Free zones Serbia: Strategic location and extensive trade agreements streamline business with notable fiscal and customs benefits.
Geographic Position of Serbia as a Strategic Advantage
Serbia holds a central position on the Balkan Peninsula, at the crossroads of routes connecting Eastern and Western, Northern and Southern Europe. As a country at the confluence of the Danube River and on the periphery of the European Union, Serbia lies along the routes of significant European corridors 10 and 7, making it ideal for international trade.
International Trade Agreements
Serbia is a signatory to a number of significant trade agreements that facilitate business operations:
• Interim Trade Agreement with the European Union,
• CEFTA agreement, • Agreements with EFTA member countries,
• Free trade agreements with Russia, Belarus, Kazakhstan, and Turkey,
• Preferential trade regime with the United States.
Customs Facilitation
Goods intended for activities within free zones are exempt from customs duties and other import charges. Also, there is no requirement to provide a bank guarantee for customs debt for foreign goods used in production activities within the zones.
Fiscal Benefits
In free zones, business is exempt from paying VAT on:
• Entry of goods and provision of services related to entry,
• Transactions of goods and services within the zones,
• Transactions between users in different free zones,
• Consumption of energy sources.
Support from Local Government
Local authorities can provide additional benefits for the construction of facilities and infrastructure in free zones, including exemption from paying local taxes, fees, and duties, which further facilitates business operations.
Simplified Customs Procedures
Free zones apply simplified customs procedures, which significantly speeds up administrative processes.
One Stop Shop – Efficient Administration
Free zones offer a “One Stop Shop” service, where users can quickly and efficiently access various services such as transportation organization, freight forwarding services, insurance, banking operations, and many others, making free zones an attractive place for business. These advantages make the free zones in Serbia exceptionally attractive locations for investing and business development, enabling companies to maximize their efficiency and profitability in the international market.
A year ago, an investigation was conducted on the territory of Slovenia due to suspicion of abuse of position and money laundering. The investigation related to companies that issued fictitious invoices for allegedly performing construction works. Among them was a company from Bosnia and Herzegovina that issued fictitious invoices to companies in Slovenia and returned the money paid.
58 house searches were carried out on suspicion of money laundering and abuse of position, 36 persons were suspected, and 36 legal and 42 natural persons were included in the investigation. The total illegal property benefit amounts to more than five million euros.
What is a shell company?
Shell companies are legally permitted business entities, which do not own real assets or conduct business operations. Their very existence is legitimate, but the problem is in the illegitimate use of such companies. Most of these companies exist only by name, address and proof of registration as a financial entity.
Worrisome data from Moody’s Analytics
The mentioned case in Slovenia is not isolated and recent data from Moody’s Analytics show that there are almost 5 million suspicious companies in Great Britain alone. The total figure in the EU is estimated at around 4 million, with Cyprus and France taking the lead. There are potentially millions of fictitious, shell companies used to avoid taxes or sanctions.
The criteria used in the analysis include the lack of operations, connections with high-risk destinations, and the like. An analysis of the age of responsible persons was also conducted, and as they state, thousands of company directors are listed as younger than five years old. Also, a Belgian company is managed by a 900-year-old person.
Great Britain is at the very top of the Moody’s table, followed by Panama, Switzerland and Cyprus. Datta points out that in addition to the indicators, one should “look at the people behind the fake company … to see if there are other signs of nefarious activity.”
Who is behind the fake companies?
Ted Datta, Moody’s Analytics Financial Crimes Compliance team leader, says the findings are, among other things, an indication of a system that isn’t as systematic as it could be. He pointed to the lack of information in the official registers, which is worrying in itself, because the analysis of the financial system is based on them.
Part of the blame can be placed on the lawyers and middlemen who help individuals hide their wealth behind complex corporate structures. This is possible with few regulations and few checks.
The situation may soon change with new EU anti-money laundering rules requiring the institution providing the registration service to verify the identity of customers, just as banks do.
The U.K. tax authority HMRC has begun to fine some brokers for gross negligence, Datta noted, and expressed confusion as to why some shell company records are so obviously false. Namely, there are more than 22,000 companies that are registered at the address of the “Great Pyramid” in Egypt.
Directive of the European Commission on shell companies
On 22nd December 2022, the European Commission published a draft Directive aimed at controlling the use of various business entities in order to obtain tax benefits within the EU. For the most part, the Directive tries to deal with the prevention of attempts to avoid paying taxes by shell companies established by entities outside the EU member states. The Directive applies to companies based in the EU, associations and other entities without official legal personality.
Market participants who meet the criteria set by the Directive will have to submit an annual report regarding the operations of the shell company, and it is possible that they will be considered “shell companies”.
In order to determine whether a company will be considered “shell company”, the key indicators from the annual reports should be considered, as follows:
The first level of indicators looks at the activities of the subjects based on the income they generate. The threshold is defined as 75% of total income in the last two years.
To meet the second threshold, a cross-border element is required. If the company generates most of its income in transactions related to other jurisdictions or if it redirects the income to a company based abroad, then the company also meets the second threshold.
The third threshold focuses on whether corporate governance and administration services are performed internally or externally.
The company will be considered a “shell company” if one of the set indicators is violated. The shell company will not be able to access the tax benefits and benefits of the member state’s tax treaty network.
An entity that meets all three thresholds is required to report information related to tax refunds.
Will the new EU rules be able to change anything?
Paul Tang, chairman of the tax committee of the European Parliament points out: I don’t see a strong enough reason why you should have shell companies” stating their problematic impact on tax collection and sanctions towards Russia.
Tang is pushing for new EU laws proposed by the Commission that would potentially deprive companies with dubious activities of the tax incentives they previously received based on revenue, cross-border activity and management.
– We need to increase revenues by solving tax evasion, and shell companies are at the centre of that. The Unshell directive, as it is known, is a “very targeted instrument”, which affects only a small part of companies. But in order to pass the Law, the proposal needs the unanimous support of all 27 EU member states, including Luxembourg.
Luxembourg is a major financial centre that the commission has already accused of facilitating “aggressive tax behaviour.” Belgian Finance Minister Vincent Van Peteghem said he wanted further analysis before supporting further procedure, citing “concerns about administrative burdens”.
With Belgium, as the country holding the presidency of the EU council, rushing to finalize a raft of legislation ahead of June’s European elections, Tang expressed hope that Van Peteghem would reconsider his position.
How to check shell companies?
Even with the new Laws, the question remains how you can practically check the company regarding the performance of suspicious activities. Defining the criteria too vague, broad or narrow will create a lot of bureaucracy and legal uncertainty. Datta calls this an “endless game” between those who enforce anti-money laundering rules and those who try to evade or break them. In all this, it is only possible to increase the cost of concealing wealth.
No real news on the real estate market in Serbia still at the beginning of 2024, except that in some locations prices have fallen by up to 20 percent. According to the real estate portal Nekretnine.rs, the highest price per square metre, in January, was paid in Belgrade and still it is the most expensive city. The municipalities of Stari grad and Vračar still take the lead, where a slight price increase of 0.41 and 0.38 percent, respectively,was recorded.
New Belgrade is still an attractive location, but now somewhat cheaper than in the previous month. There is a great demand for the city municipality of Vračar, and one of the reasons is the decreasing number of available plots for construction. There is still great interest in Dorćol and Belgrade Waterfront.
The prices experiences the greatest downfall in Palilula, by 4.13 percent, where the recorded price was around 2,300 euros per m2. The lowest price per m2 was recorded in Mirijevo at 1,875 euros, as shown in the table below.
NEKRETNINE.RS
JANUARY
Belgrade
price/m2
trend%
Centre
3407
0.41%
New Belgrade
2605
-0.19%
Mirijevo
1875
0.00%
Palilula
2300
-4.13%
Voždovac
2542
1.03%
Vračar
3398
0.38%
Novi Sad
price/m2
trend%
Centre
2674
-0.48%
Novo naselje
2105
-1.96%
Podbara
2575
0.55%
Grbavica
2658
0.30%
Niš
price/m2
trend%
Bulevar Nemanjića
1650
0.12%
Pantelej
1494
0.00%
Durlan
1496
3.17%
Palilula
1476
-1.47%
Kragujevac
price/m2
trend%
Urban zone
1400
0.00%
Pančevo
price/m2
trend%
Urban zone
1365
0.22%
Table no. 1: Trends in real estate prices per square meter in Belgrade, in January 2024
Mirijevo and some parts of Zvezdara are more favourable than some of the more popular parts of the city, previously mentioned. However, the lowest prices can be found in Padinska skela, Borča, Krnjača and Karaburma. If you opt for more luxurious apartments, there is a much larger selection, and West 65, Belgrade Waterfront, A block and K district stand out among the locations.
Real estate prices in Novi Sad, Niš and Kragujevac
The central locations in Novi Sad became cheaper in January by 0.48 percent, while the price in Novo naselje dropped by 1.96 percent. In relation to the prices of real estate in Belgrade and Novi Sad, the rest of Serbia shows a more favourable picture, but they also generally record an increase in the price per square meter. New construction projects were also noted in Kragujevac and Niš, as well as on the mountains of Zlatibor, Kopaonik and Divčibare. Vrnjačka Banja, Srebrno jezero and Sokobanja are also attractive locations for domestic and foreign investors.
In the south of Serbia, real estate prices are almost twice as low as in the northern part of the country. The January report shows that prices in Niš were on a slight increase, with the exception of Palilula in Niš, where they fell by about 1.47 percent. The real estate prices in Kragujevac were stable during January and the average price amounted to 1,400 euros/m2.
In some locations, rents fell by up to 20%
As reported by the portal Nekretnine.rs , rents in seven locations fell by over 20%. In Durlan (in Niš), the average monthly rental price per square meter of living space fell by 20.22% and the rent of a 50 square meter apartment is currently being advertised at that location for around 355 euros.
In Novi Sad, rents fell the most in Novo naselje (by 6.67 %), followed by Grbavica (by 4.13 %) and Podbara (by 2.29 %). In Pancevo, a decrease of 5.71 % was recorded. In Belgrade, rents fell in two locations. In the Centre (by 1.76 %), the rent for 50 square meters was 835 euros on average and in Vračar by 0.64 %, so 50 square meters in January was 780 euros on average.
Rental prices increased in the following municipalities: Palilula, Voždovac, Mirijevo and New Belgrade. Also, in the centre of Novi Sad and Kragujevac, as well as in Niš, in the neighbourhoods of Bulevar Nemanjića and Pantelej, which is shown in the table below.
NEKRETNINE.RS
JANUARY
Belgrade
price/m2
trend%
Centre
16.7
-1.76%
New Belgrade
15.4
2.67%
Mirijevo
9.9
4.21%
Palilula
13.4
7.20%
Voždovac
12.2
4.27%
Vračar
16.6
-0.64%
Novi Sad
price/m2
trend%
Centre
11.4
3.64%
Novo naselje
8.4
-6.67%
Podbara
12.8
-2.29%
Grbavica
11.6
-4.13%
Niš
price/m2
trend%
Bulevar Nemanjića
7.2
10.77%
Pantelej
6.4
10.34%
Durlan
7.1
-20.22%
Palilula
5
0.00%
Kragujevac
price/m2
trend%
Urban zone
6.1
1.67%
Pančevo
price/m2
trend%
Urban zone
6.6
-5.71%
Table no. 2: Trends in real estate rental prices in January 2024
Data published by the Republic Geodetic Authority of Serbia for the fourth quarter of 2023
The data of the Republic Geodetic Authority for the last quarter of 2023 show that price growth slowed down, but that they continued to grow. Compared to the third quarter of 2023, housing prices in Serbia increased by 0.83 percent. Observed by region, compared to the fourth quarter of the previous year, real estate prices increased in Belgrade by 5.79 percent, in Vojvodina by 4.67 percent, Šumadija and Western Serbia by 5.95 percent, and the strongest price growth of 8.16 percent was recorded in southern and eastern Serbia.
It is interesting that the average price of new apartments, which reached 10,000 euros per square meter, started to fall. The prices of first sale apartments, i.e. for purchase from investors, at the level of Serbia increased by 5.41 percent, while resale apartments showed a higher year-on-year growth, which amounted to 5.93 percent.
The total value of traded apartments in the third quarter of 2023 was 870 million euros compared to 1.219 billion euros in the same period in 2022. The number of concluded sales contracts compared to the third quarter increased by 12 percent, but according to experts, this can be attributed to seasonality. Market activity measured by the number of sales is at approximately the same level as at the end of 2019 and 2020, while the market value is at a significantly higher level due to the increase in real estate prices.
Real estate prices in Serbia: Is now the right time to bucfnovembar
Throughout 2023, real estate prices in Belgrade witnessed an increase ranging from 15 to 20 percent in certain city segments, with a remarkable surge of up to 30 percent in the most attractive locations. The latter half of the year marked a stabilization in the real estate market, accompanied by a decline in turnover. By year-end, apartment prices in Belgrade had plateaued, remaining at roughly the same level as the preceding year, but still at a relatively high level.
Despite this, the interest in purchasing real estate in Serbia persists. The announcement of several investments and two national projects has fueled increased popularity in the Belgrade municipality of Surčin, where real estate prices continue to be relatively favorable. Additionally, an attractive aspect of investing in Serbian real estate is the opportunity to apply for a resident permit by real estate purchase. This can be an appealing option for foreign investors or individuals seeking residency in Serbia.
Is this the right moment to consider acquiring an apartment or office space in this particular Belgrade municipality, especially with the added benefit of potentially securing a resident permit by real estate?
What is the average price per square metre in Belgrade?
According to data from the specialized real estate advertising website “4zida”, the currently advertised average price of apartments in Belgrade hovers around 2,500 euros per square metre, remaining unchanged when compared to the same period in 2022. A similar trend is observed in Novi Sad, with an average price of 2,324 €/m². In Niš, however, prices have experienced an uptick, necessitating an allocation of approximately 70 euros more compared to the last quarter of 2022.
When it comes to the prices of apartments sold in December 2023 , they, as customary, tended to be slightly lower than the advertised rates. According to data retrieved from the website cenestanova.com, specifically the Real Estate Price Register, the average price per square metre of an apartment in Belgrade stood at 2,306 euros. This represents a marginal decrease of 0.09% compared to the previous month and a more substantial 4.55% decrease in comparison to December 2022.
The average price of ‘first sale’ apartments reached 2,486 €/m², which is 0.04% from the prior month but a noteworthy decline of 9.3% when compared to December 2022. In the case of ‘resale’ apartments, the average price of 2,168 €/m² experienced a notable 7.49% surge compared to December 2022, yet registered a marginal decrease of 0.18% when compared to November 2023.
Fluctuations in the average price per square metre (€/m²) in Belgrade.
Source: https://www.cenenekretnina.rs/
Decline in apartment prices in certain areas of Belgrade
According to the data from the “4zida” website, some municipalities and neighbourhoods in Serbia recorded a slight drop in advertised prices, which is also the case with some Belgrade municipalities.
In Mirijevo, the presently advertised price reflects a decrease of about 50 euros compared to the same period in 2022, settling at 1,883 euros. A comparable situation is observed in the municipality of Stari Grad, where the average price, concluding 2022 at approximately 3,600 €/m², has now dipped to € 3,554, marking a reduction of about € 45.
As much as 50% decrease in turnover and apartment sales
In December, a total of 1,071 apartment sales contracts were recorded, indicating an 11.85% decline compared to November of the same year and a substantial 41.41% drop in contrast to December 2022. Both the volume of sold ‘resale’ apartments and ‘first sale’ apartments experienced a decline, with 638 and 433 contracts, respectively. Particularly noteworthy is the pronounced drop of 51.94% recorded in the case of ‘first sale’ apartments when compared to December 2022.
Number of sales contracts for real estate in Belgrade.
Source: https://www.cenenekretnina.rs/
Additionally, there was a noteworthy decline in the total turnover volume, which amounted to 143.14 billion euros in December. This represents a stark 47% reduction compared to the same month in the preceding year and a 10.4% decrease in comparison to the previous month. The most significant downturn in turnover volume was observed in ‘first sale’ apartments, experiencing a substantial 60.1% decrease compared to December 2022.
Volume of real estate sales in Belgrade.
Source: https://www.cenenekretnina.rs/
Is now the right time to buy an apartment in the Belgrade municipality of Surčin?
The municipality of Surčin, situated on the outskirts of Belgrade, is strategically positioned to become the focal point of the upcoming “Expo 2027” project. This visionary initiative envisions the development of the National Stadium, the new Belgrade Fair, expansive residential complexes, and diverse commercial facilities in Surčin. Owing to this ambitious plan and its excellent transportation links, Surčin is increasingly gaining popularity both as a residential hub and a favourable location for numerous foreign companies.
Presently, the average advertised price per square metre for apartments in Surčin, as indicated on the “4zida” website, stands at 1,722 euros. This figure is notably lower than the prevailing rates in surrounding municipalities. To provide context, in New Belgrade, the price per square metre is 2,750 euros, in Bežanijska kosa it is 2,560 euros, and in Zemun, it reaches 2,240 euros. Industry experts anticipate that the prices of both apartments and land in Surčin have the potential for significant growth in the foreseeable future.
Trend of average real estate prices in the municipality of Surčin. Source: https://forbes.n1info.rs/biznis/da-li-je-sad-pravi-trenutak-za-kupovinu-nekretnine-u-surcinu/
Buying an apartment as a type of investment
The surge in real estate prices in Serbia has been predominantly fueled by the influx of a substantial number of Russian, Ukrainian, and other foreign citizens. Notably, financial investors have emerged as the most prevalent buyers in the real estate market, choosing apartments as a form of long-term savings. This trend among investors has the potential to influence future rental prices.
The appeal of real estate investment extends beyond residential properties to include office spaces. In 2023 alone, the construction of 160,000 square metres of office space took place, with projections indicating an additional 200,000 square metres to be built between 2024 and 2025. This expansion is not limited to Belgrade, as cities like Novi Sad, Kragujevac, and Niš are also making significant contributions. Novi Sad, in particular, is gaining prominence, attracting attention from IT companies, research and development (R&D) centers, as well as businesses in the creative industry.
Continued fluctuations in real estate prices
Currently, accurately forecasting the trajectory of real estate prices remains uncertain. Tamara Kostadinović, the Director of Market Research at CBS International, a part of the Cushman & Wakefield Group, shared with Euractiv Serbia, “A decline in prices is not anticipated within meticulously planned large-scale projects. These projects, undertaken in phases by reputable investors with project financing from banks, offer additional amenities to buyers and are expected to maintain a stable pricing level. Potential price adjustments may occur within smaller housing projects situated in less attractive locations or in the domain of ‘resale’ apartments in areas with a surplus of available units.”
In the Belgrade housing market, the remarkable price growth is attributed to robust demand. Between 2020 and 2022, approximately 25,000 apartments were constructed, while nearly 60,000 housing units were successfully sold. Real estate appraiser Milić Đoković, emphasized for Euronews Serbia: “There are no large construction sites, no mass construction; these are sites with 20, 30, or 40 apartments. Unfortunately, a decline in apartment prices is unlikely to occur.”
Prospects for real estate market recovery are on the horizon for the second half of the year. A potential reduction in interest rates by central banks, driven by past experiences highlighting the efficacy of swift and decisive changes over gradual adjustments, could contribute to this recovery.
However, Nebojša Nešovanović, Head of the Valuation Department for Southeast Europe at CBRE, issues a cautionary note. He warns that a faster and more dynamic entrance into the next cycle of expansionary monetary policy may lead to a sudden upswing in real estate prices in the medium term.
Building Solar Plants in Serbia: Costs, Duration, and Legal Insights
At a time of growing global awareness of clean energy, Serbia is on the threshold of energy transformation. In 2023, the development of several solar power plants has been initiated, and the first factory for the production of photovoltaic panels was established. Also, the construction of solar power plants is supported by a state subsidy, and the international organization The Nature Conservancy (TNC) published a map of the 100 best locations for solar power plants in Serbia.
According to experts, the trend of growing interest in investments in solar power plants in the Republic of Serbia will continue in 2024. In this text, we investigate costs, duration, and legal insights for building solar plants in Serbia.
The current capacity of the built solar power plants is lower than the potential
At the beginning of 2023, the currently largest solar power plant in Serbia , DeLasol in Lapovo, started operating. With 9.9 megawatts of connected power, it consists of almost 18,000 bifacial panels. The investment value amounts to nine million euros.
In the middle of 2023, the construction of the solar power plant “Saoaroci” in Smederevo was initiated. This solar power plant will have a power capacity of 9.95 megawatts, and the electricity is intended for the domestic market and will supply about 2,500 households. It is an investment by the German company AVR Solar Park, and it is realized by the Chinese company PowerChina.
Also, in mid-December, the company Domi Eko Solar started production of solar panels in its plant in central Serbia. It is the first factory for the production of photovoltaic panels in the country. However, although a total of 157 solar power plants with a capacity of 23.3 megawatts have been built by the middle of 2023, the current capacities are far below the potential. How much does it cost and what are the key steps in choosing a location and obtaining permits for building solar plants in Serbia?
Building Solar Plants in Serbia: Costs and Duration
The first important decision when building solar plants in Serbia is the choice of location, where we distinguish between two cases. The first, when the investor already has a plot on which he wants to set up a power plant, but he is not sure if it is possible. In that case and assuming that the power plant is connected to the distribution system, the investor should contact the local branch of “Elektrodistribucija” (Distribution System Operator).
The competent authority will provide an expert opinion on the connection requirements.
If the investor has several potential locations, consulting firms can conduct an analysis of the current state of the network at each individual location. Then, the consulting firm gives a recommendation which location shall prove as the most efficient for building a power plant. It can also be in the form of a study with a detailed network connection plan.
Legal Insights for building solar plants in Serbia: Procedure for obtaining the required documentation
Depending on the capacity of the power plant, an expert is hired to a justification study with the appropriate design and conceptual design. It is important, first of all, to check whether an energy permit is required for the construction of the power plant at the selected location.
In accordance with energy regulations, an energy permit is required for a solar power plant of one megawatt (MW) or greater capacity. The request is submitted to the Ministry of Energy and is valid for up to three years. During that period, the investor is obliged to complete the construction and commissioning of the power plant.
The next step is to assess the impact of the power plant on the environment. After the competent authority approves the request for checking the need to conduct the study, the investor submits EIA Envirnonmental Impact Assessment study. It is stipulated that the assessment must be carried out for solar power plants with a capacity of 50 MW or above. An assessment is not mandatory for a solar power plant with a capacity of less than one MW, except in the case when it is located in a protected area or in an area that represents a cultural asset.
The investor can hire an expert for the preparation of the conceptual design, as well as for all technical documentation. After obtaining a legally binding construction permit, the investor applies for works and commences construction. The investor has a period of three years from the moment the building permit becomes legally valid to apply for commencement of works.
It is possible to hire a certified contractor from Serbia for the construction of a solar power plant. In addition to costs of materials, the cost of building solar panels largely depends on labour costs. Compared to other countries in the region, the costs of hiring qualified experts and manual workers in Serbia are far more favourable.
The deadline for obtaining a use permit is five years from the issuance of a valid construction permit. Instead of a use permit, a certificate from the technical inspection commission can be submitted, approving the commissioning of the power plant for trial operation.
How to connect a solar power plant to the grid
In the case of approval for the connection of the power plant to the power grid, it is necessary to prepare a connection study. After obtaining a use permit, i.e. fulfillment of legal regulations and conditions for approval, the Agreement on exploitation of the power plant is concluded. The applicant (investor) concludes a Connection Agreement with the competent authority and submits a bank guarantee in the amount determined proportionally to the power plant’s power. The price amounts to 25,000 euros per MW of power.
For one or more power plants whose total power is greater than or equal to one megawatt, a license for performing energy activities is required. This license is issued for a period of 10 years.
Building Solar Plants in Serbia: Legal Insights and Subsidies
Amendments to the Law on the Use of Renewable Energy Sources and the adoption of a three-year auction plan for market premiums created a predictable framework for investors in renewable energy sources. The goal is to double the solar power generation capacity to 50 megawatts of solar power plants through ongoing auctions. Also, the goal is to build about 300 megawatts of solar power plants in a few years.
In order to receive state aid, the investor can apply to public invitation by the Ministry of Energy for state incentives. Depending on the capacity of the solar power plant, two types of incentives are available: market premium and feed-in tariff.
The government incentive in the form of a market premium or feed-in tariff is awarded on the basis of an auction. The auction is carried out so that producers of electricity from renewable sources define their prices, and the government incentive is given to whoever offers the lowest price. This means that the government will compensate the privileged producer of electricity for the difference in price between the market price and the price it offered in the auction procedure. The reverse is also true, so if the privileged producer sells electricity at a market price higher than the one offered, he pays the difference to the government.
If incentives are granted to the investor, he becomes a temporary privileged electricity producer. The investor then concludes a contract with the competent state authority, delivers a bank guarantee or secures a cash deposit, which is defined in the public invitation, and depends on the capacity of the power plant.
Thanks to the constant growth of electricity prices, as well as the new Law and by-laws, more efficient and effective investment in solar power plants in Serbia has been made possible. Due to the growing interest in building solar plants in Serbia, the share of solar power plants in the total production of electricity is expected to increase.
At the onset of 2023, Serbia’s real estate market experienced a surge in both sales volume and prices. However, the latter half of the year witnessed a slowdown and stagnation across most cities. Predictions had suggested that a decline in sales volume would trigger price reductions, yet this anticipated shift has not materialized. As 2024 approaches, potential buyers are keenly interested in the potential movement of real estate prices.
Trends in apartment prices in Belgrade for November
Analyzing the trends in apartment prices specifically in Belgrade for November, the city continues its tradition of holding the top position in terms of average prices per square meter in Serbia. As per the Nekretnine.rs portal’s report, prices in November dipped by a maximum of one percent in some locations, while growth remained consistent. Vračar municipality leads in terms of price per square meter, experiencing a decrease of 0.09%, now resting at 3,334 euros per square meter. In the center of Belgrade, the price stands at 3,333 euros per square meter, following a reduction of 0.89%..
Notably, in Novi Beograd, recognized as one of the more expensive locations, the price per square meter saw a 0.44% increase in November, reaching 2,753 euros. Meanwhile, prices within the Voždovac municipality, comparatively lower, remained unchanged since October at 2,500 euros.
The movement of the real estate price per square meter in Belgrade, as outlined on the cenenekretnina.rs website, is detailed below.
Chart 1: Fluctuations in real estate prices per square meter in Belgrade, as reported on the website cenenekretnina.rs.
The chart below illustrates the volume of real estate turnover in Belgrade.
Chart 2: Fluctuations in the volume of real estate turnover in Belgrade, as reported on the website cenenekretnina.rs.
Trends in apartment prices in larger cities in Serbia in November
In Novi Sad, prices per square meter remain relatively uniform across central locations, averaging around 2,500 euros per square meter. Conversely, Kragujevac and Pančevo are identified as cities with notably lower price points per square meter compared to other larger cities.
According to the November report, the urban area of Kragujevac noted a 1.57% price increase, leading to an average price of 1,422 euros per square meter. Meanwhile, Pančevo observed a price hike of 0.29%, resulting in a square meter price of 1,370 euros.
Forecasts of agencies and investors for 2024
The specialized website for real estate advertising “4zida” conducted a survey among owners and employees of 85 agencies and 19 investors who build apartments in Serbia. As many as 59 percent of people from real estate agencies believe that prices will stagnate, and 37 percent believe that they will fall. In contrast, the majority of investors—94 percent—forecast price stability, with only 6 percent expecting a decline.
Both groups identify economic instability, both domestically and globally, as the primary challenge in their business. Additionally, factors such as credit conditions, inflation, and labor shortages in the construction sector are considered risk elements. Nevertheless, the majority of respondents believe their incomes will either remain steady compared to 2023 or see an increase.
Do cash buyers keep real estate prices in Serbia at a high level?
The majority of surveyed agencies highlighted three primary factors influencing their business: unfavorable loan conditions (62%), decreased real estate demand (51%), and geopolitical uncertainty. Clients also exhibited greater caution in their buying and selling processes (39%), with certain buyers delaying purchases in anticipation of price drops.
Investors similarly pinpointed unfavorable loan conditions as the most impactful factor on their business (74%), followed by rising construction material prices (37%), geopolitical instability (26%), and reduced demand for ‘first sale’ apartments (21%).
However, unlike other Southeast European markets reliant on credit buyers, Serbia witnesses as much as 70 percent of apartment purchases made in cash. Despite this trend, participants at the “Balkans Property Forum 2023” international conference held in Belgrade concluded that the price per square meter is still influenced by inflation, escalating construction material costs, and labor shortages.
Is now the right time to buy real estate in Serbia?
As highlighted by participants at the forum, positive news emerges with the European Central Bank currently pausing interest rate hikes. Forecasts indicate that in 2024, alongside declining inflation, interest rates are anticipated to decrease. Projections suggest this reduction will commence around September, consequently leading to lower interest rates on housing loans.
Nebojsa Nešovanović, Director and Manager of Appraisals at CBRE, offers an assessment stating that the upcoming period marks the bottom of the market cycle, presenting an advantageous time for real estate purchases. He emphasizes that during this phase, there exists ample room for negotiation with sellers. Although a significant price drop is not anticipated, there might be a reduction in trading volume, translating to fewer transactions. Nešovanović suggests that only in 2025 is an upsurge in demand and transactions expected. However, whether this will result in further price hikes hinges on the supply dynamics.
The impact of the war conflict in the Middle East on the real estate market in Serbia
After the pandemic and the conflict in Ukraine, which in the previous three years had a significant impact on the movement of prices on the real estate market, the new war in the Middle East represents a new challenge in this sector as well.
A considerable portion of agencies (51 percent) expressed uncertainty regarding the potential effects of the new Middle East conflict on Serbia’s real estate market. Among investors, approximately 74 percent are unable to make predictions about the impact of this conflict. Around 15 percent of agencies that foresee an impact from the new conflict suggest that crises and wars typically prompt customers to hesitate in their investments due to concerns about the future.
Regarding projections for apartment rental prices in Belgrade and other major Serbian cities in the coming year, a majority of agencies (64 percent) anticipate rental prices to remain stagnant. Meanwhile, 26 percent expect a decrease in rental prices, while 10 percent foresee an increase.
In terms of constructing industrial facilities, Serbia remains highly appealing to international investors due to its favorable terms offering construction opportunities for commercial, logistics, and industrial facilities.
1. Income tax is paid when real estate is rented out at a rate of 20% of the agreed rent. Another issue is property tax paid by the owner of the real estate, regardless of whether the real estate is rented or not. In the case of property tax, the tax base is determined by the competent local administration, which determines amortization at the rate of 0.4% for the estimated life of the real estate.
2. VAT exists only for legal entities. Individuals are obliged, if they rent out real estate to another individual, to pay citizens’ income tax at the rate of 20% of the agreed rent, submit a tax return to the tax administration and pay the established tax in the prescribed manner on the last working day of the month for the preceding month.
In case of renting out real estate from a natural person to a legal entity, the obligation to calculate, submit a tax return and pay the tax is imposed on the legal entity.
In both cases, the amount of rent received by the lessor is included in his annual income and is subject to the annual personal income tax.
For an individual, the amount of rent represents income that is taxable under the Personal Income Tax Law. In particular, Article 6 of the said law defines income from renting out one’s own real estate as capital income.
The tax rate is 20%, subject to standard costs of 25%, which means that the contracted rent is considered a net amount that is converted into gross rent. The resulting gross rent is reduced by 25% of the standard costs and this constitutes the basic rate to which the 20% rate applies.
2.1 If the individual landlord has not registered his activity, he is obliged to report the rent received within 30 days from the date of receipt of income, regardless of whether he charged the rent in cash or to a current account.
In this case, the landlord shall file a tax return with the PP OPO within 30 days from the day the rent was collected.
An individual landlord pays tax at a rate of 20% based on gross income less rationed expenses of 25%.
Capital gains tax
What is capital gains? It is income from the sale of real estate. Consequently, capital gains are realized by the seller and he is liable to pay taxes under the Personal Income Tax Law. The tax return is filed within 10 days from the date of notarization of the real estate sale or exchange agreement.
Capital gains tax is 15%. However, there are grounds for exemption from this tax.
Sellers who have owned real estate for more than 10 years are exempt from capital gains tax.
Capital gains tax is not determined and is not taxed on transfers of property rights received by inheritance, first line of succession, transfer of property rights between spouses and blood relatives in the first line, and between spouses upon divorce.
Sellers who have owned real estate for less than 10 years, if after the sale within 90 days invest the money from the sale of real estate in the purchase of real estate, with the help of which they solve their housing issue or the housing issue of their family (spouse, children, adopted children) are exempt from capital gains tax. The legislator left the sellers the possibility to invest money in solving their housing issue or the housing issue of their family members for a long period of up to 12 months after the sale of real estate. In this case, the seller is entitled to a refund of the capital gains tax paid.
If the seller does not invest the entire amount, i.e. invests part of the amount from the sale of the property to buy a new property to solve the housing issue (himself or his family members), the capital gains tax will be calculated proportionally, i.e. on the remaining unused amount from the sale of the property, which is actually a capital gain for the seller. For example: a property was sold for €100,000 and then a property was bought for €80,000. A capital gains tax of 15% would be calculated on the difference of €20,000, which is €3,000.
Gift tax
To children and spouses – 0% and in other cases 2.5%
Representative office or branch office of your Serbian company abroad? Which is better?
Legal status of a representative office
The Law on Companies refers to the opening of representative offices and branches of foreign companies in Serbia, and does not cover the opening of representative offices and branches of Serbian companies abroad. The Law on Foreign Exchange Transactions refers to direct investments abroad, including the opening of a representative office or branch abroad. Pursuant to this law, the National Bank of Serbia has adopted the “DECISION ON CONDITIONS AND SPECIFICATIONS OF HOLDING VALUES IN A BANK ABROAD FOR RESIDENTS (hereinafter the “NBS Decision”).
Paragraph 3.4. The NBS Decision establishes the rule of keeping currency in the bank account abroad – “for payment of current expenses for carrying out activities of representative offices or branches of legal entities abroad, except for representative offices specified in paragraph 2 of this Decision, as well as for payment of services in international goods and passenger transportation – up to the amount of planned monthly expenses – on the basis of specification of these expenses and on the basis of a document of the foreign authority confirming the establishment of a representative office or branch of the legal entity abroad” (hereinafter “Decision of the NBS”).
Paragraph 4 establishes the method of obtaining the National Bank’s authorization, which is limited to one year, after which it must be renewed – “The resident referred to in paragraph 3 of this Decision shall submit a written request to the National Bank of Serbia for authorization to keep foreign currency in a foreign bank account, which shall contain the applicant’s name, registration address, telephone number, subject of business activity, registration number, reason for keeping foreign currency abroad, amount and period of time for which the foreign currency is to be kept in a foreign bank account. The above-mentioned request shall be accompanied by the documentation stipulated in this Decision, while the National Bank of Serbia, if it deems it necessary, may request other documentation as well”
A representative office/branch is not considered a separate legal entity, but a part of a Serbian company abroad.
Transfer of funds between the parent company and the representative office
The transfer of funds from the representative office to the account of the parent company in Serbia is governed by the rules and laws in the country where your representative office was established. From the point of view of the National Bank of Serbia control, it is important that the amount in the representative office account does not exceed the amount authorized by the NBS. Otherwise, a new Authorization must be requested.
Practice
Serbian companies were mainly engaged in investment activities abroad and construction, and the NBS authorization is granted in accordance with the expected turnover under the construction contract. The essence of everything is to obtain NBS authorization and not to start without authorization.
Requirements of Serbian legislation in relation to representative office
It is necessary to notify the NBS quarterly about the turnover of accounts abroad (DI2 sample). It is also necessary to include the balance of the representative office in the balance sheet of the Serbian company. You should be especially careful with this, as international accounting standards are applied in Serbia, while in Russia and the USA, for example, they are not.
Conclusion: A representative office of a foreign company is a separate subdivision that exclusively represents and protects the interests of the organization. Compared to representative offices, branches of foreign companies have more power. In addition to all the capabilities of a representative office, the branch can conduct full-fledged commercial activities: sell goods, and provide services.
We can offer full legal assistance, preparation of documents, and obtaining all necessary permits in Serbia, as well as assistance in obtaining NBS authorization.
A company that invests funds in the capital of a newly founded company in Serbia that performs innovative activities can exercise the right to a tax credit that is used to reduce the calculated profit tax. Tax credit based on investment in the capital of a newly founded company engaged in innovation activity represents 30% of the investment made.
Innovative activity includes activities undertaken to create new products, technologies, processes, and services or to make significant changes to existing ones. Thus, innovation can refer to the improvement or creation of a new product, service, or process, as well as the application of a new or significantly improved method of production or delivery, organization, and marketing innovation.
Requirements for a company to be entitled to a tax credit include:
before the investment, independently or together with all related parties*, did not own more than 25% of shares, i.e., votes in the startup’s management bodies (if the investor, the company alone, or its subsidiary company at no time before the investment did not own more than 25% share);
has fully paid the monetary contributions;
did not reduce its investment continuously for a period of three years from the date of investment.
An investor company can use a tax credit in the first subsequent tax period following the period in which the condition of non-reduction of contributions is fulfilled, which means that it is entitled to a tax credit after three years from the date of investment (calculation of the period begins on the last day of the tax period in which investment was made). If the investor makes the entire investment in 2023, he will have the right to use a tax credit for the profit tax determined for 2027.
Requirements that an innovative startup should meet:
It is a company:
from the establishment of which no more than 3 years have passed;
mainly performs innovative activities (activities undertaken to create new products, technologies, processes, and services or significant changes to existing ones based on the needs of the market).
According to the latest financial reports, the annual income does not exceed 500,000,000 dinars.
which has not distributed dividends, i.e., profit shares, since its foundation, i.e., that they will not be distributed within a period of 3 years from the date of investment;
whose center of business activities is located in the territory of Serbia.
which did not result from a change in status;
which, from the second year of establishment until the payment of the investment by the investor, must fulfill one of the following three conditions:
R&D costs make up at least 15% of total expenses, or
Highly qualified employees make up more than 80% of all employees, or
that the startup is the owner, that is, the user of the deposited author’s work or patent that is directly related to the innovative activity it performs.
Having a second residency in Serbia can provide several advantages for individuals looking to diversify their residency or citizenship portfolio. Some key advantages include:
1. Residency benefits:
Holding a second residency in Serbia allows individuals to reside in the country for an extended period. It is very important to emphasize that the new Law on Foreigners in Serbia enables the issuance of temporary residence for a period of three years. This can be particularly beneficial for those who wish to spend more time in Serbia for business, employment, or personal reasons. Tax residency is not granted automatically. Foreign jurisdictions do not restrict obtaining a second residence permit.
2. The path to a second passport:
Residency, one of the paths to citizenship and a second passport, offers a practical option to examine long-term suitability in a new country before completely committing. The reason for this is that Serbian citizenship application criteria include some form of stay requirement.
3. EU Access:
While Serbia is not a part of the European Union (EU), it is a candidate country, and its citizens have the right to visa-free travel within the Schengen Area. Having a Serbian residency can facilitate easier access to the Schengen Zone and, by extension, many EU countries for business and travel purposes.
4. Taxation:
Apart from more than 65 double tax avoidance agreements signed, Serbia has signed free trade agreements with the EU, Russian Federation, Turkey, and China and shares preferred trade mechanisms with the USA. Personal income tax is one of the lowest in Europe; there is no wealth tax, and there are various incentives. Tax resident status can be obtained in accordance with the 183-day rule or if Serbia is the center of your business or personal interests.
5. Business Opportunities:
Serbia has been actively promoting foreign investment and offers various incentives for businesses, including a flat corporate tax rate of 15% and a personal tax rate of 15% maximum. Holding a second residency can provide individuals with easier access to these business opportunities and potentially benefit from the country’s favorable tax environment.
6. Cost of Living:
Compared to many Western European countries, the cost of living in Serbia is relatively lower, making it an attractive option for those seeking a more affordable lifestyle without compromising on the quality of life.
7. Cultural Richness:
Serbia boasts a rich cultural heritage, including historical sites, vibrant traditions, and a diverse cultural scene. Holding a second residency allows individuals to immerse themselves in the country’s rich cultural offerings and explore its unique heritage.
8. Strategic Location:
Serbia’s strategic location in the Balkans provides access to both Western and Eastern European markets, making it an attractive destination for those looking to expand their business operations or explore new market opportunities.
9. Residency Options for Family:
Serbia offers options for family reunification, allowing individuals to bring their family members to reside with them. This can be particularly advantageous for those seeking to relocate with their families or provide their loved ones with access to the benefits of living in Serbia.
It’s important to note that specific benefits may vary depending on the type of residency or visa obtained and individual circumstances. Additionally, the laws and regulations may change over time, so it’s essential to stay updated with the latest information and consult with legal professionals or immigration experts before making any decisions.
Welcome to Serbia is your trusted provider of legal and immigration services for foreigners in Serbia. Our team of experienced attorneys specializes in all aspects of immigration law, including visa applications, work permits, and citizenship. WTS will offer the best immigration path for you and your family.
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