Frequently Asked Questions - Legal topics important for doing business with Serbia – Ljubica Tomić Attorney-at-Law February, 2012

TOP 10 ISSUES 1. How difficult is the procedure of setting up a company in Serbia and what should I pay attention to? 2. Can a foreigner have a 100% share in a Serbian company? 3. Does starting-up a company require a permission of the Commission for Protection of Competition? 4. Is Director required to report the company’s insolvency? 5. What are the notice periods and severance pays in case of termination of employment? 6. If a dealer or representative for the territory of Serbia has been appointed, are there any statutory notice periods and compensations to be paid in case of termination of agreement? 7. In case of sale of goods from abroad in the territory of Serbia, are foreigners entitled to retain title over goods until such goods are paid? 8. Which are the most efficient collaterals in Serbia? 9. May an international invoice be directly enforceable in Serbian territory? 10. Can a foreign legal entity have a title to immoveables (buildings and real estate) in Serbia? www.tomic-stevic.co.rs office@tomic-stevic.co.rs

1. How difficult is the procedure of setting up a company in Serbia? The procedure of setting up a company in Serbia is short and simple (it takes up to 5 working days), including obtaining company tax number (one-stop shop = Business Registers Agency)   The start-up capital is quite low (set at 1 EUR for a limited liability company, 30.000 EUR for a joint-stock company as of 1 Feb 2012) Attention should be paid to the procedure of opening bank accounts, which is often longer and more complex than the procedure of setting up a company, due to proving the chain of ownership of the company to the bank (under the Law on the Prevention of Money Laundering and Financing of Terrorism and by-laws) Attention should be paid to limited liability companies, where it is possible to arrange - that profit distribution and/or voting rights and/or other shareholders’ rights are not proportionate to the shares in the company (Art. 152.2. of the Company Law), - overriding the statutory 2/3 majority for decision-making on certain topics and reducing it to the simple majority of the voting power (for topics such as: capital increase/ decrease, changes of corporate status/legal form, deciding on liquidation of the Company, or filing a petition for initiating bankruptcy proceedings, profit distributions and loss coverage manner, acquisition of treasury shares) (Art. 211. of the Company Law). - freedom of negotiations is broad and familiar to the EU lawyers www.tomic-stevic.co.rs office@tomic-stevic.co.rs

2. Can a foreigner have a 100% share in a Serbian company? In principle : YES, except for: Manufacture and sale of weapons (up to 49% control rights) Restricted (“protected”) Serbian areas (up to 49% control rights) Broadcasting up to 49% ownership www.tomic-stevic.co.rs office@tomic-stevic.co.rs

3. Does starting-up a company require a permission of the Commission for Protection of Competition? If a joint venture is being set up the Serbian Competition Commission has to be notified in case in the preceding financial year: The total worldwide turnover of all JV parties is above EUR 100 million, whereby at least one party’s turnover is realized in RS and exceeds EUR 10 million, or The total worldwide turnover of at least 2 parties of the JV is above EUR 20 million , whereby at least 2 parties’ annual turnover is realized in RS and exceeds EUR 1 million each. Otherwise, measures of de-concentration and penalties up to 10% turnover possible. If decision upon notification is not passed within one month form the submission date, the JV concentration is considered to be approved. www.tomic-stevic.co.rs office@tomic-stevic.co.rs

4. Is Director required to report the company’s insolvency? Director is not required to report the company’s insolvency or bankruptcy under the Serbian laws (Ger: Invoslvenzanmeldepflicht) However, Director is required to inform the Shareholders’ Meeting of any deteriorations in the company’s financial situation (after the annual report until profit distribution to the shareholders), otherwise Director shall be held liable to the shareholders and creditors for damages (Art. 184.2 and 3 of the Company Law) www.tomic-stevic.co.rs office@tomic-stevic.co.rs

5. What are the notice periods and severance pays in case of termination of employment? NO notice periods are applicable for the employer except: a. ) where established under a contract of employment or b.) where termination is due to poor performance, lack of knowledge and skills (1 – 3 months depending on the years of service)   Severance pay is applicable only: a.) where established under a contract of employment (always in case of a competition clause) b.) in case of redundancies, redundancy formula being 1/3 salary x years of service (for the first 10 years) plus ¼ salary x years of service (for following years) www.tomic-stevic.co.rs office@tomic-stevic.co.rs

6. If a dealer or representative for the territory of Serbia has been appointed, are there any statutory notice periods and compensations to be paid in case of termination of agreement? No! Serbian laws have not yet introduced any protective provisions for dealers /representatives, therefore there are still no statutory notice periods, accounting periods for representatives’ fees, or statutory compensations to be paid to a dealer/ representative in case of termination of agreement (Ger: Ausgleichsanspruch). Freedom of negotiations with the dealer / representative. www.tomic-stevic.co.rs office@tomic-stevic.co.rs

7. In case of sale of goods from abroad in the territory of Serbia, are foreigners entitled to retain title over goods until such goods are paid?   Yes. BUT, but this is a huge trap! In Serbia, (a) there are no procedures of direct enforcement on the goods subject to retention of title, but rather a lawsuit must always be initiated and the burden of proof lies with the plaintiff i.e. owner of goods and (b) there are no registers of items subject to retention of title. Therefore it is more efficient to pass the title to goods and at the same time place a pledge on the goods sold! www.tomic-stevic.co.rs office@tomic-stevic.co.rs

8. Which are the most efficient collaterals in Serbia? Pledge over movable property registered with the public Register of Pledges. The pledge remains although the owner may change (important! Unless the pledger sells the same goods in the course of its regular business activities, Art. 23.6 of the Law on Pledge of Movable Assets Registered in the Pledge Registry)   Mortgage established as enforceable extra-judicial mortgage (important! The agreement must have all important elements of Art 15 of the Law on Mortgage, i.e. the cautions of the consequences, statements by the owner the third party in possession of the real estate) Out-of-court sale of a pledged item/ real estate is possible in a special procedure. www.tomic-stevic.co.rs office@tomic-stevic.co.rs

9. May an international invoice be directly enforceable in Serbian territory? YES! An invoice by a domestic or foreign legal entity, with a delivery note or other written evidence that the debtor has been informed of the liability, is a valid document and may be directly enforced (Art.18.1.3 pf the Law on Enforcement and Security) However, the foreign creditor has to first open a non-resident bank account (RSD and EUR) in Serbia. www.tomic-stevic.co.rs office@tomic-stevic.co.rs

10. Can a foreign legal entity have a title to immoveables (buildings and real estate) in Serbia? YES, provided that: The immoveable is not in an area restricted under a special regulation for such transactions The immoveable is necessary for performing the business activity in Serbia (practically, a Serbian affiliated company is set up, which will be the direct owner of the real estate) There is a reciprocity with the country of origin Attention! When buying the real estate, always check the status of conversion of land into the property rights (the deadlines and any fees for conversion of the rights of use into the property rights!) in accordance with the Law on Planning and Construction.   www.tomic-stevic.co.rs office@tomic-stevic.co.rs

Sources of law - in the order of appearance- Law on the Prevention of Money Laundering and Financing of Terrorism ("Official Gazette of RS", No. 20/2009, 72/2009 and 91/2010) Company Law ("Official Gazette of RS", No 36/2011 and 99/2011) Foreign Investments Law ("Official Journal of FRY", No. 3/2002 and 5/2003 and "Official Journal of Serbia and Montenegro", No. 1/2003 – Constitutional Charter) Broadcasting Law ("Official Gazette of RS ", No. 42/2002, 97/2004, 76/2005, 79/2005 – other law, 62/2006, 85/2006, 86/2006 - correction and 41/2009) Law on Protection of Competition ("Official Gazette of RS", No. 51/2009) Labour Law ("Official Gazette of RS", No. 24/2005, 61/2005 and 54/2009) Obligations Act ("Official Journal of SFRY ", No. 29/78, 39/85, 45/89 – decision of the Constitutional Court of Yugoslavia and 57/89, "Official Journal of FRY" No. 31/93 and " Official Journal of Serbia and Montenegro", No. 1/2003 - Constitutional Charter) Law on Mortgage ("Official Gazette of RS", No. 115/2005) Law on Pledge of Movable Assets Registered in the Pledge Registry ("Official Gazette of RS", No. 57/2003, 61/2005, 64/2006 – correction and 99/2011 – other laws) Law on Enforcement and Security ("Official Gazette of RS", No. 31/2011 and 99/2011 - other law) Law on Grounds of property law Relations ("Official Journal of SFRY", No. 6/80 and 36/90, "Official Journal of FRY", No. 29/96 and "Official Gazette of RS", No. 115/2005 - other law) Law on Planning and Construction ("Official Gazette of RS", No. 72/2009, 81/2009 - correction, 64/2010 - decision of the Constitutional Court and 24/2011)   www.tomic-stevic.co.rs office@tomic-stevic.co.rs

Thank you for your attention TOMIC STEVIC DULIC _________________________________ Attorneys-at-law Carice Milice 3/II · 11000 Belgrade · Serbia TEL/FAX +381 (0)11 3285 227 +381 (0)11 3285 208 +381 (0)11 3285 153 office@tomic-stevic.co.rs ljubica.tomic@tomic-stevic.co.rs www.tomic-stevic.co.rs