Personally, I am not 100% convinced of the effectiveness of State subsidies for direct investments. However, they are a reality and represent one of the main reasons why foreign investors come to Serbia – so it’s good to know the rules which govern them. Especially since such subsidies can also invoke the application of EU law.
More than half a billion euros of awarded subsidies
Since 2006, Serbia has awarded more than half a billion euros in subsidies to (predominantly foreign) investors. Out of the awarded sum, around EUR 300 million has been actually paid to investors. The total estimated value of the subsidized projects is EUR 2.2 billion.
Annually, the Serbian budget sets aside 50-60 million euros for direct subsidies to investors. This year’s budget was not an exception and it can be expected that the budget for 2018 will remain on the same course.
The conditions for the award of subsidies are laid down in a Government decree
The conditions under which an investor (be it foreign or domestic) can receive subsidies from the State are laid down in a Government decree which is amended from time to time. The currently applicable decree dates from late 2016.
Investors can get funds for projects in the manufacturing sector and in the sector of services which can be the subject of international trade. Certain sectors of the economy are expressly excluded from the scope of the incentives.
In order to apply for funds, the investor must submit a formal application to the competent government agency. Among other documents, the investor must provide a business plan for the project for which it seeks funding.
The maximum intensity of State subsidies compared to the total amount of justified costs depends on the size of the undertaking receiving the subsidies. Specifically, the maximum amounts of subsidies are:
- for large undertakings: up to 50% of the justified costs;
- for medium undertakings: up to 60% of the justified costs;
- for small undertakings: up to 70% of the justified costs.
The duration of the subsidized projects can generally be up to three years. Exceptionally, if the investor so requests, the subsidies can spread over a maximum period of five years. Even more exceptionally, the deadline for the realization of projects of special significance can be up to ten years.
The funds can be awarded for justified costs relating to:
- the gross salaries of workers and
- investment in assets (tangible and intangible alike).
Under certain condition, lease expenses can also represent justified costs for the purpose of subsidies.
The maximum amounts of the subsidies depend on the level of development of the municipality where the investment is taking place. There are additional subsidies for labor-intensive projects (creating more than 200 new jobs) and for projects of special significance for the Republic of Serbia.
Subsidies must be cleared by the State aid watchdog – and EU law may apply
Since 2010, Serbia has had a State aid regime which to a large extent follows the EU model. There is also a special body which overlooks the implementation of State aid rules – the Commission for the Control of State Aid.
Apart from de minimis aid, all State support must be notified to the Commission and the Commission must clear it before the aid is awarded. If aid is awarded unlawfully, the Commission can order that such aid be reimbursed within ten years from the award.
Also, based on the EU-Serbia Stabilization and Association Agreement, in case the award of aid may affect trade between Serbia and the EU, the Commission must assess the aid based on the competition rules applicable in the EU. This potential effect on trade seems to exist in the case of investment subsidies, since in attracting investors Serbia competes with other countries in the region – some of which are already in the EU.