Views/ Private mergers and acquisitions in Serbia: overview
Miloš JakovljevićAdvokat / Partnermilos.jakovljevic@karanovicpartners.com

This article was originally published in the Practical Law Multi-jurisdictional Guide 2014/15 by Miloš Jakovljević and Petar Mitrović. 

Private mergers and acquisitions in Serbia: overview 

Corporate Entities and Acquisition Methods

1. What are the main corporate entities commonly involved in private acquisitions?

The most commonly used corporate entities involved in private acquisitions are the:

  • Limited liability company. The minimum share capital for a limited liability company is RSD 100.
  • Joint stock company. The minimum share capital for a joint stock company is RSD 3 million.

The share capital thresholds can be higher if a specific law provides for a higher amount of share capital as a condition for the performance of a specific activity (such as in relation to financial and/or insurance services and so on). 

2. Are there any restrictions under corporate law on the transfer of shares in a private company? Are there any restrictions on acquisitions by foreign buyers?

Restrictions on share transfer

Restrictions agreed among shareholders. For transfers of a limited liability company's share to a third party, other shareholders of the limited liability company have a pre-emptive right (that is, a statutory right of first refusal that enables them to purchase shares under the same terms as agreed with the third party), unless this is regulated differently by the company's memorandum of association (memorandum). Additionally, shareholders can stipulate additional restrictions on share transfers in the memorandum.

Shares in a non-public joint stock company can be transferred without restriction unless the company's articles stipulate that the transfer is restricted due to the:

  • Pre-emptive rights of other shareholders.
  • Requirement to obtain the prior consent of the company.

Shareholders can also stipulate additional restrictions on share transfers in the company's articles.

A transfer of shares in a public joint stock company cannot be restricted.

Specific regulatory requirements. If the transfer involves companies carrying out certain regulated activities (such as broadcasting or gambling) it is necessary to obtain the prior approvals or consent of the Serbian regulatory bodies.

Foreign ownership restrictions

Foreign individuals and legal entities can acquire shares in Serbian companies under the same conditions as Serbian individuals or legal entities. Specifically, any person/entity with legal capacity, whether foreign or local, can be a shareholder of a Serbian company and no mutual co-operation, exchange or similar condition is required for the acquiring of the share(s) by a foreign person/entity. 

3. What are the most common ways to acquire a private company? What are the main advantages and disadvantages of a share purchase (as opposed to an asset purchase)?

The most common way to acquire a private company is to purchase its shares or its assets on the basis of an agreement executed between the seller and the buyer. Mandatory elements of the purchase agreement are the:

  • Designation of the parties.
  • Designation of the shares/assets being transferred.
  • Price for the shares/assets. 

The parties will additionally regulate many other issues relating to the transfer such as the:

  • Preconditions to the completion.
  • Transfer mechanism.
  • Terms of payment.
  • Warranties of the parties.
  • Limitations of liability.
  • Post-completion obligations. 

Share purchases: advantages/asset purchases: disadvantages

The main advantages of share purchases are:

  • The buyer acquires the target company with all assets, agreements, IP rights, licences, insurance policies and so on, and there is no need for additional formalities relating to such transfers.
  • A sale of shares is exempt from property transfer tax and VAT (see Question 25). An asset purchase can trigger property transfer tax (applicable on sale of real estate, IP rights, vehicles) or VAT (on all other types of assets). 

Share purchases: disadvantages/asset purchases: advantages

The main advantages of asset purchases are:

  • The buyer can pick and choose the assets it wishes to acquire.
  • Financial assistance restrictions do not apply to asset purchases.

4. Are sales of companies by auction common? Briefly outline the procedure and regulations that apply.

Sales in the private sector

Sales of companies by auction are not common in the private sector and are not regulated. However, there have been cases of auctions in the past, which were structured as follows:

  • The seller prepares an information memorandum and data room.
  • The prospective buyers must sign a confidentiality agreement before gaining access to the information memorandum and data room.
  • The seller provides the first draft of the share purchase agreement and the bidders are asked to mark up the seller's draft and to submit it along with the bid.  

Sales in the privatisation process

Sales of companies by auction are more common in the privatisation process (that is, a change of ownership over the state-owned shares or assets in companies), which is regulated by the Serbian Law on Privatisation. Under this law, a company can be privatised by a:

  • Sale of shares or assets.
  • Transfer of capital free of charge.
  • Strategic partnership.

Privatisation by sale of shares or assets can be performed through the public tender followed by the public auction procedure. However, for strategic partnerships only the public tender procedure applies.

Public tender followed by the public auction procedure is performed through public bidding between the target company's potential buyers. This process consists of several necessary steps:

  • Firstly, the bidder must purchase sale documentation from the Serbian Privatisation Agency. Documentation contains:
    • the privatisation programme;
    • a non-disclosure agreement;
    • a draft sale purchase agreement;
    • instruction to bidders;
    • a formal application. •
  • Secondly, potential bidders submit their bids to the Privatisation Agency and on opening of the bids (under condition that at least two bids have been submitted) the public auction procedure can be performed.
  • On the successful ending of the auction at the auction date, the buyer is invited to execute the sale purchase agreement and to pay the auction price, which is reduced by the value of the participatory deposit. The unsuccessful bidders are reimbursed for their paid-in participatory deposits. 

Preliminary Agreements

5. What preliminary agreements are commonly made between the buyer and the seller before contract?

Letters of intent

A letter of intent (or memorandum of understanding) is a common part of most share or assets purchase transactions. The purpose of the letter of intent is to:

  • Outline the terms that the parties have agreed in principle.
  • Set out the timetable and obligations of the parties during the negotiations. 

Serbian law does not regulate the letter of intent and does not define whether or not it is legally binding. Therefore, when drafting the letter of intent, the parties should clearly stipulate whether or not it will be legally binding.

Exclusivity agreements

Exclusivity agreements (also known as lock-out, shut-out or no-shop agreements) refer to agreements between the parties to a prospective transaction, where they agree that the deal negotiations will be carried out solely between them for a certain period of time. These agreements are to give one particular party some protection from another party outbidding him. These provisions may be initially set out in the letter of intent.

There is limited case law in Serbia regarding damages for a breach of exclusivity agreement. In addition, it is very difficult to evidence the amount of damages that should be awarded to the contractual party that remained faithful to the agreement. Therefore, to make exclusivity agreements as enforceable as possible, the parties will usually consider including a contractual penalty for the breach. However, a contractual penalty provision may create tension between the parties, so consideration should be taken as to whether it is commercially sensible to insert such a provision.

Non-disclosure agreements

A non-disclosure agreement is essentially a confidentiality undertaking given by the parties involved in the transaction (the transfer of shares). The most relevant parts of the non-disclosure agreement are:

  • A clear definition of what information is deemed confidential by the parties.
  • The obligations of the parties (the recipients of the confidential information) regarding non-disclosure of information related to the transfer of shares/assets, purchase price, timetable of the transaction and so on.

It is very important to stipulate a definite period of time for the duration of a confidentiality undertaking because, if an obligation is undertaken for an indefinite period, either party may unilaterally terminate it without cause and at any time with a reasonable notice period. However, an obligation undertaken for a definite period cannot be unilaterally terminated without cause (for example, a breach of the obligations of the other party).

In Serbia there is limited case law regarding damages for breach of a confidentiality undertaking stipulated in a purchase agreement. In addition, it is very difficult to evidence the amount of damages that should be awarded to the contractual party that remained faithful to the agreement. Therefore, contractual parties will usually consider a contractual penalty for the breach. As with exclusivity agreements (see above, Exclusivity agreements), this may cause strained relations between the parties and the commercial sensitivities should be carefully considered. 

Asset Sales

6. Are any assets or liabilities automatically transferred in an asset sale that cannot be excluded from the purchase?

An acquirer of pool of assets (or part of such pool of assets) is jointly and severally liable with the previous asset holder for the debts relating to those assets (or parts of those assets), up to the value of the acquired assets (Article 452, Law on Contracts and Torts).

Any contractual provision between the transferor and transferee excluding or limiting this liability will be deemed null and void.

Although to trigger the liability of the acquirer, the debts must be sufficiently connected to the pool of assets that are subject to the transfer, there are no clear legal guidelines or case law as to what constitutes a sufficient link between the debt and the assets. 

7. Do creditors have to be notified or their consent obtained to the transfer in an asset sale?

There is no formal requirement to notify or obtain the consent of the creditors.

However, there are certain legal requirements to be taken into consideration. Creditors whose claims are due for payment may be able to challenge the legal transactions of their debtor, if the transaction is to the detriment of the debtor's creditors. In principle, the disposal of assets can be challenged if, at the moment of the disposal, both:

  • The seller was aware (or could have been aware) that such a transaction would inflict damage on his creditors.
  • A third person (the seller) with whom or for whose benefit such a legal transaction was undertaken was aware (or could have been aware) of the damage.

If the disposal is challenged and the court rules in favour of the creditor (claimant), the legal transaction of the debtor (defendant) is ineffective only to the creditor, and only as necessary for the fulfilment of his claim. However, in Serbia there is a limited case law related to such cases, due to strict conditions that must be fulfilled for purpose of debtor's liability (as listed above). 

Share Sales

8. What common conditions precedent are typically included in a share sale agreement?

Conditions precedent typically included in share sale agreements are:

  • Shareholders' approvals.
  • Merger clearances.
  • Industry specific consents.
  • Third party consents (such as for change of control provisions in contracts with lenders, major suppliers and so on).
  • Repairs of certain issues discovered in the course of due diligence investigation.
  • A certificate from the tax authorities that the target company does not have any tax payments due or any unsettled tax obligations as of a certain date.


Seller's Title and Liability

9. Are there any terms implied by law as to the seller's title to the shares in a share sale? Is any specific wording necessary and do buyers normally impose a higher standard than is implied by law?

For limited liability companies, a seller's title to its shares is evidenced by registration in the business registry held by the Serbian Business Registers Agency. For joint stock companies, shareholders are evidenced by registration in the Central Securities Depository and Clearing House. This information is all publicly accessible data.

There is no specific wording necessary to be included in a share and purchase agreement relating to a seller's title of shares.

In practice, however, share and purchase agreements contain numerous warranties from the seller, which (among other things) evidences the:

  • Seller's title to shares.
  • Non-existence of pre-emption right of other shareholder(s) or company or any third party.
  • Seller's legal authorisation to enter into a share and purchase agreement.
  • Compliance with the applicable laws and acts of the target company (for example, if the sale of shares requires the prior approval of the company's corporate bodies).
  • Non-existence of disputes related to title to shares, or any encumbrances or other third party rights over shares (other than those disclosed by the seller). 


10. Can a seller and its advisers be liable for pre-contractual misrepresentation, misleading statements or similar matters?


The seller can be liable for fraudulent misrepresentation. Liability for fraudulent misrepresentation cannot be excluded.

Either party can be liable for their fraudulent misrepresentation in the context of negotiations related to conclusion of the agreement if he:

  • Conducts negotiations without intending to conclude the agreement, which results in damage to the other party.
  • Initially conducts negotiations with the intention to conclude the agreement, but gives up this intention without a justified reason, which results in damage to the other party.  


In theory, advisers can also be liable for misrepresentations and misleading statements. However, advisers' liability is generally contractually excluded. 

Main Documents

11. What are the main documents in an acquisition and who generally prepares the first draft?

The share purchase agreement is the main document. Depending on the particular transaction, the share purchase agreement may contain numerous schedules/appendices, including both:

  • Seller and buyer statements.
  • The disclosure letter. 

In addition to the share purchase agreement, and depending on the particular transaction, certain additional documents may also be prepared, such as the:

  • Agreement on opening escrow account.
  • Memorandum of association of the special purpose vehicle.

In auction sales, the seller usually prepares the first drafts of documents. In other cases it depends on the bargaining power of the parties.

In asset acquisitions, in addition to an asset acquisition agreement, it is usually necessary to enter into the additional documents to effect the transfer and/or register particular assets (for example, agreements relating to the transfer of the real estate, trade marks, receivables, vehicles and so on).

Additional documents are not necessary in share acquisitions, as the target company retains its title over its assets and no transfer of the title over such assets is necessary. 

Acquisition Agreements

12. What are the main substantive clauses in an acquisition agreement?

The main substantive clauses in an acquisition agreement are:

  • Date.
  • Parties.
  • Definitions (this part can also be provided in the form of an appendix/schedule to the share purchase agreement).
  • Subject matter of the agreement.
  • Price, price adjustment and payment mechanism.
  • Conditions precedent to closing of the transaction.
  • Closing mechanism.
  • Post-closing obligations and restrictions.
  • Representations and warranties (this part can also be provided in the form of an appendix/schedule to the share purchase agreement).
  • Indemnities.
  • Limitation of liability.
  • Consequences for breach of the agreement.
  • Costs and taxes.
  • Confidentiality.
  • Governing law and dispute resolution.
  • Boilerplate provisions (provisions that represent the entire agreement between the parties: waivers, assignment, notices, severability, language, amendments, assignment and so on).

These clauses are found in an acquisition agreement in most situations, regardless of the form or the type of transaction (share acquisition or asset acquisition). 

13. Can a share purchase agreement provide for a foreign governing law? If so, are there any provisions of national law that would still automatically apply?

In theory, a share purchase agreement can provide for a foreign governing law, provided that such an agreement has an international element that links the agreement with the foreign law. An international element, among other things, can be reflected in either:

  • The subject matter of the agreement.
  • The parties to the agreement.

However, in practice, providing for a foreign governing law is extremely rare in transactions relating to the sale and purchase of shares in a Serbian company.

On the other hand, there are certain provisions of Serbian laws that would automatically apply even if the governing law was not Serbian, such as the:

  • Formal requirements for the transfer of the shareholding. 
  • Restrictions contained in foreign exchange regulations.
  • Competition protection regulations.

Warranties and Indemnities

14. Are seller warranties/indemnities typically included in acquisition agreements and what main areas do they cover?

The acquisition agreements contain extensive seller warranties/indemnities in either the basic text of the agreement or an appendix/schedule to the agreement.

Warranty/indemnity provisions generally tend to cover and secure general legal compliance of the company. These provisions usually relate to the company's:

  • Corporate history.
  • Corporate governance.
  • Assets.
  • Stocks.
  • Inventories.
  • Intellectual property.
  • Employment matters.
  • Environmental matters.
  • Insurance.
  • Contractual relations.
  • Liabilities.
  • Litigation.
  • Regulatory compliance. 

15. What are the main limitations on warranties?

Limitations on warranties

Common limitations on warranties are:

  • Right to make disclosure against the warranties (usually in the form of a disclosure letter as the appendix to the share and purchase agreement).
  • Minimal aggregate claim threshold of each individual claim or sum of related claims (for example, the breaching party is obliged to compensate the other party only if each individual claim or if the sum of related claims exceeds a certain threshold).
  • Cap on the total liability.
  • Time limits for bringing claims.
  • Obligation of non-breaching party to inform the breaching party on breach of warranties within a certain time period.
  • Prevention of double recovery under warranties, indemnities and/or insurance policies.
  • Qualification that some warranties are made "to the best knowledge of the seller".

Despite the above, liability of a debtor (the breaching party) attributable to intentional or gross negligence cannot be excluded in advance by the agreement (Serbian Law on Contracts and Torts).

Qualifying warranties by disclosure

Warranties are usually qualified by disclosure made by the seller against them. The seller usually states in the share purchase agreement that warranties are qualified by the disclosed information and prepares a separate disclosure letter qualifying the warranties (usually in the form of appendix to the share and purchase agreement).

The seller will not be deemed to be in breach of given warranties for any fact or circumstance that is disclosed in the disclosure letter.

In the disclosure letter, the seller usually provides both:

  • General disclosures. This for certain matters that appear in public records and/or that the buyer ought to know on the basis of searches conducted.
  • Specific disclosures. This relates to actual matters that, if not disclosed, would be in breach of warranties given in the share purchase agreement.

16. What are the remedies for breach of a warranty? What are the time limits for bringing claims under warranties?


Parties can seek the following remedies for breach of a warranty, subject to what was agreed under contact:

  • Request to remedy the breach.
  • Termination of the agreement.
  • Reduction of purchase price (if the seller is in breach of warranty).
  • Damage compensation. 

Time limits for claims under warranties

For general warranties (including the tax warranties) the time limit is usually set within three to five years of the closing of the transaction.

For other serious risks, such as environmental claims, the time limit can sometimes be longer than five years from the closing of the transaction.

Consideration and Acquisition Financing

17. What forms of consideration are commonly offered in a share sale?

Forms of consideration

The most common form of consideration is cash, whereby the payment mechanism is agreed between the parties (for example, payment could be made in full, after the closing of the transaction, in several instalments and so on). Cash is usually provided out of the buyer's own resources, or often by taking a loan from the bank.

Occasionally, the form of consideration may be shares in the buyer or its parent company, or shares combined with a cash element.

Factors in choice of consideration

The main factor in the choice of consideration is what the seller wants from the transaction, for example, whether the seller wants to:

  • Receive its money in cash and get out of the business.
  • Have an opportunity to remain in the business by obtaining shares from the buyer.

There are no tax benefits for a particular choice of consideration.

18. If a buyer listed in your jurisdiction raises cash to fund an acquisition by an issue of shares, how is the issue typically structured? What consents and regulatory approvals are likely to be required?


When a buyer listed in Serbia raises cash to fund an acquisition by an issue of shares, the usual structure of this issue is by public placement to the known buyer (usually to investment funds or international financial institutions).

Consents and approvals

The buyer must not publish the prospectus for the issuance of the shares prior to obtaining the approval from the Securities Exchange Commission, save in exceptional cases.

Requirements for a prospectus

Under certain conditions, the preparation of the prospectus and approval of the Securities Exchange Commission may not be necessary where shares are issued by way of private placement. For example, the preparation of the prospectus and approval will not be required if the shares are issued to a qualified investor according to the terms of the Serbian Law on Capital Markets.

If the prospectus is mandatory, it must contain all information that, according to the particular nature of the issuer and of the securities offered, is necessary to enable investors to make an informed assessment of the:

  • Assets and liabilities.
  • Financial position.
  • Profit and losses (and prospects of the issuer and of any guarantor).
  • Rights attached to the shares.

Information contained in the prospectus must be authentic, complete and consistently presented.

19. Can a company give financial assistance to a potential buyer of shares in that company?


Under the Company Law, all Serbian companies are prohibited from giving financial assistance, directly or indirectly, of any kind to its shareholders, employees or third parties for the acquisition of shares in the same company (Article 154). In particular, companies are not permitted to grant loans, guarantees, collaterals and so on. In line with the Company Law, a legal transaction that is contrary to this restriction is null and void.

These financial assistance restrictions apply to the purchase of shares in:

  • Public joint stock companies.
  • Joint stock companies not having their shares listed.
  • Limited liability companies.  


The Company Law does not provide any explicit exemptions from the financial assistance restriction.

Signing and Closing

20. What documents are commonly produced and executed at signing and closing meetings in a private company share sale?


Documents executed on signing usually include:

  • Share purchase agreement.
  • Disclosure letter (in which the seller discloses information on the company, its business operations, and the sold shares, and which should stand against warranties in the share purchase agreement).
  • Powers of attorney (if a lawyer executes the documents in the name of seller and/or buyer). 


Documents executed on closing usually include:

  • Transaction instrument (Share transfer instrument or Asset transfer instrument, depending on the nature of the transaction).
  • Decisions of the shareholders on resolving the existing director(s) or resignation letters of the existing directors.
  • New memorandum/articles of association and other corporate documents for the target company (applicable only to share sale).
  • Certain service agreements.
  • Closing minutes.

21. Do different types of document have different legal formalities? What are the formalities for the execution of documents by companies incorporated in your jurisdiction?

Under Serbian law, there is a distinction between:

  • Signed documents. This is the case for most documents.
  • Documents that require certified signatures. This includes, for example, the agreement on sale and purchase of real estate. Certification of signatures in Serbia is obtained from the court or municipal authority.

Personal signing and execution can also be replaced with a power of attorney for both the seller and the buyer. The form of the power of attorney must be the same as the form of the document to be signed based on such power of attorney.

22. What are the formalities for the execution of documents by foreign companies?

A foreign company executing a document before a Serbian court or municipal authority must provide an extract from its foreign commercial registry if it is a party to the transaction. Depending on the jurisdiction in which a foreign company is incorporated, to prove that the person representing the foreign company has the representation power needed to execute the relevant documentation, the extract may require:

  • An Apostille (that is, internationally certified under the Hague Convention Abolishing the Requirement for Legalisation for Foreign Public Documents (Apostille Convention)), depending on the jurisdiction.
  • Translation into Serbian, with an official certification of this translation. 

If the extract does not provide the information on representative powers, the foreign company must submit the foreign company's articles of association, in addition to the extract.

23. Are digital signatures binding and enforceable as evidence of execution?

Serbian legislation recognises a digital signature as being valid and the Law on Electronic Signature enacted in 2004 deals with the electronic signature in detail. However, its use is very rare and it is not recommended, especially for documents that require a signature certification before the courts.

24.  What formalities are required to transfer title to shares in a private limited company?

The following formalities are required to transfer title to shares in a private limited company:

  • Execution of a written share transfer instrument (including certification of the signatures on the share transfer agreement (acquirer's and transferor's signature)).
  • Registration of the share transfer before the Serbian Business Registers Agency, after which the acquirer of the shares officially becomes the owner.
  • Post-registration formalities (such as notification of the tax authorities, banks and so on).

No special approval of corporate bodies is required for the share transfer in a limited liability company. However, it may be stipulated in a company's Memorandum of Association that the shares can only be transferred to the third person (not being the shareholder of the company) with the prior approval of the company (for example, a Shareholders' Assembly or other corporate bodies). In the same manner, the Memorandum of Association can provide for other limitations regarding the share transfer.

No share certificate is issued. The share transfer is merely registered before the Business Registers Agency. Once registered, the acquirer is the new owner.


25. What transfer taxes are payable on a share sale and an asset sale? What are the applicable rates?

Transfers of shares and certain types of assets (such as real estate) are subject to a fee for the certification of the transfer instrument. This is not stamp duty in the real sense, although the process does have some of the same characteristics (for example, it is levied on certain types of transaction instruments, payment of fee for the certification is evidenced by the stamp included in the transfer instrument and so on). The amount to be paid depends on the amount of consideration paid for the transfer (similarly to stamp duties), but must not be for more than about EUR 400.

Share sale

Share sales are not subject to any transfer taxes.

Asset sale

The sale of assets triggers either:

  • VAT, at a rate of 20% on the purchase price.
  • Property transfer tax, at a 2.5% rate on the purchase price.

VAT has priority and the sale will only be subject to property transfer tax if it is not subject to VAT.

In relation to VAT (subject to the conditions of the VAT Law), the purchaser of the assets can deduct VAT charged on its sale from its output VAT, or refund such VAT if output VAT is lower than VAT charged on sale.

Property transfer tax is not deductible or refundable.

Whether these taxes are chargeable on a specific sale depends primarily on the type of assets.

Generally, the sale of buildings will be subject to VAT only if the construction of the respective building commenced after 1 January 2005 and if the sale is the first transfer of such a building. Otherwise it will be subject to a property transfer tax.

The sale of land is VAT exempt, and therefore subject to property transfer tax.

The sale of motor vehicles is usually subject to property transfer tax.

The sale of other assets is usually subject to VAT.

26. What are the main transfer tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

Share sale

Share sales are not subject to any transfer taxes (see Question 25, Share sale), therefore exemptions are not applicable.

Asset sale

Exemptions from property transfer tax are very limited and usually not applicable in common transactions involving private parties. On the other hand, the sale of an entire business as a going concern or part of a business that constitutes a technicaltechnological unit is outside of the scope of VAT.

27. What corporate taxes are payable on a share sale and an asset sale? What are the applicable rates?

The sale of shares, real estate and IP rights can result in capital gains (in that case, the positive difference between the selling value and the acquisition value is subject to capital gains tax).

The Corporate Income Tax Law (CIT Law) prescribes detailed rules governing the method of establishing the acquisition and sale price for the purpose of capital gains tax.

The capital gains of corporate taxpayers are taxed along with the business profit of that taxpayer (capital gains are presented in the (general) corporate income tax return and the tax balance). However, business losses cannot be set-off against capital gains for corporate income tax purposes.

Corporate taxpayers pay capital gains tax at a rate of 15%. This is the same rate that applies to individual taxpayers.

28. What are the main corporate tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

There are no exemptions from capital gains tax for corporate taxpayers.

29. Are other taxes potentially payable on a share sale and an asset sale?

There are no other taxes potentially payable on a share sale or an asset sale.

30. Are companies in the same group able to surrender losses to each other for tax purposes? For example, can interest expenses incurred by a bid vehicle incorporated in your country be set off against profits of the target before tax?

A holding company and its subsidiaries can opt for tax consolidation, provided there is direct or indirect control of at least 75% shares between them. Tax consolidation is available only to residents of Serbia.

If the group opted for tax consolidation, all members of the group file separate tax returns and tax balances, provided that the holding company also files the consolidated tax balance. In the consolidated balance, losses of one or more companies within the group are set-off against the profits of other members of the group. The profit calculated in the consolidated tax balance is the base for CIT purposes, provided that CIT on the profit will be payable by all companies in the group (that made a profit) in proportion to the taxable profit from separate tax balances.

Once approved, the tax consolidation is effective for the next five business years. The entities that opted for tax consolidation cannot opt out for the next five business years, or the entities within the group that benefited from the tax consolidation (which decreased the taxable profit for losses of other the entities) will be required to pay CIT on the amount of taxable profit that was reduced on the grounds of tax consolidation.

Losses from previous periods can be carried forward and set off against profits arising only in the company that incurred them, and not against the consolidated profits.

Interest expenses incurred by one member of the group can be set off against profits of the other member of the group, subject to general rules in relation to tax consolidation, provided that the total losses of one member (including interest expense) will be set off against profits of other members. 


31. Are there obligations to inform or consult employees or their representatives or obtain employee consent to a share sale or asset sale?

Asset sale

There is no obligation to inform or consult employees, representatives or relevant trade union on an asset/business sale. The employees' consent is not required.

Share sale

There is no obligation to inform or consult employees, representatives or relevant trade unions on a share sale. The employees' consent is not required. 

32. What protection do employees have against dismissal in the context of a share or asset sale? Are employees automatically transferred to the buyer in a business sale?

Business sale

There is no specific additional protection against dismissal in a business/asset sale. General provisions of the Labour Law regarding dismissal of employees would be applicable.

The employees can be dismissed before or after the business sale under the redundancy procedure set out in the Labour Law. When following this procedure, employers must provide in the redundancy documents an explanation and reasons (that is, the economic, technical or organisational changes) for dismissing the employees. If the redundancy documents do not contain such an explanation, the dismissal would be, in the case of a court dispute initiated by redundant employees, found unlawful.

The Labour Law provides for two different redundancy procedures, depending on the number of employees whose contracts are to be terminated. If the number of redundant employees exceeds certain thresholds provided in the Labour Law, the employer must prepare the redundancy programme in co-operation with the National Employment Service and a trade union (if any). The law provides for the following thresholds, related to the number of employees to be proclaimed redundant in a 30-day period:

  • If the employer has 20 to 99 persons employed for an indefinite term, ten employees.
  • If the employer has 100 to 300 persons employed for an indefinite term, 10% of these employees.
  • If the employer has more than 300 persons employed for an indefinite term, 30 employees.

The redundancy programme is also required if the employer proclaims 20 or more employees redundant within a 90-day period (regardless of the total number of employees).

If the employer tends to make redundant fewer employees (that is, the above thresholds are not triggered), the simpler procedure is applicable:

  • The employer issues a general redundancy decision.
  • The employer amends the Rulebook on Organization of Positions.
  • The employer issues the Resolution on termination of employment to the redundant employees.

Prior to termination of employment the employer must pay severance payment to the redundant employees, amounting to one third of the employee's salary (average gross salary for the preceding three months) for each full year of the employment service with that specific employer. Years of service with the affiliated companies and the employer predecessor (where previous statutory changes triggered change of employer) are also considered in this respect.

The employer must also provide the employees with the opportunity to use their annual leave or compensate them for unused days of annual leave.

Share sale

There is no specific additional protection against dismissal. General provisions of the Labour Law regarding dismissal of employees would be applicable.

Transfer on a business sale

The EU Directive 2001/23/EC on safeguarding employees' rights on transfers of undertakings, businesses or parts of businesses (Transfer of Undertakings Directive) is not applicable in Serbia. In the case of an asset/business sale, employees are not automatically transferred to the buyer of assets and there is no obligation for the buyer to take over the employees. If the buyer intends to take over the employees, this is done by terminating their employment with the seller (by mutual agreement or resignation from the side of employee) and instituting new employment with the buyer.


33. Do employees commonly participate in private pension schemes established by their employer? If an employee is transferred as part of a business acquisition, is the transferee obliged to honour existing pension rights or provide equivalent rights?

Private pension schemes

Private pension schemes are not widely used in Serbia, although some international companies tend to include their employees in private pension schemes.

Pensions on a business transfer

If a business transfer takes place there is no automatic transfer of employees. The takeover of employees is done by terminating their employment with the seller and instituting new employment with the buyer. Accordingly, the new employment contract may contain different provisions related to pension schemes/rights.

Competition / Anti-trust Issues

34. Outline the regulatory competition law framework that can apply to private acquisitions.

Triggering events/thresholds

Under the Competition Law of the Republic of Serbia (Official Gazette of the Republic of Serbia, no. 51/09 and 95/13), if any of the following two thresholds is reached, a concentration must be notified to the Competition Commission:

  • The aggregate annual turnover of all the parties to the concentration realised on the global market in the previous financial year exceeds EUR100 million, and at least one of the parties had an annual turnover of more than EUR10 million on the Serbian market.
  • The aggregate annual turnover of at least two parties to the concentration on the Serbian market exceeded EUR20 million in the previous financial year, and at least two of the parties to the concentration each had an annual turnover of more than EUR1 million on the Serbian market.

Intra-group turnover is not taken into account. The aggregate turnovers are calculated taking into account the turnovers of all affiliates of the undertaking concerned (that is, all group companies). Under the Competition Law, all affiliates are deemed to be one undertaking.

In exceptional cases, the Competition Commission can institute a merger control procedure on its own initiative if an un-notified concentration results in the merged undertakings with market share of more than 40%. However, a 40% market share threshold is not a jurisdictional threshold and parties are not obliged to file a notification with the Competition Commission if their combined market share on any relevant market exceeds 40%.

The parties must file their notification with the Competition Commission within 15 calendar days from any of the following triggering events (whichever occurs first):

  • Signing of the agreement.
  • Announcement of takeover bid.
  • Acquisition of controlling shares.

The filing can be made based on a letter of intent (signed by all parties) or any similar document showing both parties' serious intent to enter into the transaction. Furthermore, the law prescribes a standstill obligation (that is, the parties must suspend the implementation of the transaction before the clearance is issued or before the statutory deadlines have expired).

Foreign-to-foreign mergers are reviewed under the Serbian competition rules if the parties reach the jurisdictional thresholds, which do not differ for such transactions.

The Serbian Competition Law did not implement the "effects" doctrine, therefore the only precondition for triggering a merger notification is if the filling thresholds have been met.

Notification and regulatory authorities

The completion of the transaction is subject to clearance by the Competition Commission. The merger notification, by way of a formal written notification, must be filed with the Competition Commission within 15 calendar days from the triggering event, that is, the conclusion of the agreement, the announcement of the takeover bid or the acquisition of a controlling interest.

Substantive test

The substantive test relates to the assessment of whether a prospective concentration would cause a significant restriction, distortion or prevention of competition, in particular as a result of the creation or strengthening of a dominant position on the market of the Republic of Serbia as a whole or in part.

When applying the substantive test, the Competition Commission will consider the following indicators:

  • Structure of the relevant market.
  • Actual and potential competitors.
  • Market position of the parties to the concentration and their economic and financial power.
  • Whether there is a possibility to choose a supplier and consumer.
  • Legal and other barriers to entry on the relevant market.
  • Domestic and international level of competitiveness of parties to the concentration.
  • Supply and demand trends of relevant goods and/or services.
  • Technical and economic developments/trends.
  • Consumers' interests. 


35. Who is liable for clean-up of contaminated land? In what circumstances can a buyer inherit and a seller retain liability in an asset sale and a share sale?

The general rule is that the person or entity (legal or natural) that causes the pollution through its activities is responsible for the environmental damage. This follows from the "principle of liability of the polluter and its legal successor" (Environmental Law 2009). This principle also applies to the clean-up of contaminated land. However, if the person/entity causing the pollution is insolvent/bankrupt, the buyer will be responsible for the pollution.

Although in a share sale all liabilities would remain with the acquired company, for asset sales, Article 452 of the Law on Contracts and Torts would apply, making the buyer and seller jointly and severally liable for the damage (see Question 6).

On the other hand, the Environmental Law provides that, in the case of a change of ownership over the polluting company, it is mandatory to perform an assessment of the state of the environment to:

  • Determine liability for pollution of the environment.
  • Settle all debts of the previous owner concerning pollution and/or causing damage to the environment.

However, there is no specific case law in relation to this provision and it is uncertain how this will apply in the future, especially when taking into account Article 452 of the Law on Contracts and Torts.


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