doing-business-in-serbia_2014

karanovic/nikolic

Doing Business In Serbia

/Contact T +381 (0)11 3094 200 (switchboard) F +381 (0)11 3094 223 knserbia@karanovic-nikolic.com

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01 – Banking and Finance 02 – Commercial and Healthcare 03 – Corporate 04 – Competition 05 – Dispute Resolution 06 – Intellectual Property 07 – Employment 08 – Public Procurement 09 – Real Estate 10 – Tax 11 – Our Team

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01 Banking and Finance

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I. International agreements International agreements have primacy over national law, as long as they are in accordance with the Constitution of the Republic of Serbia. In order to be qualified as an international agreement, currently the agreement has to be concluded between the Republic of Serbia and another state or international organization, and has to be governed by international rather than national law.

In practice, international agreements concluded by the Republic of Serbia frequently provide for a wide range of exemptions from the application of national law for foreign companies or their subsidiaries operating in the Republic of Serbia. Usually such exemptions relate to public procurement obligations, taxation or customs. Most of the international agreements entered into by the Republic of Serbia in respect to large-scale infrastructure projects provide for such exemptions.

II. Foreign exchange Under the Serbian Law on Foreign Exchange Transactions, current transactions (i.e. transactions which are not intended to transfer capital between residents and non-residents) are carried out freely and without limitations. Typical current transactions are foreign trade transactions, repayment of loans and transfer of profit derived from direct investments.

Capital transactions are transactions between residents and non-residents intended to transfer capital, and include, inter alia, direct investments, investments in real estate, transactions with securities and financial derivatives and credit transactions. Capital transactions might be subject to certain restrictions and various formalities imposed by the Law on Foreign Exchange Transactions and the pertinent bylaws.

Typical restrictions include limited scope of foreign securities and financial derivatives that might be purchased by Serbian residents and a number of complex rules applicable to credit transactions. Formalities include notification requirements in respect to foreign credit transactions and consent requirements related to transactions with public enterprises and state-owned companies. In addition, specific rules apply to the cross-border assignment of receivables and set-off.

The Law on Foreign Exchange Transactions also regulates the foreign currency market in the Republic of Serbia. As of October 2012, the Russian ruble has become convertible, and the volume of transactions in rubles has since been steadily rising.

III. Financing Serbian law requirements for crossborder financing of Serbian entities are imposed by the Law on Foreign Exchange Transactions, as set above under 2.2. and 2.3. Parties are generally free to choose the governing law of the financing agreements, while if they have chosen the foreign forum for dispute resolution, court decisions/arbitral awards shall be subject to recognition and enforcement proceedings in the Republic of Serbia. Conditions for the recognition and enforcement of both types of decisions are generally based on the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Regarding the domestic sources of financing, there is a total of 32 banks licensed in the Republic of Serbia, which are the primary choice for domestic financing. Out of these 32 banks, 2 are owned by Russian entities – SberbankSrbijaa.d. and Moskovska Banka a.d. (owned by Bank of Moscow/VTB). These banks regularly provide financing under Serbian law-governed loan agreements.

Regardless of the source of financing, a standard security

package that might be granted under Serbian law regularly includes mortgage, movables pledge (including share pledge, receivables pledge, accounts pledge and equipment pledge), surety, bank guarantee, bills of exchange and direct debit authorization. Each of the security instruments is governed by specific piece of legislation. If security is provided on a cross-border basis (i.e. by non-resident to resident creditor, or by resident to nonresident creditor), foreign exchange requirements have to be complied with.

Finally, in case financing is provided by a parent company, additional requirements are imposed by the Serbian Company Law and the Law on Corporate Income Tax. Unless the parent company is a bank or other financial institution, such intra-group financing is deemed as subordinated in case of insolvency.

IV. Capital markets The Serbian capital markets are in the early stages of development. There is only one stock exchange (Belgrade Stock Exchange) with market capitalisation amounting to approx.

EUR 7 billion, the OTC market is generally limited to banks, and the bond market is dominated by t-bills.

However, the Law on Capital Market offers for a wide range of possibilities for the issuance of both debt and equity securities, most of which are yet to be tested in practice.

The purchase of securities or financial derivatives on a crossborder basis is subject to the foreign exchange requirements mentioned under 2.2. and 2.3. above. When structuring these transactions, it is highly advisable to assess prospectus requirements under the Law on Capital Markets.

02 Commercial and Healthcare

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public sector and the creditor is a business entity, the maximum agreed period for payments is 45 days;

Commercial

Late Payments in Commercial Transactions

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The Serbian Parliament passed the Law on the Terms for the Settlement of Monetary Obligations in Commercial Transactions on 15 December 2012 (“Law”). The Law came into force on 25 December 2012, but will be practically applied from 31 March 2013. The Law is based on Directive 2011/7/EU. The most important provisions of the Law include the following: 

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The Law applies to the settlement of monetary obligations arising from commercial transactions between business entities and between business entities and the public sector; It introduces a limitation of contractual freedom in commercial transactions: The maximum period for payments in commercial transactions between business entities is limited to 60 days. The Law makes three exceptions to this general rule: (i) where the payment is agreed in instalments, the payment period is extended to 90 days, whereby at least 50% of the monetary obligation has to be paid within the first half of the agreed payment period; (ii) if the agreed period exceeds 60 days, then the debtor is obliged to provide a bank guaranty (unconditional, irrevocable and payable on first demand without the right to object) or a bill of exchange guaranteed by the bank, as a form of security for the payment of the debt; and (iii) registered agriculture economy or a farmer cooperative can agree longer payment terms when concluding agreements on the purchase of raw materials needed for its business activity such as seeds, fertilizer, protections, with other business entities.

Where the debtor is from the

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Offences: Should a business entity or public sector entity not fulfil its monetary obligations within the prescribed time limits, it may be fined in the range of RSD 100,000 - 2,000,000 (approx.

EUR 900 - 18,000). In addition, fines for business entity representatives range from RSD 5,000 - 150,000 (approx.

EUR 45 - 1,350) for the same offence; The Law will be applicable to (a) commercial transaction contracts which are concluded from 31 March 2013, and (b) commercial transaction contracts that have been concluded before this date but the performance of which has not yet been commenced by 31 March 2013. Parties to such contracts will have to amend existing agreements (so that they are in line with the Law) by the 31st of March.

A special exception to the general rule is prescribed for in cases where the debtor is the Republic Health Insurance Fund or a user of the assets of the Republic Health Insurance Fund. For these subjects the maximum payment period is 90 days.

The intention of the Law is to reduce the maximum period for payments of the Republic Health Insurance Fund in a stepwise manner, until a 90 days maximum period is reached. The Law provides for the following scheme: 

from 31 March 2013 until 31 December 2013 the maximum payment period shall not exceed 150 days;

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from 1st January 2014 until 31 December 2014 the maximum payment period shall not exceed 120 days;

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from 1st January 2015 onwards, the maximum payment period shall not exceed 90 days.

In addition, until 14 January 2014, the Law shall not apply to entities undergoing restructuring proceedings, i.e. to commercial transactions where the debtor is subject to restructuring.

In all other cases, the general rule of a maximum 60 days payment period for business entities and 45 days maximum payment period for the public sector shall apply.

Until now, the unofficial figure for the average time taken to settle a financial payment in Serbia was 134 days. The intention of the new Law is to reduce this figure by more than half. Considering the commercial reality of the Serbian marketplace, it remains to be seen how the provisions of this Law will apply in practice.

This law will certainly require new procedures and actions to be taken within companies.

Distribution Agreements The Serbian Law on Contracts and Torts (“Obligation Law”) contains no specific provisions regulating distribution agreements. Therefore, the general rules of the Obligation Law apply to distribution agreements as well. This means that the parties can freely arrange the terms and conditions in their distribution agreements, and the only exception is that they have to observe the general mandatory contractual rules provided under Serbian legislation.

In accordance with the above, there are no specific rules regarding termination of distribution agreements under Serbian law, either.

Hence, the general rules of the Obligation Law apply to the termination of distribution agreements, i.e. they can be terminated (i) unilaterally by either of the parties or (ii) by a mutual termination agreement.

According to the Obligation Law, the long-term agreements concluded for a definite period of time shall come to an end (among other cases prescribed in the Obligations Law or in the agreement) on the expiration of the relevant time limit, unless it is agreed or provided in the law that

such an agreement shall continue to be effective for an indefinite period of time after its expiration, if not cancelled on time.

On the other hand, long-term agreements concluded for an indefinite period of time may be cancelled at any time by any of the parties, except in bad times. The Obligation Law does not further specify which situations are considered as bad times - the meaning of this term varies from case to case and depends on concrete circumstances of the case (e.g. cancellation of a lease agreement during a cold winter). In addition, there is no obligatory cancellation time limit prescribed under the Obligation law for distribution agreements, and hence the parties are free to determine this time limit within the respective agreement. In case the parties have failed to do so, they would have to abide by an “adequate” cancellation time limit.

The Obligation Law also does not specify which time limit should be regarded as “adequate” nor prescribes the criteria for determining an adequate time limit, and hence this depends on the circumstances of each particular case. Eventually, if the parties would not be able to agree on the time limit, its duration would depend on the competent court's estimation.

Finally, under the Serbian law there is no obligation of payment of mandatory reimbursement to the distributer when terminating a distribution agreement. Only the general rule of the Obligation law regarding compensation of caused damages would be applicable in this respect.

Warranty In Serbian legislation the rules related to warranties toward the consumers (i.e. natural persons) are provided in the Law on Consumer Protection adopted in 2010 (“Consumer Law”) and the Obligation Law. For matters which are not explicitly regulated in the Consumer Law, the Obligation Law shall apply.

a) Warranty Period and Passing of Risk The Consumer Law provides that for all goods the required statutory warranty period for lack of conformity is 2 years as of passing of risk to the consumer. It should be stressed that the word “guarantee” cannot be used in communication with the consumer in case the consumer is not provided with more rights than he already has based on the Consumer Law, i.e. when providing a guarantee to the consumer, the seller has to provide some more rights for the consumer in comparison to those rights already belonging to him based on the Consumer Law. Anyhow, the seller may grant the consumer a longer warranty period, during which the seller would be liable for the goods.

The seller is liable for a lack of conformity even if he was not aware of it at the moment of delivery (passing of risk). The Consumer Law provides that the seller is responsible for the lack of conformity which occurs even after the passing of risk, if it originates from a cause that existed before that moment. b) Burden of Proof Within the first 6 months of the warranty period, a consumer is not required to prove that he has not caused the defect and it is assumed that the defect existed at the moment of delivery, meaning that the burden of proof is (within these first 6 months) on the seller. After the expiry of the first 6 months and until the expiry of the 2 year warranty period, the burden of proof is on the consumer.

Even if it is not explicitly regulated in the Consumer Law, the consumer should prove that he bought the goods were bought from the respective seller to assert such warranty rights (for example by presenting an invoice). Also, after the expiration of the first 6 months of the warranty period, the consumer must prove that the goods were handled appropriately and that the appearance of the non-conformity was not caused by him. c) Consumer’s Rights According to the Consumer Law, in

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the case of non-conformity of goods, the consumer is entitled to demand that the seller remove this nonconformity, free of charge. The consumer is entitled to the repair or replacement of goods, price reduction or to termination of the sale-purchase contract (which means price refund).

If the repair or replacement is not possible or if it presents a disproportionate burden to the seller, the consumer may demand a price reduction or termination of the contract with the seller.

If a seller of technical goods provides the customer with a written guaranty of the manufacturer covering proper functioning of the object within a period defined with a warranty, the consumer is entitled to demand bothfrom the seller as well as from the manufacturer the replacement or repair of goods. The consumer is entitled to it during the warranty period regardless of the moment the defective functioning appears.

Please note that the manufacturer is treated as the guarantor for the seller’s obligations arising from nonconformity.

II.

Healthcare

Pharmaceuticals The principal law governing medicines and medical devices in Serbia is the Law on Medicines and Medical Devices (“Law”).

The competent regulatory authority for both medicines and medical devices is the Agency for Medicines and Medical Devices (“Agency”); among others, its competence includes registration (i.e. issuance of marketing authorizations) of medicines, registration of medical devices and the issuance of approvals for performing clinical trials on the territory of the Republic of Serbia.

Regarding the manufacture and wholesale of medicines, the authority competent for issuing authorizations necessary for performing the respective activities is the Ministry of Health (“MoH”). The advertising and labelling of both medicines and medical devices is subject to detailed

rules prescribed by the Law and relevant by-laws and one of the Agency’s statutory competences is also to approve usage of marketing materials intended to be used for advertising of both medicines and medical devices. a) Marketing authorisations for Medicines A marketing authorisation (“MA”) is a precondition for placing medicines into the Serbian market. As indicated above, the Agency is the state authority which issues the MA. In order to obtain the MA, a request (along with the prescribed documentation) has to be filed with the Agency by a local entity. In case of medicines manufactured by a foreign manufacturer, a request can be filed by a local entity which is (1) an agent or representative of the respective foreign manufacturer or (2) an agent of a foreign entity which is not the medicine’s manufacturer, but is the MA’s holder in EU countries or other countries with the same requirements for issuing an MA. On the basis of a filed request, the Agency issues the MA within a term of 210 days from the date of receiving a complete request; exceptionally, under the conditions specified by the Law, the MA can be issued in an expedited procedure (term of 150 days).

Once issued, the term of the MA’s validity is five (5) years; under certain conditions (relating to a medicine’s safety and subject to evaluation by the Agency), it can be issued for an indefinite period of time. When issuing the MA, the Agency also determines a medicine’s dispensing regime (with or without prescription). Unlike medicines available to patients without a prescription (so-called OTC medicines), prescription medicines can be marketed only if the Serbian government has previously determined their maximum wholesale prices. Integral parts of the MA include the products characteristics’ summary (“SmPC”), patient information leaflet and wording for the medicine’s packaging (both internal and external).

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The MA is renewable without limit and is transferrable.

It should also be noted that, although obtaining the MA is a precondition for placing a medicine on the market, there are certain types of medicines for which an MA is not needed (for example, magistral or galenic medicines). Moreover, it is also possible (if needed for the medical treatment of particular patient/-s, for example in the case of orphan drugs, or for scientific research), to import a medicine even if it there is no MA issued for the same by the Agency b) Clinical trials In order to perform a clinical trial in Serbia, approval has to be obtained from the Agency prior to commencing performance of the same. This is applicable if a medicine which is to be the subject of a particular study, is a non-registered medicine or a medicine which is registered in Serbia (i.e. has a valid MA issued by the Agency), but the intended usage has not been covered by the respective medicine’s SmPC previously approved by the Agency, is the subject matter of the particular study.

In order to obtain approval, a request (along with prescribed documentation) must be filed with the Agency. This request should be filed by a person (natural or legal) responsible for the commencement and management of the study, its quality and financing (so-called sponsor of the study) and this person must hold the clinical study approval.

A study sponsor is entitled (although not obliged) to delegate obligations relating to the particular study, in whole or partly, to a local clinical research organization (CRO) to be carried out. If a sponsor is a foreign entity, it is entitled to engage a local entity as its agent or representative in order to obtain the respective approval and performing the study.

In any case, a sponsor is obliged to provide the participants in the study with insurance for any damage incurred to their health because of their participation in the respective study.

The Agency should issue an approval within 60 days from the date a filed request has been established as

complete. After the approval has been issued and the sponsor commences the study, the Agency oversees performance of the study and the sponsor is obliged to report certain adverse reactions and adverse events that may occur during the study to the Agency and the ethical committee of the health institution in which the study is being performed.

Approval is not needed for post marketing non-interventional studies; in such case, Agency notification is sufficient. c) Manufacturing of Medicines Under the Law, the manufacturing of medicines involves the entire process of medicine's manufacturing or certain parts of that process, including the production of active substances, the procurement of raw materials, medicine quality control and batch release, as well as the storage and distribution of medicines.

Manufacturing medicines in Serbia can be performed only by a legal entity that holds a license for manufacturing medicines, which is issued by MoH (regardless of whether the medicine produced is intended to be released onto the domestic market or is for export), provided that the prescribed manufacturing requirements (regarding space, equipment, personnel etc.) are met by the applicant. This license is issued within 90 days following the receipt of a complete request, and is valid for an unlimited period of time (it can nevertheless be revoked if the stipulated conditions are fulfilled).

A manufacturer that has been granted a manufacturing license is obliged to manufacture medicines in accordance with that license, the Law, Guidelines on the Good Manufacturing Practice and Good Distribution Practice, as well as to use (in the manufacturing of medicines) only those active substances and certain excipients which are produced according to the Guidelines on the Good Manufacturing Practice for active substances.

The MoH organises and carries out control of compatibility of manufacturing medicines and active substances with the Guidelines on the Good Manufacturing Practice, as

well the control of laboratory tests compatibility with the Guidelines on Good Laboratory Practice, and issues certificates of Good Manufacturing Practice and Good Laboratory Practice (on the request of the manufacturer of medicines and following the procedure for verification of compliance performed through inspection). After the issuance of these certificates, control of previously verified compliance can be performed on a regular or emergency basis by an inspection carried out by the MoH, whose report may lead to the cancellation of these certificates. d)

Marketing of Medicines

The Law regulates the marketing of medicines as wholesale (i.e. procurement, storage, distribution, import and exports) and retail marketing (conducted within a pharmacy, as a part of health protection), specifying the conditions under which each of them can be performed.

The wholesale of medicines may only be performed by a legal entity that has been granted a medicines wholesale license by the MoH, following the fulfilment of all the requirements prescribed for in the Law (regarding space, equipment, personnel etc.). The license is issued within 90 days following the receipt of a complete request, and is valid for an unlimited period of time (it can nevertheless be revoked if the stipulated conditions are fulfilled).

As an exception, the manufacturer of medicines can distribute medicines listed in its production program without a medicines wholesale license, only to legal entities active in the wholesale of medicines, to pharmacies, healthcare and veterinary institutions and private practices.

The holder of a medicines wholesale license is obliged to wholesale medicines in accordance with the Law and the Guidelines on Good Distribution Practice, as well as to continually supply the market with medicines, pursuant to the wholesale license. In addition, the wholesaler is required to keep a Record of the type and quantity of medicines sold in Serbia, as well as of the imported and exported medicines, and to submit an annual medicines marketing and

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consumption report to the Agency which must be filed by 15 February for the previous year. The Law also imposes the obligation for the wholesale license holder to have an urgent medicines withdrawal plan that will help conduct an efficient medicine withdrawal upon the request of the MoH, the manufacturer or the holder of the wholesale license.

who prescribe them, at professional conferences, in professional journals and other forms of promotion; giving free samples to the professional public; and sponsoring scientific and promotional meetings that involve a professional public by paying travel expenses, accommodation, food, as well as the costs of mandatory participation in scientific and promotional meetings.

On exception, as mentioned above, for the purposes of the treatment of a certain patient or groups of patients, or animals, the Agency can authorise the import of a medicine which has not been granted a marketing authorisation and which is intended to be prescribed in pharmacies, healthcare or veterinary organisations, and for which the Agency estimates, considering the number of patients, used quantity and other specific conditions, that there is no justifiable reason for the medicine to be provided with a marketing authorisation. The Agency can also authorise the import of a medicine which has not been granted a marketing authorisation if it is intended for medicinal or scientific testing.

Specific rules are set forth for advertising medicines to the professional public and general public. The later involves much stricter limitations - e.g. it is forbidden to advertise medicines that are issued with a prescription or at the expense of health insurance, medicines for sexually transmitted diseases, infectious diseases, chronic insomnia, diabetes and other metabolic diseases, etc., to the general public

e) Labelling and Advertising of Medicines The Law (and the relevant by-law) contains detailed provisions prescribing the contents and the form of labelling of medicine's inner and outer packaging, the additional labelling requirements (e.g. regarding the reimbursement of the expenses from compulsory health insurance, whether the medicine is issued with or without a prescription, etc.), as well as the contents of the patient information leaflet.

As far as advertising of medicines is concerned, the Law defines it as every manner in which the general and professional public is provided with accurate information about a medicine in order to encourage prescriptions, supply, sale and consumption of a medicine.

Advertising includes, in particular, the promotion of a medicine through the media, including the Internet, advertising in public areas and other forms of advertising - mail, visits, etc.; promotion of medicines to health and veterinary professionals

f) Compliance Surveillance with the Law and Penalty Provisions Compliance with the Law is observed by the MoH via inspectors for medicines and medical devices (as well as by the Ministry in charge of veterinary affairs via veterinary inspectors – for veterinary medicines). If the inspectors determine that the inspected subject has committed a punishable offence, they are required to immediately file either an official report or a request for legal prosecution of the subject in question.

Violations of the relevant provisions of the Law are prescribed as economic misdemeanours and offences, for which legal entities may be fined in the range of RSD 800,000 - 3,000,000 (approx. EUR 7,150 - 27,000) and RSD 300,000 1,000,000 (approx. EUR 2,700 9,000) respectively. Together with the fines for economic misdemeanours a protective measure in the form of prohibition of performance of certain business activities may be imposed in the duration of 3 - 10 years, whereas medicines and medical devices which are the subject of a misdemeanour shall be dispossessed without compensation.

Dietetic Products The principal regulation governing dietetic products (including food supplements) in Serbia is the Regulation on Health Regularity of Dietetic Products.

Under this Regulation, all dietetic products (irrespective of the fact whether they are produced locally or out of Serbia) have to be registered in order to be imported and/or placed on the Serbian market. The authority competent for the respective registration is the MoH. In order to register a product, a registration application (along with prescribed documentation) should be filed with the MoH. Before filing the respective application, the expert opinion on the product’s categorisation has to be obtained from the Faculty of Pharmacy (as the expert institution exclusively authorised for issuing the respective type of opinion) and a report on the health regularity of the respective product has to be obtained from one of the Serbian health institutions accredited for issuing the respective type of report (there are six institutions of this kind in Serbia).

Furthermore, a Serbian label for the product has to be approved by the Faculty and provided to the MoH as well (“Serbian Label”).

Once completed, registration lasts for five years and can be renewed without limit. The Serbian Label has to contain the respective registration number and issuance date.

Serbian data protection legislation principally consists of provisions contained in the Law on Personal Data Protection (hereinafter: the "Law") and the relevant by-laws, whereas a number of other laws also prescribe specific provisions pertaining to certain data protection matters. The Law regulates the processing of personal data on the territory of the Republic of Serbia (as well as the conditions for the export of personal data abroad) and hence it is applicable to data controllers located in Serbia, but also to foreign data controllers that process personal data on the territory of Serbia, either directly or by engaging third parties to perform certain processing activities on their behalf. The Law

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defines "data processing" as absolutely any action with respect to personal data, such as collection, copying, transmission, storage, use, granting access etc., whereas "personal data" is defined as any information relating to a natural person identified or identifiable on the basis of his/her name, unique personal identification number, address code or any other distinguishing feature of his physical, psychological, spiritual, economic, cultural or social identity.

III. Personal data protection a) Processing of Personal Data According to the relevant provisions of the Law, processing personal data can be conducted only if based on the law or consent of the data subject.

Consent must be provided in written form with a personal signature, or verbally on record, it may be withdrawn at all times, and is valid only if given by a person who has received prior relevant information with respect to data processing from the data controller. It is also possible to provide consent online using a qualified electronic signature in accordance with the Law on Electronic Signature (this option requires that a specific certificate is issued by an authorised body and that a special device is used when providing this signature).

The Law prescribes the following exceptional cases when processing personal data is allowed without consent: (i) in order to achieve or protect vital interests of a data subject or third party, in particular their life, health and physical integrity; (ii) for the purpose of performance of obligations stipulated by law, an act adopted pursuant to the law, or a contract concluded between a data subject and the data controller, as well as for the purpose of contract preparation; (iii) for the purpose of collection of funds for humanitarian purposes; and (iv) in other cases prescribed by the Law, for the purpose of achieving a prevailing justifiable interest of the

data subject, data controller or a user of personal data.

Data subjects have the following key rights with regard to data processing of their personal data: (i) to be informed of the identity of the data controller, the purpose and legal basis of data procession, as well as on all other circumstances which, if not introduced to the data subjects, would represent conscienceless behaviour, and (ii) to make insight into collected data, to demand a copy of collected data and their correction, supplementation and/or deletion (if data has been processed contrary to the relevant provisions), as well as the cessation or temporary suspension of data procession (if they challenged the correctness, completeness and accuracy of data).

Controllers and processors of data are responsible for the safety of processed data, and are therefore required to take all the necessary technical, human resources and organisational measures to protect the acquired data from any loss, damage, inadmissible access, modification, publication or any other abuse. b) Database registration Personal data controllers are required to establish and maintain records containing the prescribed information regarding the personal databases they create. Prior to the commencement of personal data processing, i.e. the formation of a personal database, data controllers are obliged to notify the data protection authority on their intention to form a personal database (and on every further intended processing) at least 15 days prior to such database formation, as well as to provide a record of formed personal databases (and every subsequent change in that respect) within 15 days as of its formation. Prior notification is not required only in cases where special regulations govern the purpose of processing, the type of data processed, the categories of users with access to the data and the period during which such data will be retained. These notifications and records must contain elements prescribed in the law and are kept in the Central Register held by the data protection authority, which is publicly available online at

http://registar.poverenik.org.rs. c) Competent Authority The competent authority for personal data protection issues in Serbia is the Commissioner for Information of Public Importance and Personal Data Protection (hereinafter the "DPA"), who supervises the implementation of the Law and initiates proceedings for prescribed offences, renders decisions whether or not to permit personal data transfer out of Serbia (except when the country to which the data is being transferred is a signatory of the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, when such transfer is permitted by the Law), as well as decisions on complaints filed by data subjects (in cases when controllers refuse their requests or do not respond within a certain time limit), provides official opinions in a case of doubt whether a certain database represents a database in the sense of the Law, etc. d) Transfer of Personal Data Abroad Serbia is not a member country of the EU and hence its legislation is often

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quite different from the laws of EU countries, despite the on-going process of implementation of EU standards and harmonisation of Serbian legislation with the relevant EU regulations and directives. This is also the case with Serbian data protection legislation, which prescribes special conditions for the transfer of personal data abroad.

Namely, if personal data is to be transferred outside of the territory of Serbia, such a transfer is allowed if the data is being transferred to a country which is a party to the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data. However, if data is to be transferred to a country which is not a party to this convention (e.g. to the U.S., China, India, etc.), prior approval from the DPA is required.

Such approval should be granted if that country has a regulation or a data transfer agreement in force which provides a level of data protection equivalent to that envisaged by the above mentioned convention. In practice it is extremely hard to obtain such an approval - so far only two transfer approvals have ever been issued by the DPA.

e) Penalty Provisions Failure to observe the requirements specified in the Law may lead to liability for offences (with prescribed fines in the amount up to RSD 1,000,000 (approx. EUR 9,000) for legal entities and up to RSD 50,000 (approx. EUR 450) for responsible persons in the legal entities.

Unauthorised collection of personal data is also prescribed as a criminal offence for natural persons by the Criminal Code of the Republic of Serbia, punishable with a fine or imprisonment for up to a year (up to three years if undertaken by an official in the performance of his duties). In accordance with the Law on Liability of Legal Entities for Criminal Offences, legal entities may be charged for this criminal offence, as well, with prescribed fines up to RSD 1,000,000 (approx. EUR 9,000), or up to RSD 2,000,000 (approx.

EUR 18,000) if undertaken by an official in the performance of his duties. Finally, violation of an individual's right to protection of personal data may also lead to civil liability for damage incurred.

karanovic-nikolic.com/practice/commercial-and-healthcare

03 Corporate

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I. Foreign investment protection Freedom of Foreign Investments Freedom and protection of foreign investments is regulated by the Law on Protection of Foreign Investments (the “Foreign Investment Law”), which in principle permits foreign direct investment in any commercial field, save for certain fields in which foreign investment is restricted (e.g. the production and sale of weapons, etc).

Forms of Foreign Investments The basic forms of foreign investment are (a) the establishment of a company in Serbia, and (b) the acquisition of shares in existing company in Serbia, which may both be carried out by a foreign investor alone or in association with other foreign or domestic investors. In addition, a foreign investor may (c) obtain a concession for certain activities, or (d) enter into a BOT (build, operate, transfer) arrangement for the construction of a certain object or facility (special forms of investments). Foreign investment may consist of foreign currency, assets, intellectual property rights, securities and other property rights. It is also possible for a foreign investor to convert its receivables into capital of a Serbian company.

Rights of Foreign Investors The Foreign Investment Law affords, inter alia, the following rights to foreign investors: National treatment – foreign investors and their domestic subsidiaries are entitled to the same rights as domestic persons and entities, unless otherwise prescribed by law; Legal security – rights of a foreign investor acquired in the moment of registration of the foreign investment

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in the registry cannot be reduced by subsequent change of laws or other regulations. A foreign investor’s contribution and assets of a company with a foreign contribution cannot be the subject matter of expropriation or other equivalent measures of the state, except with consideration when the law determines, or when on the basis of the law is determined, public interest. Such compensation must correspond to the market value of the subject matter of expropriation or other equivalent measures on the day of adoption of an act on such measure. Change of value of the subject matter of expropriation or of other measure that may be caused due to a public announcement that a measure shall not affect the appraisal of the market value for the purpose of payment of this compensation. This compensation must be paid without any delay, in convertible currency and a foreign investor may freely transfer it abroad. In case of any delay in payment of this compensation, a foreign investor is entitled to statutory default interest; Foreign exchange related rights – a foreign invest may, in regard to any payment related to a foreign investment, convert local currency into a foreign currency, effectuate payments in international commercial transactions, and keep convertible currency in a foreign exchange account with an authorised bank and dispose with such funds freely; The right to repatriation of profits and assets associated with foreign investment – including (i) profits (e.g., dividends); (ii) liquidation proceeds; (iii) proceeds from the sale of an investor’s shares in a company; (iv) amounts due to the investor as a result of a capital decrease; (v) additional payments; and (vi) compensation for any expropriation.

Repatriation may only take place after the applicable domestic taxes, customs and other legal obligations have been settled; The right to prepare its financial records in accordance with internationally accepted accounting and audit standards – a foreign investor’s domestic subsidiary must also comply with the applicable domestic accounting standards and regulations;

Customs exemptions – import of equipment on the basis of a foreign investor’s contribution (apart from cars and gaming machines) is free from customs and other import duties.

Dispute Resolution Disputes relating to foreign investments may be resolved by domestic courts in the Republic of Serbia, or contracted domestic or international arbitration.

II. General information on limited liability companies in Serbia Status of a Limited Liability Company A Limited Liability Company (in Serbian: društvo sa ograničenom odgovornošću - d.o.o.) is a separate legal entity having at least one shareholder. The liabilities of such a company cannot pass to the shareholders save for in exceptional circumstances (e.g. in the instance of a corporate veil piercing event).

The shares of a limited liability company are expressed in percentages. A shareholder can have only one ‘share’ in a company. Such a share is expressed as a percentage (e.g. 5%, 10%, 51%, 100% or any other such percentage figure as the case may be).

The contributions of shareholders may consist of Serbian dinars, a foreign convertible currency, or any contributions "in kind" such as equipment, goods, know-how etc.

There is a minimum share capital which amounts to 100 RSD (approximately 1 EUR), which however does not have to be paid prior to registration, but within five years after execution of the founding act.

"In kind" (non-monetary) share capital contribution can be valued by way of an agreement reached by the shareholders or by way of an evaluation made by a certified

auditor, a sworn-in court expert or other certified appraiser. The evaluation made by way of an agreement of the shareholders however can expose the company to the possible actions of creditors, challenging the value of such a contribution, which, if successful, can result in the possible liability of the shareholder to pay up in cash the difference between the initially agreed value and the value subsequently determined by the court. Creditors can file such an action within five years from the date when such a contribution is made; thus, it is recommendable that the value of in kind contributions is always made by an outside authorised expert.

Corporate governance can be organised as either a (a) one-tier or (b) two-tier system: (a)

(b)

In the one-tier system, besides the shareholders’ meeting, a company has one or more directors (not forming any separate corporate body, such as a board of directors), all of which are presumed to act as executives, in charge of the day to day running of the business of the company.

In the two-tier system, besides the shareholders meeting, there is (i) a supervisory board as a separate supervisory and controlling body (ii) one or more directors (executives).

The supervisory board consists of at least three members, appointed by the shareholders’ meeting, none of which can serve as an (executive) director. The supervisory board in turn appoints and controls the work of director(s) who are in charge of running the daily business of the company and are considered as executives.

The shareholders’ meeting operates through sessions which can also be held via conference call. Any decision can be passed without holding a session if all of the shareholders sign the decision and if the company's Memorandum of Association does not prescribe that the shareholders’ meeting decisions can only be passed by way of a

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session. In the case of a sole shareholder, the functions of the shareholders’ meetings are performed by the shareholder itself.

Activities - the company can engage in all legally permitted activities, but its main business activity must be defined in the Memorandum of Association. Under the Serbian law, there is an exhaustive list of business activities and the company should register a predominant activity from this list. However, there are certain activities such as for example financial services, insurance services, trade with poisonous goods, medicines or the weapons that may only be performed by an entity incorporated in a certain legal form (e.g. joint-stock company) and/or that may be subject to licensing requirements.

Employees – save for some specific business (e.g. insurance), there is no requirement to have a minimum number of employees or to have employees with specific qualifications. Even the director of the company does not have to be employed by the company (and could enter into the management agreement out of employment), nor does he/she have to receive any salary or any other payment from the company.

The Incorporation Procedure Memorandum of Association - The founding document of a limited liability company is the Memorandum of Association. Once drafted, the Memorandum must be signed by shareholder(s) or the person(s) authorized by the resolution of a shareholder with signature certified by a competent body (e.g. a Serbian court or a foreign public notary). Depending on the country of notarization of documents additional notarization by apostille may be required. All documents on foreign language have to be accompanied with certified translation.

Power of Attorney - the shareholders may authorize a Serbian lawyer or other individual to execute the Memorandum of Association, and

other required documentation on behalf of the shareholders.

Shareholders Agreement - the shareholders may conclude a separate agreement which regulates the relationship between the shareholders, and is effective amongst the shareholders. However, the Shareholders Agreement is not a document necessary for incorporation.

The specimen signature of all representative(s) must be notarized in the specific form.

The company must also have a designated registered address. The lease agreement for these premises must be made available to the tax authorities after the incorporation procedure is completed. There are generally no restrictions (subject to the type of activities of the company) on the type of premises that might be used for the purposes of registration.

In principle, the use of names of states in business names of companies is restricted under the Serbian law and necessitates the appropriate approval. The Serbian Ministry of Economy and Regional Development issues an approval if the word “Srbija”, “Serbia” or similar is to be used. This specific procedure lasts for approximately two months and the administrative fee in this instance is approximately 4,000 EUR. If needed, we may provide detailed information on this procedure.

The incorporation procedure requires the submission of all of the foundation and other documents (listed below) to the Business Registers Agency who then finalizes the incorporation by issuing the Incorporation Certificate. Once this document is issued, the limited liability company is considered registered and legally permitted to commence its business activities.

There are a few other registrations that have to be made after the registration of the company with the Business Registers Agency – including general tax registration, registration with public revenue authorities, customs registration and VAT registration (if applicable).

The company is obliged to either employ an internal accountant or to engage an external accountant agency immediately after incorporation, since evidence of this need to be provided to the Tax Authority.

The Resolution / Power of Attorney of the shareholders' Board of Directors or other appropriate authority to establish a limited liability company in Serbia and appointing the person(s) to sign the foundation documents (KN can prepare the draft), notarized and apostilled;

money-laundering regulations, certain additional documents should be submitted to the bank for the purposes of opening of a bank account. These documents primarily relate to the determining of the ultimate ownership of the subsidiary, i.e. shareholders owning at least 25% of shares of the founder or at least 25% of the managing rights. For these purposes, a bank would require an extract from the companies’ registry (notarised and apostilled) demonstrating the identity of all of the founders of the subsidiary and the shareholders of each founder, and the same evidence (notarised and appostilled) for all direct and indirect shareholders of the founders of the subsidiary, up to the individuals ultimate shareholders. For individual ultimate shareholders a notarised and apostilled copy of their passport would be required. Alternatively, if any of the direct or indirect shareholders of the subsidiary is a listed entity, than it should be sufficient to obtain evidence from the stock exchange that such a direct or indirect shareholder is a listed company.

Copies of the Passports (or Identity Cards for citizens of Serbia) of the designated representatives of the company;

Depending on the bank chosen for the opening of a bank account certain additional documentation will be required.

The duly notarized Memorandum of Association, (KN can provide the initial draft);

Time and Costs Involved

Documents and Information Required for Incorporation The following documents are required in incorporation procedure: Certificate of Incorporation of the shareholders - apostilled (as detailed under the Hague Convention as of 5 October 1961), or if the shareholder is a natural person a copy of his Identity Card (for Serbian citizens) or Passport (for foreign citizens);

The duly notarized forms containing signatures of the company's representatives (KN can prepare this and organize the notarization of the signature of the company's representatives); The other duly completed application forms for the purposes of postregistration procedures (KN can prepare and fill out the forms);

The Law on Procedure of Registration before the Business Registers Agency regulates the procedure for the incorporation of the companies and registration of the companies at the Serbian Business Registers Agency. Although the practice of incorporation is not completely coherent, the required time for incorporation in most cases is up to 10 days from the date of submitting the appropriate documentation.

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Registration before Public Income Authority.

The costs involved:   

Administrative taxes (approx.

EUR 150); Costs of official translation, if any (EUR 10 - EUR 15 per page); and Legal fees.

III. Acquiring a share in a limited liability company Restrictions to Transfer of LLC Share General Save for exceptional situations described further in this information there are no general restrictions applicable to the acquisition of LLC shares.

Restrictions agreed among shareholders In the case of a transfer of LLC share to a third party, other shareholders of LLC have a statutory right of first refusal (enabling them to purchase the share under the same terms as agreed with the third party), unless regulated differently by the company’s Memorandum of Association, which is a document regulating corporate governance of LLC (“MoA”). Furthermore, shareholders are free to stipulate by MoA any further and additional restrictions to share transfers.

Restrictions under competition protection rules

The agreement with the accountants.

In addition, post-registration procedures take approximately a maximum of two weeks. These postregistration procedures include:

Acquiring of a share in LLC is deemed as a market participants’ concentration. Under certain circumstances, which relate to size of participants’ market share, worldwide and in Serbia, such acquisition has to be approved by the Serbian Competition Commission.

Opening of a Bank Account

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Restrictions under regulatory requirements

The lease Agreement for the premises to be stated as the registered address, and which shall be submitted to the Tax Authorities;

In addition to the above mentioned documents, pursuant to the anti-

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Opening of a bank account; Tax registration and VAT registration (if applicable);

Certain activities of an LLC require prior specific licenses, approvals or

consents of Serbian regulatory bodies or authorities for transfer of LLC share (e.g. broadcasting, financial leasing, etc.).

Agreement on the Transfer of Share

The Agreement is being signed by the authorized representatives of the parties. The Agreement can be signed by third party representative (e.g. lawyer) on behalf of the party on the basis of a power of attorney. In that situation the power of attorney must also be notarized and legalized.

Subject Matter An LLC share is being transferred on the basis of an agreement executed between the seller and the buyer (“Agreement”).

Mandatory elements of the Agreement are:   

designation of the parties, designation of the share being transferred, and the price for the share.

Usually the parties would additionally regulate many other issues relating to the transfer such as preconditions to the completion or transfer mechanism and specific terms of payment, warranties of the parties, any limitations of the seller’s liabilities, post-completion obligations, etc.

Form of the Agreement The Agreement must be made in written form. Signatories have to have their signatures on the Agreement authenticated (notarized).

If the Agreement is signed in Serbia, the signature authentication procedure is being performed by way of court or municipality authorities. If the signing is performed outside of Serbia, in addition to the notarization of the signatures, the Agreement has to be legalized 1 for its recognition in Serbia.

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Legalization means that Agreement should be further certified by the additional competent government bodies.

Sometimes such legalization is not required if country in which Agreement is being signed is a party to Hague Convention on use of apostille dated 5 October 1961. In such case, apostille is sufficient. In case of bilateral agreement between the Serbia and country in which Agreement is being signed, not even apostille is required.

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Registration of Share Transfer The legal title over an LLC share is transferred at the moment of the registration of transfer with the Serbian Business Registries Agency (“SBRA”), i.e. when the new shareholder is registered with the SBRA as the owner of the share.

For registration purposes, the new owner of the share should submit to the SBRA:  

the Agreement, and evidence of the identity of the new shareholder, such as an incorporation certificate for legal entities or a passport copy for individuals.

All documentation should be delivered to SBRA as originals together with a Serbian translation made by a Serbian registered translator. Registration of the title transfer is normally performed within 5 days from the registration filing made to SBRA. The SBRA runs public registers on companies, including data such as the names of LLC’s shareholders, the size of their shares, pledges on shares, etc. All stated information and documentation are available on the web site of SBRA (www.apr.gov.rs).

Pertaining Costs and Taxes Basic costs for LLC share transfer involve administrative taxes (up to approximately EUR 350), official translation costs (EUR 10-15 per page) and legal fees. Additional costs may apply if regulatory approvals are required for the share transfer.

The only taxation involved in LLC share transfer is a capital gain tax (15%) that is being paid by the seller.

A capital gain is considered as a positive difference between the sales

and acquisition price of the shares.

There is no taxation applicable to the buyer of the share in connection to the share transfer.

Bank Accounts Due to money laundering and terrorism prevention laws, Serbian companies are obliged to disclose various information to the bank in which they wish to open or maintain a bank account. This includes the shareholding structure up to the ultimate individual shareholders holding 25% (or more) of shareholding. Consequently, any transfer of an LLC share which equals to (or exceeds) 25% of the shareholding is subject to disclosure of information regarding its shareholding structure.

karanovic-nikolic.com/practice/corporate 19

04 Competition

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I. Antitrust General Remarks a) Competition Law The Serbian Competition Law (Official Gazette of the Republic of Serbia, No. 51/2009; the “Competition Law”) is in force since 1 November 2009. Together with the Law on General Administrative Procedure (Official Gazette of the FRY, Nos. 33/97 and 31/2001 and Official Gazette of the Republic of Serbia, No. 30/2010), various implementing regulations (nine in total), several guidelines published by the Competition Commission, a fee tariff and the decisional practice of the Competition Commission and of the courts (Administrative Court and the Supreme Court of Cassation), including non-binding opinions issued by the Competition Commission pertaining to specific matters, the Competition Law represents the legal basis for competition law in Serbia.

The Competition Law is closely modelled after and for the most part harmonized with the respective EU competition law rules. However, there are some local particularities, which are reflected in different merger control thresholds, procedures and competencies of the local competition authority, the Serbian Commission for Protection of Competition (the “Competition Commission”). The Competition Commission in most cases accepts the decisional practice and the legal tests of the European Commission and the EU courts as a persuasive source for interpretation of the law.

The Competition Law regulates merger control, restrictive agreements and practices and abuse of dominance. Certain specific rules and regulations, including supplementations to the general competition law regime, are contained in the appropriate sector legislation, concerning matters such as banking, telecoms, public health, public transportation, media etc.

However, the Competition Commission represents the final authority concerning competition law. b) Scope of Application The Competition Law is applied to legal and natural persons, domestic

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and foreign companies and entrepreneurs, state institutions, public companies and other entities and associations.

The Competition Law is applied to acts and practices performed on the territory of the Republic of Serbia, as well as on acts and practices performed outside its territory, that affect or are likely to affect competition on the territory of the Republic of Serbia. The affiliated companies (i.e. companies with the same ultimate controlling entity) are treated as one undertaking, under the “single economic entity” doctrine. c) SAA/CEFTA Under the Stabilization and Association Agreement (“SAA”) concluded with the European Union, Serbia is obliged to harmonize its laws with the EU. Furthermore, the criteria for interpretation of competition law applicable in the EU are implemented insofar the SAA is concerned. The SAA stipulates that EU competition law should be applied to cases concerning interparty trade between an EU Member State and Serbia. The Central European Free Trade Agreement (“CEFTA”) 2, similarly to the SAA, envisions the application of EU competition law principles and rules to all matters in which trade among the signatory countries may be affected. d) Competition Commission The Competition Commission is the primary authority entrusted with applying the Competition Law. Established by the Law, it is an independent administrative body, with a mandate to investigate, prosecute (in administrative proceedings) and directly sanction competition infringements that affect or are likely to affect competition on the territory of the Republic of Serbia.

The decision-making bodies of the Competition Commission are the Head of the Commission and a fivemember Council (the Head of the 2

The current signatories to CEFTA are Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Moldova, Montenegro and Serbia. Croatia is supposed to leave the agreement upon joining the European Union in 2013.

Commission being the chairperson of the Council). The Head and the members of the Council are appointed by the National Assembly of the Republic of Serbia (the Parliament). Head of the Competition Commission is Ms. Vesna Jankovic and the members of the Council are Prof. PhD Vesna Besarovic, Prof.

PhD Sanja Dankovic Stepanovic, Ms. Gordana Lukic and Mr. Ivan Ugrin.

The Competition Commission has around 50 employees and extensive investigative powers, inspired by EU Regulation 1/2003. It can inspect business documents, question witnesses at public hearings, oblige companies to provide information and conduct dawn raids. The Competition Commission may also make sector inquiries and render expert (if non-binding) opinions on the application of Competition Law. The Competition Commission regularly consults and cooperates with other public institutions, the parties’ competitors, suppliers and customers in order to investigate market conditions or inquire on particular issues or industries. e) Judicial Review Resolutions of the Competition Commission are final in administrative proceedings. The party to the proceedings or a third party with a legal interest are eligible to challenge the decision before the Administrative Court of Serbia by initiating an administrative dispute, through filing a claim within 30 days as of receipt of the decision, or 60 days if the appellant did not receive the decision. The appeal does not preclude the enforcement of the decision. However, the Competition Commission can in certain cases postpone enforcement until the court ruling, upon the request of the appellant.

The Administrative Court may confirm the decision, annul the decision and return to the Competition Commission for revision, or decide on the case on its own. The Administrative Court is obliged to decide on the administrative dispute within 2 months as of receiving the claim.

The Supreme Court of Cassation is in charge on deciding on extraordinary legal remedies against the rulings of the Administrative Court. Such a

request may only be filed if the Administrative Court had violated the law or violated procedural rules where this could have affected the outcome of the proceedings. f) Sanctions Fines: committing a competition infringement (implementing a merger without clearance or contrary to the terms of a conditional clearance, concluding a restrictive agreement or abusing a dominant position) can result in a fine of up to 10% of the infringer’s total global annual turnover in the financial year prior to the initiation of the proceedings 3.

While the wording of the Competition Law allows for penalties to be determined on a group level, the Competition Commission had in all decisions restricted fines strictly to the local infringing companies themselves.

Procedural Penalties: the Competition Commission can impose procedural penalties against the infringer ranging in the amount of EUR 500 to EUR 5,000 for each day of violating a procedural decision, but up to 10% of the total annual turnover realized in the previous financial year. Such infringements are usually failure to adhere to an injunction, not complying with or providing false data in relation to an information request, or delay in submitting a merger filing.

Behavioural Remedies: the Competition Commission may order a market participant that infringed competition to perform or refrain from a certain action with the aim of remedying and/or preventing competition infringements.

Structural Remedies: if a significant risk for recurrence of the same or similar infringement exists as a direct result of the very structure of the market participant, the Competition Commission is entitled to change such structure in order to remove such risk, or institute the structure that existed prior to the infringement.

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The Competition Commission takes into account a host of both mitigating and aggravating circumstances (like repeat offences, the consequences of the infringement, cooperation during the proceedings etc.) when determining the ultimate amount of the fine, the primary ones being the severity and duration of the infringement. Fines are tied to the total turnover, not income realized on the relevant market or from the infringing agreement, although these are factored in the ultimate amount.

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The Competition Commission can cancel an already implemented concentration (unwinding), which can be operated as a split-off, sale of shares, cancellation of an agreement or performing any other action which would lead to restitution of the status prior to implementation of the concentration.

Criminal Liability: The Serbian Criminal Code (Official Gazette of the Republic of Serbia, Nos. 85/2005, 88/2005, 107/2005, 72/2009, 111/2009, 121/2012) contains a broad provision sanctioning the person responsible for the “abuse of a monopolist or a dominant market position or the conclusion of a monopolistic agreement”. This means that the responsible person (i.e. the CEO of a company) could be criminally prosecuted and sentenced with from 6 months up to 3 years in prison, together with a pecuniary fine. However, there is no significant practice on this matter in Serbia.

Merger Control a) Concentrations According to the Competition Law, the following corporate activities represent concentrations:   

Concentrations between undertakings are generally allowed, unless they would considerably restrict, distort or prevent competition on a relevant market in the Republic of Serbia, and especially through the creation or strengthening of a dominant position. b) Filing Obligation A concentration must be notified to the Competition Commission if either of the following thresholds has been met:

Civil Claims: Civil claims for compensation of damages suffered by competition infringements are allowed under the Competition Law, but the legal framework is rather vague. Accordingly, general rules on damages would be applicable (the Law on Contracts and Torts).

However, there is no significant practice on this matter in Serbia.

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Furthermore, specific additional sanctions for competition infringements might be applicable for certain sectors (i.e. banking or telecommunications), such as further fines, revoking licenses or nonregistration.

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g) Statute of Limitations No fines for competition infringements may be imposed or enforced three years as of the last day of the infringement. The statute of limitations for procedural penalties is one year as of the date of the infringement. h) Confidential Information Information regarding proceedings in front of the Competition Commission may be classified as confidential and would not be published by the Competition Commission if the party proves that it could suffer substantial damage due to publication of such information. The decisions of the Competition Commission, apart from information classified as confidential, are regularly published on its website.

Merger between two or more independent undertakings; Establishing a full-function joint venture; Acquisition of control over another company.

the total annual turnover of all the parties to the concentration realized on the worldwide level in the previous financial year exceeded EUR 100 million where at least one of the parties to the concentration had an annual turnover exceeding EUR 10 million on the Serbian market; or the total annual turnover of at least two parties to the concentration on the Serbian market exceeded EUR 20 million in the previous financial year, where at least two of the parties to the concentration each had an annual turnover exceeding EUR 1 million on the Serbian market.

Intra-group turnover is not taken into account. Furthermore, takeover bids must be notified, even when the relevant turnover thresholds (as mentioned above) have not been met.

Although the Competition Law is not completely precise in this manner, this provision should pertain to local public companies only.

Exceptionally, the Competition Commission may institute an ex officio merger control procedure if an un-notified concentration results in the merged undertakings having a market share above 40%. The market share (40%) threshold is not a jurisdictional threshold, i.e., the parties are not obliged to file a notification with the Competition Commission if their combined

market share in any relevant market exceeds 40%. However, to avoid a situation of ex post analysis, it may be advisable to notify the Commission of the intended merger, if the parties’ market shares do exceed this threshold (in Serbia).

Foreign-to-foreign mergers are reviewed under the Serbian competition rules, if the parties fulfil the thresholds. c) Triggering Event The merger notification needs to be filed with the Competition Commission within 15 calendar days from a triggering event:   

Signing of the agreement, Announcement of a take-over bid or Acquisition of controlling shares.

The filing can be made based on a letter of intent, or any similar document showing both parties’ serious intent to enter into the transaction. d) Length of Review The length of review depends on whether the Competition Commission decides in summary (Phase I) or in-depth proceedings (Phase II).  

Phase I - one calendar month as of filing a complete notification; Phase II - three calendar months as of initiation of the Phase II;

The Competition Commission opens in-depth proceedings (Phase II) only concerning the complex mergers, usually regarding matters of high local significance. If the Competition Commission does not issue a decision either clearing (conditionally or unconditionally) or prohibiting the merger within the above cited deadlines, the merger shall be considered cleared.

period whereby it may offer certain remedies in order to be granted clearance. The Competition Commission shall not propose the remedies on its own. If the remedies are accepted, whether structural or behavioural, the Competition Commission shall issue a conditional clearance. g) Fees The applicant is obliged to pay a fee for issuance of the clearance in summary proceedings in the amount of 0.03% of the total annual income realized by the merging parties, capped to EUR 25,000. The issuance of the merger clearance in in-depth proceedings sets the fee at 0.07% of the total annual income realized by the merging parties, capped to EUR 50,000.

The party responsible for paying the filing fee is the acquirer(s) (in case of an acquisition) or all parties to the concentration (in case of a joint venture or a merger).

If the Competition Commission rejects the notification on procedural grounds, the fee is EUR 500; should the Competition Commission prohibit a transaction, the fee for issuance of such a decision is EUR 1,200.

Restrictive Agreements a) Restrictive Agreements Restrictive agreements are agreements between undertakings which have as their object or effect the significant prevention, restriction or distortion of competition on the territory of the Republic of Serbia.

Restrictive agreements may take the form of written contracts, certain terms of a contract, explicit or implicit agreements, concerted practices, decisions by associations of undertakings. Restrictive agreements are, in particular: 

e) Standstill Obligation The law prescribes a standstill obligation, i.e. the parties must suspend the implementation of the transaction before the clearance is issued, or before the statutory deadlines have expired.

 

f) Conditional Clearance If the subject concentration does not fulfil the preconditions for clearance, the Competition Commission shall notify the party, leaving an additional

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indirectly or directly fixing purchase or sale prices or other trading conditions; limiting or controlling production, markets, technical development or investment; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; conditioning the conclusion of a contracts with acceptance of supplementary obligations which, by their nature or



according to commercial usage, are not related to the subject of such contracts; sharing markets or sources of supply.

Both horizontal (agreements between competitors) and vertical (agreements between different parties in the distribution chain) agreements are caught by the prohibition. Restrictive agreements are null and void, unless exempted in accordance with the Competition Law. b) De Minimis Rule The Competition Law contains the de minimis rule, applicable where the total market share of the parties does not exceed 10% for horizontal agreements, 15% for vertical agreements and 30% for combined agreements, where each participating undertaking has below 5% market share on the relevant market of effects. Hard-core restrictions may not benefit from the de minimis rule. c) Block Exemption The Competition Law allows for block exemption of certain agreements, provided that there are no hard-core restrictions and that the appropriate market share thresholds have been met. There are specific regulations concerning vertical agreements, specialization agreements and research and development agreements. The blockexemptions regime in Serbia has been mostly harmonized with the EU rules; however, some of the rules are slightly different than in the EU - as an example, the threshold for a block exemption of vertical agreements is set at 25% market share. d) Individual Exemption If a restrictive agreement does not satisfy the block exemption criteria, the Competition Commission may exempt it individually, provided the request has been filed by the signatories to the agreement. The burden of proving the fulfilment of the conditions for exemption lies on the applicants. The following conditions have to be met in order for a restrictive agreement to be exempted: 



the agreement has to contribute to improving the production or distribution of goods or promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits; the agreement must not impose restrictions which are not



indispensable to the attainment of these objectives; the agreement must not afford undertakings entering into such an agreement the possibility of eliminating competition in respect of a substantial part of the products concerned.

All the parties to the agreement must file for an individual exemption.

There is no deadline for the filing.

The agreement, however, must not be implemented prior to it being exempted by the Competition Commission. The statutory deadline for deliberation of the Commission’s decision is 60 days as of the filing of an individual exemption request.

The exemption may be granted for a maximum period of 8 years. The initially granted period may be extended for another term of a maximum 8 years provided the applicant files a request for the extension two months before the expiration of the initially granted term, at the latest.

The applicants are obliged to pay a fee for the issuance of the individual exemption in the amount of EUR 1,200.

prevented competition and that it would reimburse or remedy any damage caused.

Abuse of Dominance a) Dominant Position An undertaking is considered to have a dominant position if it faces no competition, or if it faces only insignificant competitors, or if it has a significantly better position than its competitors, taking into account the size of its’ market share, its financial and economic power, its access to supply or distribution markets, as well as the legal or factual barriers to entry to the market. The threshold required for the rebuttable presumption of a dominant company to kick in is a market share of at least 40% on the relevant market. There is a rebuttable presumption of collective dominance if two or more undertakings have a joint market share of at least 50% on the relevant market and if there is no significant competition between them.

Being dominant is not prohibited; however, abusing a dominant position is.

Hard-core restrictions are, generally, not exempted.

b) Abusive Behaviour

e) Leniency Policy

The following is, in particular, considered abusive behaviour:

The Competition Law provides for a leniency policy for competition infringers. An applicant shall automatically be granted leniency if it notifies the Competition Commission of the prohibited agreement or provides evidence that an infringement has occurred, if the Competition Commission was not aware of the infringement or where it did not have enough evidence to initiate proceedings. The applicant must not have been an instigator of the prohibited agreement. If the applicant does not satisfy the requirements for leniency, the fine may be reduced should the applicant provide evidence which was not available to the Competition Commission and which enables the closure of the case. f) Settlement The Competition Law does not provide for settlements for competition infringements. However, the Competition Commission may suspend already-initiated proceedings if the competition was negligibly harmed and the infringer committed not to continue or repeat the act which restricted, distorted or

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

 

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direct or indirect imposition of unfair purchase or selling price or other unfair trading conditions; limiting production, markets or technical development; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; conditioning the conclusion of a contract with the acceptance of supplementary obligations which, by their nature or according to trade customs, are not related to the subject of such contracts.

II. State aid General Remarks a) State Aid Control Law State aid is regulated through a separate legal framework from antitrust in Serbia. The Serbian State Aid Control Law (Official Gazette of

the Republic of Serbia, no. 51/2009; the “State Aid Law”) is in force since 1 January 2010. Together with the Law on General Administrative Procedure and several guidelines and regulations, the State Aid Law represents the legal basis for granting state aid in Serbia.

Serbian state aid rules are harmonized to an extent with the respective EU regulations. However, there are significant local particularities, reflected in different procedures, exceptions and methodology concerning state aid review. The authority in charge of state aid control is the State Aid Control Commission, a governmental body (the “State Aid Commission”).

The State Aid Control Law defines state aid, regulates allowed state aid and prohibited state aid and the procedure for granting state aid. b) State Aid Commission The State Aid Commission is the primary authority entrusted with applying the state aid law.

Established by law, it is an organizationally independent department within the Serbian Ministry of Finance, with a mandate to review state aid grants and prohibit unlawful aid.

The State Aid Commission is headed by a chairperson, a representative of the Ministry of Finance and decides on cases in a five-member Council, who are appointees of different governmental bodies (the Ministry of Finance, the Ministry of Economy, the Ministry of Infrastructure, the Ministry of Environment and the Competition Commission). The Head of the State Aid Commission is Ms. Inga Suput-Djuric (also the Assistant Minister of Finance); the Deputy Head is Ms. Milica Petrovic (employed also at the Competition Commission). The members of the State Aid Commission are Ms. Jasmina Roskic, Ms. Jasmina Radonjic and Mr. Branislav Djelic.

Expert, administrative and technical activities for the State Aid Commission are performed by the Ministry of Finance. c) Scope of Application The State Aid Law applies to all entities which utilize state aid for their commercial operations on the market. The grantor of state aid is any governmental body, including local authorities, and any legal person managing or using public revenues.

This includes public companies. The

State Aid Law is not applied to aids granted in the agriculture and fisheries sector. d) Judicial Review Resolutions of the State Aid Commission are final in administrative proceedings. The party to the proceedings or a third party with a legal interest are eligible to challenge the decision before the Administrative Court of Serbia by initiating an administrative dispute by filing a claim within 30 days as of receipt of the decision, or 60 days if the appellant did not receive the decision. The appeal does not preclude the enforcement of the decision.

However, there are different exceptions from notification or clearance of state aid, including social services or disaster relief, sectorial aids, certain horizontal aids and de minimis aids. Generally, only the following aids could be exempted: 

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The Administrative Court may confirm the decision, annul the decision and return to the State Aid Commission for revision, or decide on the case on its own.

The Supreme Court of Cassation is in charge on deciding on extraordinary legal remedies against the rulings of the Administrative Court. Such a request may only be filed if the Administrative Court had violated the law or violated procedural rules where this could have affected the outcome of the proceedings.

Rules on Granting State Aid a) State Aid State aid represents any actual or potential public expenditure or reduced increase in public revenue, where the market position of the benefiting party is improved compared to competitors and market competition is or may be distorted.

State aid includes favourable credits, guarantees, subsidies etc. and as individual aid or state aid schemes.

State aid is generally prohibited under the law, if it distorts or may distort the market competition.

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aid granted for improvement of extremely underdeveloped regions or regions with high unemployment; aid granted for remedying a significant distortion in the Serbian economy or for implementation of a project of particular significance for Serbia; aid granted for facilitating the development of certain commercial activities or sectors if it does not significantly harm or threaten to harm market competition; aid granted for improving the protection and conservation of cultural heritage.

b) Standstill Obligation The State Aid Law prescribes a standstill obligation, i.e. the parties must suspend granting of the aid before the State Aid Commission’s clearance is issued, or before the statutory deadlines have expired. c) Procedure The state aid provider is obliged, prior to granting aid, to file a notification to the State Aid Commission. The same obligation is valid for an entity introducing a law or another regulation concerning some form of state aid. The State Aid Commission may conduct ex ante or ex post state aid review. The State Aid Commission may reject a notification (if incomplete) or clear the granting of state aid. If the State Aid Commission, upon receipt of a complete notification, determines that the state aid is contrary to the law, it

shall leave a supplementary deadline for remedying the illegality of the state aid, and is obliged to propose to the provider the means to remedy such aid. After the deadline has passed (and if the state aid is not remedied correctly), the State Aid Commission may prohibit granting of the state aid.

If state aid is granted without prior notification, the State Aid Commission may order temporary suspension of such aid. Furthermore, the State Aid Commission is authorized to order the suspension of granting and recovery of unlawfully granted state aid. d) Length of Review The State Aid Commission is obliged to decide on granting state aid within 60 days as of the date of filing of a complete notification. e) Sanctions There are no specific sanctions for granting illegal state aid or not adhering to the rules of procedure.

The only sanction is the reimbursement of illegally granted state aid, including reimbursement of the legally-accrued interest and the prohibition of further granting of the aid. f) Statute of Limitations The State Aid Commission may not order the return of illegally granted state aid after a period of ten years as of the date of granting such aid. g) Confidential Information Information regarding proceedings in front of the State Aid Commission may be classified as confidential and would not be published by the State Aid Commission. The decisions of the State Aid Commission, apart from information classified as confidential, are regularly published on its website.

05 Dispute Resolution

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I. Overview of judiciary in Serbia The organisation of Serbian judiciary is regulated by a set of laws. These laws include the Law on the judicial organization, the Law on judges and the Law on jurisdiction areas of courts, while the proceedings are regulated by the Civil Procedure Law, the Law on Enforcement and Security, the Bankruptcy Law, etc.

Generally, Serbian courts are divided into two types – courts of a general jurisdiction and specialised courts.

The current organisation of the judicial system is a result of the 2010 judiciary reform in Serbia, aimed towards improving the speed, efficiency and transparency of Serbian courts.

The first degree of general jurisdiction courts is the Basic courts and High courts. The second degree of general jurisdiction courts is the Appellate courts. There are four Appellate court circuits in Serbia.

Specialised courts in the Serbian judiciary are the Commercial courts and the Commercial appellate court, which have jurisdiction over commercial matters and handle bankruptcy proceedings. There is also an Administrative court, which has jurisdiction over the judicial review of administrative proceedings, and the Misdemeanour courts which handle misdemeanour proceedings.

The highest court instance in the Serbian judiciary system is the Supreme Court of Cassation, while the protection of legality and constitutionality is entrusted to the Constitutional court.

II. Important laws regulating judicial proceedings in Serbia The new Civil procedure code The most important law which regulates civil proceedings in Serbia is the Civil Procedure Code (the “New Code”). The New Code was enacted in 2011, and came into force on 1 February 2012 and replaced the

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Civil Procedure Code from 2004. The main idea behind the New Code was to shorten the duration of lawsuits in Serbia, which has been the main issue in the Serbian judiciary for several decades. The New Code introduces several new instruments in order to achieve this goal. One of the most important, is the introduction of the lawsuit time-frame, which determines how long first-degree proceedings can last, to determine how many hearings are to be held and which evidence will be furnished during proceedings. Another instrument implemented in order to shorten the duration of the proceedings is the rule by which no new evidence proposals can be made after the preliminary hearing stage of the proceedings. This should eliminate the possibility of abuse by the parties during the proceedings, which was possible by the provisions of the previous law.

The New Code also contains a set of rules which regulate new types of specific proceedings, such as Consumer protection disputes and Collective rights disputes, which are yet to be tested in practice.

One of the main novelties introduced by the New Code are the new rules regarding the serving of documents during the court proceedings which was one of the most problematic aspects of the civil proceedings in Serbia. Also, the rules regarding procedural discipline are more severe, which should reduce the procedural rights abuse.

The full effect of the New Code should be visible within a few years.

However, it should be noted that the amendments to the New Code have already been announced.

The new Law on enforcement and security In 2011 a new law regarding enforcement, the Law on enforcement and security (“Enforcement law”), was passed.

This new law replaced the previous Law on enforcement of 2004. The new law introduces several differences when compared to the previous Law on enforcement, aiming to increase the efficiency of the enforcement process.

Firstly, the Enforcement law introduces new types of executive titles. Besides the typical executive titles such as court judgments, decisions issued in administrative or

misdemeanour procedures, the Enforcement law introduces mortgage agreements, excerpts from the Register of Pledges on Movable Property and Rights, excerpt from the Financial Leasing Register containing data on financial leasing agreements and leased assets, etc.

Secondly, the Enforcement law introduces new types of authentic documents. Besides the usual authentic documents, such as bills of exchange, checks, bonds, invoices, banking guarantees and letters of credit, Enforcement law also introduces invoices, bills of exchange and checks issued by a foreign entity, interest calculation, lawyer’s fees calculation, etc.

The Enforcement law allows the creditor to demand the enforcement against the entire property of the debtor (without specifying the exact means and objects of enforcement), unlike the previous law, which should all increase the efficiency of the proceedings.

Also, considering that one of the greatest challenges in practice was how to actually locate and identify the property of the debtor, the Enforcement law introduces the procedure for obtaining a Property statement of the debtor.

The enforcement law also introduces private enforcement officers, as individuals appointed by the Ministry of Justice who can conduct enforcement and have the capacity of an authorized officer, in order to increase the efficiency of enforcement which was one of the main problems in the Serbian Judicial system. The first positive signs of this novelty are already visible in practice.

Laws on Bankruptcy Bankruptcy proceedings in Serbia are regulated by the Law on Bankruptcy proceedings and the Law on Bankruptcy and Liquidation proceedings for Banks and Insurance companies.

Due to the economic crises, Serbia is faced with a growing trend of settlement of debt via bankruptcy proceedings against insolvent debtors. The year 2012 began with the initiation of bankruptcy proceedings against some major Serbian companies. Bankruptcy has become a harsh reality for a large number of businesses in Serbia,

exemplified by the 2569 active bankruptcy proceeding in Serbia as of 1 February 2013 is.

The restrictive Law on Bankruptcy proceedings aims to provide a quicker and more effective means of collection for claims where creditors are faced with debtors having business difficulties. Depending on the decision of the creditors, bankruptcy proceedings can go in two directions: (i) insolvency (sale of parts of the property or sale of the company as a legal entity) which terminates the existence of the debtor, and (ii) reorganisation, with the aim of restoring the proper functioning of the debtor in order to return its debts and continue with its business.

III. Alternative means of dispute resolution in Serbia

and who provide this type of service.

Amongst those are the Mediation centre and the Republic agency for amicable resolution of labour disputes.

Arbitration in Serbia Another important way of alternative dispute resolution in Serbia is arbitration. Arbitration in Serbia is regulated by the Arbitration law. The Arbitration law differentiates between two types of arbitration: arbitration without an international element (internal, in-State arbitration) and arbitration with an international element involved (international arbitration).

The most important institutional arbitrations in Serbia are based at the Chamber of Commerce and Industry of Serbia. These are the Permanent elected court, Arbitration council and the Foreign trade court of arbitration.

Permanent elected court In cases where a dispute occurs, the parties involved can also seek alternative ways to settle the dispute.

There are various alternative means of dispute resolution available in Serbia. First of all, the Law on civil procedures encourages the parties to attempt to settle their disputes out of court, by means of mediation. In the situation of a dispute between a private party and the State, the Law on civil procedure requires that the private party attempts to settle the dispute amicably by delivering a proposal for amicable resolution of a dispute to the Public attorney. If an amicable resolution does not succeed, only then can the private party sue the State before the court.

There are several institutions in Serbia whose purpose is to promote amicable means of dispute resolution

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The permanent elected court is the institutional arbitration based at the Chamber of Commerce and Industry of Serbia. It handles internal arbitration and handles the procedure by the rules of its own Statute of rules and the Law on arbitration. The Court has a list of arbitrators, consisting of university professors, experts and attorneys-at-law.

Arbitration council The arbitration council is a specific kind of an institutional arbitration based at the Chamber of Commerce and Industry of Serbia. It deals with disputes that arise from privatisations, specifically disputes about reconciliation of mutual claims

between the State entities and the subject of privatisation. In case of a dispute regarding this claim, the Arbitration council is tasked to quickly (the period determined by the law is 15 days) determine the sum of the mutual claims and perform reconciliation of these claims in order to enable state entities to perform the discharge of the privatisation subject’s debts.

Foreign trade court of arbitration The most important institutional arbitration in Serbia is the Foreign trade court of arbitration at the Chamber of commerce and Industry of Serbia (FTA). FTA resolves international arbitration cases.

Arbitrations before FTA are governed by the Rules of the Foreign Trade Court of Arbitration and the Law on Arbitration.

FTA has a list of arbitrators, which includes distinguished university professors, experts and attorneys-atlaw, both from Serbia and abroad.

The parties are also free to elect an arbitrator outside of this list, however, only an arbitrator included on the list can be appointed as a chairman of the arbitration or as a sole arbiter.

The parties are free to agree on the applicable substantive law. The FTA also performs the conciliation procedure if the parties agree to this, in order to reach a settlement between the parties. If a settlement is reached this way, it can be made in the form of an arbitral award.

Having in mind the lack of the efficiency of the Serbian courts, alternative means of dispute resolution are always advisable.

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06 Intellectual Property

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Intellectual property rights in Serbia include rights on industrial property, such as patents, know-how, new plant varieties, trademarks, indications of geographical origin, industrial design and business name etc. Additionally, these rights also include copyrights and related rights.

The competent body responsible for intellectual property protection is the Intellectual Property Office of the Republic of Serbia (the “IP Office”).

An overview of the intellectual property rights most represented in practice and the relevant legal framework for protecting them in Serbia can be found below.

to consider his/her chances of obtaining a patent before paying a fee for the substantive examination of a patent application.

I.

Territorial Validity

Patents

Definition According to the Patent Law (“Official Gazette of the Republic of Serbia“, no. 99/11) inventions are subject of patent and petty patent protection. An invention in any field of technology which is new, involves an inventive step and is susceptible to industrial application may be protected.

Scope Legal protection obtained by a patent/petty patent means that an invention may not be commercially produced, used, placed on the market or sold without the consent of its owner.

Types of patent rights The difference between a patent and a petty patent lies in the subject matter of protection, the duration period and grant procedure.

However, as far as rights are concerned, both a patent and a petty patent are identical and secure identical rights for their owner.

Application A patent/petty patent application is filed in writing, triplicate, in the Serbian language and is submitted to the reception desk of the IP Office (or by mail). The application can also be filed in a foreign language, provided that the applicant files its translation in Serbian as well.

It is necessary to conduct a search report based on the subject of the invention before filing the patent application. This report is based on a search of national and international databases including searches for prior state of the art , allowing an applicant

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The examination procedure takes several months for a petty patent and may take several years for a patent because of the more complex substantive examination proceedings.

However, from the date of publication of the application, an applicant acquires the rights conferred by the application which are similar to those of a patent, and in the case that a patent is not granted, rights arising from the application shall be deemed never to have existed.

A patent/petty patent is a territorial right and a patent/petty patent granted by the Serbian IP Office is only enforceable in Serbia. However, protection of an invention outside of the territory of the Republic of Serbia can be established via the National system, the PCT system and/or the European patent application system.

Time Validity The term of a patent is 20 years from the date an application was filed, while the term of a petty patent is 10 years from the date an application was filed.

II.

Trademarks

Definition According to the Law on Trademarks (“Official Gazette of the Republic of Serbia“, nos. 104/2009 and 10/2013) a trademark is a right that protects a mark used in the course of trade to distinguish goods and/or services of one natural or legal person from identical or similar goods and/or services of another natural or legal person. Trademark protection refers to a mark’s representation in relation to certain goods and/or services designated while filing the trademark application and should always be considered as such.

Scope The benefits of trademark registration are numerous and are as follows: 

A trademark holder has the exclusive right to use a trademark protected mark for the designation of goods and/or services referred to in the

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territory where the trademark is registered; A trademark holder is entitled to prohibit the unauthorized use of a mark identical or similar to the holder’s trademark for identical or similar kind of goods and /or services the holder’s trademark is registered for; A trademark holder can easily prove ownership with a trademark registration certificate issued by the IP Office; and A trademark is a significant tool for: trademark holder’s monopoly and goodwill, future investments, revenue from licenses and franchising agreements or assignments of a trademark.

Types of trademarks Three types of trademarks exist in Serbia: an individual, collective and certification trademark.

Furthermore, the possibility to register an international trademark through the IP Office or directly with the World Intellectual Property Organization (WIPO) also exists.

Based on the Madrid Agreement from 1974, to which Serbia is a contracting party- the respective registration may be filed in 71 countries all over the world. The condition is that an identical national trademark application has been filed with the Serbian IP Office before or alongside with the international trademark application.

Application The proper first step is to carry out a preliminary search of existing trademark registrations (or prior trademark applications) which are the same or similar to mark what has to be protected by a trademark and for the same or similar goods or services.

This step will assist in determining whether a similar trademark already exists, in order to determine if the application will pass, to avoid trademark infringement (unauthorized use) and potential lawsuits.

It should be noted that essential modifications of the representation of a mark in an application cannot be made subsequently. Also, subsequent extensions of the list of goods or services are not allowed. However, the list may be narrowed down.

Furthermore, any natural or legal person can file a trademark

application. However, it is mandatory for a foreign natural applicant or legal person without residence or seat in the Republic of Serbia to file the respective application through an attorney.

Territorial validity Trademark protection is valid for the territory of Serbia.

The holder of a trademark is obliged to use his trademark on the market of the Republic of Serbia for designated goods and/or services. However, a holder would not be considered to have committed a misdemeanor or criminal offense for not using the mark, but the holder would assume the risk for revocation of the trademark.

Time Validity A trademark is acquired when it is entered in the Trademark Register; it is valid for 10 years from the date it was filed and can be renewed without limit (if the fee has been paid).

The protection of a design is conditional on the designs’ novelty and individual character.

The designer or his successor in title, i.e., employer in cases provided for by the law, may file an application for the registration of a design, as well as both domestic or foreign, natural or legal persons (for foreigners this depends on reciprocity and the basis of international treaties requested). Foreign natural or legal persons may file a respective application only through an attorney.

The appearance of a design, that is, a photograph or drawing, may not be subsequently changed in an application in such a manner that they become substantially different in their scope and content from those defined by the description attached to the filed application.

Territorial validity The registered design is valid for the territory of the Republic of Serbia.

Time Validity

III. Designs

The term of protection of the registered design is 5 years, which can be extended for another 20 years.

Definition A design is a three-dimensional or two-dimensional appearance of an entire product, or its part, which is determined by its visual characteristics, in particular by lines, contours, colours, shape, texture and materials from which the product has been made or with which it has been decorated, and a combination thereof which may be protected by an industrial design right. This is regulated by the Law on Legal Protection of Design (“Official Gazette of the Republic of Serbia“, no. 61/2004) and the Decree on the Procedure for the Registration of Design Right (“Official Gazette of the Republic of Serbia“, no.

28/2005).

Application The owner/holder of design rights, that is, an applicant for the registration of design rights can submit a request for the international registration of a design through the Serbian IP Office, to obtain protection on the basis of the Hague Agreement Concerning the International Registration of Industrial Designs in the countries which are party to that Agreement.

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IV. Indications of geographical origin Definition In accordance with the Law on Indications of Geographical Origin ("Official Gazette of the Republic of Serbia", no. 18/2010) indication of geographical origin is the right protecting two kinds of indications: (i) appellations of origin and (ii) geographical indications.

Types of geographical origin Appellation of origin is the geographical name of the country, region or locality which serves to denote a product originating thereof, whose quality and special characteristics are exclusively or substantively conditioned by a geographical environment, including natural and human factors and whose production, processing and preparation are entirely taking place within a certain limited geographical area.

Every domestic natural or legal person that produces certain geographical area products that are

marked with the name of that geographical area, as well as the associations of these persons; chambers of commerce, associations of consumers and government bodies interested in the protection of the appellation of origin or geographical indication in the framework of their activities and foreign natural or legal person, or foreign associations, can do so, if the appellation of origin or geographical indication is granted in the country of origin, or when it comes out of international agreements.

Geographical indication is an indication identifying certain goods as goods originating from the territory of a certain country, region or locality of that territory, where a certain quality, reputation or other characteristics of the goods can essentially be attributed to its geographical origin.

Every natural or legal person that produces products within a certain geographical area is marked by the name of that geographical area, as well as associations of those natural or legal persons.

Application Natural products, agricultural products, food products, manufacturing products, industrial products, as well as products of homemade manufacture are marked with an indication of geographical origin.

Protection of the indication of geographical origin unites two different procedures: (i) procedure for the establishment of an indication of geographical origin, and (ii) procedure for the recognition of the status of an authorized user of the indication of geographical origin.

V.

Copyright and related rights

Definition Copyright includes the rights of authors of literary, scientific and artistic works and works in other fields of creative endeavors. A copyright has two components: property rights and moral rights. The relevant law regulating these rights is the Law on Copyright and Related Rights (“Official Gazette of the Republic of Serbia”, nos. 104/2009, 99/2011 and 119/2012).

Original authors of works protected by a copyright and their heirs have certain rights vis-à-vis all third parties. They have an exclusive right to use a work, or allow others to use it, on agreed terms.

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Related rights represent rights related to copyright. Related rights were developed in connection with the exploitation of works protected by copyright and they comprise similar rights of a limited scope and a shorter duration. They include:

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Time Validity

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The rights of performers; The rights of phonogram producers; The rights of videogram producers; The rights of database producers; The rights of broadcast producers; and The right of the first publisher of a free work.

Scope The creator of a work can give permission or prohibit:

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Reproduction of a copyrighted work in different forms; Public performance of a copyrighted work; Recording of a copyrighted work on lasting tangible carriers; Broadcasting copyrighted work on the radio, cable or satellite; Translations of a copyrighted work into other languages or other adaptations of a copyrighted work.

The property rights of an author last for the life of the author and 70 years following death. An author has moral rights- the right of authorship (the right to be recognized as an author of a work) without any time limitation.

A work of authorship is protected from the moment of its creation and the acquisition of this right is not subject to any formalities or administrative procedure. However, the Serbian IP Office has a section for copyright and related rights within it, which allow for the

optional choice to deposit and/or register works of authorship and subject matter of related rights, with to the intention to facilitate proving, marking and distinguishing of works.

Collective organizations for administration of copyrights and of related rights Many authors and owners/holders of rights do not have the resources for monitoring the use and exercise of their copyright and related rights and as a result, in many countries, including the Republic of Serbia, there is an upward trend in the establishment of organizations for collective administration of rights.

These organizations provide organized administrative and professional legal aid to their members in relation to monitoring, collection, management and distribution of royalties (payments for use) to those authors who are members of a given organization and the relevant law prescribes as an obligation for the accomplishment of certain copyrights and related rights dealing through these organizations.

07 Employment

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I. Employment and labour legal framework Labour Regulations Under Serbian law there is a hierarchy of labour regulations which starts with the Labour Law (hereinafter referred to as: the “Labour Law”) 4, and follows with General Collective Bargaining Agreement (which ceased to be in force as of 17 May 2011), Special Collective Bargaining Agreement (for the territory of local selfgovernment/territorial autonomy, or an industry branch) and Company’s Collective Bargaining Agreement or Employment Rules (general enactments valid for the specific employer). These acts must be consistent and each level cannot provide less protection (in terms of quantity and quality) to employees than as provided by the higher level act, or provisions of this higher level act should apply directly. The individual employment contract must respect the provisions of the law, all applicable Collective Bargaining Agreements and the Employment Rules, and any non-compliant provisions will be deemed null and void.

Labour Law The Labour Law establishes a general framework for the legal regime applicable to labour relationships and a number of minimal employment rights and entitlements.

The Labour Law applies to all employees – nationals and nonnationals – who work in the territory of the Republic of Serbia for domestic or foreign legal entities or individuals as well as to employees in governmental structures and public services and employees seconded abroad, if the law does not prescribe otherwise.

Collective Bargaining Agreements (CBA) General CBA – The General Collective Bargaining Agreement ceased to be in force as of 17 May 2011.

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Official Gazette of the Republic of Serbia, No. 24/2005, 61/2005 and 54/2009

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Special CBAs - are executed between the representative trade unions and employers’ association encompassing members within a specific industry, business activity or territory. The Special CBAs apply only to those employers which are members of the employer’s association which is a signatory to the relevant Special CBA. In that regard please consider whether you are a member of any association of employers which might have executed a Special CBA. Company’s CBA/Employment Rules – are executed at the level of a specific company and regulate rights, obligations and responsibilities based on employment in the respective company. However, in certain cases these issues may be regulated by the Employment Rules (general enactment adopted unilaterally by the employer), if the CBA could not be executed due to specific reasons prescribed by the law (e.g. trade union is not organized in the company, negotiation failed, etc.).

CBA may be entered into for durations of up to three years. Should the parties desire to cancel a CBA before its expiry, they can do so by mutual agreement or in other ways set out under the relevant CBA. However, while termination by mutual agreement produces immediate effects, in case of unilateral termination CBA will be applicable for maximum period of 6 months of the date of the notice of cancellation and the parties must begin good faith negotiations for a new CBA within 15 days from the submission of the notice.

Employment Contract Pursuant to the Labour Law, employer is obliged to enter into an employment contract with the employee before the commencement of work . Employment contract must be concluded in writing and should contain all the compulsory elements required by the Labor Law. The employment contract cannot be entered under terms which are less favourable to the employee than those set out under the applicable CBAs, Employment Rules and the Labour Law. The general conditions of the Labour Law for entering into employment are that an employee should be at least 15 years old and that he/she fulfils the conditions required for the specific job, prescribed by the Labour

Law and by the Rules on Organization and Systematization of Workplaces (general enactment that has to be adopted by each employer having more than 5 employees).

Please note that for specific positions which entail high risk for the health of employee, the employee has to undergo prior health check-up.

Employees with foreign citizenship need to obtain residence and work permit before commencement of work.

Term of Employment - the employment contract may be concluded for a definite or indefinite term. These employment relations have the same legal ground and the entitlements of the employees are the same (except those related to the duration of the employment).

Definite term employment may not exceed 12 months in duration, with or without interruption, unless a person is engaged as a replacement for temporarily absent employee in which case the employment can be established up to the return of the absent employee. The Labour Law provides for another exception: the General Manager can be hired for fixed term for the duration of his/her term of office. Further, the definite term employment arrangements are allowed only in specific circumstances explicitly specified by the Labour Law (e.g. seasonal work, work on specific projects/assignments or in the case of a temporary increased volume of activity and similar). A definite term employment is converted into an employment for indefinite term “ex lege”, if the employee continues to work for a period of at least five working days after the expiry of the contract.

Probation period can be provided only in case of an employee who is establishing the employment for the first time (with the specific employer). Maximum duration of probation period is six months.

During the probation period, either party may terminate the employment with at least 5 working days notice period.

If an employee fails to show suitable working and professional abilities, the employment is terminated with expiration of the probation period, but certain formalities prescribed by the Labour Law have to be followed.

Employment Registrations – Following the execution of the employment contract, the employer is obliged to register the employment of the employee before the social security funds within 3 working days as of the date on which the employment was established. The same obligation applies in case of termination of employment.

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Basic employee’s rights The Labour Law establishes a general framework for the legal regime applicable to labour relationships and a number of minimal employment rights and entitlements.

Salary and other Compensations The employee is entitled to an appropriate salary determined in the relevant employment contract, based on the Labour Law, applicable CBAs and/or Employment Rules.

According to the Labour Law, it is not possible to determine a fixed amount of the salary, as the Labour Law provides for rather complex mandatory structure of the salary and numerous mandatory payments: 

Salary for the work performed and time spent at work, which is comprised out of following elements: − basic salary – according to the Labor Law the employment contract has to state the pecuniary amount of the basic salary; − performance part of the salary (determined on the basis of quality and quantity of the performed work and commitment to work); and − increased salary: · For work on nonworking days of holidays – at least 110% of the basic salary; · For night and shift work, if that work is not being considered when the basic salary is determined – at least 26% of the basic salary; · For overtime – at least 26% of the basic salary; · Based on a time spent at work - for each full year of service at work 0.4% of the basic salary

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(“allowance for the years of service”).

Compensation of expenses: − for transportation to and from work in the amount of the public transportation ticket; − for the time spent on a business trip in the country; − for the time spent on a business trip abroad, at least in the amount provided for by special regulation; − for accommodation and meals during field work, if the employer has not provided accommodation and meals without remuneration. − for food allowance; − for allowance for annual vacation.

Other remunerations: − severance payment in case of retirement (at least 3 average salaries in Serbia); − remuneration of funeral expenses to the employee in case of death of immediate family member, and to the immediate family members in case of death of the employee; − damages for work related injury or professional illness.

Compensation of salary in the amount of the average salary for the preceding three months (proportionally to the period of absence) for: − a holiday which is a nonworking day; annual vacation; paid leave; military drill; leave in case of summons by governmental bodies; 65% of the salary in case of work non-related injury or illness during the first 30 days of sick leave (thereafter the compensation is paid by the employer, but can be refunded from the Health Fund on the basis of the calculation in line with the Law on Health Insurance) and 100% of the salary in case of work related injury or illness paid and born by the employer during the entire duration of sick leave; 60% of the salary

during interruption of work due to the Employer’s fault, in compliance with the regulations, etc.

The employer may also provide Christmas gifts for the employees' children, voluntary pension insurance or disability insurance, jubilee reward, solidarity aid and other payments to its employees.

Employees are entitled to a minimum wage. This minimum wage has to be paid as a basic salary and the employee is entitled on top of that to other mandatory payments as regulated by the law.

The employer has to regularly provide the employees with the salary slips and keep the records on salary payments as provided by the Labour Law. Working Hours, Vacations and Leaves Working Hours - full-time working hours are set at 40 hours per week or less, but no less than 36 hours per week. For certain harmful or dangerous jobs the working week may go down to 30 hours (reduced working hours), but is treated as full time working week.

Employees are entitled to daily break during the working hours in duration of minimum 30 minutes, which is calculated towards the working hours. Generally, an employee is entitled to a daily rest period of at least 12 hours. Working week lasts 5 working days (8 hours per day regularly). In case of night work, work in shifts or when the organization of work demands, employer can organize working week in a different manner, but in any event employees have to be granted at least 24 hours of uninterrupted weekly rest, preferably on Sunday.

Overtime - the employer may request the employee to work overtime only in certain cases determined in the Labour Law: 1) vis major; 2) unexpected increase of volume of work; and 3) in cases when the unplanned work has to be done within certain period of time.

Overtime work cannot exceed 4 hours per day or 8 hours per week.

Each overtime work has to be paid (at increased rate of minimum additional 26% on the regular hourly rate of the basic salary). Certain categories of employees cannot work overtime or can be assigned to work

overtime only with their consent (employee under 18 years of age; pregnant woman, single parent whose child is severely disabled or under 7 years old, employee with a child under 3 years of age, if there is a risk of health deterioration, etc. ) The Labour Law provides that the working hours can be rescheduled rescheduled working hours mean that due to the need of work the employees work more hours in one period, but then work shorter hours in a different period. Again there are strict limitations: - the hours can be rescheduled only in specific cases when the nature or organization of work requires or there is an urgent need to finish the work; rescheduled hours are not considered as overtime, but you have to provide employees with a time off corresponding to the rescheduled hours; duration of rescheduled hours is limited - it cannot supersede the total amount of full time over the period of 6 months during a calendar year, and not more than 60 hours per week; formal procedure has to be followed (resolution, etc). Please note that certain categories of employees cannot be rescheduled (employees with reduced working hours), or can be rescheduled but only with specific written consent. There are other limitations, which depend on the circumstances of each specific case.

Night Work - night work is work between 10 p.m. and 6 a.m. Before introducing night work employer has to obtain opinion of the trade union on workplace health and safety measures in relation to work at night.

Night work is subject to certain statutory restrictions such as: employee can work at night for more than one working week only with his consent in writing (in case that work is organized in shifts) and employer must enable the employee to work during the day, in the event that employee’s health could be harmed due to work at night, etc. Each night work has to be paid (at increased rate of minimum additional 26% on the regular hourly rate of the basic salary, unless the night work has been considered in relation to the determination of the basic salary).

Certain categories of employees cannot be assigned to work at night i.e. can work at night only with their consent.

Annual Vacation - the employee is entitled to annual vacation of at least

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20 working days per calendar year.

The employee who establishes the employment for the very first time (not with a specific employer, but the first employment in the employee's life) or had interruption in employment service longer than 30 work days is entitled to use the annual leave following 6 months of continuous employment. However, these persons are entitled to proportional duration of their annual leave (1/12 of the annual vacation per month of work). The Labour Law provides that the length of annual vacation shall be increased based on criteria determined by the employment contract or the CBA/Employment Rules (e.g. contribution to work, working conditions, years of experience, qualification of the employee etc.).

An employee acquires the right to use the annual vacation he/she is entitled to on each January 1. Annual vacation can be used in two parts – three weeks during the relevant calendar year and the second part up to the June 30th of the following year. Therefore, in case when at the end of a calendar year an employee did not use his/her entire vacation, such employee can use the remaining/unused vacation days by 30 June next year. Please note that this carry over refers only to the second part of the unused annual vacation (the first part in duration of at least 3 weeks must be used during the initial calendar year). The only exception is when the employee did not use entire or part of the annual vacation in one calendar year due to maternity leave, child care leave or special child care leave, when the employee has the right to use the entire unused vacation until 30 June of the next year. After expiry of that date, the employee could not require to use the unused annual vacation days from previous year. On the other hand if the employee did not use the vacation due to the fault of the employer (e.g. the employee requested, but was denied, etc) the employer is obliged to compensate the employee for damages. The amount of this compensation is the average salary of the employee in the previous three months (in proportion to the total number of unused days).

Other Leaves - employee has the right on paid leave for a maximum of 7 working days in total in a calendar year in case of: marriage, child birth (for the spouse), serious illness of an

immediate family member and in other cases determined in the CBAs/Employment Rules and employment contract. Duration of paid leave is determined by CBAs/Employment Rules and employment contract. Besides the above mention grounds, the employee is also entitled for additional 5 working days of paid leave in case of death of an immediate family member and for 2 days in each case of blood donation (including blood donation day).

The Employee also has the right on a leave during non-working public and religious holidays. There is a total of 10 days in a year which are designated as national holidays and which are non-working days (New Year – 1 and 2 January; Orthodox Christmas – 7 January; National holiday of the Republic of Serbia - 15 and 16 February; Labour Day – 1 and 2 May; Easter Holidays – starting from the Good Friday until the second day of Easter; Truce Day in the I World War – 11 November). In addition to the holidays noted above, employees are entitled not to work on certain religious holidays (only the employees members of the respective religion): e.g. Orthodox Christians – on the Family Saint’s Day (“Slava”); Roman-Catholics and other Christians - on Christmas day and Easter holidays, etc.

Maternity leave - employees are also entitled to maternity leave, leave for nursing the child (together with maternity leave, such leave shall have a duration of one year for the first and second child, and two years for the third and each following child) and leave for special care of a child (in case of serious illness or disability) or of another person.

Funds for this purpose are provided from the budget of the Republic of Serbia. Namely, the employer shall calculate and pay the appropriate amount of compensation of salary due to maternity leave, while it shall have the right to be refunded by the state.

Sick leave - under the Serbian law, an employee is entitled to a sick leave every time there are appropriate medical grounds and the sick leave cannot be limited in time. The employee can be granted a sick leave regarding his/her health, or if he/she has to care for sick or injured child (only in case of care for a sick/injured child the right to

remuneration is limited to certain periods depending on the age of a child and seriousness of the illness/injury, i.e. up to 15 days or 4 months). During the sick leave, the employee is entitled to compensation of the salary amounting to 65% of the salary (the average salary for the preceding three months) in case of work non-related injury or illness during the first 30 days of sick leave (thereafter the compensation is borne by the Health Fund – mandatory health insurance and is calculated in line with the Law on Health Insurance) and 100% of the salary in case of work related injury or illness during the entire duration of sick leave (in this case the compensation is covered by the employer during the entire duration of the sick leave).

Unpaid leave - the employer may also grant the employee an unpaid leave (leave without the salary remuneration), during which leave the employee's rights and obligations are dormant, save for those rights and obligations for which the employment contract, the Labour Law or the CBA/Employment Rules stipulate differently.

Non-Competition Clause Under the Labour Law, employment contract can provide for noncompetition clause i.e. the contract can provide for activities related to employer's business that the employee cannot perform on his/her behalf or behalf of someone else, without employer’s consent during the term of employment. This prohibition can be provided only if the employment shall enable the employee to acquire (i) new, highly important technological knowledge, or (ii) wide circle of business partners, or (iii) exceptionally proprietary and confidential information and secrets of the employer.

Prohibition of competition can be valid also for up to two years upon termination of the employment. In this case, the Labour Law provides that the employer has to undertake by the employment contract an obligation to pay to the employee certain agreed amount. The law does not provide anything regarding the amount which has to be paid, but based on some general principles of the law it has to be a just award.

Regarding the choice between lumpsum payment and monthly payments, monthly payments are more practical,

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i.e. if the employee breaches the prohibition employer may cease with any further payments and minimize his damages.

Termination of Employment Relationship General Rules on Employment Termination The employer and the employee may terminate employment relations in the manner and in cases prescribed by the Labour Law. Employment can be terminated in the following cases: upon expiry of the agreed term; when the employee fulfils pension retirement conditions; by mutual consent of the employer and the employee; by dismissal (only in cases specified in the Law); upon death of the employee; at the request of parents or guardians of an under-aged employee and in other cases prescribed by the Labour Law (loss of working ability, official prohibition of further work activities, prison sentence, termination of employer's business activities).

According to the Serbian Labour Law, the statutory retirement age is 65 years of age, i.e. the Employer can unilaterally terminate the employment once the employee reaches 65 years of age and at least 15 years of service unless otherwise agreed between the employer and the employee. Therefore, the employment is not terminated automatically, but the employer has to issue a resolution on employment termination. On the other hand, under the current regulation the employee may retire (under the mandatory pension insurance system) if he/she meets one of the following conditions: (a) 65 (male) i.e. 60 (female) years of life and at least 15 years of pensionable service; or (b) 40 (male) i.e. 38 (female) pensionable service and at least 58 years of age; or (c) 45 years of pensionable service However, before the year 2023 somewhat lower scale for retirement conditions shall be relevant instead of the second noted retirement condition above (e.g. in 2011 the second retirement condition was set to 40 (male) i.e. 35 (female) years of pensionable service and at least 53

years and four months of life (male) i.e. 53 years of life (female); in 2012 the second retirement condition was set to 40 (male) i.e. 35 (female) years of pensionable service and at least 53 years and eight months of life (male) i.e. at least 53 years of life (female); in 2013 the second retirement condition is set to 40 (male) i.e. 35 years and four months (female) of pensionable service and at least 54 years of life (male) i.e. at least 53 years and four months of life (female); etc. These thresholds increase progressively, to meet the above noted second condition in 2023. Please note that retirement conditions under 1 and 3 remain unchanged for the upcoming years.

In these cases, if the requirements provided by the Labour Law (65 years of age and at least 15 years of service) have not been met, the employment can be terminated only at the request of the employee or in agreement with the employee, but not by the unilateral resolution of the employer.

Employer may dismiss the employee if there is a justified reason related to the employee's work ability, behaviour and employer's needs, and specifically: 

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lack of knowledge and skills or failure to achieve the expected work results ("professional inadequacy") intentional violation of working obligation (previously determined by the employer's general act or employment contract) disrespect of work discipline criminal act related to employment if the employee does not return to work within certain period of time as of expiry of term for paid leave or dormancy misuse of the right on sick leave refusal of the employee to enter into amended employment contract (in cases specifically provided by the Labour Law) technological, economical or organizational changes in the company which lead to reduction or termination of certain works (redundancy).

General time-bar for employment termination notice is 3 months as of information on the grounds for

dismissal but not later than 6 months as of those grounds occurred. In case of a criminal act as a ground for dismissal, termination notice may be executed at the latest until the expiry of the statute of limitation for this criminal act.

When dismissed for professional inadequacy, the employee will be entitled to a notice period of between one and three months (depending on the total amount of time for which the employee has been a member of the social security system). The employee and the employer may agree to shorten or cancel such notice period on the condition that the employee is fully compensated for the entire duration of relevant notice period.

In order to effect a valid termination of the employment, the employer must observe a number of procedural issues that differently apply depending on the circumstances of the particular case: prior written warning, period for the employee to reply, time-bar for dismissal, special delivery requirements, specific form of each document in termination procedure, redundancy related procedural issues, Trade Union opinion (non-binding), formal requirements regarding resolution on termination, etc. As the Labour Law is still protective with respect to employees, it is of utmost importance, in order to ensure that no valid employees' claims with regard to dismissal procedure emerge, to strictly abide by the procedural requirements in each particular case.

Finally, the employee can terminate his/her employment in any time with minimum notice period of 15 days.

Redundancy Procedure of Mass Termination (Lay Offs) - under the Labour Law the employer is entitled to terminate the employment contract if due to technological, economic or organizational changes, performance of a particular job becomes unnecessary, or the work load becomes reduced. The law provides for two different redundancy procedures depending on a number of employees whose contracts are to be terminated. (a) The employer is bound to prepare the redundancy program in cooperation with the National Employment Service and a union (if there is

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a trade union formed with that specific employer) if within a 30 day period it plans to terminate employment of at least: (1) 10 employees whereby the employer employs more than 20, and less than 100 employees engaged on a permanent contract (i.e. indefinite term contract); (2) 10% of employees whereby the employer employs a minimum of 100, and a maximum of 300 employees engaged on a permanent contract; (3) 30 employees whereby the employer employs more than 300 employees engaged on a permanent contract. The program has to be prepared also by an employer who plans to make redundant at least 20 employees on permanent contract within a 90 day period (regardless of the total number of employees with the employer).

The redundancy program mentioned above is made for the purposes of mitigating the effects of the collective lay off. Such program will include, inter alia, the measures proposed for finding new employment for the dismissed personnel – transfer to other positions within the company, employment with another employer, retraining, part time schemes, etc.

The employer must communicate its proposed program (and the proposed change to the Rules on organization and systematization of work) to the trade union(s) and the relevant labour authorities within a maximum of 8 days from the date the program was developed. Such bodies will communicate their opinion to the employer within a maximum of 15 days from the date of receipt and the employer will, in its turn, issue a position with regards to such proposals within 8 days from receipt. (b) However, if the employer tends to make redundant fewer employees than the number of employees that entails

preparation of the redundancy program (criteria set under (a) above), the simpler procedure is applicable. First of all, the employer should enact the general resolution determining the jobs that became unnecessary (the explanation of economic, organizational changes, specifying the jobs that became unnecessary) and change the Rules on organization and systematization of work. Once the Rules come into force (8 days following their publication), the employer issues the Resolution on termination of the employment in specific form and with specific content.

Certain categories of employees are protected from the termination: e.g. pregnant women or women on maternity leave/leave for child care (they can be proclaimed to be redundant, but their employment can be terminated only once they return to work).

Finally, in case of redundancy, the employer may not employ another person to perform the same jobs (as to which the employee was proclaimed redundant) within six months from the day of termination of employment. Should it be necessary, the priority has to be given to the employees that were made redundant.

Severance Payments - In any case (whether the law mandates preparation of redundancy program or not) prior to the termination of employment based on redundancy, the employer is obliged to pay to the employee a severance payment in the amount established by the employment bylaws (CBA or Employment Rules) or employment contract. Such severance payment however could not be lesser than the amount provided for by the Labour Law: one third of the employee’s salary (average gross salary for the preceding three months, or the salary which should have been paid to the employee in case the employee was on a sick leave) for each full year of the employment service (including previous employments that the employee had before establishing the employment with that specific employer) for the first 10 years of service and 1/4 of the salary for each additional year of service. For

example, if a specific person worked for the employer for 1 year and before that 13 years for another entity he/she would be entitled to the following severance payment: total 14 years of service => [10 years X 1/3 + 4 years X 1/4] X average gross salary for three preceding months = 4.33 salaries.

In practical terms, the total full year of the employment service of each employee (which is the basis for calculation of the severance payment) is to be determined based on information contained in the working booklet of each employee (working booklet is a document that every employee needs to deliver to the employer at the beginning of the employment, and which is kept by the employer for the entire duration of the employment).

Accrued Holiday Leave - under the current practice of the labour authorities it is considered that the employer should either provide the redundant employees with the opportunity to use their accumulated annual leave before they are terminated, or compensate them for the unused days.

Criteria for Selection of Redundant Employees - in case that only certain number of employees working on the same position is to be terminated, the employer would be obliged to establish criteria for determining which employees shall be made redundant in accordance with the Law and general internal enactment.

If the employer is obliged to make the redundancy program (due to the number of employees to be made redundant) such criteria are to be set out therein and in case the employer is not obliged to make the redundancy program, such criteria would have to be set in a special resolution passed by the employer.

The Law does not provide for these criteria, but provides that the following could not be determined as criteria for selection of employees: use of sick leave, pregnancy leave, maternity leave, child care leave or special child care leave.

Other Types of Work Engagement The employer may also conclude other agreements for engagement of work force, but subject to conditions prescribed by the Labour Law. The

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main difference is that these agreements do not establish the employment relation. These agreements are: 

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Service agreement – it is concluded for performance of independent intellectual or physical work outside the scope of the employer’s business activities.

Agreement on temporary and periodic work – it can be concluded for work which by its nature does not last longer than 120 working days per calendar year. Only specific categories can be hired under this contract: unemployed and retired persons and persons working part time with another employer (only up to the full working time).

Agreement on representation or agency – it can be concluded for the purpose of sale representation or agency.

Agreement on professional training – it can be concluded with trainees or other persons that need special practice for the purpose of professional exams, specialisations or wish to be further specialized in their profession.

Agreement on additional work – an employee working full working hours may enter into agreement on additional work with another employer, for up to 1/3 of full working hours.

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Safety at Work Occupational hazards and the protection of employees’ health and safety are regulated by the Health and Safety at Work Law (the “Safety Law”). The Safety Law obliges employers to carry out adequate work safety measures and to prevent occupational diseases. Such measures may include the elimination or decrease in the levels of chemical, physical and biological occupational hazards, the substitution of hazardous manufacturing components by harmless or less hazardous ones, the carrying out of preventive measures, etc. This Law aims to provide conditions for more secure work environment, posing several new formal requirements for the employers, such as the following: 

The employer is obliged to regulate the rights and

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obligations in relation to the labour safety and health by CBA or general employer’s enactment (Rules on Workplace Health and Safety) or, if the employer has less than 10 employees, by individual employment contracts; The employer is obliged to confer the work related to labour safety and health to one or more of its employees with a relevant professional exam or to engage a legal entity or entrepreneur with a special license. The employer has to issue a written act determining the responsible person for labour safety and health. The employer can perform these activities by itself, i.e. without engaging the competent employee/legal entity/entrepreneur only in case when 1) the employer has less than 10 employees, and 2) performs activities of trade, tourism, personal services or crafts, financial/technical and business services, education, science and information, health and social protection and housing-utility services (both conditions have to be fulfilled jointly); The employer is obliged to provide a Workplace Risk Assessment Act, which should include an explanation of the working processes, the assessment of possible risk at workplace and measures for reduction and elimination of risk. Due to the required expertise this analysis can be performed only by a licensed company or entrepreneur, or an employee of the respective employer who passed the required exam (the Ministry for Labour is in charge of the relevant professional exams and licensing). Also, the medical service institution has an active role in this assessment as it determines special medical requirements for certain work positions. This legal obligation refers to all employers without exceptions and regardless of the number of employees; The employer is obliged to insure its employees from the workplace injuries,

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professional and work related illnesses; The employer is obliged to keep a special registry related to labour health and safety which should include descriptions of work positions with high risk, information on workplace injuries, etc; In case of severe, deadly or collective workplace injury, or workplace injury which disables the employee from work for more than 3 consecutive days, the employer has to report such injury to labour inspection and police within 24 hours from the occurrence of the injury.

Professional illness has to be reported within 3 days from the date the employer obtained information on the same.

Prior to commencement of business operations, the employer who performs specific activities must receive a certificate on fulfilment of all the conditions related to safety and health at the workplace.

The employer also has to inform the labour inspection at least 8 days in advance of its commencement of work and any change in technology which affects the conditions of work. Also, the employer responsible for construction and adaptation works or change of technological process which is planned to last longer than 7 days must prepare and deliver to the labour inspection a special study and to ensure that all the measures provided in such study are observed.

A company must draw up a safety curriculum for its employees and provide industrial safety training to employees. The employees’ safety skills must be tested after training. If the company cannot offer safety training by itself, then it may hire a professional industrial safety company.

Employees may only be assigned to high-risk positions after a medical examination, which examination must also be carried out periodically to determine whether the employee is still medically fit to hold such position.

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In addition to the safety of its employees, a company must also ensure the safety of any persons present on the working premises, by informing these persons about hazards and safety measures and by directing them to safe areas, etc.

Apart from this, there are also rules which regulate employees’ right to appoint their representative for health and safety, medical examinations of employees in line with the Risk Assessment Act and the Law, periodical check-ups of the equipment and workplace, etc.

Please note that there are other rules and regulations providing for additional safety obligations of employers which apply under special circumstances and which impose additional technical and safety requirements.

II. Temporary residence and work permits General Information Any foreign national intending to work in Serbia or to reside in it for some other reason (e.g. as a spouse) longer than 90 days within 6 months period must obtain temporary residence permit. Temporary residence permit enables a foreign national to leave and return to Serbia without restrictions. It is issued by the Ministry of Internal Affairs (the police).

In addition, any foreign national intending to establish employment in Serbia need to obtain the work permit. On the other hand, foreign nationals intending to work in Serbia, without establishing employment (such as directors working under the Contract on Rights and Duties, individuals performing work under the Service Contract, seconded employees etc) do not need to obtain work permit. If the foreign national is to be employed in Serbia, employment contract has to be concluded prior to submitting a request for the temporary residence permit, but the date of commencement of work cannot be prior to issuance of the work permit.

Temporary Residence Permit The first step in obtaining temporary residence permit is registration of the foreign national’s presence in Serbia within 24 hours as of his/her arrival by obtaining the so-called "white card”. The white card may either be issued by the local police (if a foreign national has leased the apartment) or by a hotel (if a foreign national stays in a hotel). If the white card is issued by the local police, the foreigner must go to the police together with his/her landlord and bring the lease agreement, whereby the landlord should have the evidence of its ownership over the leased apartment.

If a foreign national stays in a hotel, the hotel is obliged to report the foreigner’s presence to the local police and it also issues a white card.

The second step towards obtaining temporary residence permit is the application of the foreigner (at the police office) for temporary residence permit, within 90 days as of the arrival to Serbia. Visiting the police office includes having a brief conversation with the police and submitting the following documents (the list below applies to the foreign national establishing employment): 

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Opinion of the National Employment Service (the “NES”) - the documents required for obtaining this opinion from the NES include: application forms; written explanation on need of employment of the foreigner issued by the employer (just a formality); Registration Certificate of the employer; copy of passport of the foreigner; and diploma of the foreigner (certified translation to Serbian and copy of original); Registration Certificate of the company (employer) – copy, original for insight; Employment Agreement in Serbian language – a copy and original for insight; Valid passport (validity of the passport must be for at least 6 months longer than the validity of approved temporary residence permit); The white card – original for insight;

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Evidence on health insurance – original (one of the following: international health insurance policy; or individual health insurance policy purchased in Serbia; or bank’s certificate that the person in questions holds minimum EUR 1,500 at the non-residential bank account in Serbia; or written statement of the employer, written at its letterhead, signed and stamped, that the Employer will cover the medical expenses of medical treatment of the foreigner until he/she becomes registered to mandatory state health insurance); Two photos (passport size); CV in Serbian language – signed by the foreign employee; Application forms which are filled in the police; and Fee – approx. EUR 120.

In case the foreign national will not be employed in Serbia, and obtains the temporary residence permit on some other ground, the foreign national must submit the documents supporting the purpose of his/her staying in Serbia. Please contact us should you require more information in that respect.

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Having in mind that issuance of the temporary residence permit is in competence of the police which is supplemented with discretion rights, it might happen that police require some additional documents (such as the proof that the foreign national has enough funds to cover his/her costs while staying in Serbia).

Once documents are submitted, the police will issue respective temporary residence permit in approximately one month from the date of submitting the documents. If a foreign national applies for the temporary residence permit for the first time the issued permit will last up to six months, with the possibility of its extension without any restrictions (duration of each extended permit may be up to one year). Please note that application for the extension of temporary residence permit has to be submitted 30 days prior to its expiration at the latest.

Once the temporary residence permit is issued, it would be necessary to obtain the certificates on the approved temporary residence permit – issued at the same date upon payment of approx. EUR 5 fee. At least two certificates are required for further procedure of obtaining work permit and later registration of the employee before the social security funds of Serbia.

Work Permit Once the temporary residence permit is approved, the employer should apply to the NES for issuance of the work permit for the foreign employee, and submit the following documents: 

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Written explanation on need of employment of the foreigner issued, signed and stamped by the employer at the letterhead of the company (just a formality); Copy of a passport (first page and the page where temporary residence permit is stamped) and passport for insight; Certificate on issued temporary residence permit (a copy); Filled application forms; Copy of the opinion of the NES (issued for the purpose of obtaining the residence permit); Fee – approx. EUR 100 (has to be paid by the employer).

The NES usually issues the work permit within 7 - 10 days. After the work permit is issued, the foreign national is to obtain the work booklet (at the municipality office) and to be registered before the social security funds of Serbia.

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08 Public Procurement

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I.

Legal Framework and Current Status

Public procurement in the Republic of Serbia is currently regulated by the Law on Public Procurement (Official Gazette of the Republic of Serbia, no.

116/08; hereinafter: the "Law") and the relevant bylaws, which will remain in effect until 1 April 2013 when the newly enacted Law on Public Procurement (Official Gazette of the Republic of Serbia, no.

124/2012; hereinafter: the "New Law") becomes applicable.

The Law contains detailed provisions regulating the procedures for the procurement of goods, services and works by the procuring entities (i.e. government bodies, organisation, institution or other direct or indirect budget beneficiaries, public undertakings etc.), prescribing "open" procurement procedure as a general rule, as well as the situations in which other special procurement procedures (i.e. restricted procedure, negotiated procedure with a public invitation, negotiated procedure without a public invitation, design contest and low-value public procurement procedure) may be conducted. In addition, a separate section of the Law regulates the specific rules pertaining to public procurement procedures in water management, energy, mining, telecommunications and transport sectors.

Certain procurements are exempted from the rules contained in the Law, most notably the procurement of real estate, financial services in connection with the issue, sale, purchase or transfer of securities or other financial instruments, procurements defined as confidential by the decision of the competent body due to the possibility of jeopardizing national security and security of the citizens, as well as procurements financed from foreign loans to which special procedures of the relevant international organizations apply.

Although the Law formally envisages the principles of economical and efficient use of public funds, ensuring competition among the bidders, transparency of public procurement procedure and equality of bidders, as foundations on which the entire public procurement system should be built on, and contains detailed rules vesting the competent bodies (the Ministry of Finance, the Public

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Procurement Office, the Republic Commission for the Protection of Rights in Public Procurement Procedures etc.) with authorities to supervise the implementation of its provisions, its effects in practice have been quite unsatisfactory.

The key area in which the Law failed to satisfy in practice is, as expected, the prevention of corruption and creation of a system in which public funds would be used in the public interest only, and not for the benefit of individuals who abuse the procurement system's weaknesses on various levels. According to official data gathered for 2011, Serbia spends approximately EUR 2.7 billion in public procurement annually, which amounts to 9% of its GDP. It is estimated that 25% of that figure is a direct result of corruption involved in the procedures, artificially eliminating competition and inflating the prices for which the procurement contracts are concluded. Even more staggering is the fact that the level of corruption seems to have been increasing each year - which is well demonstrated by the elimination of competition in terms of a change in the number of bidders on open tenders: in 2003 there were on average 8.5 bids for every tender, whereas in the first half of 2011 the average was only 3.5.

The mechanisms used to circumvent the legal requirements to secure competition and transparency in the procurement process are numerous, but the ones most often used include "tailoring" the participation conditions in a way that eliminates most of the potential bidders, avoiding an "open" procedure by declaring the particular procurement as urgent (which is prescribed as one of the cases when a "negotiated procedure without a public invitation" may be conducted) and hence organizing in advance the award of a contract to a specific bidder (while other submitted bids create the illusion of regularity), as well as the subsequent conclusion of annexes for additional work and increased prices on the basis of the initial contract awarded. Although these (as well as other) mechanisms are formally forbidden under the Law and should have been sanctioned, in most cases so far the supervising bodies have been either incapable or unwilling to investigate and prosecute these irregularities.

II.

Solutions Introduced by the New Law

The main reasons for the enactment of the New Law were to address the aforesaid issues and to implement the relevant public procurement principles contained in the relevant EU legislation. The New Law generally follows the same path as set forth by the key procurement principles contained in the current Law, but a further detailed elaboration through specific institutes and solutions indicates that significant improvements could be expected in ensuring transparency, competition, efficiency end equality of bidders, which should hopefully result in the decrease of corruption levels and hence in the better use of public funds.

In comparison to the Law, the New Law introduces additional specific public procurement procedures and institutes (e.g. "competitive dialogue", as well as "framework agreement", "electronic auction", "dynamic procurement system", etc.), and also modifies the conditions for the use of certain procedures. In addition, the New Law now has a separate section regulating the specific rules pertaining to public procurement, procedure in water management, energy, transport and postal services sectors, but also a separate section dealing with the specifics of procurements in the area of defence and security. Additionally, it should be noted that procurement of real estate is no longer exempted from the obligation to conduct a public procurement procedure.

One of the key improvements in the New Law presents the obligation for the procuring entities to request, prior to the initiation of a "negotiated procedure without a public invitation" (due to reasons of urgency, additional delivery of goods from the same bidder, etc.), the opinion from the Public Procurement Office on the justifiability of using this procedure. This should result in a significant decrease of the number of procedures conducted on the basis of fabricated urgency, which practically became the general practice during the previous years, instead of a mere exception to the "open" procedure.

Transparency A number of provisions in the New Law are stipulated with the intention to increase transparency in the

procedure. For instance, all communication during and in relation to the public procedure must be made in writing only - by mail, e-mail or fax, in order to enable the keeping of all relevant data.

Additionally, public procurement notices (including e.g. prior notification on the intention to conduct a public procurement procedure, the invitation for the submission of bids, the notice on the conclusion of a public procurement contract, the notice on the termination of the public procurement procedure, etc.) must be published on the Public Procurement Portal and on the website of the procuring entity.

Also, procuring entities are now required to adopt a detailed procurement plan by 31 January for the current year (changes to this plan are allowed only in case of a budget revision or amendment of the financial plan), as well as to prepare a report on the plan's implementation by 31 March for the previous year, and is obliged to submit this plan and report to the Public Procurement Office within 10 days.

Further to the above, it should be noted that the Government determines the list of procuring entities (i.e. the entities that are required to apply the New Law) for each budget year, and publishes it in the Official Gazette of the Republic of Serbia and on the Public Procurement Portal. Nevertheless, all entities which fall under the definition of a procuring entity are required to apply this law, irrespective of the fact whether they are listed or not. In addition, the New Law introduces the Register of Bidders, which is maintained by the Business Registers Agency and contains the list of all bidders which have already proven that they fulfil the prescribed general procurement participation conditions - these bidders do not have to submit the evidence of the same again each time they participate in a public procurement, which significantly simplifies the procedure.

Prevention of Corruption and Relation with Criminal Offences In order to prevent corruption as much as possible, especially with respect to procurements of significant value, the New Law sets forth that procuring entities with estimated annual value of public procurements above RSD 1 billion (approx. EUR 9

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million) must pass an internal anticorruption plan, as well as form a special department for control of public procurements planning and execution. Furthermore, for public procurements of a value of which exceeds the aforesaid figure, a civil supervisor (an independent expert in the area of public procurement) shall be appointed by the Public Procurement Office in order to monitor the procedure.

In addition, the New Law prescribes special provisions which provide adequate protection for whistle blowers reporting irregularities in public procurement procedures, stipulating also that any person engaged in public procurement affairs or any other person engaged by the bidder, as well as any interested person which has information on the existence of corruption in public procurement, is required to report this information to the authorities.

The New Law also contains the provisions forbidding the conclusion of a public procurement contract in case there is a conflict of interest between the representatives of the procuring entity and the bidder.

As far as the general procurement participation conditions are concerned, the New Law specifies an additional requirement which is not present in the Law: the bidder must prove that he and his legal representative have not been convicted of a criminal offense as a member of an organized criminal group, or sentenced for criminal offences against the economy or environment, receiving or giving bribes, or fraud.

Parallel with the enactment of the New Law, a new criminal offence "abuse in connection with public procurement" has been introduced in the Criminal Code, prohibiting the responsible person in a legal entity or an entrepreneur from submitting a bid based on false data, illegally negotiating with other bidders, or undertaking other unlawful acts with the intent to influence the decision of the procuring entity. The same offence prohibits the responsible or official person within the procuring entity from violating the law or other regulations regulating public procurement and thus causing damage to public funds by way of taking advantage of his position or authority, exceeding the limits of his powers, or by non-performing his official duty. The prescribed

punishment for this criminal offence is imprisonment from six months to five years, or from one to ten years in case the value of the particular procurement exceeds RSD 150 million (approx. EUR 1.3 million).

Centralisation of Public Procurements Another important novelty is the centralisation of the procurement of certain goods (e.g. office and computer supplies, detergent and cleaners, food and groceries, vehicles and fuel, computer hardware, software and licenses, etc.), services (e.g. maintenance and repair, transport, computer services, architectural and engineering services, building cleaning and property management services, etc.), and works (for which a construction permit is not issued pursuant to the relevant law).

Namely, with the aim of lowering the procurement costs, the New Law sets forth that the Administration for Joint Services of the Republic Bodies conducts the centralised procurement of the above goods, services and works for the needs of state bodies and organisations, including judiciary bodies, on the basis of their procurement plans and specifications of the public procurement subjects.

Advantages for Serbian Bidders and for Bidders Offering Goods of Serbian Origin It is important to notice that the New Law also provides an advantage for Serbian bidders and for bidders offering goods of Serbian origin, ranging from 10-20% (depending on the criterion for selection of the bids, and on the fact whether the procurement pertains to goods, services or works) in comparison to bidders and bids which do not fulfil this condition. However, this advantage is subject to the terms of the Central European Free Trade Agreement (CEFTA 2006) and Stabilization and Association Agreement between the European Communities and their member states and the Republic of Serbia, in case the bidders from countries which are signatories of these agreements participate in the procurement procedure.

Supervision of the New Law Finally, in order to ensure that application of the detailed provisions regulating the conduct of public procurement is efficiently monitored, the New Law vests significant

powers to the bodies in charge of the law's supervision and protection of rights.

For example, the Republic Commission for the Protection of Rights in Public Procurement Procedures, as the body to which the interested parties submit requests for the protection of their rights in case of alleged infringements of the public procurement procedure, is now entitled to impose fines to the procuring entity and its responsible person, to annul public procurement contracts and to conduct misdemeanour proceedings in the first instance.

Also, the New Law introduces the power of the Commission for the

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Protection of Competition to prohibit any bidder from participating in public procurement procedures for a period of up to two years if it establishes that the bidder has violated competition in a public procurement procedure, and also prescribes the situations in which this commission must be informed on the possibility of violation of competition.

Significant supervision competences are also given to the Public Procurement Office and the State Audit Institution.

Expectations from the New Law Although it is a general impression that the New Law introduces significant and much needed improvements in the regulation of this sensitive area, it yet remains to be seen to what extent will its practical implementation follow this path of opportunities. As expected, its loopholes and weak spots will be tested in the near future by the participants in public procurement procedures, and hence the ability and willingness of the authorities to prevent, detect and prosecute the violations will determine whether the New Law will be a long-awaited success, or just another law that did not live up to the public's legitimate expectations.

09 Real Estate   48

Legal regime regarding real estate The Serbian legal regime recognises private ownership of real estate including land and buildings.

Serbia’s 2006 Constitution 5, together with the Law on Basics of Property Relations 6 (1980, as amended thereafter) (the "Property Law"), the Law on Planning and Construction 7 (2009) (the "Planning Law") and other laws, uphold and protect the right to own private property.

Real estate registries In the Republic of Serbia, data on real properties is maintained in the publicly available Cadastral Registry.

After several years, the establishment of the Cadastral Registry is almost completed and at this moment the Cadastral Registry is established for 99% of the territory in Serbia. In the future, it will be the only registry maintaining data on immovable properties in Serbia. The Cadastral Registry contains both "technical" and "legal" data on immovable properties.

A small part of the territory the Republic of Serbia remains where the Cadastral Registry has still not been developed and data on these immovable properties is maintained in two old types of public registries: (i) the Land Book Registry and (ii) the Cadastre of Land. The Cadastre of Land is a technical record registry, and does not contain relevant legal data. In contrast, the Land Book Registry is a reliable record of legally relevant data regarding real estate.

The Cadastral Registry is being created from data contained in these two types of registries and once the Cadastral Registry is created in a particular cadastral municipality, the Cadastre of Land and the Land Book Registry cease to exist.

5

Official Gazette of the Republic of Serbia no. 98/2006.

Registration of title In general, ownership rights over land or buildings are generally formally created upon registration of the holder's interest in the relevant registry (Land Book Registry of Cadastre of Real Estate). Acquirers will be deemed to have knowledge of all matters which are registered. In practice it is considered acceptable to acquire a title from an unregistered owner and the registries will register such title, if there is sufficient evidence linking the acquirer with the currently registered owner as the previous transferor.

The ownership transfer document (e.g. the sale and purchase agreement, swap agreement and donation agreement) must be in written form, with signatures authenticated before the court and it must contain explicit consent of the seller that the buyer may be registered as the owner (clausula intabulandi).

Rights of foreigners to acquire real estate A foreign entity can purchase construction land and buildings in the Republic of Serbia necessary for its business operations, subject to reciprocity i.e. the terms set out in treaties with Serbia and the country of the foreign entity. In practice, the foreign entity should register some form of legal presence in the Republic of Serbia (e.g. subsidiary, representative office, branch office, etc.) in order to acquire real estate directly. Foreigners are explicitly banned from acquiring ownership of agricultural land.

However, if a foreign entity establishes a subsidiary in the Republic of Serbia, such subsidiary is treated equally to any other local entity acquiring land and buildings, regardless of the origin of the founder or its controlling share. Therefore, foreign persons and entities may indirectly own real estate in the Republic of Serbia through their Serbian subsidiaries without any distinguishing limitations.

6

Official Herald of the SFRY nos. 6/80 and 36/90, Official Herald of the SRY no.

29/96 and Official Gazette of the Republic of Serbia no. 115/2005.

7

Official Gazette of the Republic of Serbia nos. 72/2009, 81/2009, 64/2010 and 24/2011.

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Statutory pre-emption rights When land and buildings are privately owned by two or more individuals, the co-owner is obliged to offer its share of the land or

building to the other co-owner first (or majority co-owner if there are more than two co-owners) under the same terms and conditions as offered to a third party acquirer. Transfer agreements breaching this statutory pre-emption right are invalid and may be challenged within 2 years after execution. A similar statutory pre-emption right exists for agricultural land in favour of owners of neighbouring land.

Status of construction land General In September 2009 Serbia introduced the Planning Law which significantly reformed the Serbian real estate regulatory framework. Most notably, the Planning Law, for the first time in Serbia, clearly allows private ownership of any type of construction land. To that effect, the Planning Law introduced provisions that govern conversion of existing land use rights and land lease rights over construction land to ownership rights differentiating between conversion free of charge and conversion with compensation cases.

Furthermore, the Planning Law allows the sale of state owned land through a public bidding procedure.

In accordance with the former law, only a long term land lease (99-years) is possible.

Similarly to the former law, the Planning Law distinguishes between developed and undeveloped construction land. Developed construction land is land on which permanent structures have been built in compliance with the law.

Undeveloped construction land is: (i) land upon which no buildings have been constructed; (ii) land upon which illegal buildings have been built (erected without the necessary permits); and (iii) land upon which only buildings that are by nature temporary, have been developed.

The difference between developed and undeveloped construction land is relevant when it comes to the transfer of land use rights. For example, land use rights on undeveloped construction land in principle, cannot be transferred, while land use rights on developed construction land is freely transferable along with the sale of existing objects. Furthermore, in some cases the difference between developed and undeveloped land is

relevant to the conversion of land use rights to ownership rights.

ownership free of charge, which brings the case to the Ministry of Spatial Planning as the second instance. Public Attorneys most likely do this as a safeguard, regardless of this being unsubstantiated in the majority of cases due to the fact that conversion is a new feature of Serbian law and directly affects land that has been so far state owned.

Conversion of land use rights to ownership rights One of the salient features of the Planning Law is the goal of narrowing outdated and country specific land use rights to a minimum. This is implemented via provisions that govern the conversion of land use rights to ownership rights.

The Planning Law differentiates a “conversion free of charge” from a “conversion with compensation: (a) Conversion free of charge - the Planning Law stipulates a "conversion free of charge" in favour of the following: 

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





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Registered holders of land use right over state owned undeveloped and developed construction land, except in cases when it is by law stipulated that for such entities conversion with compensation applies.

Registered holders of land lease rights over developed construction land, conditional upon the full payment of rent for the entire lease period.

Owners of structures that are not registered as holders of land use rights (e.g. if the registered titleholder of the land is a municipality or state enterprise). In this case the land required for the regular use of the structure has to be determined prior to conversion.

Entities that in accordance with separate laws, in public auction procedure and for the market price, acquired ownership of a building together with the pertaining land use rights, before signing the agreement on the sale of assets or part thereof in bankruptcy or enforcement procedures, until the date when the law came into force.

According to the Planning Law, the procedure for the registration of a conversion without charge should be rather simple and involves submitting a request for conversion to the competent real estate registry.

However, there is a tendency for Public Attorneys to challenge such resolutions on allowing conversion to

(b) Conversion with compensation the Planning Law stipulates that "conversion with compensation" shall apply to the following: 







Legal entities to which privatization, bankruptcy or enforcement rules apply (including their successors) where such entities are registered as holders of land use rights.

Registered holders of land use rights on undeveloped construction land granted for the purpose of construction.

For these entities the right to apply for conversion was limited and expired on 21 October 2011.

Registered holders of longterm land lease rights over state owned undeveloped construction land, who acquired a long term lease prior to the enactment of the new Law on Planning and Construction (September 2009), conditional on having paid the rent in full; Companies and other legal entities, to which provisions of bilateral treaties and Annex G to the Agreement on Succession are applicable, may apply for conversion with compensation following the procedure for the return of property.

Generally, the Planning Law does not limit the right to pursue conversion by stipulating deadlines (save for entities from point (b) (ii) above). On the other hand, according to the Planning Law, construction permits cannot be issued on the basis of land use rights. Only land lease rights or ownership provides sufficient title for obtaining a construction permit and the development of land. By stipulating this, the law

prompts the holders of land use rights to convert it into ownership. Although the law recognizes the existence of land use rights, its objective is that the right to land usage becomes a historical and outdated category and ceases to be utilised.

Construction process Urban planning As of September 2009, when the Planning Law was introduced, the issuance of building permits (i.e. the construction permit and location permit considered jointly) is conditional on the existence of a sufficiently detailed urban plan.

Accordingly, the authorities are no longer permitted to determine urban conditions for development on a case by case basis, as was once the case.

Because of the lack of such plans for significant parts of Serbia (including the territory of Belgrade and other major cities) the provisions of the new Planning Law are widely perceived as a difficult issue to address in the property regime in Serbia. However, there have been certain improvements in this respect and currently the City of Belgrade is in the process of amending the General Urban plan and adopting the Plan of General Regulation for the entire territory of the City of Belgrade.

Building permits To commence construction works, the developer must obtain approval for construction ("Construction Permit") from the relevant authorities.

The Construction Permit is issued by the ministry or relevant municipality on the basis of various documents including the location permit, approved main project and evidence of title to the underlying land (i.e. land lease rights or ownership rights).

Notably, land use rights are not considered sufficient title to the land, except in certain cases explicitly specified by the Planning Law. Accordingly, holders of land use rights must first convert their rights of use to ownership in order to obtain the necessary permits.

In practice it may take a few months or even a year, instead of the statutory 8 days, for a Construction Permit to be issued. A Construction Permit ceases to be valid if within

two (2) years as of its issuance, works are not commenced. A Construction Permit contains a deadline for the completion of construction which begins upon the notification of the commencement of works to the issuing authority and the competent construction inspection. A Construction Permit also ceases to be valid in cases where an investor does not complete the construction and does not obtain a usage permit for the new structure within five (5) years as of the issuance of the Construction Permit. An additional two year extension may be granted if the investor proves that a minimum of 80% has been constructed. Failure to observe deadlines for completion trigger further negative consequences including that the investor (or an affiliate company) may not reapply for the issuance of a construction permit for that structure.

Once the building is completed, the competent technical commission is required to assess if the building has been completed in accordance with the technical designs, permits and consents. Assuming that there are no objections during the technical assessment, a so-called technical acceptance certificate is issued. A usage permit should be issued within (7) seven days after the issuance of the technical acceptance certificate.

However, in practice, this may take significantly more time than prescribed by the law. Generally, the receipt of the usage permit is a precondition for the use of the building and its registration in the relevant registry.

Illegal construction and legalisation It is a rather common situation in Serbia that structures were developed without requisite construction permits. The developers of these so called “illegal structures” where given a chance under the law to “legalize” their objects i.e. subsequently apply for issuance of construction and use permits.

The Planning Law allowed the possibility to solve the issue of illegal structures by way of commencement of a legalisation procedure (completion of which shall consume unknown time and expense). The statutory 6 month deadline for filing the request for legalisation of illegally constructed structures expired on 11 March 2010.

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In cases where legalisation was not initiated (likewise in cases with a negative outcome of legalisation procedures) there is a risk that construction inspection may order demolition of illegal structures.

Recently the new Serbian Government has adopted the draft of the new Law on Legalisation.

According to publicly available information, this Law should be adopted in the near future, possibly even by the end of February 2013.

According to the draft of the law the procedure for legalization of objects should be simplified and faster.

Establishing mortgages There is a duality of legal regimes for mortgages in the Republic of Serbia.

Namely, the law differentiates between court enforceable mortgages and the so called out-of court enforceable mortgages. An out of court mortgage was introduced in 2005 by the Mortgage Law 8. In the past, mortgages were enforced solely through court procedures, which today exist in parallel with out of court mortgage enforcement. Out of court mortgages should provide for a more efficient enforcement procedure as claimants are authorized, under certain conditions, to independently sell the mortgaged properties, which is not the case with mortgages created in court procedures where enforcement procedures involve a number of formalities.

Until enactment of the Mortgage Law, one could establish a mortgage over property in the Republic of Serbia which was constructed and registered as such in the relevant real estate registry. However, the Mortgage Law provides for the possibility to establish a mortgage over buildings undergoing construction. Such mortgages can be established and registered after obtaining an enforceable/final Construction Permit. The establishment of a mortgage over a building undergoing construction is a security which is regularly used by the banks in financing construction projects. Once the structure is fully constructed and registered in the real estate registry, registration of the mortgage over such constructed structures is performed 8

Official Gazette of the Republic of Serbia no. 115/2005.

simultaneously (unless the secured obligations are settled in the meantime and the mortgage is deleted). Mortgages are registered on the basis of relevant documents (e.g. mortgage agreement) which, among other things, have to contain a clear statement of the pledgor allowing the establishment of a mortgage over certain property.

Expropriation A property may be expropriated or ownership restricted if so required in the public interest. The public interest for expropriation may be determined by the law or by a Government decree for specific development projects in the areas of: education, health care, social welfare, culture, water distribution, sports, traffic, energy and utility infrastructure, state, provincial and municipal institutions, defence, environment and disaster protection, mineral resources exploitation as well as public housing projects. If expropriation is exercised, compensation equivalent to at least the market price is payable.

Restitution In October 2011 the Republic of Serbia enacted the long expected Law on Returning of Seized Property and Indemnification 9 (“Restitution Law”). Generally, the Restitution Law regulates the conditions, manner and procedures for returning of and compensation for property that was taken from individuals and certain legal entities after 9 March 1945 on the territory of the Republic of Serbia and then transferred to the national, state, social or cooperative property on the basis of agrarian reform, nationalization, sequestration and other regulations. The Restitution Law provisions apply to land, buildings and movable assets as well as to companies that were seized in the past.

The in-kind restitution is set as the main principle. Where it is not possible, compensation by the Republic of Serbia through treasury bonds or in cash is applied. At the same time there is a principle that the rights of the rightful titleholders, who acquired their title over nationalized 9

Official Gazette of the Republic of Serbia no. 72/2011.

property duly in accordance with the applicable laws, cannot be harmed.

The maximum amount that one may receive as compensation is limited to 500,000 EUR. Provisions of Restitution Law related to construction land are probably the most complex, as they interfere with the legal regime of construction land set in the Planning Law. The procedure for returning seized property and indemnification is conducted before the Restitution Agency (as the first instance body) and the Ministry for Finance (as the second instance body where decisions of the Restitution Agency are challenged). On the 6 February 2012, the Restitution Agency announced a public call for the submission of requests for restitution. Requests for restitution can be submitted for a 2 year period commencing 1 March 2012.

It seems that the restitution process is effective and according to official web site of Restitution Agency in first year, the Restitution Agency has issued approximately 500 resolutions on returning of real properties to former owners.

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karanovic-nikolic.com/practice/real-estate

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10 Tax

◌ 54

Tax implications of operations in Serbia Main types of taxes in Serbia are:     

corporate income tax (CIT), Withholding tax (WHT), value added tax (VAT), personal income tax, property taxes.

I.

Corporate Income Tax

accordance with the regulations issued on the basis of the CIT Law, prescribing the content of documentation and method for application of transfer pricing methods.

Thin capitalization Deductibility of interest from relatedparty loans is subject to limitations both under the transfer pricing rules and under the thin capitalization rules. For companies outside the financial sector the limitation is set to the debt-to-equity ratio of 4:1 (10:1 for companies in financial sector).

Persons subject to tax Residents of Serbia, are subject to CIT on their world-wide income.

Non-residents are subject to CIT if they have a permanent establishment in Serbia.

Resident is a legal entity which is registered or whose place of real management and control is in Serbia.

Tax rate The CIT rate is flat 15%.

Tax base The taxable profit of resident taxpayers is established on the basis of profit declared by the taxpayer in his profit and loss account adjusted in accordance with the rules of CIT Law. Adjustments are primarily related to specific conditions for deductibility of expenses declared in the P&L for tax purposes (nondocumented expenses, expenses for non-business purposes, for marketing, for business entertainment, for cultural, sport, educational purposes, etc.).

Transfer pricing Serbian transfer pricing rules are aligned with the OECD Transfer Pricing Guidelines. Serbian taxpayers are allowed to use all transfer pricing methods for assessment of arm’s length prices allowed under the OECD Transfer Pricing Guidelines.

Starting from 2013, the CIT Law introduced the obligation of all taxpayers to prepare and submit the mandatory transfer pricing documentation along with their annual CIT return. This documentation has to be prepared in

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Tax depreciation An asset may be depreciated for tax purposes if it is recognized as a fixed asset under IAS and subject to the condition that its useful life is longer than one year. Goodwill cannot be depreciated.

All assets are categorized in five depreciation groups with different rates and methods of depreciation for tax purposes. Tax depreciation rates range from 2.5% (for immoveable assets) to 30% (for IT equipment).

Immoveable assets are depreciated using a proportional method, and all other assets under the declining method.

Tax loss carry-forward Tax losses may be carried forward and offset against taxable profit in the future tax periods, but not more than 5 years.

Capital gains Capital gains may result from the disposal of immoveable assets, shares, IP rights and investment units. Capital gains may be offset only with capital losses (not with business losses) incurred in the same year. Capital losses not used in the current year may be carried forward and offset against capital gains in the following 5 years.

Tax incentives The only tax incentive provided by the CIT Law is the tax credit for investment in new fixed assets. This incentive is available to taxpayers who invest more than RSD 1 billion

(app. EUR 8.5 mil.) in new fixed assets and employs more than 100 new employees during the period of investment. Such taxpayer has the right to the reduction of tax proportionally to the participation of new fixed assets in total fixed assets, for the period of ten years. The tax credit starts to apply in the year in which the taxpayer starts to generate taxable profit.

Administration and payment of CIT Corporate income tax is paid on the basis of the annual tax balance and tax return in which the taxpayer should declare the amount of its taxable profits (tax balance) and amount of tax due (tax return). The deadline for submission of the tax balance and tax return is 180 days starting from the end of the year for which the tax is assessed, (end of June of the current year for the preceding year).

CIT is paid in advance, in monthly (provisional) instalments, calculated on the basis of the amount of tax declared in the previous year.

II.

Withholding tax

Under the CIT Law, dividend, interest, royalties, and income from rent of moveable and immoveable property located in Serbia, are subject to WHT. WHT is levied at the flat 20% rate. Capital gains generated by non-resident legal persons from the sale of assets in Serbia are also subject to tax at a 20% tax rate, provided that the non-resident taxpayer is required to pay tax by himself (in this case tax is not paid on a WHT basis).

Income paid to so-called tax havens (as defined by the Serbian Ministry of Finance) is subject different WHT regime: WHT is payable at an increased 25% rate and is extended to income from services.

Withholding tax may be eliminated or reduced on the basis of a double tax treaty (DTT) between Serbia and the recipient’s country of residence.

Serbia has more than 50 DTTs.

Value added tax The Serbian VAT system is modelled after the EU VAT directives, and the majority of general VAT principles applicable throughout the EU apply also in Serbia.

VAT is regulated by the Law on Value Added Tax (VAT Law) and a number of VAT regulations which prescribe detailed rules relevant for application of certain specific aspects of VAT.

utility services, natural gas, etc. are taxed at a reduced VAT rate of 10%.

Exempt supplies The VAT Law provides two categories of exempt supplies: exemptions with the right to deduction of input VAT (0%- rated supplies) and exemptions without the right to deduct input VAT (exempt supplies).

Deduction of input VAT Taxable persons A taxable person is an entity (legal and natural person) who independently carries out the supply of goods and services, within his business activity.

Only registered VAT taxpayers are required to pay VAT on their supplies of goods and services, and have the right to deduct input VAT charged to them by their suppliers.

Taxable persons whose taxable turnover in a 12-months period exceeds, or will exceed, RSD 8,000,000 (app. EUR 70,000) are required to register for VAT. Entities whose taxable turnover does not exceed this threshold may register for VAT.

Taxable transactions Under the VAT Law, taxable transactions include: 



supply of goods and services by a taxable person acting as such, for consideration, in Serbia and import of goods in Serbia.

Certain supplies, such as “transfer of business as going concern”, are out of scope of VAT.

Registered VAT taxpayers are entitled to deduct their input VAT from the output VAT, if input supplies are used for purpose of taxable output turnover and taxpayer holds a proper invoice of the supplier.

Tax rate The standard VAT rate is 20%.

Certain goods and services, such as groceries, medicines, newspapers,

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In addition to tax on specific types of income paid during the year, natural persons whose total taxable income generated in a calendar year exceeds three times the annual average salary in Serbia (for 2013 app. EUR 18,000) are required to pay annual income tax.

Tax base for annual income tax is equal to the sum of all income generated during the year (with certain exemptions such as dividends and capital gains) reduced by a nontaxable amount (three times the average salary) and standard deductions for the taxpayer and for members of the taxpayer’s family).

Tax rates for annual income tax are progressive:

Administration and payment of VAT Deadline for the submission of VAT return and payment of VAT for taxpayers whose VAT period is a calendar month (taxpayers with turnover exceeding RSD 50 million (app. EUR 430,000)) is the 15th of the month for the previous month.

Taxpayers whose VAT period is a calendar quarter (with turnover below RSD 50 million), have to file return and pay VAT by the 20th of the current month for the preceding quarter.

Registered VAT taxpayers are required to issue invoices for their supplies in accordance with the formal invoicing rules prescribed by the VAT Law and maintain prescribed VAT records (book of incoming and outgoing invoices).

III.

Personal Income Tax

Tax base Taxable amount (tax base) is consideration obtained or to be obtained by the supplier from the customer in return for the supply.

property, service income, income from intellectual property rights, etc.

At the end of the year the sum of all income generated during the year is taxed by the annual income tax.

Serbian system of personal income tax is a combination of so-called cedular and synthetic system of taxation. Different types of income are first taxed separately during the year, so that applicable tax rates and rules governing assessment of tax base differ depending on the type of income. Specific rules are prescribed for taxation of salaries, income from capital (capital gains, dividend, interest), income from immoveable





10% for income up to six times the average annual salary in Serbia (for 2013, app. EUR 36,000), 15% for income exceeding six times the average annual salary.

Payroll taxes: salary tax and social security contributions Serbian employers are required to pay salary tax and social security contributions on salaries paid to their employees, on the withholding basis.

Salary tax is levied at 10% tax rate applicable on the gross amount of salary (decreased for non-taxable amount of app. EUR 100).

Salaries are subject to the obligation to pay contributions for mandatory social security insurance. The rates of social security contributions due on salaries are as follows:   

IV.

Pension and disability insurance: 26%, Health insurance: 10.3%, Insurance against unemployment: 1.5%.

Property taxes

Property transfer tax (PTT) PTT is a one-off tax due on the transfer against consideration of certain specific types of assets – immoveable assets, intellectual

property rights, and used motor vehicles. The PTT applies only if the sale of an asset is not subject to VAT. PTT is levied at the rate of 2.5% on the tax base which is equal to the agreed price or the market price of an asset if the Tax Authority finds that the agreed price is lower than the market price.

Property tax Owners of immoveable assets in Serbia have to pay tax on immoveable property to the municipality on whose territory the asset is located. The applicable tax rate varies depending on the municipality, but cannot exceed 0.4% for corporate taxpayers. The tax base is the market value of immoveable property.

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V.

Para-fiscal charges

Until recently, companies operating in Serbia were subject to a number of para-fiscal charges levied on state and local level. Number and amounts of these charges were quite often a significant burden on operations of the companies. However, by legislative changes in 2012, vast majority of these charges (almost 150 of them) was terminated, decreased or limited.

Reach of para-fiscal charges depends on the place of incorporation, type of activities, financial position of companies and other factors. The most common charge is fee for

display of company’s name. The amount of this fee varies from municipality to municipality, provided that maximum amount is limited by the law. As a rule, the amounts of this fee do not represent significant burden on company’s operations and finances (save in case of specific lucrative industries such as energy, tobacco or gambling).

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