Legal Issues and Recent Developments in Serbia

Ljubljana, November 19 2008

Enterprise Management Incentives

Ms Jelena Edelman, Senior Associate, Prica & Partners

Legal FrameworkLjubljana, November 19, 2008

Labor Law – 2005 (“LL”)

Personal Income Tax Law – 2001 (“PITL”)

Foreign Exchange Transactions Law– 2006 (“FXTL”)

There are no separate regulations applicable only to members of

management.

Recent Developments and Legal Issues in Serbia

Legal FrameworkLjubljana, November 19, 2008

1. Participation in profit •LL - “Employer may determine the employees’ participation in

company’s profit made in a business year by the employment agreement or by its decision, in accordance with the law and a general act.” (Article

14)

2. Bonuses & awards•LL – “Salary consists of earnings for performed work and time spent at

work, earnings based on employee’s contribution to the employer’s business success (awards, bonuses etc.)..., all in accordance with a general

act and the employment agreement.” (Article 105)•Further regulated by employer’s collective agreement or employer’s general act (Rules of Employment, Rules of Bonus Payment, Profit

Participation Plan, Stock Option Plan, etc.) and/or employment agreement;

3. Stock optionsRecent Developments and Legal Issues in Serbia

Participation in ProfitLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

Participation in profit/Tax TreatmentLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

Awards and BonusesLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

• PITL –Salary is considered as earnings realized on the basis of

employment relationship, i.e. as defined by LL. Also, salary includes

other remunerations received in form of bonuses, cash certificates,

shares… (Articles 13 and 14)

• Income Tax - 12%

• Mandatory social insurance contributions 35.8% (payable 17.9% by both employer and employee). Social security charges are capped – above the amount of five average salaries in the Republic of Serbia social security contributions phase out. (in 2007 = 2,324,640 RSD or EUR 27,300.00)

Awards and Bonuses/Tax TreatmentLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

Local employment agreement entitles an employee to participate in a Stock Option Plan of a foreign founder

Lack of explicit legal regulations – general rules of employment, tax, and foreign exchange laws are applicable;

Stock Options - GeneralLjubljana, 19. novembar 2008

Recent Developments and Legal Issues in Serbia

Stock Options/Tax TreatmentLjubljana, 19. novembar 2008

Recent Developments and Legal Issues in Serbia

Stock Options/Tax TreatmentLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

Reporting requirement imposed by the FXTL;

Decision rendered by the National Bank of Serbia in 2007 determines more specifically the terms and conditions of reporting the investment of residents in the shares of a foreign company;

Residents are responsible for the accuracy of information submitted in their reports.

NBS Reporting RequirementsLjubljana, November 19, 2008

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Recent Developments and Legal Issues in Serbia

Annual TaxLjubljana, November 19, 2008

Recent Developments and Legal Issues in Serbia

Ljubljana, November 19, 2008

Thank you for your attention.

Have a successful conference!