Do you want to use the aid that the state gives to newly established and existing companies?
For almost ten years, our consulting team has been trying every day to make it easier for its clients, multinational and domestic companies, to adapt to the often very challenging Serbian market and national regulatory environment. One of the key challenges facing companies in Serbia is obtaining funding for existing and new investments. At the same time, according to the National Bank of Serbia, the banking sector manages assets that make up over 90% of the financial market. This means that companies have a very narrow choice of financing options, especially if they are unable to respond to the rigorous demands of commercial banks.
Subsidies for investments in the manufacturing sector and the service center sector
The most financially significant and the most mediated form of state incentives are the incentives that the Development Agency of Serbia (hereinafter: RAS) and the Ministry of Economy of the Republic of Serbia grant for direct investments and job creation. In the media, this form of incentive is usually called "subsidies for job creation" and it is often unjustifiably claimed that this form of incentive is intended exclusively for foreign investors. This paragraph will analyse the regulatory framework, which is often neglected in media debates on subsidies.
What are the main sources of law?
The area is regulated by decrees of the Government of the Republic of Serbia, primarily the Decree on determining the criteria for granting incentives to attract direct investment ("Official Gazette of the Republic of Serbia", No. 1/2019) (hereinafter: the Decree), based on which investors to the Ministry of Economy submit a business plan with details of the project for which they wish to receive subsidies, as well as other necessary documentation.
Are subsidies granted only to foreign investors?
According to the Decree, the investor can be a domestic or foreign company (a domestic company is a company registered in Serbia in the Business Registers Agency, a foreign company is a company registered in another country). Therefore, whether the investor is in domestic or foreign private ownership is not a significant question from the aspect of the Decree. If the investor is a foreign company, it is necessary to establish a subsidiary in Serbia in order to perform the project (beneficiary).
For which sectors can subsidies be assign for investments?
Subsidies can be granted for projects in the following activities:
- Manufacturing sector
- Service centers and business operations support sector: services provided through information and communication technologies primarily to customers outside the territory of the Republic of Serbia
Subsidies cannot be granted for projects in the following activities:
- Transport sector
- Software development unless it is for the purpose of product improvement, production process or service center provision
- Games of chance
- Production of synthetic fibers, coal and steel
- Tobacco processing and production of tobacco products
- Production of weapons and ammunition
- Shipbuilding of self-propelled sea-going merchant vessels over 100 gross registered tons
- Airport construction
- Energy sector
- Broadband sector
- Fisheries and aquaculture sector
Can the investment be realized in any municipality in Serbia?
The investment can be realized anywhere in the territory of the Republic of Serbia. All Serbian municipalities are divided into five groups according to the level of development: the first group is the group that includes the most developed municipalities, and the fifth group is the group that includes the least developed municipalities (devastated areas). The regulation favors investments in municipalities with a lower level of development (lower limits for accepting investments and a higher level of possible subsidies), which will be discussed in more detail later in the chapter. The classification of municipalities according to the level of development was performed in the Decree on establishing a single list of development of the region and local self-government units for 2014.
Which investors cannot apply for subsidies?
Decreedoes not allow the following investors to apply for subsidies:
- Investors in financial difficulties
- Investors who have due and unpaid tax liabilities in the Republic of Serbia
- Investors with whom the Republic of Serbia, an autonomous province or a unit of local self-government has a share in the ownership
- To investors who are obliged to repay illegal state aid
- Investors whose Incentive Funding Agreement was terminated, except in the case of agreed termination of the agreement
Which investors can apply for subsidies?
Subsidies can be granted to investors who meet the following criteria:
- Investors registered with the Business Registers Agency. If the investor is a foreign company, he should establish a dependent company in Serbia for the needs of the project
- Investors against whom no previous bankruptcy proceedings, reorganization, bankruptcy or liquidation have been initiated
- Investors who have not been allocated funds for the same purposes (for the needs of the same investment project)
When applying for subsidies, the investor determines its size. The investor can be small, medium or large:
- Small investor: less than 50 employees and annual income / balance sheet less than EUR 10 million
- Medium investor: between 50 and 250 employees and annual revenues less than EUR 50 million or annual balance sheet less than EUR 43 million
- Large investor: over 250 employees and annual balance sheet greater than EUR 43 million
Please note that if the investor operates within a group of related legal entities, the size is determined on the basis of indicators at the consolidated level.
Conditions for acquiring subsidies are more favorable for smaller investors. A large investor will only be granted subsidies if he proves one of the following claims:
- The approved subsidies will significantly affect the size of the project or the amount of investment
- Approved subsidies will significantly accelerate the implementation of the project
- Approved subsidies will enable the realization of the project, which otherwise could not be realized
What investments are subsidies approved for?
Subsidies are approved for direct investments (investments in tangible and intangible fixed assets such as real estate, production equipment, licenses, patents, software, etc.) and employment of new employees, domestic citizens, for an indefinite period of time and full time. Namely, the investor determines the amount of eligible costs for the needs of the project, and subsidies are approved as a percentage of eligible costs.
Eligible costs are:
- Investments in tangible and intangible assets from the date of submission of the application for the allocation of funds until the expiration of the deadline for the implementation of the investment project
- Gross salaries costs for new employees in the two-year period after reaching full employment (after all planned new employments have been completed)
Investments in tangible and intangible assets are also recognized as costs of renting business premises in which the project is implemented during the implementation period, provided that the rental period from the expiration date for project implementation is not shorter than five years for large investors and three years for small and medium investors. Also, the costs of lease of property (fixed assets other than land and business premises) which has the form of financial leasing and contains the obligation to purchase the property at the end of the lease period are recognized as investments.
It is necessary to point out that for the needs of the subsidy, only investments in tangible and intangible assets incurred after submitting the application for allocation of funds are justified, as well as the costs of gross salaries of those employees who are employed after submitting the application for granting funds. Therefore, in the business plan, the investor shows only those investments and employments that will occur in the future. It is not possible to apply for subsidies based on previous investments.
Also, the agreed basic salary for each new employee must be at least 120% of the minimum salary in accordance with domestic regulations governing employment.
The deadline for the realization of the investment project and employment of new employees is up to three years from the day of submitting the application for the of funds. After concluding the Agreement on the allocation of incentive funds with the Ministry of Economy of the Republic of Serbia, it is possible to extend the deadline to five years from the day of submitting the application for the allocation of granting funds.
In order for an investor to apply for its investment project for subsidies, it is necessary to exceed the limit in the amount of capital investments (investments in tangible and intangible assets, costs of renting business premises and financial leasing of other fixed assets - CAPEX) and the number of new employees. Limits on the level of development of the municipality for the production sector are:
- Group I (most developed municipalities): over 50 new positions and CAPEX higher than EUR 500,000
- Group II: over 40 new positions and CAPEX higher than EUR 400,000
- Group III: over 30 new positions and CAPEX higher than EUR 300,000
- Group IV: over 20 new positions and CAPEX higher than EUR 200,000
- Group V (devastated areas): over 10 new positions and CAPEX higher than 100,000 UER
The limit for service centers, independent of the municipality, is CAPEX higher than EUR 150,000 and the creation of over 15 new positions.
How much subsidy can an investor receive?
The maximum amounts of subsidies by development groups of the municipality in which the investment is made are:
- Group I: 20% of gross salary costs (maximum EUR 3,000 per employee)
- Group II: 25% of gross salary costs (maximum EUR 4,000 per employee)
- Group III: 30% of gross salary costs (maximum EUR 5,000 per employee)
- Group IV: 35% of gross salary costs (maximum EUR 6,000 per employee)
- Group V: 40% of gross salary costs (maximum EUR 7,000 per employee)
In addition to the above amounts, the investor may be granted subsidies in the amount of 10-30% CAPEX. Additional incentive funds can be approved for projects that create over 200 new positions.
The above amounts represent the maximum level of subsidies that the Ministry of Economy can grant to an investor. In practice, the Ministry of Economy usually does not approve maximum amounts of funds to investors.
What is the procedure for applying for subsidies?
The investor may submit to the RAS a letter of intent on the planned project in the prescribed form. After reviewing the letter of intent, the RAS provides the investor with a legally non-binding notice of the possible level of subsidies granted. After that, the investor submits a business plan and supporting documentation, on the basis of which RAS performs an expert analysis of the project. The expert analysis is submitted to the Ministry of Economy of the Republic of Serbia, which makes a decision on the level of approved subsidies. The procedure of applying for subsidies ends with the signing of the Agreement on the allocation of incentive funds between the Ministry of Economy of the Republic of Serbia and the investor.
What obligations must the investor fulfill if he is granted subsidies?
An investor who concludes an Agreement with the Ministry of Economy of the Republic of Serbia on the granting of incentive funds is obliged to:
- maintain the investment in the local self-government unit for a period of at least five years after the project implementation, if it is a large investor, or for a period of at least three years after the project implementation, if it is a small / medium investor
- not reduce the number of employees reached in the period of at least five years after the project implementation, if it is a large investor, or in the period of at least three years after the project implementation, if it is a small / medium investor
- regularly pay the agreed salary to each new employee
If the investor does not fulfill the above reasons, the Ministry of Economy has the right to terminate the Agreement on the granting of incentives and collect finds (will be explained below).
How are subsidies granted to an investor paid?
The Agreement on the allocation of incentive funds defines the payment of subsidies in several annual installments. The investor acquires the right to an installment after fulfilling the conditions for investments in fixed assets and new employees for that year and submits a request for payment of subsidies to the Ministry of Economy of the Republic of Serbia together with the certified auditor's report (proving that necessary investments and employments) which guarantees the return of paid funds (if the investor does not fulfill the obligations stipulated in the Agreement on the granting of incentive funds).
Subsidies for investments in food production
The Decree on Determining Criteria for Granting Incentives for Attracting Direct Investments in the Field of Food Production ('' Official Gazette of the Republic of Serbia, No. 1/2019) (hereinafter: the Decree) provides subsidies for investors who invest in projects in the field of food production, that is, in the field of processing of agricultural, forestry and fishery products in order to obtain food for humans or animals, as well as various intermediate products.
Funds can be granted for investment projects if the value of investments in tangible and intangible assets (procurement of fixed assets, long-term lease of business premises and financial leasing) is over 2.000.000 EUR, and the number of new positions (indefinitely) is over 30.
The maximum amount of funds that can be granted to an investor ranges from 3.000 EUR per new employee or 20% of eligible gross salary costs (for investments in the most developed municipalities) to 7.000 EUR per new employee or 40% of eligible gross salary costs (for investments in devastated municipalities), which is identical to the incentives for investment in the manufacturing sector and the service center sector, which are described in the previous chapter. The previously determined amount can be increased by:
- 20% of eligible costs for investments in tangible and intangible assets in the amount of up to EUR 20.000.000
- 10% of eligible costs for investments in tangible and intangible assets in the amount of EUR 20.000.000 to EUR 40.000.000
- 5% of eligible costs for investments in tangible and intangible assets in the amount of more than EUR 40.000.000
We are able to offer the following services:
- finding the most adequate subsidy for each Client
- analysis of the effects and cost-effectiveness of subsidies
- assistance in making a decision on applying for state subsidies
- support in collecting and compiling the necessary documentation
- making an investment project or business plan
- attending meetings with the competent state authorities
- participation in negotiations with the competent state authorities
- advising and assisting in compiling the Reports that are submitted to the competent state authorities upon receipt of subsidies