Serbia Unleashes Unprecedented EUR 5.1 Billion Aid Package

On March 31, 2020, the Serbian Government adopted a €5.1 billion program of support measures for the economy (the Serbian Program). According to the Minister of Finance, Siniša Mali, who announced the measures earlier in the day “[the Serbian Program] is equivalent to half of the State budget and 11% of national GDP”.

What makes it a legal rarity is that this is a precedent of ‘Covid-19 EU Association State aid’. In other words, this is the first case of Covid-19 related measures and aid being introduced in an EU association country based on Article 107(b) and (c) of the Treaty on the Functioning of the European Union (TFEU) and EU Association Law. As such it may serve as a legal blueprint for other EU association countries, not only in the Western Balkans but also in the case of Turkey, Ukraine and others.

While not still published in the official gazette, the legal grounds for said measures, amongst others, stem from the ‘Notice on Application of State Aid Rules Regarding New COVID-19 Circumstances’ (the KKDP Notice) adopted by the Serbian state aid authority (Serb. Komisija za kontrolu državne pomoći) on March 17, 2020. The KKDP Notice is a Serbian transposition of the European Commission Covid-19 Communication of March 13, 2020 (the Commission Covid-19 Communication), pursuant to Article 73(2) of the EU Stabilisation and Association Agreement and Article 107 TFEU.

Consequently, most support measures are not selective and correspond to the European Commission’s response, and, should, therefore, not constitute notifiable State aid.

However, for certain schemes the Serbian Government announced the introduction of “a special legal framework in the next ten days” [emphasis added], according to Minister Mali. The Serbian Government and State aid authority may still decide to transpose the EU Temporary Framework. For now, pursuant to the KKDP Notice, any such aid can be reviewed pursuant to Article 107(b) or (c) of the TFEU, but primarily by the local Serbian state aid authority.

It remains to be seen how the European Commission, and in particular the Directorate General for Competition (DG COMP) and the Directorate-General for European Neighbourhood Policy and Enlargement Negotiations (DG NEAR) will assess these and other measures under their EU association agreement prerogatives (which both DGs were very keen to invoke in the past).

The Serbian Program draws heavily in terms of inspiration on the Commission Covid-19 Communication of March 13, and subsequent measures adopted by EU Member State governments. It, however, bars from eligibility any undertakings that laid off more than 10% of their employees during the state of emergency (introduced on March 15, 2020).

The Serbian Program consists of four broad categories:

1. Fiscal measures. They are applicable to all companies and include (i) suspension of payments of employment taxes and social contributions for the private sector during the Covid-19 state of emergency (with repayments by Q1 of 2021 if not later); (ii) suspension of payment of corporate taxes but only as of April 1, 2020 and only for Q2 (this excludes the previous fiscal year, Q1 and the rest of FY2020); (iii) exemption from VAT but only for donations. The aim of said measures is to shore up much needed liquidity.

2. Direct aid to the private sector (presumably notifiable State aid). We assume said aid will be reviewed under the announced State aid scheme to be adopted within the next 10 days. It consists of (i) direct aid to entrepreneurs, small and medium enterprises (SMEs) in the amount of minimal wages for their employees (during the Covid-19 state of emergency, at least three months’ worth of minimal wages). Another set of aid (ii) is reserved for large enterprises in the amount of 50% of minimal wages during the state of emergency, for employee regimes under the Arts. 116 and 117 Labor Act. Said aid is selective for the private sector and affirmatively discriminates between SMEs and large enterprises. An interesting feature of both aid measures is that they should be paid our directly to employees, while companies would be a kind of indirect aid beneficiaries.

3. Liquidity measures for the private sector (presumably notifiable State aid). We assume said aid will be reviewed under the announced State aid scheme to be adopted within the next 10 days. The aim of said measures is to to meet acute liquidity needs and support companies facing bankruptcy due to the COVID-19 outbreak. This includes two measures (i) loan programs to maintain liquidity and cashflow for SMEs registered with Serbia’s Development Fund and (ii) a State aid scheme for bank loans supported by State guarantees for SMEs in order to ensure liquidity and cashlow.

4. Direct cash grant to every individual Serbian national above 18 years of age in the amount of €100. This measure is apparently not selective and should not constitute State aid, although certain elements and criteria for defining the group of beneficiaries may potentially raise State aid issues.

The above package extends on numerous other measures Serbia already introduced: