The Government of Republic of Serbia has adopted the Decree on Terms and Conditions for Attracting Direct Investments (Official Gazette of RS“, no.8/2018, hereinafter: „Decree“), which is applicable from March 17, 2018. The Decree regulates the eligibility criteria, terms and conditions for attracting direct investments, as well as keeping records of approved incentives and other issues of importance for attracting direct investments.
Apart from some terminological specifications, the Decree, in Article 2, now, when defining new employees makes comparison with the largest number of persons employed for a definite and indefinite period during the 12 months prior to the day of filing the application, and not with the total number of employees on the filing date, as previously prescribed. Also, international trade services now include development and production centres and research and development centres, unlike previous development of computer programs.
Funds for financing investment projects
Funds that can be used for financing investment projects are no longer limited to manufacturing and international trade services sector, but now also refer to hotel accommodation sector in the territory of the local self-government unit where the spa resort is established, as regulated by the Article 4 of the Decree.
Also, the Article 4 prescribes that funds for financing investment projects cannot be used in the software sector (unless these are used for international trade), logistic centres, fishing and aquaculture.
The list of companies that are exempt from funding remained unchanged, except that companies owned by Republic of Serbia, autonomous province or local self-government are no longer under special regime, and it is additionally specified that the eligible company should not reduce the number of employees for more than 10% over a period of 12 months compared to the average number of employees in the same period. Finally, consensual termination of the Agreement on Incentives is no longer an obstacle forincentives eligibility.
Investment projects
One of the important novelties is the additional regulation of investments projects of particular importance and investment projects that employ more than 100 new employees, for which funds can be allocated in accordance with the Decree.
This novelty refers to funds that are allocated for investment projects in:
1. manufacturing sector in which justified costs of investment in tangible and intangible resources amounts at least EUR 500.000;
2. international trade services sector in which justified costs of investment in tangible and intangible resources amount at least EUR150.000;
3. agriculture sector in which justified costs of investment in tangible and intangible resources amount at least EUR 2.000.000, under the condition of employing at least 25 new employees, that are connected to the investment project, for indefinite period, and
4. investment projects in sector of hotel accommodation in the spa areas with minimum value of EUR 2.000.000 and under the condition of employing at least 70 new employees, that are connected to the investment project, for indefinite period.
Articles 16 – 21 of Decree clearly and precisely define criteria for expert analysis of the investment project, as well as the scoring method, whereas the criteria for expert analysis of the investment project which employs up to 100 new employees are:
1) experience in conducting activities;
2) assessment of return on investment;
3) technological level of activity - customized EUROSTAT methodology;
4) the percentage of highly educated personnel;
5) general liquidity ratio;
6) business result;
7) indicator of indebtedness.
For each eligibility criteria, the investment project is assigned a prescribed number of points, so that the total sum of all points is eight, according to:
- percentage of planned employment of new employees with high education;
- assessment of the general liquidity ratio for the period of guaranteed investment and employment;
- business results of the investor determined according to the financial statements for two business years prior to filing the application;
- estimations of the indebtedness indicators of the investor determined according to the financial statements for two business years before the filing of the application;
- classification of the activity that is the subject of the project to the predominant activity of the investor;
- evaluation of the performance of the investment project.
The assessment of the technological level of the activity of the investment project is carried out using the EUROSTAT methodology.
Application for allocation of incentive funds
With regard to the documentation submitted with the Application Forms for the allocation of incentive funds, no significant changes were introduced, except that now there is no need to submit a written statement thatstate aid from the budget of the Republic of Serbia, provinces or units of local self-government has not been allocatedfor the realization of the same investment project, i.e. for the same justified costs, and additionally, it is now required tosubmit the corresponding excerpt from the Central Insurance Register for each month in the period of previous 12 months.
Another novelty is also introduced by Article 33 of the Decree which prescribes that investment projectsthat employee up to 100 of new employees that are not assignedat leasttwo points during expert analysis of the investment project, shall be rejected by the Serbian Development Agencyand the decision submitted to the applicant, with explanation, within 30 days from the date of receipt.
The Decree no longer prescribes the exemption from customs and other taxes on the import of equipment from foreign investors, which were regulated by the Decree on Terms and Conditions for Attracting Direct Investment from 2016. Assumingly, this was the result of many issues (and potential misuse) that these provisions faced in practice.
Allocation of funds for investments of special importance, and projects employing more than 100 new employees, is made without a public call, while the allocation of funds for investments employing up to 100 new employees is done through a public call. The public call is expected to be announced by the end of April 2018.