Foreign investments

Attracting foreign investment and investor incentives for the production of audiovisual works in the Republic of Serbia

Although it is already recognized as one of the leading European countries in terms of foreign investment, the Republic of Serbia continues its active policy of attracting foreign investors. The direct consequence of the substantial increase in investments in a plethora of different fields is the fact that there are more and more foreign natural and legal persons willing to invest in the production of audiovisual works in the territory of the Republic of Serbia. The Republic of Serbia has recognized this trend and has taken steps to improve the environment for investments in audiovisual works within the so-called creative industries (e.g. films, short films, TV shows, documentaries, animated films, etc ”Industry”).

The first step forward was taken when the Serbian government adopted the regulation encouraging investors to produce audiovisual works in the Republic of Serbia (‘‘Audiovisual regulations’) in 2015 providing the entire legal framework for granting and allocating incentives to producers of audiovisual works. This legal framework included requirements, procedures, entities/persons entitled to request incentives, etc. 132/2021 and 57/2022, and it prescribes the conditions for realizing the right to be granted with inducements before a commission consisting of experts appointed by the Government of the Republic of Serbia (”Commission”). The requirements are differentiated according to the category of the respective industry part. The general rule is that the incentives are granted up to 25% of the qualified costs accepted on the auditors’ report and if the investment is greater than EUR 5,000,000.00, the amount of incentives for the grant is 30% qualified costs.

Specific conditions are set in each category, and for feature films and TV films to benefit from incentives, the eligible costs under the budget must be above EUR 300,000.00 and, for example, for the TV show amount of EUR 150,000.00 of the qualified costs per episode must be exceeded in the budget. Other rules are provided by the audiovisual regulations, and in particular, such as the production must be carried out according to the defined schedule (production schedule) and if deviations occur, the Commission must be informed within the following 7 days. Any request that does not meet the requirements for public funds is deemed to be granted in the following fiscal year, with the Republic of Serbia serving as the guarantor for the funding of the incentives. The Audiovisual Regulation provides for a detailed procedure which starts with an application for the granting of incentives submitted to the Commission through Centar Film Serbia on the basis of a previous public announcement (public call) made by the Ministry of Culture and Information (”Ministry”). Upon request, the Commission issues a decision on the granting of incentives, proposing the conclusion of the agreement to the Ministry, after which the agreement between the applicant and the Ministry is concluded. Article 13 of the Audiovisual Regulations regulates the agreement and in paragraph 2 of said article it is prescribed that deadlines, rights and obligations are further regulated within the framework of the agreement. At the conclusion of the agreement, the bidder requests payment of the awarded incentives and the Commission makes a decision if the payment conditions are met, then the incentive funds are paid into the special purpose account held at the administration of the Treasury based on the decision of the Ministry. The depositor holding the account can transfer the incentive funds received to the investor within 10 business days.

When considering the application for the granting of the incentives, the applicant must take into account the provisions established in the regulations on the types and content of the explanation of qualified and non-qualified costs and the form of application for the allocation and payment of incentive funds to the investor to produce audiovisual works in the Republic of Serbia (”Audiovisual Rules”). In order to determine if the Bidder is eligible to claim incentives, the eligible cost provisions must be assessed. Qualified costs, in accordance with the Audiovisual Regulations, are costs accepted as eligible costs for the production of the audiovisual work, incurred and paid in the Republic of Serbia, formed on the basis of a statement from authorized listeners. When compiling the appropriate budget for the production of the audiovisual work in Serbia, it is necessary to take into consideration the very purpose and meaning of the qualified costs. The AV rules state that the following costs would be considered qualified:

  • costs related to the production of audiovisual works incurred and paid to legal or natural persons in the territory of the Republic of Serbia, which are related to the purchased goods and services, the use of premises, the payment of members’ fees the author, acting and technical team citizens of the Republic of Serbia or foreigners staying at least one year in the territory of the Republic of Serbia, in accordance with applicable regulations;
  • the costs incurred by the use of the goods, i.e. the rental of movable and immovable goods, can only be taken into account if the goods (or movable and immovable goods) belong to legal or natural persons of the territory of the Republic of Serbia.

In addition, article 3 of the Audiovisual Regulations stipulates that the qualified costs are in particular: I) fees and salaries for team (and accompanied tax); ii) rental costs apartments or hotels for foreign team members during their stay in the Republic of Serbia (and accompanying taxes); iii) daily allowances or expense allowances for food, accommodation and work and stay in the field or unforeseen expenses paid to local team members, as well as foreign – team members during their work in the Republic of Serbia, up to to a maximum of 100 euros per day, provided that their per diems and allowances were paid in the Republic of Serbia with all taxes relating thereto; iv) copyright purchase costs residents or legal entities of the Republic of Serbia, provided that the application confirming the purchase of rights is attached to the application; v) property purchase costs (The Audiovisual Rulebook regulates in detail); vi) all insurance premiums if provided by a Serbian legal entity-insurer; general operating costs incurred during the making of the audiovisual work in the Republic of Serbia, in accordance with the production schedule and recording plan; viii) business expenses of a Serbian producer or co-producer, if they are charged for a production for specific purposes, provided that they are in the function of production of audiovisual works, and at market prices.

On the other hand, the Audiovisual Regulation under Article 6 defines “partially eligible costs” and provides in detail the costs which are not to be considered eligible (such as interest and commission financing costs; royalties from foreign producers; deferred payments, profit sharing, remaining payments; etc).

This means that when drawing up the budget before starting the production of the audiovisual work, the producer(s) must assess both legally and economically the question of qualified costs, since the very detailed definitions provided by the Broadcasting Rules and the Broadcasting Rules will determine the amount of incentives that should be granted, or, whether the incentives will be granted at all. Therefore, it is of great importance that the producers enter into projects well prepared and with the duly professional, legal and accounting support of the people engaged in order to realize their rights and achieve their objectives in the best possible way.

It was certainly a clear intention of the Serbian legislation to provide a more suitable environment for the producers of audiovisual works, taking into account in particular the provisions set by the Audiovisual Regulation and Regulations, but also the provisions of the Investment Law which have created a starting point when it comes to state aid and incentives. Moreover, the affection of the Serbian law towards foreign investments and audiovisual production can appear when evaluating the provisions of the law on the employment of foreign citizens (”LEFC”). In particular, the LEFC regulates the conditions and procedures for the employment of foreign citizens in the Republic of Serbia and other issues concerning the employment of foreign citizens in it. However, under Article 3(2)(9) of the CFEA, it is stipulated that the the conditions of employment of a foreign citizen established by this law do not apply to the employment of a foreign citizen who is a member of a team of authors or actors producing an audiovisual work in the territory of the Republic of Serbia, in accordance with the law. Therefore, these provisions aim to allow foreign producers to come to Serbia and produce audiovisual works in a much better and efficient environment with all the stimulations and improvements accompanied with the state as a guarantor. Provisions like these greatly facilitate the otherwise difficult and comprehensive production process which, apart from the existing stages in the industry (such as concept and idea generation, budgeting, idea development, scriptwriting and screenwriting, hiring, cast and crew recruitment, scouting locations and production design etc.) encompasses many different aspects of creating, managing, accounting and legal issues that need to be addressed when pursuing creative goals within the industry.