New Regional State Aid Regulation in Serbia

The Serbian government has continued to upgrade the legal framework for granting State aid, having recently adopted a Regional State Aid Regulation. A new State Aid Control Act has been in force in Serbia since early 2020 and the process of harmonising bylaws with the new law is underway.

The Regional State Aid Regulation sets down detailed conditions and criteria for the compatibility of State aid designed to promote the economic development of areas with a low standard of living and to facilitate the development of certain economic activities or certain economic areas in Serbia. The new Regulation improves the existing arrangements and makes several new additions, which include the following:

• Regional State aid compatibility criteria have been set down, such as transparency and incentive effect.
  
  The transparency criterion implies that regional State aid is deemed compatible if the precise amount of the gross monetary equivalent can be calculated in advance.
  
  Regional State aid is deemed compatible if it has an incentive effect. In order to be considered to have an incentive effect, applications for State investment aid must be submitted to the grantor before work on a project commences.

• The Regulation lays down in detail the methodology for setting the maximum State aid intensity, namely;
  • up to 50 % of eligible costs in level 2 areas of the nomenclature of statistical territorial units, the GDP per capita of which is less than or equal to 45 % of the EU-27 average;
  • up to 35 % of eligible costs may be allocated for areas where GDP per capita ranges from (or is equal to) 45 % to 60 % of the EU-27 average;
  • up to 25 % of eligible costs for areas where GDP per capita ranges from (or is equal to) 60 % to 75 % of the EU-27 average.

The Regulation states that until the regional aid map is drafted, the Republic of Serbia is to be deemed an area whose GDP per capita is less than or equal to 45 % of the EU-27 average.

Taking a page out of the EU's rules on Regional State Aid, a formula for setting the maximum amount of aid for large investment projects (the initial investment eligible costs of which exceed EUR 50m) is being introduced.

In addition, the Regional State aid for investments that exceed the maximum intensity for large investments can be compatible if it meets the supplementary conditions (e.g. it is proportionate, it contributes to an objective of common interest, there is a need for state aid intervention, the positive impact on trade between the EU and Serbia prevails over the negative effects, etc.).

• Regional investment aid is granted for initial investments related to the establishment of new enterprises, capacity expansion, production diversification and significant changes in the entire production process.
• Regional operating aid is regulated in detail and includes aid to reduce the operating costs of undertakings operating in sparsely populated areas.

This Regulation further approximates Serbia's legal system with the EU state aid control system. It will also impact the way in which foreign direct investments in Serbia will be able to receive State aid. On that note, the Regulation on determining criteria for granting the incentives for Attracting Direct Investments, which relied on previous regional State aid arrangements, is expected to be amended soon. In that context, the new rules and upcoming changes to the legal framework for investment support should remain uppermost in the minds of potential investors, both those who plan to invest in Serbia as well as those who already have and intend to expand their investments.

authors: Srdjana Petronijević and Zoran Šoljaga