Closing a company in Serbia is a complicated and lengthy process that can incur costs ranging from several thousand to over 150,000 euros, unlike the simple procedure of opening, as reported by the magazine Business and Finance.
In the article published in the December issue, it is mentioned that in 2022, 8,416 companies and 24,026 entrepreneurial ventures were closed in Serbia. From January to November 2023, 7,458 companies and 19,040 entrepreneurial ventures were closed, most notably in the sectors of trade, construction, as well as programming, baking, taxi services, freight transport, hairdressing, and cosmetic services.
Different closure procedures
The procedure for closing sole proprietorships and companies is different. If a company is deregistered from the Business Registers Agency (APR) after the completion of liquidation, bankruptcy, or a change in legal status, it is obligated to submit extraordinary financial and annual reports to the Financial Statements and Credit Reports Register.
The liquidation of a solvent company occurs when the company has sufficient funds to settle all its obligations, making this process relatively straightforward. The process begins on the day of the registration of the liquidation decision and the publication of an announcement initiating the process, which lasts for 90 days. Creditors can submit their claims within 30 days from the expiration of the announcement.
If the company changes its registered office or address for receiving mail during the announcement period or the claim submission period, the 90-day period restarts from the date of registering that change.
The agency is first submitted with the approved initial or annual liquidation report, which includes a list of reported known and contested claims, information on whether the company’s assets are sufficient to settle all its obligations, including contested claims, necessary actions for implementing the liquidation, and the anticipated time for completing the liquidation.
If the liquidation takes longer than a year or if the end of the business year occurs during the process, the liquidation manager submits an annual liquidation report to the Assembly for approval, no later than six months after the end of each business year.
After the liquidation, a request for deletion from the Register is submitted to the Business Registers Agency (APR). This request is accompanied by the company’s decision on liquidation, the liquidation manager’s report on the completed liquidation, their statement that all company obligations based on reported claims have been settled, and that no other proceedings are ongoing against the company.
Additionally, the company’s decision on the person to whom business books and documents are entrusted for safekeeping or the liquidation manager’s statement about the name and address of that person is submitted. Proof of the cessation of tax obligations, issued by the competent tax authority and not older than five days at the time of submitting the request for deletion from the register, is also provided.
According to regulations, the company cannot decide to terminate the liquidation before the legal conclusion of all proceedings that may have any obligation for the company and its settlement as a legal consequence.
Liquidation in limited liability companies, which is the most common form of business organization in Serbia, is not a simple and ideal process as prescribed by regulations. It is a lengthy and expensive process, with costs ranging from several thousand euros to over 150,000 euros. “To close a company, the Tax Administration needs to conduct inspections, and while these inspections are ongoing, the company incurs various expenses, including environmental fees, accountant fees, and other levies,” said Dragoljub Rajić, coordinator of the Business Support Network.
Rajić explains that the Tax Administration first reviews the company’s documentation and then contacts government institutions to verify outstanding debts. Often, cash flows are scrutinized, and documentation is requested from banks, a process that can take months. Incorrect assessments of debts can occur, leading companies to file complaints and initiating a complex process of clarifying whether the debt truly exists. This is challenging, given that just the Value Added Tax Act alone has 320 pages and 1,900 pages of various interpretations.
Without subsequent liability
In Serbia, according to regulations, there is no subsequent liability for the founders of a limited liability company. While in other countries, if tax authorities later determine that someone remains in debt, that debtor is obliged to pay the debt, in this country within the region, it is almost impossible to collect such debts after the company has been closed. Due to these liberal regulations, the Tax Administration ensures thorough checks before approving liquidation,” explains Rajić.
According to him, in most European countries, liquidation is a quick process. For example, in the United States, a billion-euro company can be closed within 30 to 90 days, but tax authorities scrutinize the documentation, and if embezzlement is identified, the owner can be effectively prosecuted, regardless of closing the company.
The procedure is even longer if the director or authorized person of the company in Serbia is a foreigner, Rajić notes, as that person must come multiple times or send documents signed by an authorized person, which makes the process more expensive and difficult for foreigners to comprehend.
The complexity of closing a company is also a consequence of various abuses during the privatization period in Serbia when a lot of suspicious money was injected into the economy. Additionally, the lack of scrutiny of the origin of money from questionable investors adds pressure to the Tax Administration to conduct thorough checks.
“A company should be able to open quickly, invest money, but if there is a reason to close it, it should be done swiftly. It is up to the tax authorities to monitor the flow of money through banks,” believes Rajić.
Why do bankruptcies last for years?
In his assessment, bankruptcy is even more complicated and lasts for years, even decades, and he considers it a sore spot in the Serbian economy. Liquidation, and especially bankruptcy, are complicated by legal disputes over claims. While these disputes are ongoing, the Tax Administration insists, in certain cases, that they be concluded. The expectation is that if a company has substantial claims and collects on them, some of that money will flow into the budget.
Milena Amon, who closed her company and is a representative of the association “Protector of Entrepreneurs and Businessmen of Serbia,” states that there are various cases in practice. It has happened that an individual registers a new business entity after the liquidation of the previous one, and the Tax Administration blocks the tax identification number (PIB), preventing operations due to an alleged debt, which could be as little as a few hundred dinars.
“It’s a kind of absurdity because the process of closing the previous entity implies confirmation from the Tax Administration that there are no outstanding obligations,” says Amon for B&F. According to her, a company can be closed without a lawyer, but for limited liability companies, it is advisable to hire both a lawyer and an accountant due to potential errors in the order of submitting documentation. Mistakes can prolong the process, and tax obligations continue during that time.
Amon believes that APR (Business Registers Agency) should be allowed to obtain confirmations directly from the Tax Administration, and a streamlined procedure should be provided for companies without debts. In some neighboring countries, this is confirmed with a notarized statement and personal guarantee from the owner of the stake in the limited liability company.
In her opinion, while digitalization has simplified certain aspects, such as accessing information through the e-tax portal, it has also complicated the process. Many people today do not know how to open a limited liability company, so they have to hire a lawyer for that as well.
It is incomprehensible that the owner of a business entity is obligated to register in the register of ultimate beneficial owners after registration, even if they are a domestic citizen and register the company with their ID card. However, if they overlook this requirement, they can receive a misdemeanor report, emphasizes Amon.
The procedure for erasing a sole proprietor from the Business Registers Agency (APR) is simpler. It requires submitting a registration application, proof of payment for erasing the sole proprietor, confirmation of having no outstanding tax obligations for income from independent activities and contributions for pension and disability insurance, as well as a certificate of settled debts for communal obligations, not older than five days at the time of submitting the request for deletion from the register.
Amon states that the procedure for closing a business for sole proprietors is simple because they are personally liable for it. This means that if, after the Tax Administration’s confirmation of settled obligations, a debt is subsequently identified, the sole proprietor must pay it. In contrast, for limited liability companies, according to regulations, this is not always the case in practice.
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