Serbia Hunts for New Investors: Incentives for Investment Cycles

With the aim of enticing new investments, the Government of Serbia has enacted a new, more generous, decree on investment incentives.1 The most significant novelties are as follows: (i) the thresholds qualifying an investment for the incentives has been lowered; (ii) certain eligibility criteria have changed; and (iii) new rules on auditing subsidized projects are put in place. It remains yet to be seen to what extent the more generous incentives scheme will lure larger investments to Serbia.

Lower Investment Thresholds

The monetary thresholds that qualify an investment into fixed assets for incentives have been significantly lowered for the so-called “investments of special importance” in the most developed municipalities: EUR 5 million, four times down from 20 million. This quadruple reduction is expected to attract bigger investors into relatively developed areas of the country. Under the Investments Act, an investment can be deemed to be of “special importance” if it satisfies a combination of factors having to do with the quality of investment, its amount, number of newly created jobs, etc. The thresholds for the so-called “investments of local importance” have also been reduced:

• local investment in a developed municipality has to be at least in the amount of EUR 500,000 (instead of previous EUR 600,000) in order to qualify for incentives, provided that at least 50 new jobs are created.
• investment in a less developed municipality has to be at least in the amount of EUR 400,000 (instead of previous EUR 600,000) in order to qualify for incentives, provided that at least 50 new jobs are created.

Investments in devastated areas are eligible for incentives if the investment is at least EUR 100,000 (instead of EUR 150,000) and it yields 10 new jobs (instead of 20).

The hope is that the lower thresholds for incentives to investment of local importance will encourage local initiatives that do not require major financial resources.

Only the thresholds for investments into the least developed municipalities have been increased rather than reduced: the incentives may be granted for investment of at least EUR 200,000 (instead of EUR 150,000), provided that at least 20 new jobs are created.

New Eligibility Criteria

The new decree provides that incentives are not available for investments into the services of logistic centers or software development or modifications in the production process. Finally, the decree clarifies that the acquisition of shares is not an investment giving rise to incentives. This means that only green-field and brown-field investments qualify for incentives.

Entities subject to an order to repay unlawful state aid and entities whose agreement on state aid has been terminated cannot apply for new incentives.

Even though this was not controversial under the old decree wither, the new decree expressly stipulates that agricultural and fishery projects are eligible for incentives, provided that the investment is in the amount of at least EUR 2 million and creates at least 25 new jobs.

Independent Auditor

The decree provides that the projects receiving state aid are to be audited by a licensed auditor. The decree is not clear as to who nominates the independent auditor. For “investments of special importance”, the nominated external auditing company must employ, on a full-time basis, at least four licensed auditors in order to be eligible for the contract.