EU sanctions on Russia – completion of the pilot project

The European Union has imposed sanctions on specific sectors of the Russian economy and entities that provide support to Russia’s defense capabilities. For instance, professional services are prohibited from being offered to legal entities established in Russia by the EU.

To further enforce its sanctions regime, the EU is working with third countries to ensure that loopholes are closed and that operators do not circumvent its prohibitions. The new special envoy of the EU has confirmed that efforts are underway to work with countries such as the United Arab Emirates, and more countries, including Turkey, are expected to follow.

Asset confiscation is a major focus of EU sanctions enforcement. EU regulations permit the confiscation of assets resulting from sanctions breaches, such as money used to help a sanctioned person evade financial restrictions. The proposed EU directive on asset recovery and confiscation aims to allow national authorities in the EU to identify, freeze, confiscate, and manage tainted assets. This means that if any assets are the product of sanctions breaches, such as money received to facilitate a sanctioned person’s evasion of financial restrictions, they could be confiscated under EU regulations. The confiscation of assets resulting from sanctions breaches is one of the main focal points for sanctions enforcement in the EU. Some countries proposed the establishment of a central agency in the EU Similar to the Office of Foreign Assets Control (OFAC) in the United States, but suggestions have yet to progress.

Under the 10th Package from the beginning of this year, the EU has added 87 more individuals and 34 entities to its sanctions list. This new list includes Alfa-Bank, Rosbank, Tinkoff Bank, the National Wealth Fund of the Russian Federation, and the Russian National Reinsurance Company, among others. Many of the designations target Russian companies involved in the military and defense sectors, such as those producing missiles, drones, aircraft, military vehicles, warships, control systems, and those providing supplies to the Russian Armed Forces.

In the coming months, it will be crucial for companies to assess their compliance with EU regulations, as the EU moves towards greater sanctions enforcement. This is especially important for financial services firms, as a transaction or a counterparty could ostensibly be captured by the EU regimes. The reputational impact of enforcement action can be significant, as it may affect third parties’ willingness to transact with these firms in the future.

On the basis of the above, it seems that the previous sanctions were only a pilot project of the EU, and that now Russia, Russian companies and Russian citizens will face significantly harsher sanctions with a narrowed possibility of circumventing the application of valid directives.


e-Registration of incorporation of a company

In order to improve the conditions for starting a business, the registration application for incorporation of a company from 17 May 2023 is submitted to the Agency for Business Registers exclusively in electronic form, according to the Law on Registration Procedure. In the eRegistration process, all documents that are attached must be in electronic form. This practically means that from 17 May 2023, there will no longer be a possibility to submit an application for the establishment of a company to the APR in paper form. In this way, conditions are created for reducing costs and time for establishing a company, the level of services for citizens and entities is improved and expanded, and the processing time of requests by the Agency is reduced, which contributes to greater efficiency.

The revised process simplifies company formation, conserves resources, and enhances its appeal to entrepreneurs. To take advantage of this more straightforward process, applicants (or their representatives) must have an account on the SBRA online platform and a qualified electronic certificate issued by a competent Serbian authority.


Petrovic Legal advised Hefestos Capital on acquisition of TMK Europe

Petrovic Legal advised Hefestos Capital, the largest investment banking company in Southeast Europe, in its acquisition of 100% of the shares in TMK Europe GmbH, which is the majority shareholder of TMK Artrom SA, leading European pipe manufacturer.

Petrovic Legal team led by Partner Stefan Petrovic assisted with structuring of the transaction, negotiations, preparation of transactional documents, as well as closing and post-closing activities related to the acquisition.


New rules for freelancers

The new draft Law on Personal Income Tax of the Republic of Serbia (the „Law“) foresees the application of new tax rules for freelancers, who this time get a unique choice regarding the taxation model.

Namely, according to the new draft of the Law, the tax return for the income earned by a freelancer will be submitted in quarters, while the deadline for the return of income with calculated tax will be 30 days from the end of the quarter in which the income was earned.

The novelty is that freelancers will be able to choose one of the two taxation models offered in each quarter, which means that freelancers have the option to change the taxation model in each quarter.

According to one model of taxation, recognized costs in the amount of RSD 96,000 are deducted from the quarterly income, and tax is paid at the rate of 20% on the base thus obtained. This means that freelancers who earn RSD 96,000 per quarter (RSD 32,000 per month) do not pay taxes or contributions for pension and disability insurance. Health insurance is mandatory and amounts to RSD 1,402.17 per month or 10.3%. For incomes exceeding the amount of RSD 96,000, starting next year, contributions for pension and disability insurance will be 24%, health insurance 10.3%, and tax 20% on the base determined in the above manner. This model is favorable for freelancers with lower incomes, as well as for those freelancers who occasionally generate income in this way.

According to the second model of taxation, recognized expenses in the amount of RSD 57,900 increased by 34% of the gross income realized in the quarter are deducted from the quarterly income. A tax of 10% is payable on the difference thus obtained. PIO is paid at 24% of the taxable part of income or at least RSD 7,720 per month, and health insurance at 10.3% or at least RSD 1,402.17 per month.

In case you have any questions regarding this topic, please feel free to contact us.


Obligations after TIN has been suspended

In the event that the Tax Administration suspends the TIN assigned to the taxpayer by decision, it delivers a copy of the decision to the bank and the competent organizational unit for forced collection. Then the bank is obliged to suspend the execution of the taxpayer’s order for the transfer of funds, except for the purpose of settling obligations based on taxes and secondary tax payments.

Therefore, the legal consequences of suspended TIN are as follows:

1) suspension of the execution of the taxpayer’s order for the transfer of funds, except for the above-mentioned purpose;

2) Impossibility of identifying the taxpayer in payment instruments, which means the impossibility of issuing invoices, submitting tax returns, as well as any payment instrument that orders the performance of any payment transaction, except for the above purpose.

In this regard, the taxpayer is de facto prevented from performing the activity, although the performance of the activity is not formally prohibited.

On the other hand, a temporary absence from the tax relationship, which occurred as a result of the TIN suspension, does not constitute a legal basis for exemption from tax payments.

Regarding this topic, with respect to the entrepreneurs, the Ministry of Finance published the following opinion:

A taxpayer who is temporarily absent from the tax relationship, and whose situation arose as a result of the suspended TIN, is effectively prevented from performing activities, even though the performance of activities is not formally prohibited. On the other hand, a temporary absence from the tax relationship that occurred as a result of the suspended TIN does not constitute a legal basis for exemption from the payment of mandatory social security contributions.


Trademark infringement – the case of Amazon

Online businesses should take note of a recent Court of Appeal decision, in which Amazon was found to have infringed BEVERLY HILLS POLO CLUB (BHPC) trade marks by targeting and making sales of US branded goods to consumers in the UK and EU (Lifestyle Equities CV v Amazon UK Services Ltd [2022] EWCA Civ 552).

The Claimant, Lifestyle Equities CV, is the owner and exclusive licensee of various UK and EU trade marks relating to the BHPC brand, consisting of the words “Beverly Hills Polo Club” or a logo comprising those words together with a device of a horse and rider. A commercially unrelated entity owns corresponding Trade Marks in the U.S. Lifestyle had not consented to U.S. goods bearing the Trade Marks being placed on the market in the U.K. or EU. It asserted therefore that its trade marks had been infringed by Amazon advertising, offering for sale and selling US branded goods to consumers in the UK and the EU. Lifestyle also claimed that Amazon was jointly liable with the end seller of the products, for the importation of US branded goods into the UK and EU. Therefore, the key question was whether the Defendants’ advertisements on that website had targeted U.K. and EU customers.

Amazon argued that its US website, (the US website), was only targeted at US consumers, and that the UK and each EU country had their own targeted website. It said, amongst other things, that there was an extremely low volume of website traffic from the U.K. and EU (as compared with the U.S. traffic), and, whilst it did advertise shipping in the U.K., arrange for payment of import fees and offer the ability to shop in British pounds, it actively encouraged users to shop on their local Amazon website instead ( if a user is based in the U.K.). If a U.K. or EU user therefore chose to stay on, and purchase goods from that site notwithstanding the higher shipping costs and import duties that would apply, they would make a conscious decision to do so. Such users knew they were buying U.S. products from a U.S. site, and that the products were not targeted at them.

Amazon was successful at first instance in the High Court. The Court of Appeal overturned the High Court’s decision, and found that Amazon had infringed.

The Court of Appeal stated that the first instance judge had made a mistake when saying that there was no targeting of the UK. The purchaser was located in the UK, the shipping address was in the UK, the billing address was in the UK, the currency of payment was GBP and Amazon said that it would make all the necessary arrangements for the goods to be shipped to and imported into the UK and delivered to the consumer in the UK. Further, it was noted that even if the U.S. Amazon website was targeting the U.S. predominantly, it was not restricted to the U.S. The relevant question is whether there is use of the sign in issue, and in this case, there clearly was. Following the CJEU decision in Blomqvist v Rolex SA (Case C-98/13) the sale of goods under a sign by a foreign website to a consumer in the UK or the EU constitutes use of the sign in the course of trade in the relevant territory, and this is so even if there is no antecedent offer for sale or advertisement targeting consumers in that territory. The judge had made an error in interpreting Blomqvist differently, it is stated.

The judgment is significant for those operating online businesses globally, and the potential liability for intellectual property rights infringement such activity may present. Websites may be accessible by anyone anywhere in the world, but intellectual property rights are territorial. This means it is vitally important to make sure that the sale of a product is lawful not only in the country the business is established in, but also in any countries the business may be deemed to be targeting.

You can read the entire decision of the Court of Appeal at the link.

Amazon may appeal the judgment and any further developments will be monitored.

If you need advice on how this judgment might affect your business, please contact us.


New incentives for employers

The Republic of Serbia has introduced additional incentives when it comes to employers. Namely, in addition to the previous incentives that we wrote about here, incentives have been introduced that concern employers who employ newly settled individuals.

On 16 June 2022 a Decree on the Criteria for Granting Incentives to the Employers who employ newly settled individuals in the Republic of Serbia is adopted and entered into force on 18 June 2022.

The new incentive includes the possibility of refunding 70% of the calculated and paid salary tax and 100% of the calculated and paid pension and disability social contribution.

A newly settled person is a person for whom there is a need that cannot be easily satisfied on the domestic labor market and who has not resided in the territory of the Republic of Serbia in the period of 24 months, preceding the day of concluding the employment agreement with the employer more than 180 days and with whom the employer concluded a full-time permanent employment agreement and has an agreed monthly basic salary in accordance with the regulation regulating work of at least RSD 300,000.00 .

Incentives will be refunded in the amount of 70% of the calculated and paid income tax for one or more employed newly settled persons and 100% of the calculated and paid contributions for mandatory pension and disability insurance, for payments made for an employed newly settled person in a period of no more than 60 months, starting from 1 July 2022 and ending on 31 December 2028.

To apply for incentive the following conditions must be met:

1) in the period from the submission of the first application and ending with the end of the calendar year in which he received the last incentive payment, the employer should not pay out the dividends, except for dividends that are paid out of the part of profit higher than the refunded amount;

2) Employer is not a beneficiary of state assistance in connection with which he has an obligation to employ individuals, except for obligees who have already fulfilled this obligation as of 1 July 2022;

3) Employer does not use the other tax incentive for newly settled person;

4) Newly settled individuals must remain employed with employer in the period between the day application for refund is submitted and 31 December of the year the application is submitted.

This is another incentive introduced by the Republic of Serbia in order to equalize market conditions and enable different categories of workers to be employed.


About the beginning of the application of electronic VAT registration for private sector entities

The Law on Electronic Invoicing introduced the obligation of electronic invoicing and the special obligation of electronic recording of VAT calculations for both public sector entities and private sector entities. Public sector entities were obliged to harmonize their operations with the aforementioned obligation no later than 1 May 2022, while private sector entities are subject to this obligation from 1 January 2023.

Bearing in mind that transactions involving a public sector entity on the one hand and a private sector entity on the other are not rare, we point out that there is no set deadline from which there is an obligation to electronically record VAT calculations by the private sector entity in transactions in which the other foreign public sector entity.

In view of the above, in the absence of a different legal wording, the obligation of private sector subjects of electronic registration before January 1, 2023 is not established in the above transactions, despite the fact that on the other side there is a public sector subject for whom such an obligation exists.

This position was expressed by the Minister of Finance in the Explanation which can be found at the following link.


Postponement of the payment of the due tax

The provisions of Article 73 para. 1˗6. of the Law on Tax Procedure and Tax Administration stipulate that the Tax Administration may, at the reasoned request of the taxpayer, in whole or in part, postpone the payment of tax due, provided that the payment of tax due:

1) represents an inappropriately large burden for the taxpayer;

2) causes significant economic damage to the taxpayer.

The taxpayer performs the stated delay by signing an agreement with the Tax Administration, i.e. it is done by a decision of the Tax Administration. In the decision-making process, the taxpayer is obliged to submit a security assets that cannot be less than the amount of tax whose payment is delayed.

The Tax Administration will ex officio annul the agreement, i.e. cancel the decision if the taxpayer does not adhere to the deadlines from the agreement, i.e. the decision, and then will collect the due and unpaid tax debt from security assets or in the procedure of forced tax debt collection. In that case, this taxpayer has no right to resubmit the request for deferment of payment of that due tax. However, the taxpayer may submit a reasoned request to the competent tax authority to defer payment of the due tax in installments ˗ but only for those tax liabilities that were not already covered by the previous agreement, and the Tax Administration may defer payment in full or in part, no later than up to 60 months, if the taxpayer meets the prescribed conditions.


Tax incentives for research and development

A large number of IT companies, as well as other companies conducting research and development projects, are still unfamiliar with the tax regulations concerning the recognition of research and development costs and what impact this has on the corporate income tax base.

Namely, Article 22g of the Serbian Law on Corporate Income Tax prescribes that expenses that are directly related to research and development performed by a taxpayer in Serbia may be recognized as an expense in the taxpayer’s balance sheet, in twice the amount. This means that these legal entities have the opportunity to recognize in the tax balance double the amount of expenses incurred in connection with research and development activities.

Research is considered original or planned research undertaken in order to acquire new scientific or technical knowledge and understanding, which means that it is necessary to work systematically on research, while accidental discovery or knowledge could not qualify as research in terms of this tax incentive. On the other hand, development is the application of research results or the application of other scientific achievements or designs for the production of new significantly improved materials, devices, products, processes, systems or services before entering commercial production or use. The condition for acquiring this right is that the research and development project is carried out in Serbia. A project is considered carried out in Serbia if at least 90% of all employees engaged in research and development work in Serbia.