New Rules Regarding the Granting of Incentives for Direct Investments

Recently, the Government of the Republic of Serbia passed two regulations on amendments to the Regulation on Determining Criteria for Granting Incentives to Encourage Direct Investments (“the Regulation”), which entered into force on May 20, i.e., June 3, 2023.

The most significant novelties brought by the Regulation refer to:

• raising the thresholds for necessary minimum investments;
• reduction of the maximum amount of incentives per workplace; and
• introducing a new division of local self-government units, i.e., into five regions (Belgrade, Vojvodina, Šumadija and Western Serbia, Southern and Eastern Serbia, and Kosovo and Metohija Region).

Necessary minimum investments and maximum amounts of incentives by region

According to the Regulation, the funds can be allocated for:

• investment projects in Belgrade Region, in which at least 500,000 euros are invested and at least 50 employees are employed - in the amount of 20% of gross salaries, and in the maximum amount of 2,000 euros per new workplace;
• investment projects in local self-government units from Vojvodina Region, where at least 400,000 euros are invested and at least 40 employees are employed - in the amount of 25% of gross salaries, and in the maximum amount of 3,000 euros per new workplace; as well as for
• investment projects in local self-government units in the Region of Šumadija and Western Serbia, Southern and Eastern Serbia and Kosovo and Metohija, where at least 300,000 euros are invested and at least 30 employees are employed, in the amount of 30% of gross salaries, and in the maximum amount of 5,000 euros per new workplace.

Relation with state aid

The amount and intensity of funds calculated and approved under the Regulation cannot diverge from the maximum amount and intensity calculated pursuant to the conditions established by the regulations on regional state aid.

Additionally, when determining the amount of funds that can be allocated, cumulation with previously approved state aid is considered, in accordance with the regulations governing the state aid control.

Other novelties

The Regulation further stipulates that the justified investment costs of a large business entity in the market, for the purpose of a significant change in the production process, must be higher than the depreciation costs in the previous three fiscal years for the assets that are related to the activity being modernized. Additionally, the justified investment costs aimed to diversify the production program must be at least 200% higher than the book value of the assets that are being reused, registered in the fiscal year preceding the commencement of works.

As regards the sources and purpose of funds for attracting direct investments, the Regulation stipulates that funds cannot be allocated for the implementation of investment projects in certain sectors (transport, hospitality industry, games of chance, trade, production of synthetic fibres, coal and steel, mining, tobacco and tobacco products, weapons and ammunition, shipbuilding of self-propelled maritime commercial vessels over 100 gross registered tons, airports, utilities, energy sector, broadband networks, fisheries and aquaculture, and software development, unless they are in the function of product improvement, production process or provision of service centre services).

The Regulation also includes an amended list of documents to be submitted with the application for awarding funds, and it stipulates that, for investments over 5 million euros, the deadline for implementation of investment project is up to 10 years from the date of submission of the application.