The Government of Serbia adopted on 11 March 2021 two new bylaws under the State Aid Control Act (Zakon o kontroli državne pomoći, Official Gazette of the Republic of Serbia no. 73/2019): the Regulation on Conditions and Criteria for Compliance of Regional State Aid (Uredba o uslovima i kriterijumima usklađenosti regionalne državne pomoći) (“Regional Aid Regulation“) and the Regulation on Rules and Conditions for Granting of De Minimis Aid (Uredba o pravilima i uslovima za dodelu pomoći male vrednosti) (“De Minimis Regulation“). Both regulations enter into force on 24 March 2021.

The adoption of these regulations is a step towards further alignment of state aid legislation with the European Union’s state aid acquis, in line with the Serbia’s obligation from Article 72 of the Stabilisation and Association Agreement (SAA). Accordingly, it is also a step towards the fulfilment of benchmarks for the opening of Chapter 8 – Competition in the process of Serbia’s accession negotiations. The State Aid Control Commission announced that other state aid bylaws are in the pipeline.

What is new for regional state aid?

The rules on compliance of regional state aid with the State Aid Control Act were so far set out in the Regulation on Rules for Granting State Aid (Uredba o pravilima za dodelu državne pomoći, Official Gazette of the Republic of Serbia no. 13/10, 100/11, 91/12, 37/13, 97/13, 119/14, and 23/21) (“State Aid Regulation“), which will remain in force. Articles of the State Aid Regulation regulating granting of regional state aid will cease to apply as of 24 March 2021, with the exception of articles 15 and 16 of the State Aid Regulation which set out conditions for compliance of regional state aid to small newly-found undertakings, and Article 17 which regulates operating regional state aid, which remained in force. The conditions for operating regional state aid are further regulated in the Regulation on Regional Aid, which is aligned with the EU Guidelines on regional State aid for 2014-2020 (“EU Regional Aid Guidelines“)

Regional aid may be compatible when granted to promote the economic development of areas of the Republic of Serbia with abnormally low standard of living or high level of unemployment, or to facilitate the development of certain economic activities or certain economic areas in Serbia, in line with Article 6 para. 2 points 1 and 3 of the State Aid Act, respectfully. In addition to undertakings in difficulty, and undertakings active in sectors of coal, steel, and synthetic fibres, which were already excluded pursuant to the State Aid Regulation, the Regional Aid Regulation also excludes from its application the undertakings active in the sectors of transport, energy, finance, insurance, management, and consulting.

Compatibility criteria

The EU Regional Aid Guidelines set out common assessment principles which must be satisfied in order for regional aid to be compatible: (i) contribution to a well-defined objective of common interest, (ii) need for state intervention, (iii) appropriateness of the aid measure, (iv) incentive effect, (v) proportionality of the aid (aid to the minimum), (vi) avoidance of undue negative effects on competition and trade between Member States, and (vii) transparency of aid.

According to the Regional Aid Regulation, however, only transparency and incentive effect of aid on the investment are general criteria for all types of regional state aid, while regional investment aid and regional operating aid are subject to specific criteria and conditions which include eligible investments and eligible costs, conditions related to tangible and intangible assets and wages, beneficiary contribution and size of the company. The seven compatibility criteria set out in the EU Regional Aid Guidelines must be additionally fulfilled only in the following exceptional cases: (i) regional state aid for the investment exceeding the amount of maximum aid intensity calculated on the basis of the Regional Aid Regulation, (ii) state aid granted in the shipbuilding sector, (iii) regional aid scheme aimed at a limited number of particular economic sectors, or (iv) regional operating aid granted in addition to regional investment aid.

Aid intensity

Serbia had the obligation pursuant to the SAA to prepare and submit to the European Commission the data for the regional aid map (GDP per capita figures harmonised at NUTS II* level) until September 2017, but has not yet done so. The purpose of the aid map is to determine the eligibility of the regions in Serbia for regional aid and the maximum intensity of aid per region.

Until now, the maximum aid intensity for large investments pursuant to Article 13 of the State Aid Regulation has been set for the entire country at the level of 50% of eligible costs up to EUR 50 million, 25% of eligible costs for the amount of investment which exceeded EUR 50 million, and 17% of eligible costs for the amount of investment which exceeded EUR 100 million. The Regional Aid Regulation provides that the aid intensity for eligible costs of investment (expressed as gross grant equivalent (GGE)) must not exceed: (i) 50 %of eligible costs in NUTS 2 regions whose GDP per capita is below or equal to 45 % of the EU-27 average; (ii) 35 % of eligible costs in NUTS 2 regions whose GDP per capita is between or equal to 45 % and 60 % of the EU-27 average; and (iii) 25% of eligible costs in NUTS 2 regions with a GDP per capita above 60 % of the EU-27 average, in line with the Regional Aid Guidelines. The intensity for medium-sized enterprises may be increased for 10% and for small and micro companies for 20%.

However, nothing will change immediately, as Article 15 para. 2 provides that the entire Republic of Serbia will be considered one region whose GDP per capita is below or equal to 45 % of the EU-27 average, until the adoption of a regional aid map.

The Regional Aid Regulation takes over the formula for calculation of the maximum aid intensity from the EU Regional Aid Guidelines. However, the formula for large investment projects from the EU Regional Aid Regulation is only applicable to the investments satisfying the conditions for compatibility of regional aid in exceptional circumstances, and amounts to 100% of eligible costs up to EUR 50 million, 50% of eligible costs for the part of costs between EUR 50 million, and 34% of eligible costs for the part of costs exceeding EUR 100 million. For regular large investment projects, the aid intensity for the part of costs exceeding EUR 100 million is set to 0.

Single investment project

The Regional Aid Regulation introduces the concept of single investment project, this being any initial investment started by the same beneficiary (at group level) in the period of three years from the date of start of works on another aided investment in the same NUTS 3 region. The concept of single investment project is relevant for the calculation of intensity of aid, as well as for the application of rules on cumulation.

De Minimis Aid

De Minimis Regulation does not introduce any significant changes to the treatment of de minimis aid. The rules on cumulation of de minimis aid with other aids and the rules on calculation of gross grant equivalent for non-transparent state aid instruments have been clarified. The Regulation introduces safe-harbour premium as a method of calculation of gross grant equivalent for state guarantees. It also clarifies the definition of single undertaking (i.e. the concept of related undertakings) for the purpose of calculation of maximum amounts of aid.

* Nomenclature of Territorial Units for Statistics developed and regulated by the EU and used for statistical purposes. NUTS II classifies regions for the purpose of application of regional policies and provision of support from cohesion funds.