Attracting the investor – keeping no. 1 in the region position
The current investment incentive framework, with the latest update through the Direct Investment Incentive Decree dated January 2019, has kept employment incentives as one of the ways to resolve unemployment issue, especially in the underdeveloped areas in Serbia and motivate the investors to shift manufacturing activity to Serbia. Employment incentive can be, by Decree mentioned, defined as:
- 20% to 40% of the eligible 2-year gross salary costs for new jobs created (with maximum amount per new job ranging from EUR 3,000 to 7,000).
- Furthermore, if the incentive is granted for labour intensive projects (at least 200 new jobs are created), additional 10% to 20% of the eligible 2-year gross salary costs for new jobs created may be granted, depending on the number of new vacancies.
Volume of incentives per employee vary depending on area where the investment is located, and the number of local employees engaged. The state grants are intended to be used for Greenfield and Brownfield projects in the following sectors:
- Internationally marketable services; and
- Hotel services in areas designated as spa areas.
Software development activities are not covered, except when performed for the purposes of improving products, manufacturing processes and internationally marketable services. So, the Decree clearly stimulates large-scale projects that also include valuable investment in production capacities and makes influence on the overall infrastructure of the immediate environment of the intended investment location.
The investor is obliged to maintain the investment over 3 to 5 years upon completion of the project installation and to pay out the salary at least 20% above the minimum wage prescribed to the employed personnel.
Relief in terms of Corporate Profit Tax
Serbian Corporate Profit Tax Law (CPT Law) provides tax relief for the companies investing more than 1 billion RSD and employing more than 100 people proportional to such investment over 10-year period. The Law like the Decree on Direct Investments requires that the investor maintains the level of employment over the period of tax relief usage.
There is no notice on any supporting amounts and incentives in terms of providing employee benefits engaged through direct investment project or large-scale projects mentioned in the CPT Law. Hence, the options available should be investigated through the mechanism of the Serbian Personal Income Tax Law.
How the amended Personal Income Tax Law helps you motivate your employees?
Serbian Personal Income Tax Law (PIT Law) prescribes that any employee benefit triggers additional payment of salary tax. There are no tax exempted stimulations in terms of family benefits, child care facility financing nor personal development (apart from approved education costs). The amendments of the Serbian Personal Income Tax Law (PIT Law) dated December 2018 have included for the first time the tax exemption in terms of sport activities organized for employees. So, healthier employees for healthier company is the message sent to all employers.
This means that turning from typical team building in a bar of a restaurant to a yoga class in open-air or regular gym pass coverage for employees takes off a certain salary tax burden. Now, it is easy to come to conclusion that starting from the zero is the most important thing and that sport activities are fine. But what about diversification of HR tools depending on the type of business activity of the company and employee preferences? It is often heard from people in “creative” industry that they pay a lot on “employee hedonism taxation”, but that the motivation of their employees is hedonism-driven. Wouldn’t it be the right way to let the company decide how they will stimulate and keep the employees motivated, but to keep the limit either in terms of per capita amounts or in proportion to salary expenses (that are taxable)?
In conclusion, still not much on family benefits or flexibility of HR tools. The focus is still in resolving the economic devastation of areas listed in groups and increasing the mandatory salary amount.