Interested in investing in the Serbian IT industry?
Our consulting team has extensive experience providing services to technology clients. We are a one-stop shop advisory firm that can assist you in the whole process of acquiring and managing a Serbian IT Company. In the next graph, we present the main phases in the acquisition of the Serbian IT Company, which will be described in more detail in our text:
Decide to invest in Serbia
The Serbian tech industry is a very dynamic industry. Serbia is a proud nation of great scientists: the most famous of them are Nikola Tesla, Mihajlo Pupin, and Milutin Milanković. Those names attract Serbian boys and girls to go into science and technology institutions such as the School of Electrical Engineering (University of Belgrade) and Mathematical Grammar School. These institutions are recognized worldwide – their students continue their education at the world’s best universities (Harvard, MIT, Oxford, Cambridge, Columbia University, Imperial College London, etc.) and/or work in the largest technology companies (Microsoft, Google, Facebook).
What are the results of the efforts of these young men and women?:
- Serbia generates 10% of GDP from the ICT sector and is one of the main exporting industries
- Successful start–up stories (Nordeus – Top Eleven Football Manager, FishingBooker – the Airbnb of fishing trip charters, 3Lateral – designing games such as GTA V, Batman, and Spiderman)
- One of the best outsourcing and nearshoring destinations in Europe
- Many multinational technology companies already doing business in Serbia (Microsoft – development center, SAP, NCR)
We already covered 30 reasons to invest in Serbia, but for the technology sector, we shall be more specific. There are two main reasons to invest in Serbian IT companies:
- Attractive workforce
- Significant tax incentives
Discover the labor environment in Serbia
In the previous headline, we already described that the Serbian technology workforce is attractive because of its strong educational background. In addition, foreign companies like to work with Serbian IT workers for the following reasons:
- Good knowledge of English language and other European languages (mainly German)
- Compatible cultural background: Serbian culture is a specific mix of Western European, Eastern European (Slavic), Mediterranean, and oriental influences. Therefore, employees from Serbia can adapt to working with both people from the West and from the East
- Time zone: Serbian time is only one hour ahead of London time
- Cost efficiency
In addition, there is a significant Serbian diaspora in the most developed countries (mostly Germany and the United States). You can attract a Serbian manager working abroad by offering him/her a chance to work again in Serbia.
Now let’s go to numbers.
The total number of employees in the ICT sector in Serbia in Q4 2021 is 105.572, which is an increase of 9,2% in comparison with the same quarter of 2020. The total workforce in ICT is 4,7% of a total number of employees in Serbia (source: Republic Office for Statistics, Republic of Serbia). Average net salary in ICT sector in 2021 was approximately 1.500 EUR.
Discover tax incentives for IT firms in Serbia
We shall cover two types of tax incentives:
- Corporate Income Tax incentives
- Personal Income Tax incentives
Discover Corporate Income tax incentives for IT firms in Serbia
The government of the Republic of Serbia issued changes in Corporate Income tax law several years ago in order to help Serbian companies which are developing intellectual property and other intangibles (such as own branded software). Those are the following incentives:
- Research and development expenses are deductible in double the amount in the tax balance sheet
- 80% of revenue is generated on the basis of intellectual property registered in Serbia (except the transfer of ownership right on the property), after some adjustments are made
Investments into the equity of a newly founded innovative company are subject to a tax credit in the amount of 30% of made investments. The maximum amount of tax credit for investment in one company is 100.000.000 RSD (approximately 850.000 EUR) and can be used in a period of up to 3 years. The total amount of tax credit that can be used in one fiscal year is 50.000.000 RSD (approximately 425.000 EUR).
Separately from tax incentives for innovative IT firms, for all companies in Serbia, there is an opportunity for 10 year of Corporate Income tax holiday if:
- Investments in fixed assets are made in amounts higher than 1 billion RSD (approximately 8,5 million EUR)
- At least 100 people are employed
Although the standard Corporate Income tax rate is fairly low (15%, regardless of the level of generated revenue), it can get significantly lower with these incentives.
Discover Personal Income tax incentives for IT firms in Serbia
There is a possibility for tax relief on the part of personal income tax liabilities in cases such as:
- For Serbian citizens who did not live in Serbia for at least 12/24 months before entering into a labour agreement with a Serbian company
- For employees who work on research and development activities
- Employing persons who were registered as unemployed for at least 6 months
- Employing disabled persons
Target the right IT Company
When identifying the right target for acquisition, you need to start with your strategy. You need to ask yourself:
- Where is my company (business) right now? What is my strategy for the next period?
- What do I want to achieve with my acquisition? How will that affect my existing business and my strategy?
- What do I want to do with the acquired company?
- What resources (financial and other) do I have in order to perform the acquisition?
From a financial perspective, there are three main reasons to acquire a company:
- Buying an undervalued company: you are able to purchase a company for a much lower price than its value
- Better management: you are able to manage the company in a better way than the current owner (better financing, higher revenue – new clients and new projects, lower expenses – higher efficiency)
- Synergy: your company and the company you acquire value more together than if they operate separately. You may be able to finance a consolidated company for lower costs. Market strength of a consolidated company could be greater (e.g. you become more attractive for new clients when you unite your resources). The consolidated company could operate more efficiently (less overhead expenses, smaller administration staff, etc.)
After you answer all these questions, you will be able to form a profile of your target IT Company. You may use qualitative criteria, such as:
- type of services provided
- type of industry it provides services to
- country in which it operates
Also, quantitative criteria are important, such as profit margins, level of generated revenue, level of debt etc.
Find new IT company targets
If you have not identified a target company, we may help you in the process.
We have access to domestic and international databases, which can be used in the screening process. Depending on the type of database, companies may be searched on the basis of criteria, such as revenue/profit level, registered business activity, address etc.
We also perform the qualitative search: after we compiled a sample of target companies, we can check publicly available data to confirm if those companies meet your set criteria.
If you are interested in services of identifying target IT companies, please contact our benchmarking analysis consultant.
Already cooperate with the target?
You may already know your target. Maybe you already cooperate with a Serbian company. You know the owners, the employees, and the quality of work they perform. But before you go in negotiation, you should take a glance at their financials:
- What is their revenue growth? Did sales prove to be immune to crises (Covid – 19, recession, Russia – Ukraine war, etc.)?
- What about their bottom – line? Do they have a proven track record of several consecutive profitable years?
- Are they in excessive debt? Were their bank accounts frozen?
At the end of initial negotiation, you should agree on some general conditions of acquisition, as well as on non–binding and indicative purchase value.
Contacting the targeted IT company
In our experience, some clients prefer not to contact target companies themselves, but to contact them via an M&A consultant.
In part 2 of the text, we shall cover the second part of the process of buying IT company in Serbia: M&A analysis, acquisition agreement, and post-acquisition integration.
