Serbia: Law On Prevention Of Illegal Business

Last Updated: 7 August 2013
Article by Karanovic & Nikolic

The recently adopted Montenegrin Law on Prevention of Illegal Business introduces a number of new concepts in the process of fiscal consolidation and combating grey market, as well as closing some loopholes and providing more clearly defined competences of inspection bodies. The law was published in "Official Journal of Montenegro" No 29/2013 as of 22 June 2013, and came into force as of 23 June 2013.

Most important new concepts introduced by the Law on Prevention of Illegal Business:

- Background:

The principal aim of the Law is to prevent the acts of participants in trading which have been permitted so far, mostly referring to evasion of liabilities to the state and abuse of debt collection from the bankruptcy estate in liquidation proceedings, in particular regarding the debtors whose accounts are frozen in forced collection actions under the Law on Enforcement and Security. Below are presented groups of new concepts which will have far-reaching implications on business activities in Montenegro.

- Access to information:

1. Public is granted access to any information or datum about tax payers held by the tax authority, according to the law on public access to information, which actually means that, upon a reasoned request of any person, the Tax Administration (the "TA") is obliged to provide all the information it has about the tax payer: the amount of tax paid, tax debt etc.

2. The Law further stipulates that, upon written request of the TA, the banks are obliged to provide data regarding money transfers of their clients across the country of overseas. These data are considered confidential.

- Obligation to transact through bank accounts

1. The Law stipulates that legal entities and entrepreneurs are obliged to keep money in their commercial bank accounts (they are expressly obligated to have an account), and make money transfers through such accounts, in particular regarding payments of tax, surtax and contributions to the calculated gross salaries and compensation of salaries, and payment of net salaries and compensation of salaries to employees. It also means that previous practice, where a part of the salary was paid through the account, and a part by "cash-in-hand" payment is now punishable by fines imposed by the law (this issue is further discussed in the last section below).

2. Nevertheless, the Law provides for the use of cash during the business day, and determines the maximum limit of vault cash which entrepreneurs and legal entities of various sizes (small, medium and large, according to the classification under the Law on Accounting and Auditing), may keep at the end of the business day. Entrepreneurs and legal entities are obliged to determine by an internal act the maximum limit of vault cash, but such amount cannot exceed the legally prescribed limit (EUR 2,000.00 for small entrepreneurs and legal entities, EUR 10,000.00 for medium legal entities and EUR 20,000.00 for large legal entities). Entrepreneurs and legal entities are now obliged to pay the amount of cash exceeding the maximum limit in their accounts by 2.00p.m. of the following day. Also, the amount of vault cash allowed to business units is 50% of the amount available to the head office. Banks, micro credit financial institutions, postal operators and organizers of games of chance are exempt from the provisions regarding maximum vault cash. There is a specific obligation of legal entities or entrepreneurs whose accounts are frozen - after becoming aware of freezing of their accounts, they are obliged to pay all cash in their bank account, and they are not allowed to keep any cash in vault.

- Ban on establishment and disposal of receivables and debts

1. The main new concepts introduced by the Law stipulate that a person holding over 30% share in capital of a company undergoing bankruptcy or liquidation proceedings, or which has outstanding tax obligation or whose accounts are frozen in forced collection actions is prohibited from setting up a new company or registering as entrepreneur. This prohibition also refers to subsidiaries of the respective company. The Law obligates the TA to examine whether these circumstances exist on registration of any new company or entrepreneur.

2. Besides, the Law prohibits companies and entrepreneurs whose accounts are frozen in forced collection actions for more than 30 days, to collect their receivables and pay their liabilities by entering into agreements for changing the creditors i.e. debtors (assignation, ceding, takeover, debt assumption etc.), set-off arrangements (compensation), transfer of securities or by any other transactions which may lead to avoidance of collection of receivables and payment of liabilities through the account. 

- Obligations of media and other persons towards TA

1. The Law also introduces the obligation for media and issuers of bulletins, catalogues and other advertising publications to, before publishing announcements or advertisements for sale of goods and services, take identification data from the parties commissioning such announcements and advertisements and to keep records of all advertising activities and report those data to the TA on a quarterly basis.

2. Also, organizers of cultural, entertainment, sports or other similar events are now obliged to inform the TA of income earned by non-residents in relation to such events and pay tax on such basis, pursuant to the tax regulations.

3. Furthermore, companies and entrepreneurs engaged in purchasing end products, semi-finished goods and/or secondary raw materials from unregistered persons are obliged to report any monthly payments to such persons exceeding EUR 100, by 15th day of the month for the previous month.

- Obligations regarding work and residence permit

1. Employer upon whose request a foreigner has been issued a work permit or a temporary work permit is obliged to enter into employment agreement with such foreigner on the date of the issuance of temporary residence permit to the same.

2. Nevertheless, employer upon whose request a foreigner has been issued a work/temporary work permit, and such foreigner was previously issued temporary residence permit to join with the family, is obliged to enter into employment agreement with such foreigner on the date when he/she was issued the work/temporary work permit. The obligation to register the foreigner for mandatory social insurance, by filing Form JPR and the other prescribed documentation with the tax authority must be fulfilled within eight days following the conclusion of the employment agreement.

3. Finally, if the employer fails to provide for temporary residence permit to the foreigner, or to enter into an employment agreement with such person or fails to register him/her with the Tax Authority within 35 days following the issuance of work permit, he will be obliged to return the work permit to the Employment Service and such work permit shall be canceled.

- Inspection

1. Given the importance of the Law, competences of the inspectors stipulated by the Law on Inspection Control extend in particular to: (i) temporary confiscation of documentation, end products, semi-finished goods and/or secondary raw materials; (ii) issuing orders prohibiting performance of business activities, i.e. certain activities until remedying the irregularities; (iii) temporary confiscation of proceeds of unjust enrichment. 

- Fines

1. Under this Law, a legal entity can be fined from EUR 10,000.00 to EUR 20,000.00, a responsible person of a legal entity can be fined from EUR 2,000.00 to EUR 3,000.00 while an entrepreneur can be fined from EUR 4,000.00 to EUR 6,000.00 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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