Serbia: Alternative Investment Funds (AIFs) from Serbian perspective

Serbia, as a frontier market with communist past, has had struggles in developing its local capital market: roughly 5.000 Serbian residents are investing in publicly traded shares.

But the number of people investing in crypto is much higher: around 200.000 mostly young investors with higher than average income, increased appetite for risk and open to alternative investments. Young people could provide much needed liquidity to the local market, but regulation changes are necessary:

• More domestic investment alternatives
• Making investments in local/global stock exchanges cheaper and easier: it is more efficient for a Serbian citizen to invest in crypto assets than trading on local/global stock exchanges
   

The improvement of the first issue is introducing alternative investment funds (AIFs).

The Law on AIFs regulates terms and conditions for entering the local investment industry with much lower barriers then before. For example, Serbia adapted its framework to the rule, which exists in many other jurisdictions, that one registered asset management company is allowed to manage several funds which do not need to have legal entity status. The Securities and Exchange Commission is the regulator approving the establishment and monitoring operations of AIFs.
 

Serbian AIFs can be:

• Open – investment units can be bought back by fund management
• Closed – no buy back
   

Investment units can be offered via:

• Private offer – only for professional (institutional investors and legal entities which meet financial thresholds defined in the Law on capital markets) and semi – professional investors (non – professional investors with minimum investment of 50.000 EUR and necessary expertise)
• Public offer - for all investors
   

Investment units can be purchased by both domestic and foreign investors.

Depending on the type of AIF and the type of offer, AIFs can make investments in many areas, locally or abroad, such as:

• Public securities and units in investment funds
• Bank deposits
• OTC securities
• Commodities
• Real estate
• Private equity
• Venture capital
• Any other investment presented in the AIF’s prospectus (jewelry, arts, crypto etc.

The minimum basic equity amount of the legal entity managing AIFs depends on its size: from 70.000 EUR to 300.000 EUR. AIFs can be established by both foreign and domestic individuals and legal entities.

Investing in Serbian AIFs provides tax benefits for high earning individuals which are subject to annual personal income tax. Tax payers of annual tax are individuals of annual income:

• higher than 3x average annual salary
• higher than 6x average annual salary for people younger than 40 

The Such individual investing into a Serbian AIF, is granted tax credit of up to 50% of the investment made, but not higher than 50% of tax liability. Tax benefit is not granted for investing into foreign AIFs.

Individuals and legal entities selling investment units of AIFs (Serbian or foreign) are subject to 15% capital gains tax. Tax return is filed along with corporate income tax return (legal entities) or twice a year (individuals).

Individuals generating income by holding investment units in AIFs are subject to a 15% tax rate:

• Serbian AIFs prepare tax returns for its individual investors
• In case of investing into foreign AIFs, individual files tax return and can use tax credit, if he/she provides document AIF has paid any tax abroad
• Income generated by legal entities from holding investment units in Serbian AIFs are tax exempt (tax-deferred), until such income is paid as a cash distribution to its beneficial owner. In case of income from foreign AIFs, tax credit is applied, if there is a document that AIF has paid any tax abroad.

If you wish to discuss these topics, please contact: WTS Porezi i Finansije d.o.o.