Chinese company PowerChina, one of the leading construction firms operating in Serbia, was cleared of liability for employing Chinese workers at the construction site of the National Stadium in Surčin, according to a report previously published by the Centre for Investigative Journalism of Serbia (CINS).
The Labour Inspectorate had earlier established that four workers found on site did not possess work permits. Consequently, it filed misdemeanour charges. However, the court ruled that the company employing the workers could not be held liable.
Not because the workers possessed the necessary documentation and work permits, but because their employer was not a legal entity. Put simply, PowerChina International Group is a branch of a Chinese company established in Serbia. As such, it does not have legal personality and therefore cannot be held liable. The judgment stated that misdemeanour proceedings cannot be conducted against a branch because a review of the Serbian Business Registers Agency (APR) records showed that PowerChina is headquartered in China. Proceedings may therefore be brought only against the parent company, not against its Serbian branch.
In other words, PowerChina Branch Belgrade enjoys all the rights granted under the Companies Act and may operate in Serbia in the same way as legal entities. It may also conclude employment contracts with workers, yet it bears no legal responsibility. Liability rests solely with the parent company, that is, the legal entity itself. In this case, that is the company of the same name based in China.
Furthermore, almost all Chinese construction companies operating in Serbia – though not exclusively Chinese firms – are primarily registered as branches. In other words, they operate through entities that do not possess legal personality. Domestic companies also establish branches, but there are significant differences between them, particularly regarding the location of the parent company’s headquarters.
Forbes Serbia investigated why branches are established, what advantages they offer businesses, how they differ in legal and tax treatment, and what both the law and practice have to say on the matter.
Court practice and Serbian reality
Under Serbian legislation, establishing a branch of a legal entity, whether domestic or foreign, is permitted. The Companies Act states that “a branch of a company is a separate organisational unit of a company located in the territory of Serbia through which business activities are conducted in accordance with the law. A branch does not have the status of a legal entity and acts in legal transactions on behalf of and for the account of the company. The company bears unlimited liability for obligations towards third parties arising from the branch’s operations.”
Lawyers consulted for this article explain that, for precisely this reason, a branch of a legal entity is not subject to misdemeanour or criminal liability. This is why courts issue rulings such as the one in the PowerChina case.
“A branch has all the rights necessary to conduct business and employ workers as though it were a legal entity. However, responsibility does not rest with the branch but with the legal entity itself. In the case of a domestic company and its branch, the situation is somewhat clearer because the parent company is located in Serbia and is accountable before Serbian courts,” explains lawyer Petar Plavšić.
While court practice generally exempts branches from liability in misdemeanour and criminal proceedings, the situation is somewhat different in employment law.
Employment law and branch liability
In a 2021 ruling, Serbia’s Supreme Court of Cassation overturned a lower court decision that had relieved a branch of a foreign company of responsibility. The case concerned an employee who sued the branch for unlawful dismissal.
The lower courts had ruled that the branch could not be liable because it lacked legal personality. However, the Supreme Court of Cassation reached a different conclusion. It determined that the branch could indeed be held responsible because it acted as the employee’s employer and sent the case back for retrial.
Mario Reljanović, an expert in labour law, told Forbes Serbia that most branches of foreign companies generally comply with Serbian labour legislation in practice. They regularly conclude employment contracts, pay wages and associated taxes, and usually provide statutory severance payments when redundancies occur.
“When you have a conscientious employer, things function properly in practice. However, legal shortcomings become apparent when problems arise. If a branch fails to pay wages or severance pay, then closes its operations and leaves Serbia, employees are forced to sue the legal entity itself – the parent company located abroad.”
Reljanović notes that the same pattern is evident in the courts. First-instance courts generally exempt branches from misdemeanour liability, indicating that there is a degree of legal ambiguity in the relevant regulations.
Petar Plavšić also points out that there is a clear imbalance between the rights enjoyed by branches and the responsibilities they bear. This imbalance becomes particularly apparent in situations involving potential abuse.
Not a legal entity, but a tax resident
Although branches do not possess legal personality, Serbian law treats them as tax residents. In other words, their tax obligations are largely identical to those of legal entities registered in Serbia. They are required to maintain accounting records, apply accounting standards, register for VAT where applicable and pay all relevant taxes.
Milica Bisić, a tax expert at KPMG, told Forbes Serbia that there is essentially no difference between legal entities and branches when it comes to tax obligations.
“With regard to consumption taxes and income taxes, a branch has the same obligations as a domestic legal entity. The same applies to corporate income tax, subject to certain limitations. Interest expenses and royalty payments are not recognised for tax purposes. A loan to a branch may only be provided by the head office, which is regarded as financing within the same legal entity, and any resulting interest is therefore not recognised as a deductible expense,” explains Bisić.
She notes that branches do not enjoy any special tax incentives or advantages compared with legal entities.
When discussing branches of domestic companies, the situation differs. Such branches are not tax residents in their own right. There is no separate profit attributable to the branch; only the parent company generates taxable profit. Unlike them, a branch of a foreign legal entity prepares its own financial statements and records profits or losses as though it were a legal entity. Domestic companies often establish branches because they are easier to create and dissolve administratively, although branches do not possess a company registration number or tax identification number of their own.
Chinese construction companies primarily operate through branches
Milica Bisić says that the reason Chinese and other foreign construction companies establish branches in Serbia is commercially understandable.
“Under international tax rules, a foreign company conducting business activities in another country – in this case Serbia – is considered to have a permanent establishment there and must pay Serbian tax on profits generated from those activities. In most cases, it is not economically worthwhile for companies to establish a separate legal entity for a single project. They do not require all the functions associated with a legal entity, only those necessary to complete the specific project,” Bisić explains.
Financial experts nevertheless point out that operating through a branch can make it more difficult in practice to monitor the flow of funds between the branch and the parent company. In other words, it may be harder to determine whether tax violations have occurred or whether efforts are being made to reduce tax liabilities in Serbia.
Moreover, because of double taxation avoidance rules, opportunities may arise to reduce tax obligations where the legal entity is a tax resident in one country and the branch is located in another.
Lawyer Petar Plavšić confirms that tracking financial flows and payments between a parent company in one country and its foreign branch is significantly more difficult, as is establishing whether any violations have taken place.
“If someone wishes to abuse this registration model, the opportunities to do so are greater from both a legal and a tax perspective. The branch enjoys all the benefits of a legal entity without bearing all the responsibilities of one. In fact, the law states that full responsibility for the branch’s obligations rests with the legal entities that established it,” Plavšić concludes.
(Forbes Serbia, 08.06.2026)