New decree categorizes investors by planned number of new employees – Subsidies for software development and spa hotels enabled as well

The categorization of investment projects by the number of workers they should employ, as well as the implementation of two new fields eligible for the allocation of funds, are the main new features of the new decree on attracting foreign investments.

The document, officially called the Decree on the Terms and the Manner of the Attracting of Direct Investments, came into effect in mid-March, and the differences compared to the previous one, adopted in late 2016, are not big.

As Marko Janicijevic, a lawyer with the Law Office Tomic Sindjelic Groza, explains for eKapija, the new decree is largely based on the previous one regarding the material conditions and is a continuation of it when it comes to the allocation of incentives for the attracting of investments.

– The most important new feature concerns the categorization of investment projects and with them the criteria for analysis as well, depending on the number of persons to be employed, that is, whether a project will lead to up to 100 or over 100 new employments. Also, there are new fields for which funds can be allocated, namely, the sector of software development – if it is in the function of product improvement, production process improvement or the provision of international trade services – as well as for projects of hotel accommodation services in the territory of the local self-government unit on which a spa area has been defined. It should also be pointed out that the rule that funds can be allocated for projects in the sector of fishery, which the previous decree allowed, has now been abolished – Janicijevic says.

As he adds, the new decree changes the procedure of the allocation of funds, which now takes into account the number of new employments, as the latest changes bring predictability and clearly defined criteria for the rating of an investment project with up to 100 new employments.

The Ministry of Economy has confirmed for eKapija that one of the main new features is the implementation of a rating system for investment projects entailing up to 100 new employments. An adequate number of points will be allocated based on the experience in the field, the estimate of the return on the investment, business results, debt indicators... The minimum number of points for the allocation of incentives is 2.5, and the rating system (using the EUROSTAT methodology) has been implemented so that selection could be made in the first phase of considering a larger number of applications.

The ministry also points out that the decree regulates the content and the manner of carrying out public invitations for the allocation of incentives for projects with up to 100 new employments, and it also defines that the decision on the allocation of funds for investments of special significance and projects through which over 100 new people are employed is reached without a public invitation.

Marko Janicijevic points out that the allocation of incentives for investment projects with up to 100 new employees is carried out exclusively through public invitations, whereas, for projects entailing over 100 new employees, the investor may file a Letter of Intent (the contents of which are proscribed) to the Development Agency of Serbia at any moment.

The previous decree defined the notion of investments of special significance – for investment of at least EUR 5 million, with the employment of more than 500 new workers. The new decree merges these investments of special significance and projects with over 100 new employees and defines the manner by which funds can be allocated and in which sectors within this category.

Incentives are thereby approved for investment in the production sector of at least EUR 500,000, which secure the employment of over 100 workers, and for investment project in the sector of international trade services of at least EUR 150,000 and over 100 new employees. This category now also encompasses projects in agriculture with at least EUR 2 million in investments and at least 25 new workers, as well as in the sector of hotel accommodation services in spa areas with investments of at least EUR 2 million and at least 70 new employments.

Analyses before subsidies

The program of incentives has existed almost since 2007 and has always been regulated by decrees issued by the Government of Serbia, which have kept changing and which are adopted annually.

– In all these years, the rules have been amended, changed, made more precise, so we now have a clearer legal framework and procedures than we used to. In addition to improving the legal framework itself through the practice of amending the decree annually, there is also a public interest to create conditions for attracting concrete investors in concrete sectors, to the end of further enhancing the development of the Republic of Serbia and the municipalities and towns in which the investment project is to be realized – says Janicijevic.

Unlike him, Milan R. Kovacevic, an investment consultant, believes that the state has already made too many mistakes when it comes to incentives for investors. He says for eKapija that, before any changes are made to the legal framework, an analysis should be performed first in order to determine which sectors need subsidies the most.

– We are rushing ahead to achieve the planned economic growth, without thinking too much about the added value the new investments should bring. The only benefit from the arrival of certain foreign investors that open factories here for subsidies and cheap workforce alone, are the salaries, and low salaries at that, that the workers will be paid, as well as certain taxes and contributions to be paid to the state on that basis – Kovacevic points out and adds that the bad effects of incentives for investors will become apparent in the long term.

He also says that the conditions, that is, the criteria for attracting investments are set so that they practically enable only foreign investors to apply.

Legal (non)security

When asked how the nearly annual updating of the decree influences the economic life and investments in Serbia, Marko Janicijevic says that the general principle is that frequent changes to the legal framework lead to greater uncertainty and lack of security in planning and operations.

– Changes to the decree regulating incentives can always make the terms and the criteria worse or make the procedures much harder and more complicated. This is a real risk, which cannot be avoided, as it depends on the state’s will. However, the changes to the program of incentives carried out by the Republic of Serbia have been mostly positive so far, in the sense of improving procedures and the clarity of the terms of the allocation of funds.

Our interviewee cites the abolition of the possibility for investors to return a part of their investments in the infrastructure as the only item that could be considered a step back from the perspective of investors. This item was last regulated by the 2014 decree.

– The tendency and the further expectations are that, until the accession to the EU, when the entire program of incentives as it is now will be made impossible, the state will be regulating the legal framework in the manner which will continue presenting Serbia as an attractive destination for investments, which will be attractive to both new and the existing investors. It should not be forgotten that foreign investments especially lead to new jobs, bring new technologies, stimulate innovations and engage local small and medium enterprises and suppliers, thereby integrating them into the global market – eKapija’s interviewee concludes.

Subsidies remain the same

Let us remind that the new decree defines the same amounts that can be allocated as the previous one and that they are defined relative to the justifiable costs of the investment. The biggest subsidies per job, those of EUR 7,000, are meant for investments in the territories designated as devastated areas.

The deadline for the realization of the investment project and the creation of new jobs has also remained the same – three years, with the possibility of extension to 5 years from the application at the most, requiring the authorization of the Council for Economic Development.

Marko Andrejic

TSG Advokati Beograd

Ministarstvo privrede Republike Srbije

Razvojna agencija Srbije

Decree on the Terms and the Manner of the Attracting of Direct Investments

Development Agency of Serbia

Law on Investments

Council for Economic Development

Marko Janicijevic

Milan Kovacevic

incentives for investors

subsidies for investors

attracting direct investments

Letter of Intent

taxes

contributions

small and medium enterprises

investments of special significance