSerbia (apart from Kosovo and Metohija territory) to Kosovo andMetohija, are VAT exempted with credit. The exemption appliesonly if certain requirements are met (e.g. confirmation on supplyto Kosovo and Metohija issued by Tax Authorities, proof that thesupply has been paid by the recipient).12.6. Taxable amount (base)Generally, the value of supply (i.e. the taxable base) is the totalfee, including incidental expenses that have been received or areto be received by the taxpayer for the goods delivered or servicesprovided. The fee is assumed to be VAT exclusive, but includesexcise, customs duty and other import charges, as well as otherpublic revenues (VAT exclusive) and secondary expenses forwhich the taxpayer charges a recipient of goods.In cases of an exchange of goods or services, the taxable baseis the actual market value of the goods or services on the date oftheir supply. The same rule is envisaged in the case of the free ofcharge supply of goods or services.The VAT regulations provide the possibility to change VAT basein certain cases (e.g. return of the goods, cancellation of thecontract etc.).• Land (agricultural, forest, construction, built or not built) andbuildings (except the first-time transfer of the right to use newbuildings);Guide to doing business and investing in Serbia 51

12.7. Non-deductible input VATGenerally, input VAT incurred by a VAT registered person uponthe purchase of goods and services and imports for the purposeof its own business activity can be recovered either by way of acredit against output VAT or as a refund.Input VAT is non-deductible for exempted supplies without creditas listed above.VAT cannot be recovered on supplies linked with motor vehicles(cars, motorcycles, vessels, and aircraft), entertainment anddecorative furniture and small value appliances.Direct attribution and proportional recoverySerbian VAT Law has a system of direct attribution according tothe EU model. Input VAT must first be attributed on the basis ofeconomic affiliation of costs. It is only apportioned if it cannotbe attributed either to the sale of goods and services to whichinput tax recovery applies or to the sale of goods and servicesto which recovery of input tax is not allowed. The apportionmentcalculation takes the form of the percentage of sales with theright to recover the full amount of sales (VAT exclusive).The percentage is then applied to the amount of input VAT thatcould not be attributed decreased by the input VAT without theright of recovery.An annual adjustment of the total annual recovery is required atyear end.Adjustment to VAT recoveryIf within a period of five/ten years since first use, in the caseof acquisition of equipment/structures, changes occur in theconditions that were crucial for the deduction of input VAT,correction of the previously recovered input VAT must be madefor the period following the change. This requirement is notapplicable in the case of the sale of equipment.The adjustment is done in the period when the conditions onthe basis of which input VAT was recovered are changed, i.e.the entity ceases to use the office building for rendering taxableservices. The correction is proportional to the difference betweenthe ten/five year period and the total time of use of building/equipment.12.8. VAT complianceRegistrationCompulsory registrationAs of 1 January 2008, taxpayers whose annual turnover exceeds,or it is estimated that it will exceed RSD 4 million (approximatelyEUR 40,000) are obliged to register for VAT.Voluntary registrationTaxpayers whose turnover/estimation is between RSD 2 million(approximately EUR 20,000) and RSD 4 million are eligible to optfor VAT registration (request for registration must be submitted by15 January), while taxpayers whose turnover/estimation is belowRSD 2 million cannot register for VAT.DeregistrationIf a taxpayer ceases to perform its business activity, he/she mustfile an application to deregister. The request for deregistration hasto be submitted no later than 15 days prior to removal from thepublic register.The tax authorities will conduct deregistration procedure fortaxable person whose total turnover during the calendar yeardoes not exceed RSD 2 million. Taxable person who registeredfor VAT voluntarily is allowed to apply for deregistration, but notuntil two years after registering for VAT.Information in VAT invoiceThe taxpayer is obliged to issue an invoice, or another documentserving as an invoice, with all required data for every supplymade to other taxpayers. The following data must be includedfrom VAT perspective:• Name, address and tax identification number (TIN) of thetaxpayer/invoice issuer;• Location, date of issue and invoice number;• Name, address and TIN of the taxpayer/invoice recipient;• Type and quantity of goods delivered, or type and volumeof services;• Date of sale of goods or services and the amount of advancepayments;• Taxable base amount;• Applicable tax rate;• VAT amount calculated;• An appropriate note on tax exemption (if applicable).Two copies of the invoice are obligatory.Self billing by the recipient of goods and services is consideredas an invoice provided that certain conditions are met.RecordsThe taxpayer must keep VAT records in a manner that enablesa tax audit/control to be conducted. VAT records must bepreserved for a period of ten years after the year of issue.Returns and paymentsThe VAT Law requires taxpayers to file VAT returns and payVAT within ten days of the end of each taxable period. Theusual taxable period is a calendar month, but if a taxpayer’s52 Guide to doing business and investing in Serbia

total annual turnover is less than RSD 20 million (approximatelyEUR 200,000), or is estimated (for the next 12 months) to be so,the taxable period is three calendar months.Any import VAT must be paid along with any customs duty.The customs authorities are in charge of collecting VAT on theimportation of goods.RefundsIf the input tax amount is higher than the tax liability amount,the taxpayer is entitled to a refund of the difference. The taxpayercan choose to either receive the refund in cash or to have it offsetagainst future liability.The tax authorities must pay the refund no later than 45 days(15 days for those who have the status of predominant exporter)after the expiry of the time limit for filing tax returns.Reimbursements to a foreign taxpayerReimbursement for VAT is limited only to a foreign taxpayer whoparticipates in trade fairs, to all supplies of goods and servicesrelating to fair participation, provided that there is reciprocity,the taxpayer did not make any supplies of goods and servicesand the related invoice is paid.Guide to doing business and investing in Serbia 53

Chapter 13Introduction toPricewaterhouseCoopersPricewaterhouseCoopers worldwideorganizationPricewaterhouseCoopers provides industry-focused assurance,tax and advisory services to build public trust and enhancevalue for our clients and their stakeholders. More than 163,000people in 151 countries across our network share their thinking,experience and solutions to develop fresh perspectives andpractical advice PricewaterhouseCoopers provides a full range ofbusiness advisory services to leading global, national and localcompanies as well as to public institutions.These services include audit, accounting and tax advice;management, information technology and human resourceconsulting; financial advisory services including mergers andacquisitions, business recovery, project finance, and litigationsupport; business process outsourcing services; and legalservices provided through a global network of affiliated law firms.PricewaterhouseCoopers refers to the US firm ofPricewaterhouseCoopers LLP and other members of theworldwide PricewaterhouseCoopers organization.PwC in SerbiaPwC in Serbia provides a full range of assurance, tax andbusiness advisory services. Our clients are drawn from the fullspectrum of the business community in Serbia and includelocal state owned and private enterprises, central governmentbodies, and leading international corporations present in Serbia.PricewaterhouseCoopers in Serbia is fully incorporated intoPwC Southeast Europe (SEE) cluster and Central and EasternEurope (CEE) region. We combine our knowledge and experiencewith colleagues from other countries in order to develop freshperspectives and practical advice to our clients.The key element of our success is the quality of our people.Our office is staffed with over a 130 local specialists withknowledge of local conditions and regulations and with eightinternational consultants with expertise in tackling issues facedby global enterprises. Our staff of local and expatriate assurance,tax and business advisors combines PwC worldwide experiencewith in-depth local knowledge to provide unparalleled solutionsfor the local business environment.The global PwC network enables our specialists to solve problems,supported by experience from different parts of the world.Our ServicesAssurance ServicesThe Assurance practice comprises internationally trained localand foreign auditors and accountants. All PwC staff are familiarwith local and international accounting practices.As a part of our long-term development strategy, PwC Serbiarequires its local employees to gain internationally recognizedprofessional qualifications in accounting (UK ACCA), and tospecialize in IAS/IFRS.Due to Serbia’s transition to a market economy, the country’saccounting and auditing legislation is changing rapidly. We arewell placed to understand the practical implications of the newlaws and practices on your company’s activities, and we can helpyou develop appropriate strategies to obtain maximum benefitfrom each new situation.Our services:• Financial, operational and organisational audit underinternational and statutory regulation;• Financial and accounting review, investigation and duediligence;• Restatement of accounting records in accordance withstandards of Serbia and in compliance with IAS/IFRS, UKGAAP, US GAAP;• Accounting and consulting services in financial audit, generaland management accounting, organisational restructuring;• IAS/IFRS accounting training;• Maintenance for setting up an efficient internal auditdepartment.Advisory ServicesPricewaterhouseCoopers Advisory Services are providedby trusted professionals with ample knowledge of businessprocesses and technology, financial and accounting expertise,industry insight, and customer relationship skills. Through the useof these capabilities and the experience and resources offered bya global organisation, we assist clients in addressing many of theimportant business issues involved in enterprise management.Particular emphasis is placed on the priorities of performanceimprovement, transactions and forensic services.54 Guide to doing business and investing in Serbia

Due to the close regional cooperation of PwC Advisory Team wecan provide assistance to all those companies that are thinkingof entering South East Europe as a region and not only individualcountries. This differs us from other competitors in the region.PwC Serbia has excellent knowledge of local market andhas strong relationships with the most significant companiesand state bodies in Serbia. These relationships enable us toresolve many issues quickly and to identify reliable sources ofinformation.We serve different type of clients.• Foreign investors coming to Serbia• Foreign companies operating in the Serbian market• Local prospective companiesOur services:DealsWe help clients do better deals and create value throughmergers, acquisitions, disposals and restructuring, workingtogether to help them:• Develop the right strategy before the deal• Execute their deals seamlessly• Identify issues and points of negotiation and value• Implement changes to deliver synergies and improvementsafter the dealWe also help clients assess options, restructure and help themmaximise value from troubled financial situations.ConsultingWe help organisations implement their business strategies byconsulting with them to:• Build effective organisations• Innovate and grow• Reduce costs• Manage risk• Leverage talentOur aim is to support our clients in designing, managing andexecuting lasting beneficial change.Tax ServicesWe provide tax and business advice on all aspects of inwardinvestment into Serbia with a focus on structuring investmentsand trading activities for maximum tax advantage. Our teamis composed of local and expatriate tax professionals withexperience in the strategic industries of the country and whocan provide detailed insight into the Serbian tax framework.Indirect Taxation• Indirect Tax Compliance Services• Indirect Tax Planning and Structuring• Assistance in Dealing with the Tax Authorities• Staff training• Due diligenceCorporate Tax Services• Corporate Tax Compliance Services• Corporate Tax Planning & Structuring• Transfer Pricing• Investment Incentives• Mergers and Acquisitions• Finance and Treasury ServicesExpatriate Tax – International Assignment Solutions• Personal Tax and Social Security• Immigration ServicesHuman Resource ServicesOur Human Resource Services practice in Serbia is a part ofthe PwC network of more than 6,000 professionals in over 100countries: one of the world’s largest HR advisory organisations.Our multi-disciplinary approach allows us to advise on all aspectsof people management, helping our clients to create value fortheir businesses through people. We help organizations activelymanage employee costs, risks and opportunities.Our consultants work with clients to find tailored solutions tochallenges encountered with international assignments to andfrom Serbia, employee performance, development and reward.We combine human resource best practices with detailed tax,legal and regulatory knowledge.International Assignments• Strategic consulting• Planning and compliance• Programme administration• Employment solutionsGuide to doing business and investing in Serbia 55

HR Management• Maximising your return on human capital• HR strategy• HR audit• HR function effectiveness review• HR function set-up• Saratoga HR metrics and benchmarking• HR transactions advice• Due diligence• Post deal integration• Employee engagement surveys• Assessments• 360 degree assessment• Management development centres• Development• Development and training needs analysis• Competency development programmes• Training for human resource management skills• Competency framework design• OutplacementOffice Contact DetailsPricewaterhouseCoopersOmladinskih brigada 88a11000 BelgradeSerbiaTelephone: +381 11 3302 100Fax: +381 11 3302 101Internet: www.pwc.rsEmmanuel KoenigCountry Managing Partneremmanuel.koenig@rs.pwc.comAssurance ServicesStefan WeiblenPartnerMarica AleksicDirectorBiljana BogovacDirectorAdvisory ServicesBojidar NeitchevPartnerTanja GligorevicDirectorVesna StefanovicSenior Manager - ValuationsReward• Job evaluation, grading and salary structures• Executive pay• Incentive compensation• Compensation dataTax ServicesPeter BurniePartnerBranka RajicicDirectorJovana StojanovicSenior Manager/Indirect TaxationIvana VelickovicExpatriate Tax Manager56 Guide to doing business and investing in Serbia

Training AcademyFollowing the market needs and our clients’ wishes for continuingvocational training, PricewaterhouseCoopers Serbia hasdeveloped a Training Academy, specializing in training anddevelopment.Our ambitions as a training organization are:• Support personal and professional development within thecontext and strategy of your organisation• help increase the value of human capital in your organisationOur approach to client relationships is based on the idea of along-term partnership, emphasizing dialogue and teamwork inthe setting up of customized training solutions.Our training philosophy is simple: we aim to bridge the gap, interms of technical or behavioral competencies, between what isrequired and what actually exists.PwC Training Academy is a division of PwC Serbia. It is also partof rapidly growing PwC Academy network, running its business inover 30 countries around Europe (Luxembourg, Czech Republic,Russia, Slovakia, Germany, Netherlands, Greece, and Cyprusamongst others).Thanks to this, we are able to provide a set of high-qualitytrainings based on knowledge and experience of our globalnetwork.Open seminarsThese solutions are open to any interested individual orcompany. The dates, contents and organizational details are tocommunicated through our web site, mailing list and other publicmedia.The subjects covered are chosen by virtue of their pertinence tothe given business field or professional area.These seminars are divided in 4 major groups:• Finance and Tax• Customs• Project Management• Management and Personal Effectiveness SkillsThese workshops are held in our own training facilities at theTraining Academy.In-House Seminars (corporate solutions)These solutions are specifically addressed to a group ofemployees from the same company. They may be tailor-made inresponse to a specific request, or based on one of our existingsolutions.Corporate solutions are either offered on your company’spremises or in the training facilities of PricewaterhouseCoopers’Training Academy. Any open solution course can be modifiedand given as a corporate workshop specifically adapted to theneeds of the target group.For an organization, corporate in-house workshops have anumber of advantages compared to inter-company trainingsolutions:• Adaptation to specific work environments and audience needs• Related to your industry or sector• Confidentiality of sensitive information• Possibility to structure specific groups• Consideration of your specific requirements and timetable• Fine tuning of the learning methodology• Flexible scheduling and location options (can be delivered inour training centre or at the location of your choice)• Involvement of your in-house specialists• Custom-built evaluation and follow-up mechanisms• Language of your choice (Serbian/local or English)Topics of the trainings from these groups are constantly beingdeveloped and updated according to the market needs andcurrent trends.Guide to doing business and investing in Serbia 57

Educational programmes for obtainingProfessional accreditationsTraining Academy is providing support in preparation of examsfor professional qualifications. At this point of time, we areproviding trainings for following:• ACCA – preparatory courses• ACCA Diploma in IFRSIn the near future, we plan to start with preparatory courses forseveral more international professional qualifications.Our instructorsInternal trainers: The strength of thePricewaterhouseCoopers networkPwC Training Academy has a wealth of talent to choose fromwithin PricewaterhouseCoopers Serbia. The trainers selectedare experienced professionals who have served their clients e.g.in the fields of audit and controlling, tax, finance and advisoryservices and hold furthermore the essential pedagogicalbackground.PricewaterhouseCoopers Training AcademyOmladinskih brigada 88a11000 BelgradeSerbiaTelephone: +381 11 3302 100Fax: +381 11 3302 101Internet: www.trainingacademy.rsMiro SmolovicManagere-mail: miro.smolovic@rs.pwc.comWe can also call on the experience of the international PwCnetwork to better meet specific training requests, and thusdevelop and implement transnational training projects.External partners: An objective and independent selection ofrecognized professionalsEspecially in matters that concern management and personaldevelopment, PwC ACADEMY has developed an extensivenetwork of external service providers to meet your every need.These partners are rigorously chosen and work according toclearly defined terms of reference. Our partnerships with externalproviders are transparent and openly discussed with the client.58 Guide to doing business and investing in Serbia

Legal Services – PwC LegalPwC Legal is a correspondent legal practice of PwC in Serbia.Attorneys and legal consultants of PwC legal are listed membersof the Bar Chambers of Belgrade and Serbia.They specialise in providing a full range of corporate legalservices, serving both the largest local and internationalcompanies, especially in the area of privatization, corporaterestructuring, and mergers and acquisitions.Attorneys and legal consultants at PwC Legal possessinternational education, practical experience and excellentunderstanding of the local laws and business environment, whichenable them to offer a wide variety of services and solutions foryour business.The legal consultants at PwC Legal are able to offer a widevariety of services and solutions for your business and combinetheir work with the work of PwC auditors, accountants, and taxprofessionals. This creates a powerful partnership that allows usto deliver integrated business solutions.Services offeredCorporate/Commercial Law and Foreign investments• Full legal services on complex business transactions• All corporate and commercial contractual matters• Registration of companies, representative offices andbranches, liquidations• Investment Fund advisoryPrivatisation, M&A and Corporate Restructuring• Due diligence reports• Assist preparation for participation in tenders and auctions,negotiating sale purchase contracts• Changes of structure, ownership of Company• Mergers, absorptions, divisions and changes of legal form• Bankruptcy, reorganizations and restructuringReal Estate• Due diligence reports• Advice on investment in and management of real estateprojects• Legal services regarding purchase of real estate, leasing ofproperty and rentalBanking and Finance• Due diligence reports• Advice on legal aspects of mortgages, loans and otherfinancial transactions• Advice on bank guarantees, promissory notes and othermanners of securing transactionsEnergy and Mining• Due diligence reports• Advice on investments and concession agreementsLitigation and Arbitration• Conduct of negotiations and mediation for the client;settlement of disputes• Draft of arbitration agreements• Advice on litigation strategy, conduct of litigation• Representation of clients in administrative proceedings anddisputesLabour Law and Employment• Advise on, negotiate and draft all types of individual andcollective employment agreements, and redundancy issues• Other employment related servicesSecurities Law• Advice on securities transactions• Advice on the increase of capital for joint stock companies• Advice on takeover bidCompetition Law• Unfair market practices: abuse of dominant position,anti-competitive agreementsIT, Telecommunications, Media and Postal Services• Due diligence reports• Legal AdvisoryPricewaterhouseCoopers Training AcademyOmladinskih brigada 88a,11000 Belgrade, SerbiaTelephone: +381 11 3302 100Fax: +381 11 3302 101Predrag MilovanovicAttorney at Lawe-mail: predrag.milovanovic@rs.pwc.comGuide to doing business and investing in Serbia 59

14 AppendicesAppendix AKey macroeconomic indicators of SerbiaReal GDP growth (in %)Consumer prices (in %, relativeto the same month a year earlier) 2)Core inflation (in %, relative tothe same month a year earlier) 2)NBS foreign exchange reserves(in EUR million)Exports (in EUR million) 3- growth rate in % comparedto a year earlierImports (in EUR million) 3- growth rate in % comparedto a year earlierCurrent account balance 4)(in EUR million)as % of GDPUnemployment accordingto the Survey (in %) 5)Wages(average for the period, in EUR)RS budget deficit/surplus(in % of GDP) 6)Consolidated fiscal result(in % of GDP)RS public debt(external + internal, in % of GDP) 6)RSD/USD exchange rate(average, in the period)RSD/USD exchange rate(end of period)RSD/EUR exchange rate(average, in the period)RSD/EUR exchange rate(end of period)MemorandumGDP (in EUR million) 7)2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12009 Q2 20105.640.720.51,3252,69320.7-5,02332.32822.212.289.9-0.2-0.2104.866.7167.6759.7859.7112,8213.914.84.42,1863,12516.0-6,38727.2-671-4.213.3151.1-4.3-1.871.964.7058.9860.6661.5216,0282.47.86.12,8403,84723.1-7,20612.8-1,347-7.814.6176.9-2.6-2.563.757.5654.6465.1368.13117.3068.313.711.03,1174,47516.3-9,54332.4-2,620-13.818.5194.6-0.30.850.958.4457.9472.7078.8919,0265.617.714.54,9355,33019.1-9,6130.7-1,778-8.820.8210.40.30.950.666.9072.2283.0085.5020,3065.26.65.99,0256,94930.4-11,97124.5-2,56-10.120.9259.5-1.9-1.940.167.0159.9884.1079.0032.3056.911.07.99,6418,68625.0-15,57830.1-4,615-16.018.1347.6-1.7-2.131.458.3953.7379.2479.0028,7855.58.610.38,16010,15716.9-17,87814.8-6,089-18.213.6358.4-1.8-2.026.355.7662.9081.4488.6033.418-3.06.64.110,6028,478-16.5-13,237-26.0-1,743-5.716.1337.9-3.4-4.032.467.4766.7393.9595.8930,385 1)0.64.72.310.4442.0098.1-3,214-4.4-760-10.5/321.5-3.1-3.433.671.3874.3898.6799.766,841 1) 1.8 1)4.21.92,50617.3-3,61110.8-542-7.219.2335-3.7-3.835.479.9375.48101.37104.377,523 1)1) NBS estimate.2) Retail prices until 2006.3) Trade with Montenegro is registered within relevant transactions as of 2003.4) In accordance with BPM 5, a portion of estimated remittances was transferred from the nancial account to the current account.60 Guide to doing business and investing in Serbia

Guide to doing business and investing in Serbia 61

62 Guide to doing business and investing in Serbia

Appendix CUseful Sources of InformationGovernment web sitesGovernment of Republic of SerbiaPresident of Republic of SerbiaMinistry of FinanceMinistry of Economy andRegional DevelopmentMinistry of Foreign AffairsMinistry of JusticeMinistry of AgricultureMinistry of Energy and MiningMinistry for InfrastructureMinistry of Trade and ServicesMinistry of Telecommunications and ITMinistry of Environment andSpatial PlanningSerbian ParliamentNational Bank of SerbiaSerbian Investment and ExportPromotion AgencyVojvodina Investment andPromotion Agencywww.srbija.gov.rswww.predsednik.rswww.mfin.gov.rswww.merr.gov.rswww.mfa.gov.rswww.mpravde.gov.rswww.minpolj.gov.rswww.mem.gov.rswww.mi.gov.rswww.mtu.gov.rswww.mtid.gov.rswww.ekoplan.gov.rswww.parlament.gov.rswww.nbs.rswww.siepa.gov.rswww.vip.org.rsBusiness groupsSerbian Chamber of CommerceForeign Investors CouncilAmerican Chamber of Commercewww.pks.rswww.fic.org.rswww.amcham.rsOther useful web sitesSerbian Business Registry AgencyCentral Securities Depositary andClearance HouseBelgrade Stock ExchangeStatistical Office of Republic of Serbiawww.apr.gov.rswww.crhov.co.rswww.belex.rswww.stat.gov.rsGuide to doing business and investing in Serbia 63