The Draft Law on Alternative investment funds has been put on public debate. In Serbia, there isn’t currently Law on Alternative Investment Funds only the Law on Investment Funds. The biggest difference between investment and alternative investment funds is that the first one has very clearly defined what they can invest – and these are mostly securities, while others have a much wider range of investments.
The official justification for passing the law states that the legislature’s intention is to improve and develop the capital market, as is a step towards the process of joining Serbia to the EU. Thus, the alternative funds will be valid for the regulations which exist in some other countries and will be aligned with the AIFM directive (Alternative Investment Fund Managers Directive).
Also, the presence of alternative funds on the market should represent one of the effective ways of financing micro, small and medium-sized economic entities through entrepreneurial capital funds (“venture capital funds”) and through private Capital (“Private equity funds”).
What brings this Law?
The important thing for the domestic IT scene is recognizing VC funds and it is important because it creates an infrastructure condition for their formation and funding sources. Namely, VC funds will for the first time be allowed to register as such, and not as a limited liability company (d.o.o.), which has been the case so far. That is since we have had d.o.o. until now. and funds from abroad, the essence is that this creates the possibility of the existence of VC funds in Serbia.
What is really important in this Draft is the fact that domestic capital (corporate, private equity of personal capital, etc.) will be able to mobilize in VC funds, ie startups, and innovations.
In addition, these regulations could encourage foreign investment funds to open their offices in the South East Europe market in Serbia. In that sense, it is not difficult to imagine that the manager of a fund established in Serbia is better acquainted with the local ecosystem and channeled more funds to it. However, to meet something like that, it is necessary to create an incentive tax environment for VC funds along with the Law.
There is a possibility to adopt specific tax incentives that have proved useful in world practice and which could be applied to the domestic ecosystem are “tax credit in the amount of 30 to 50 percent of investments for both legal and personal, release in case of loss (this is good to exist, but is extremely rarely activated because VC and other funds generally do business positively) and the release from capital gains in the first three to seven years.”