28 Aug 2018

A Step in the Right Direction – Foreign Exchange Operations Act Amendments

The National Assembly of the Republic of Serbia has adopted amendments and modifications to the Foreign Exchange Operations Act,[1] (“Act”) which entered into force, for the most part, on 28 April 2018.[2]  These amendments, amongst other things, intend to ease business dealings for domestic IT companies, reduce restrictions pertaining to credit dealings with foreign countries (which is particularly important to multinational companies), expand possibilities for investing in foreign securities and amplify the supervising role of the National Bank of Serbia (“NBS”).

This article aims to clarify some of the said amendments and their effect on the business dealings although we advise readers to obtain assessment of their own situation as these amendments enter into force.

Purchasing software from domestic IT companies

Serbian IT companies have familiar problems regarding money transfers with foreign countries, irrespective of the IT sector they do business in.  Establishing a subsidiary[3] abroad and entrusting it with the recovery of outstanding debts is a good and often-used solution by IT sector, despite the fact it is  rather expensive and inconvenient for the start-up companies.  Amendments to the aforementioned Act alleviate this problem.

In practice, problems often occur during a sale of software (i.e. apps) to Serbian residents.  Particularly, apps are sold via services such as App Store, and paid in foreign currencies (USD, EUR) – which is not a problem when trade is undertaken with foreign countries and when the app is being bought by a non-resident, given that paying with foreign currencies is allowed in trade with foreign countries.

However, if an app buyer is a Serbian resident buying from another Serbian resident – in this case a Serbian IT company which developed the app – he has to pay the price in Serbian dinars (RSD).

This meant that local companies had to utilize another payment system for Serbian residents who were unable to download and pay for these apps the usual way – which made the situation vastly problematic and inconvenient.  It is important to note that each individual breach of this rule was considered a foreign exchange misdemeanour that could be sanctioned with a penalty going up to RSD 2,000,000.00 – not an insignificant amount, especially for a start-up facing such penalty.

An exception has been introduced by these amendments that resolves the above-mentioned problem, i.e. it permits a payment for software and other digital products in foreign currency in trades between residents, if (i) payment is made via a charge card or electronic money through a service provider with a seat in Serbia, and (ii) the software or another digital product is delivered online and not in person[4].

In this way, a specific issue for IT companies has been resolved, however this is just one of many problems this industry is facing and we hope that the government will continue its support and assistance to the IT industry.

Credit Dealings with Abroad

Under the Stabilization and Association Agreement,[5] Serbia has committed itself to, within certain deadlines (which have not always fully respected), free up a lending market with EU residents.  The amendments to the Act partially introduce this change, which is extremely important for multinational corporations.

Namely, the opportunities for providing guarantees and short-term loans to non-residents are broadened[6], which opens up a possibility for implementation of previously not authorized financial models.  For example, we expect multinational corporations to reconsider a possibility of introducing cash pooling[7] into their business operations as well as using real assets of Serbian companies as collateral when their group members take loans/line of credit abroad.

It should be noted that the NBS has yet to adopt relevant by-laws that will regulate in detail the amendments in question and there is a possibility that these by-laws will change not only a procedure for the implementation of credit transactions with foreign countries, but also, in some cases, will limit their purpose, especially when non-EU countries are concerned.

On the other hand, it is expected that these by-laws will introduce a much more liberal regime for taking short-term loans from abroad, at least when it comes to borrowing from EU member states.

Bearing this in mind, it is prudent for a company to either wait for adoption of appropriate by-laws or consult the NBS regarding any pending by-laws before preparing any new financial business models.

Foreign Securities Trade

Residents may now invest in a greater variety of securities, i.e. in short-term debt securities issued by: (i) the EU or EU member states, (ii) international financial organizations and development banks or financial institutions in which EU member states participate; and (iii) legal entities with headquarters in EU member states (paragraph (iii) constitutes a novelty, and a very important one).

With respect to long-term securities, this variety is also extended to securities issued by OECD member countries.

Since investments in foreign securities issued by foreign non-state entities are not common in Serbia, we believe that this amendment, although it introduces many opportunities, will not be utilized as much, at least initially.  Nevertheless, we hope in time more and more Serbian residents will recognize a potential that lies in investing in foreign securities.

Additionally, it should be noted that non-residents with a head office or permanent residence in the EU member state are allowed to invest in short-term securities issued by residents of Serbia, which could also have a certain positive impact on the Serbian capital market.

The Role of the NBS

The role of the NBS will expand starting January 1st 2019, as it will be in charge of controlling foreign exchange operations of residents.  Additionally, the NBS will now be in charge of controlling all exchange operations, including the issuance of permits for these transactions.

Bearing in mind that the NBS is, in fact, the regulatory authority when it comes to foreign exchange operations, this amendment makes practical sense, but we advise all, especially members of multinational groups and/or those using complex financial models and mostly conduct their business abroad, to review their compliance with the relevant regulations.

Please note that this article describes only the most important amendments to the Act, and as such is not sufficient to describe in detail variety of opportunities these amendments provide.  If you have any questions related to the information contained in this article, or regarding foreign exchange operations in general, feel free to contact the Gecić Law Team.


[1] “Official Gazette of the Republic of Serbia” no. 62/2006, 31/2011, 119/2012,139/2014 and 30/2018.

[2] Articles pertaining to money exchange dealings and the supervising role of National Bank of Serbia will enter into force on January 1st 2019.

[3] Such subsidiaries are often established in Ireland or Cyprus.

[4] Supra note 2.  

[5] Stabilization and Association Agreement between the European Communities and their Member States of the one part, and the Republic of Serbia, on the other part (“Official Gazette of the Republic of Serbia” no. 83/2008).

[6] Until now, this was only possible under strict conditions, one of which is the requirement that the recipient of the loan / beneficiary of the guarantee is a subsidiary of the resident’s company providing the loan / guarantee

[7] Cash pooling, in essence, is a way to “spill over” cash funds among members of the group in order to allow illiquid members of the group to use the assets of liquid members of the group.