Serbia has made a further step towards foreign exchange liberalization, by the Parliament adopting on 15 December 2012 a new set of amendments to the Law on Foreign Exchange. The amendments will come into force on 25 December 2012. Although the amendments signficantly relax the conditions applicable to cross-border payments, some important restrictions remain intact. Most notably, a prohibition on Serbian companies to grant loan to a non-resident or security for debts of a non-resident to another non-resident, except with respect to their foreign subsidiaries, continues. The prohibition covers upstream loans and security.
Cross-border loans
In the area of cross-border loans, the most significant change pertains to liberalization of the conditions for participation of Serbian banks in banking syndicates. Previosuly, a Serbian bank was permitted to participate in a foreign syndicate granting a loan to a Serbian borrower only if its share in the syndicate was not lower than 10%. By virtue of the amendments, the minimum participation has been removed. Furthermore, it is now clarified that a Serbian bank may participate in syndicated trade financing, buy a claim held by a foreign syndicate member or sell its claim under such loan to any foreign party.
Serbian branches of foreign companies, which were up to now permitted to take cross-border loans from their parents only if those loans were subordinated and repayable in no less than five years, are now permitted to take loans from their parents provided the repayment terms is longer than one year. Branches cannot take cross-border loans other than from their parents, under the foregoing condition.
The amendments lift a ban on Serbian individuals on taking loans from foreign lenders. Natural persons residents of Serbia are now allowed to take cross-border loans provided the maturity date is longer than one year. The proceeds of a cross-border loans must be paid into the individual’s Serbian bank account, since the prohibition on holding off-shore accounts (subject to narrow exceptions) remains.
Set-off and assignments of debts and claims under cross-border loans has been significantly liberalized.
The regulation of the conditions for off-setting debts owned by Serbian banks, companies and Serbian branches of foreign companies under cross-border loans with claims held by those Serbian entities against their foreign lenders has been removed from the competence of the Ministry of Finance and is now within the exclusive competence of the National Bank of Serbia. Most importantly, set-off in this context is no longer subject to the approval of the Ministry of Finance.
Assignment of claims under a cross-border loan granted to a Serbian debtor no longer requires the debtor’s consent. In line with the general contract law, it is now sufficient that the Serbian debtor is notified of the assignment. The law prescribes certain mandatory content of the assignment agreement. A special regime applies when the debtor is a state-owend company. A claim towards a Serbian debtor can be assigned to Serbian or foreign assignee (previuosly, assignment to a foreign assignee was subject to special conditions determined by the National Bank of Serbia.
Cross-border capital transactions
The amendments specify that Serbian residents may purchase shares (quotas) in foreign legal entities which are not necessarily set-up as joint-stock companies (previously, the relevant provision referred only to equity securities). Furtermore, it is specified that Serbian residnets may invest in foreign investment funds, however only via Serbian-licensed investment companies (brokers or custody banks) and not directly.
Cross-border trade payments
Assignment of cross-border trade receivables and payables is significantly relaxed as the consent of the debtor is no longer required for such assignment to be effective. Instead, in line with the general contract law, it is now sufficient that the assignor notifies the debtor of the assignment. The law prescribes certain mandatory content of the assignment agreement. A special regime applies when the debtor is a state-owend company.
The amendments give an important boost to e-commerce, by expressly declaring that cross-border paymets via institutions issuing e-money are permitted. So far, the dilemma as to the legality of these operations persisted because of the prohibition on Serbian residents to hold money on off-shore accounts.
