Greenfield investment in Serbia

1. Greenfield investment in Serbia

2. Corporate organization of Serbian companies • Following the initial period of business and legal research, incorporation in Serbia is desirable (e.g. for ease of acquisition of rights over land) • Limited Liability Company (minimal capital RSD 100 [1 €]) • Joint Stock Company (minimal capital RSD 3,000,000 [30,000 €]) • Process of establishment cca 2 weeks – operative within 1 month (possibly earlier, if so requested) 2

3. CORPORATE GOVERNANCE • one tier governance system • shareholders assembly • one or more directors • OR • two tier governance system • shareholders assembly • supervisory board and • director(s)] • Legal entity as director is a new possibility • Directors may be engaged on the basis of labor law contract or management contract 3

4. CORPORATE TAX • CIT – 10% • Dividend tax - 20% withholding • Tax incentives (investment of RSD 800 mio + 100 employees - 10 years proportional release of CIT) • VAT 20% 4

5. INCENTIVES Per the Decree on Manners and Conditions for Attracting Direct Investments - an investor can be granted some financial incentives depending on the value of the investment and the number of new jobs opened - Euro 4,000 – Euro 10,000 for each new employee Incentives are given in the production sector where at least 50 new employees will be employed for indefinite period of time within the period of three years after the conclusion of the agreement, if the investment is in the minimal amount of: Euro 500,000, in the areas categorized in the group IV and in devastated areas, and Euro 1,000,000, in the areas categorized in groups I, II and III. Incentives may also be granted for the large investment projects (investment of at least Euro 50,000,000 with the opening of at least 300 new jobs) and for medium investment projects (investments of at least Euro 50,000,000 with the opening of at least 150 new jobs) under the condition that at least 20% of investments (for big projects) or 10% (for medium projects) are realized in the first year. The financial incentives for large investment projects are in the amount of maximum 20% of the investment (for investment of over Euro 100,000,000) and in the amount of maximum 17% of the investment (for investment of under Euro 100,000,000). The financial incentives for medium investment projects are in the amount of 10% of the amount of investment. 5

6. LAND ACQUISITION • Limited possibility for acquisition directly by foreign entities (no agricultural land, reciprocity conditions, necessity) but 100% owned subsidiaries of foreign entities with no restrictions; • civil construction land vs. agricultural (conversion is costly – 50% of the market value); • cadastre is relevant public book for designation; 6

7. LAND ACQUISITION – ownership status • Right of use – not suitable for construction; • Ownership (if the land is capable of being sold - conversion from right of use is a pre-condition) • Permanent lease for 99 years • Art. 96 – acquisition of land [both in ownership of lease ]from the state (local self governance with Governmental approval) with no consideration 7

8. CONSTRUCTION • Report on purpose of the land (no land status is required) • Location permit (proper title on the land is required) • Environmental analysis required • Additional permits required for construction of certain facilities • Construction permit (Belgrade: one year) • Fee for arrangement of civil construction land – could be significant (Belgrade 150€ – 600€, Serbia 10€) • Use permit 8

9. Labor Law (“LL”) “Official Gazette of the RoS”, no. 24/2005, 61/2005 and 54/2009 • Generally protective towards employees • Definite (1 year) and indefinite time • Working hours, shifts, night work regulated under the LL • Trade union (no general collective agreement currently in force) • Labor Inspection vs. court protection 9

10. Labor Law (“LL”) “Official Gazette of the RoS”, no. 24/2005, 61/2005 and 54/2009 The employer may terminate the employment in case of a number of justified reasons which are as follows: if employee fails to achieve work results, and/or if he/she lacks necessary knowledge and ability for performing the jobs if employee through his own fault violates a work duty as specified in the general act or employment contract if employee fails to respect work discipline as specified by the act of the employer, and/or if his conduct is such as to prevent him to continue to work with the employer if employee commits a criminal offense at work or in relation to work if employee fails to return to work with the employer within 15 days from the day of expiry of the period of unpaid leave or the employment stay if employee misuses the right to a leave due to temporary impediment for work if employee refuses to conclude an annex to the employment contract in relation to change of work position, transfer to another place of work, transfer to another employer, as provided under the Law 10

11. Labor Law • Foreign employees - work and residents permits • salary tax : 12% • Compulsory social and health contributions: cca 63% (salary tax included) • Minimal salary (RSD 115 – cca 1 € per hour, valid from April 2012 till February 2013) 11

12. Regulations • The Law on Foreign Investments proclaims: • National treatment and • Legal Certainty and a “Freeze Clause” • Trade treaties with some ofNordic countries - status of “preferred nation” save for neighboring countries, custom or trade unions and GATT • Double taxation treaties – applicable to e.g. dividends • Bilateral Investment Treaties • - International Center for Settlement of Investment Disputes (ICSID) 12

13. We wish you successful business!