The classification of investment projects per number of workers that would be engaged in their implementation, as well as the stipulation of two new segments that will be eligible for state assistance are the main novelties of the new regulation on attracting foreign investments.
The document, which is officially called the Decree on the Conditions and Method of Attracting Direct Investments, entered into force in mid-March, and compared to the previous one, which was adopted in late 2016, there are very few differences.
As Marko Janicijevic, from the Tomic Sindjelic Groz law firm, explains the new regulation relies heavily on the previous one regarding stipulated conditions and it represents continuity in the allocation of incentives for attracting investments.
“The most important novelty is in the allocation of state assistance for investment projects, and the relevant criteria. From now on, the assistance will be allocated depending on the number of people that will be employed for the project, or rather whether an investor would employ up to or over 100 people per specific project. Also, another novelty is that, from now, on software development sector is also eligible for the assistance providing it is in the function of product promotion, production process or the provision of international trade services. Furthermore, hotel sector is entitled to assistance in towns with spas. The decree abolishes assistance for the fisheries sector”, Janicijevic explains.
According to the new regulation, the procedure of allocation of funds is now changed, because the decree stipulates the clearly defined evaluation criteria for those investment projects that engage up to 100 workers.
The Ministry of Economy has confirmed that one of the main novelties is the introduction of a scoring system for investment projects that engage up to 100 people. Points will be assigned based on experience in performing certain business activities, assessment of investment return, business results, indebtedness indices etc. The minimum number of points for the allocation of incentives is 2.5, and the scoring system (according to EUROSTAT methodology) was introduced in order have an efficient selection of the project applications at the initial stage.
Also, the Ministry points out that the decree stipulates the content and method of launching a public call for grants for projects employing up to 100 people. In terms of the projects that envisage engagement of over 100 people on their implementation, launching a public call for grant allocation is not required. In this case, all an investor needs to do is submit a letter of intent (which content is also prescribed in the decree) to the Development Agency of Serbia.
The previous regulation also defined the concept of investments of special importance. These are investments of minimum 5 million EUR that create over 500 new jobs. The new regulation merged the concepts of investments of special importance and projects employing over 100 new workers, as it now stipulates the sectors / projects which are entitled to state assistance providing they satisfied the above mentioned criteria.
Thus, incentives are granted for investments in production sector amounting to at least EUR 500,000 which provide employment for more than 100 people, and for investment projects in the international trade services sector, which are valued at least EUR 150,000 and which create at least 100 new jobs. Also, the agricultural projects, where the investment is at least EUR 2 million and where at least 25 new workers are engaged, and the hotels, located in spa areas, that invest a minimum of EUR 2 million, and employ at least 70 people, are also entitled to state grants.
Milan R. Kovacevic, an investment consultant, believes that the state has already made too many mistakes when it comes to investor incentives. In an interview for eKapija, he says that before any changes in the legal framework take place, the government should conduct a thorough analysis to determine which sectors need subsidies the most.
“We are struggling as it is to achieve the planned economic growth, and we are not thinking too much about the added value that new investment should bring. The only benefit that results from the arrival of foreign investors, which are opening factories here only because of subsidies and cheap labour, are the low salaries that they give to workers, and certain taxes and contributions that they pay to the state”, says Kovačević and adds that the bad effects of incentives for investors will become apparent in due time.
Marko Janićijević says that the only drawback of the new decree, from investors’ position, is that now investors will not be able to get a return on a part of their investments in infrastructure.
“There is a tendency and further expectations that until Serbia becomes an EU member, when the whole incentive program will be abolished in its current form, the state will regulate the legal framework in such a way that it will continue to present Serbia as an attractive investment destination. We should not forget that investments, especially the foreign ones, create new jobs, bring new technologies, stimulate innovation, and engage local SMEs as suppliers, integrating them into the global market”, Janicijevic adds.
To remind, according to the new regulation, the largest subsidies per workplace, in the amount of 7,000 EUR, are foreseen for investments in the territories that are classified as devastated areas which is determined according to their degree of development.
The deadline for the implementation of projects, eligible for grants / subsidies, remains the same – 3 years – with a possibility of extending it to 5 years from the date of the application, upon the approval of the Economic Development Council.