16.11.2016.

The Year Of Return

Strategy for the promotion of the return and of the Youth Entrepreneurship Incentive Law

Promotion Of The Return Of Young Experts To Serbia

The Year Of Return

Strategy for the promotion of the return and of the Youth Entrepreneurship Incentive Law

 Project leads:

Organization of Serbian Students Abroad (OSSA)

Belgrade Fund for Political Excellence (BFPE)

Author:

Aleksandar Jakovljevic

Institutional support:

Bucerius Law School, Hamburg, Germany

Forum Serbia - Germany

Chamber of Commerce and Industry of Serbia (CCIS)

Abstract

‘The year of the return’, i.e. ‘2018. the year of return’, represents a unique and comprehensive set of measures aimed at promoting the return of the young, highly educated, experts to Serbia as well as the promotion of entrepreneurship in all young people in the Republic of Serbia. Furthermore, it also represents a continuation of the ‘Years of Entrepreneurship’, with the addition of supplementary elements aimed at facilitating knowledge transfer from abroad and re-influx of the human capital with the ultimate goal of providing essential support to the Serbian economy.

The idea underlying ‘Years of Return’ is the founding of the first institution - Center for Returnees, part of the CCIS, aimed at bringing together the all the returnees. The formation of the first institutionalized database of the highly educated people abroad will, in return, make the finest human capital available to the economy, state institutions included.

Additional activities also subsume the passing of the Law for the promotion of entrepreneurship in all young people, so that everyone in Serbia would be given equal treatment and opportunities. The Law would prescribe a set of systematic, fiscal and para-fiscal measures which would, in turn, facilitate effortless start up of businesses, as well as encouragement measures akin to the ‘Year of entrepreneurship’ and the focus of education.

The media promotion constitutes the final project milestone. We wish to reintroduce into the media the topic of return, introduce the returnees as a vital resource, present the business start up support measures and, by way of various promotional activities, attract and encourage young, highly educated, people to bring in their knowledge and contacts, and start up their own businesses in Serbia.

The year of Return represents an institutional framework by means of which, for the first time, a proactive approach is taken in the treatment of the educated youth from abroad and in the encouragement of their return. The main goals include:
1. The return of the educated work force to Serbia;

2. Knowledge and experience transfer from the most developed world countries;

3. Support to the economy of Serbia in the form of finest experts;

4. Promotion of the entrepreneurship and entrepreneurial spirit.

The year of Return is grounded in the scientific study ‘The return of the highly educated experts to Serbia’[1] which identifies the following main issues which the returnees face in the course of their reintegration into the Serbian society:

1. The culture shock evoked by the return;

2. Lack of specific local knowledge;

3. Insufficient systematic support resulting in relying on family and friends alone;

4. Poor network of partners.

In addition, all the planned measures shall be adjusted in accordance to the research of the Serbian youth abroad, which OSSA plans to conduct in the upcoming period. This way we wish to acquire relevant data concerning the motivation for a return, professional aspirations in Serbia, views on the current support system etc. Pursuant to this, we wish to include the results in the action proposals so that we could match the needs of the people and the available programs in the best possible way.

Regardless of the fact that, at this particular point in time, there are no return incentive measures, the data of the Ministry of Education, Science and Technical Development, i.e. the ENIC/NARIC center whose main activity entails the recognition of foreign degrees, indicate that, at the moment, the interest in returning is substantial. In terms of processing capacity, the current administration can achieve ten applications per day. At this moment, the waiting lists for document submission span a time window of a couple of months. This further indicates that it will be possible to meet the yearly quota of 2600 requests. Moreover, the fact that the majority of private companies does not wish to make their employees go through the entire process only increases the current number of returnees to Serbia. Therefore, based on the action goal of the ‘Year of Return’ is to, significantly, increase the number of the returnees to Serbia, we can talk about a significant potential that is at full disposal to the economy as well as to the country of Serbia itself.      

In order to create efficient return incentive mechanisms it is necessary to establish a set of measures which would encompass all the aspects of reintegration of the returnees, entrepreneurial incentives included.

In accordance with that, the measures proposition can be divided into:

1. Institutional (Formation of the bodies that would represent the returnees)

2. Systematic (Systematic support measures for the entrepreneurs)

3. Fiscal (Reduction of state taxes, various incentives for company founding)

4. Para-fiscal (Reduction of the bureaucratic requirements).

In order for a person to become eligible for exercising any rights and obligations, which result from this scheme, s/he must first attain the returnee status made available to the citizens of the Republic of Serbia living abroad. The returnee status would apply only to those persons who have, during their stay abroad, acquired human capital of value to the Serbian society at large.

In accordance with that, the returnee status would be ascribed to the persons with:

- a higher education degree obtained abroad;

- a professional certificate/license obtained abroad;

- a higher education degree obtained in Serbia and a minimum of 5 years spent abroad;

The application of all the proposed solutions is retroactive and applies to all the persons between 19 and 30 years of age, who meet the requirements for obtaining the returnee status. The proposed age limit is in accordance with the Youth Law of the Republic of Serbia. Any pertinent changes in the Youth Law will automatically affect the age-limit changes in the proposed solutions as well.

The majority of proposed measures, all the measures prescribed by the Law included, will apply to all the young people in Serbia regardless of the stay abroad. This would allow for the inclusion of a broader group of people, as well as allow for a more effective incentive in terms of entrepreneurship in all categories.  

The returnees shall be put in focus by:

- way of forming official institutions aimed at gathering the returnees together;

- way of programs aimed exclusively at returnees;

- way of educational seminars tailored to fit the needs of the returnees;

- way of media promotion and related promotional activities.

The primary focus of the proposed law are young entrepreneurs to whom, the majority of the measures, apply. Also, in order for the proposed measures to be fully applicable to the young, exclusively, it is necessary to define beforehand the notion of youth companies as well as the pertinent rights and obligations. The act of defining such a category would also necessitate the introduction of changes and amendments to the Company Law. 

1. Institutional Measures

A necessary step in the process of project implementation is the founding of the Returnee Center, as a part of CCIS, which would gather all the returnees, facilitate institutional communication, officially represent the returnees and be responsible for the confirmation/issuing of the returnee status. The Returnee Center would act as an ad hoc channel of communication with the state and be in charge of solving any issue that might arise during the implementation process. Free access to other companies, members of the CCIS, would further facilitate the formation of the initial contact network as well as the market. Of special significance is the formation of a unified system of chambers to begin operating in 2017., as well as the introducing of obligatory membership for all the companies on the territory of the Republic of Serbia. This way, the returnees will have a direct and unhindered access to the companies, as well as the incentive to register even if they have not yet returned to Serbia.

This in mind, the main roles of the Returnee Center would be:

- the official registration of the returnees;

- direct communication with the economic organizations in Serbia;

- information supplying;

- educational.

Formation of such a Center, characterized by an intuitive registration approach, would result in an institutional database of educated people outside Serbia. Currently, numerous non-government organizations exist, such as OSSA, as well as individuals, who have in their possession large databases on educated people abroad. Formation of the Returnee Center would also entail active registering of all the persons in question into an official unified register. This way, the economy, as well as the institutions of the Republic of Serbia, would have at their disposal an invaluable resource in the form of expert staff. Given that all economic organizations in Serbia are members of CCIS, this would be offered as an additional service.

This sense, the Chamber of Commerce and Industry of Serbia would take up the form of a single front-end support system, where the returnees would be able to formally acquire the status of a returnee and receive all the relevant pertinent information. The Center would become a part of the already existing organizational structure within the CCIS itself. The registration process would be, to a great extent, automatized. In addition, the returnees would be given access to the documents, brochures and the relevant information concerning the start up of a business on a separate website designed especially for such purposes.

2. Systematic Measures

Based on the activities comprising the ‘Years of entrepreneurship’, the Law on the Entrepreneurial Incentive would prescribe a set of systematic support-measures aimed at providing an all-encompassing support to the future entrepreneurs.

a. The Incubation Period

In order to facilitate adaptation and development of companies it is necessary to take into account the incubation period of three years. During this period companies are allowed to take full advantage of all the possibilities resulting from the Law in question. Studies have shown that the first three years are of crucial importance for the future of a business. The reason for this is that, during this period, companies are most vulnerable, why it is essential to make it possible for them to focus, as much as possible, on the profit-making activities. Once this period is brought to a successful end, the companies are treated in the same manner as all the other economic organizations, in accordance with the laws off the Republic of Serbia. Furthermore, the youth companies exercise their rights and obligations in accordance with the Law and as long as they hold the status of micro companies.

b. Regional Centers

For the purpose of increasing the overall potential, the Republic of Serbia would be, during the incubation period, required to offer to the companies its techno-scientific centers and hubs for lease and at nominal prices. Pursuant to this, the regional centers would serve as business hubs and would be founded in Belgrade, Novi Sad, Nis, Subotica, Kragujevac and Cacak, as the returnee meeting points. By creating informal clusters of companies, the returnee companies are incentivised to collaborate, which further facilitates fast-paced and more sustainable development. Having in mind the trend of the rapid growth of private business incubators on the territory of the Republic of Serbia, what would be beneficial is the devising of the joint-collaboration model, which would increase the overall productivity and bring the best of results.   

c. Education

Alongside the Returnee Center, CCIS would play a very important role in youth education. In order to thoroughly introduce young people to the business environment of the Republic of Serbia, the Center for Education - part of CCIS, would be required to regularly organize educational seminars aimed at familiarizing the returnees with all the relevant characteristics of the business environment in Serbia. The Center for Education is currently already implementing a similar education program, on a commercial basis, within the ‘Years of Entrepreneurship’ and in collaboration with numerous partner institutions, while within the ‘Year of Return’ additional emphasis would also be placed on the improvement of the system of education. The education program to be implemented would include all the partners who took part in this year’s (program) as well. Having in mind the specific situation in which the returnees find themselves, the seminars on offer would be additionally supplemented so as to include the reintegrative component as well. The educational seminars in question would focus on the following topics:

- familiarization with the institutions of the Republic of Serbia;

- legal system;

- tax system;

- accounting and audition;

- regulatory environment;

- development and business improvement;

- public procurement education;

- subventions for hiring;

- EU law;

- EU funds.

d. Funding

In the course of the Law implementation attention should be given to the sustainability of the company. The bank system in Serbia is currently quite stringent, particularly with regards to providing credit for youth companies. The loan interest rates are too often too high. This way the company financing system is completely depreciated. What the experiences from the West show is that the majority of such companies, high-risk in nature, are financed by ‘Angel Investors’ or by way of the ‘Venture capital’ system for the financing of the onset investments in companies.

In order to provide additional incentive for the development of youth companies, necessary mentorship and to contribute to the strengthening of the economy in general, the Law must include regulations which support investing of the companies and individuals in the youth companies. Following the UK system widely known as ‘Seed Enterprise Investment Scheme’ which specifies tax acquittal for individuals and legal entities which invest their oney in the development of start-ups.

Investment opportunities specify the following benefits:

- 50% tax acquittal for an investment up to £100.000;

- complete profits tax acquittal on investments in the companies after three years investment period;

- profit tax acquittal in the case of other investments which are invested in the companies that qualify for the aforementioned investment plan.

The system specifies the following limitations:

- investing of up to £ 100.000 in companies with maximum of up to £ 200.000 in capital;

- investing in companies of up to 25 employees;

- Companies not older than two years;

- Foreseen opportunities are no available to all sectors (financial services, insurance, banking);

- investors are not required to be residents as long as they have tax obligations on the territory of the United Kingdom;

- investors are obliged to retain an investment for a minimum time period of three years;

- investment is deducted from the overall tax charges in the fiscal year in which the investment has been made. In case of the withdrawal before the three year deadline, the investor looses every right to a tax return and is obliged to pay back the entire tax deduction.

Introduced in 2012, the system has, within the first 12 months, generated 82 million pounds in capital for more than 1000 newly founded companies. Currently, the system generates 2 million pounds per week which are further invested in novel ideas. The immense success of the British model lies in the fact that the tax acquittal has reduced the overall risk rates to such an extent that the companies were willing to invest in the high-risk youth companies.

Based on the success of the British model, while also taking into consideration the specificities of the system in Serbia, it is necessary to create a system which would facilitate the funding of youth companies. Therefore, investment opportunities in Serbia would account for a complete or partial tax return for legal and private entities in Serbia willing to invest in youth companies. The tax return requirements would be submitted at the end of the fiscal year.   

Currently, in the Republic of Serbia, the example of the tax deduction base is non-existent, why the deduction is performed by means of a tax return process after the submission of the request.

Taking into consideration the classification of the business companies in the Republic of Serbia, in accordance with the article 6, of the Accounting Law, natural persons and legal entities are allowed to invest in the micro companies in the amount of up to 21.484.000 RSD (EUR 175.000). The amount in question is sufficient for the initiation of any type of business activity. The investment opportunity would be explicitly limited to two youth micro companies per year. In order for such a model to achieve maximal efficiency it is necessary to consult the UK colleagues for the purpose of developing a model for the prevention of malversation and misuse.  

Also, it is necessary that the investment obligation is set for the period of three years, which is in accordance with the duration of the incubation period for the youth companies. Withholding tax acquittal opportunities with such investments are not necessary because the law proposal does not have as its goal the added company profit, but to facilitate the access to capital necessary for the youth companies. As is the case in the UK, the investments would not apply to all sectors, specifically the financial services, insurance and bank sectors would be omitted, while the conclusive list of sectors which would be granted access to such a source of investment would be the topic of future detailed analyses. Investment opportunities would be granted to all legal and natural entities with tax obligation in the Republic of Serbia. 

The complete implementation of such a system provides incentive for the capital to be invested in the micro companies which, in turn, facilitates their development and growth. Given that the investment majority would be comprised of companies and not of natural persons, what is achieved is high-level mentorship, resulting in the creation of environment in which big and medium-sized companies become a driving force of the development of small and micro companies in Serbia. This way youth companies are, in turn, given an opportunity to seek professional guidance, as well as reach their initial clients with less effort. Such investments can be viewed as wide-scope Corporate Social Responsibility. In this sense, the private sector becomes the driving force and the source of incentive for the young people to venture into entrepreneurship.

Providing business companies, registered on the territory of Serbia, with such investment opportunities would, inevitably, lead not only to a significant development of the finance industry, but also to the formation of ‘Venture Capital’ companies. Furthermore, such an initiative can also contribute to the official adoption of the Venture Capital Law. Currently, all the finances are acquired from individual investors or by means of foreign investments. In addition, such a form of incentive would lead to a greater offer of financing sources in the market, encourage banks to invest in entrepreneurial ideas as well as to a greater percentage of loan approval by the high-liquidity banks. An additional important source of financing that can be realized is also micro-financing. Given that the Law on Micro-Financing has not yet been passed, steering the activities in that direction would also be highly beneficial.

3. Fiscal Measures

In order to incentivize the youth entrepreneurship, especially in the case of returnees, it is necessary to develop a functional system of fiscal incentives which would facilitate the starting up of business and the youth business advancement.

In order to make the fiscal incentives available to the entrepreneurs and returnees, it is possible to develop the set of measures in two directions:

- fiscal stimulation;

- acquittal from public charges.

The system of fiscal stimulation, otherwise known as subventions or incentive measures, is widely present in Serbia. First and foremost, as a part of the ‘Years of Entrepreneurship’, resource incentives have been actively used to support the entrepreneurship in general as well as the specific programs aimed at specific groups (ICT industry, youth, women, self-employment). This year will see 4.4 billion RSD of grants and 11.38 billion RSD for loans and guarantees. The agencies in charge of such activities are Serbian Development Agency (grants), Development Fund (loans) and the Ministry of Resources, Ministry of Economy and the Chamber of Economy of Serbia.

In accordance with the ‘Year of Entrepreneurship’, the ‘Year of Return’ would also be based on a similar model of grants provided by the Serbian Development Agency and complemented with the loans and guarantees by the Development Fund. The programs would be envisioned in such a way so as to make it possible for all the young people to obtain both the grants as well as loans necessary for the start up of their businesses, with a caveat that it is necessary to delimit those projects focused specifically on the returnees, registered in the database of the Chamber of Commerce of Serbia. A clear division of programs would, in turn, allow the returnees to easily apply for state subventions. As is the case in the ‘Year of Entrepreneurship’, grants are approved only if the company does not change its primary activity for the period of two years, whereas loans are approved under the subventioned interest rates. In addition to that, funds would also be available to the self-emplyed individuals registered with the National Employment Service. Unlike the ‘Year of Entrepreneurship’, funds would also be made available to individuals seeking to start a business in the spheres of financial services, marketing, consulting and trade. Having in mind the overall academic structure of the Serbian students abroad, where around 45% of them is pursuing a degree in the fields related to economy, it is by all means necessary to allow the start up of businesses which primarily focus on the financial and related services. 

The second approach to the development of the fiscal measures refers to tax acquittal and payroll deductions. In accordance with the Income Tax Law as well as with the Law on Contributions for the Mandatory Social Insurance, there are no regulations which allow either acquittal or reduction of obligations concerning the tax and contributions payment. Despite the attempts to officially introduce the aforementioned acquittal in the case of young entrepreneurs, such a system had only partial success. Thus, now would be a good time to revise again such economic incentive modalities.

Realization of the specified fiscal measures which would make the grants and start-up as well as promotion loans possible would represent an additional source of financing. Alongside the already present investment system for mid-range and big-scale companies, the specified fiscal measure would completely meet the needs of the young people eager to start a business of their own.

Furthermore, in accordance with the Law on withholding tax of legal entities, all companies which invest more than one billion RSD into fixed assets are acquitted from the capital gains tax for the period of 10 years and proportionate to the investment in question. 

4. Para-fiscal Measures

Economic study conducted by NALED in 2014 revealed 371 untaxed remittals, 179 of which were para-fiscal charges. Based on those charges the state has acquired 730 million EUR, or 570 EUR per employee.

Bearing in mind that the State itself partakes with 42% in the acquisition of the para-fiscal charges, it is very important to establish collaboration with state institutions which would lead to the abolition of certain charges and para-fiscal charges in the case of youth companies.

In order to specify a list of para-fiscal charges as well as the of the abolition possibilities, conducting a detailed analysis in collaboration with the resource ministries, official institutions of the AP of Vojvodina included, is deemed necessary.

The remaining aspect of importance concerns the activities of the returnee companies following their work onset. In order to resolve the issue of youth unemployment it is necessary to initiate the program ‘Young for the young’. The main goal of the program would be to incentivize the companies into hiring their unemployed colleagues seeking employment in Serbia. Aside from the held job positions, the young people in Serbia would also actively partake in the process of vocational training and knowledge transfer provided by the returnees. This way the program fulfills two goals at the same time: generation of job openings and training of the young employees.  

The program ‘Young for the young’ can be implemented through grants and loans programs, a part of the fiscal incentive measures. This year, the awarding of the grants also required an employment of an additional person In case the approved grant exceeded 500.000 RSD. A similar principle would necessarily have to be introduced as a part of the programs which belong to the ‘Year of return’ which would oblige the employers to hire the unemployed listed on the register of the National Employment Service.

The Law on Youth Entrepreneurship Incentive, the strategy for the promotion of return and the ‘Year of Return’ would be implemented through adoption of the Law in the National Assembly of the Republic of Serbia as well as through the regulations of the Government concerning the initiation of the ‘Years of Return’. In addition, exercising all the rights and obligations mentioned in this proposal requires changes and amendments to a significant number of laws.

To conclude, it is necessary to sum up all the aspects encompassed by the activities in question. By acquiring the returnee status, each person will be granted access to other returnee colleagues through the proposed institutionalized framework. By way of the Returnee Center, a part of the CCIS, the returnees will also have access to all the companies in Serbia. As a part of their founding process, the youth companies would automatically become a part of the three-year incubation process, during which the aforementioned set of proposed measures would fully apply. The initial investment can be acquired through collaboration with mid-range and large-scale companies, as well as through contact with the market and the available aid measures. By founding regional centers the state would group the returnees in one place and significantly decrease the costs of company-space lease within the incubation period, as well as provide incentive for collaboration between companies and encourage potential joint ventures. Specific education and training provided by the Chamber of Commerce of Serbia, partner organizations included, would allow the returnees to gain essential local knowledge necessary for a productive adaptation to the business environment in Serbia. The fiscal support program would provide additional source of financing for the young entrepreneurs both by means of grants and affordable loans. In addition, the role of the program ‘Young for the young’ would be to increase the youth employment in Serbia and make an active contribution to the resolving of this burning issue.

Therefore, the Law in question supports the youth and the returnees in terms of essential training, contacts, institutional and system ties, stimulation, finances and potential market, all with the goal to encourage entrepreneurship and strengthening of economy in Serbia.