State subsidies and incentives in Serbia – resolving dilemmas

“Are there any subsidies/incentives that we can receive to facilitate our investment?” is among the most common questions that investors raise in consideration of a possible Greenfield investment in Serbia.

On the other hand, in mass media and especially on social networks, people repeatedly complain and object that “a foreign company X” received millions of EUR for its investment. These complaints amplify particularly if such company X decides to close its operations in Serbia, which is a reason to question justification of granted subsidies/incentives to a specific investor, but not by all means to dismiss the entire concept in a populist fashion.

We will try to shortly put a light on this matter, and notably on some of the main dilemmas in that respect: (i) why the subsidies are offered in the first place; (ii) whether only foreign investors are eligible for the state subsidies; (iii) what are the incentives granted to investors in Serbia; (iv) who is competent for deciding on granting subsidies/incentives.

Why are the subsidies offered in the first place?

Concept of subsidies to investors is not a Serbian invention. This concept exists for many, many years in different forms in many countries around the world, whereas it is predominant in countries in development as the main tool to attract especially the biggest multinational companies. Numerous EU countries (e.g. Hungary, Slovakia, Poland, Romania and others) have similar concept to the one in Serbia, and it is not a rarity to hear that several countries are in “a battle” for a certain investor. This means that the investor is considering state subsidies/incentives framework in several countries (along other criteria such as the overall political climate in the country, developed infrastructure etc.) before reaching its decision to allocate a big Greenfield investment to a certain territory. Whether the general public likes it or not, thus a stage of contest between different countries in the region is set and Serbia, at its level of development, simply cannot afford not to participate in the contest.

Whether only foreign investors are eligible for the state subsidies?

This is one of the biggest delusions that are still present not only in the perspective of the general public, but with local Serbian companies as well.

There is absolutely no advantage for either foreign or domestic companies in applying/receiving state subsidies/incentives. Legal framework in Serbia lists criteria (in terms of eligible industries, requirements regarding employment, amount of investment, place of the investment etc.) which if met by any company (either local or foreign) allows them to apply and further on receive state subsidies/incentives.

Furthermore, we point out that not only the “initial” Greenfield investment is eligible for the incentives, but also any further investments (e.g. installation of new equipment, construction of additional facilities and warehouses etc.) in the already existing project subject to meeting the criteria set out in the legal framework.

What are the incentives granted to investors in Serbia?

Structure and the amount of incentives/subsidies granted vary depending of many factors, such as: specific industry concerned, development of the region where the investment is planned, amount of investments, number of people to be employed, whether the project is of national importance etc.

Notwithstanding the said, the types of main incentives are always the same: (i) cash incentives per employee; (ii) cash incentives for fixed assets and (iii) tax incentives.

Who is competent for deciding on granting incentives?

In the process of analyzing the project, decision making on grating incentives as well as follow up and monitoring of the development of the project and granted incentives, several participants are included on the side of the state, such as the Development Agency of Serbia, Ministry of Finance, Ministry of Economy, State Aid Commission and others.

The key address is the Development Agency of Serbia being involved in all phases and also being the first point of contact for all investors exploring the possibility to invest in Serbia.

Unlike the justified critics that the business community has towards the governmental bodies for their often slow pace and rigidness, hereby we want to praise the whole chain of involved parties on the side of the government and notably the Development Agency of Serbia, as their proactivity and devotion are recognized by the potential investors as highly professional. From the day a potential investor expresses its interest in investing in Serbia, initial meeting with the Development Agency of Serbia is organized in a matter of days, whereas the entire process is completed in a very reasonable timeframe.

To conclude:

• State incentives/subsidies are overall a concept of huge importance for the development of the economy;
• There were some bad examples in the past (investors receiving the incentives and leaving Serbia as soon as the monitoring period is over, or even before that), however the same were more attached to “baby steps” of the incentives scheme in Serbia and to the fact that at the beginning of implementation there were mostly labor intensive projects;
• Nowadays the legal framework but also the practice of Development Agency of Serbia developed as to minimize any “bad” projects to the detriment of Serbia, and vast majority of recent investments are made by biggest multinational companies in technologically intensive projects and highly automatized production processes;
• Although the amounts granted to investors may look high and unreasonable to the general public, the same are beyond doubt always significantly lower than the overall benefits to the economy (decrease of the unemployment rate, increase of tax collection from investor’s operations, significant increase of production and export, etc.).