The subject Decree regulates the framework methodology for project preparation, accepted and non-accepted investments in project implementation, the procedure for awarding incentives for investments of special importance, elements of the incentive award contract, instruments for securing the return of incentive funds in case of non-fulfillment of contractual obligations, the method of conducting supervision over incentive beneficiaries, as well as other matters of importance for this procedure.
1. Project for Exercising the Right to Incentive
The right to an incentive is exercised based on a project. A project represents a set of planned activities and investments of an economic subject, implemented over a specific period to achieve a business goal, with the engagement of financial, material, and human resources, in accordance with the Law on Incentives in the Economy of the Republic of Srpska.
The implementation of the project is expected to improve business efficiency and technological development, strengthen the competitiveness of the local self-government unit where the investment is implemented, encourage balanced regional development, as well as create new jobs and improve worker skills.
The incentive co-finances a portion of the accepted investments that the economic subject incurs during project implementation, whereby accepted investments represent an investment of the economic subject that can be recognized and accepted as having been made with the aim of implementing project activities. In this sense, the Decree defines the types of accepted investments, which include investments in tangible and intangible assets, as well as investments based on new employment, with clearly prescribed conditions for their recognition.
At the same time, the Decree clearly lists the costs and investments that are not accepted in the implementation of the project as ineligible, given that they are not in accordance with the prescribed conditions and the purpose of the project.
When preparing the project, the Framework Methodology (prescribed in Appendix 1 of the Decree) is applied, ensuring a unified and standardized approach to its preparation. The project is signed and stamped by the person authorized to represent the economic subject, thereby confirming its accuracy and responsibility for the submitted data.
2. Procedure for Awarding Incentives
2.1. Initiation of the Procedure
The procedure for awarding incentives for investments of special importance takes place in two phases, namely through the approval of the right to the incentive and the disbursement of the incentive.
The procedure is initiated by submitting an application for the incentive to the Ministry of Economy and Entrepreneurship, on the prescribed form (prescribed in Appendix 2 of the Decree and forming an integral part thereof), in writing, which the economic subject may submit throughout the entire year. By submitting the application, the economic subject consents to the public disclosure of basic information regarding the incentive, as well as to the conduct of official verifications and compliance controls. At the same time, the applicant assumes obligations relating to the period after the implementation of the project, which primarily concerns the continuation of business activities and the retention of the number of employees achieved within the prescribed period. The application must be accompanied by the project, a creditworthiness report of the economic subject, as well as a declaration by the person authorized for representation stating that the investment for which the incentive is requested has not already been supported by the budget of the Republic or the local self-government unit.
When making a decision, the Ministry shall ex officio obtain data and evidence regarding the fulfillment of conditions for exercising the right to the incentive, including data on the registered seat and primary business activity, tax obligations, ownership structure, number of employees, potential restructuring, bankruptcy, or liquidation proceedings, as well as information on the prior use and return of incentive funds.
In cases where the economic subject performs an activity that does not fall under the competence of the Ministry, the consent of the ministry in charge of the respective sector is also obtained, thereby ensuring coordination between competent authorities in the decision-making procedure for awarding incentives.
2.2. Incentive Granting Commission
The procedure for approving the right to incentives shall be conducted by the Incentive Granting Commission, which, upon the proposal of the Ministry, is appointed by the Government of the Republic of Srpska following the submission of an application for incentives. The Commission shall consist of five members, including a President and a Deputy President, and its composition shall include representatives of the Chamber of Commerce and Industry of the Republic of Srpska and the Union of Employers of the Republic of Srpska, as well as representatives of the Government and Republic administration bodies.
Within the procedure, the Commission shall review the admissibility and completeness of the application, verify compliance with the requirements for exercising the right to incentives, evaluate the project, determine the value of the accepted investments, and propose the incentive amount. Based on the evaluation performed, the Commission shall prepare a report, which is submitted through the Ministry to the Government for review and adoption.
In its operations, the Commission shall adhere to the principles of administrative procedure and the principle of objectivity and shall adopt decisions by a majority vote of the total number of its members.
2.3. Dismissal and Rejection of the Application
In the course of the procedure, the Commission may propose the adoption of a conclusion on the dismissal of the application when the application is incomplete, incomprehensible, or inadmissible. An application is deemed incomplete or incomprehensible if, even after a request for supplementation, the mandatory documentation has not been submitted or other identified deficiencies have not been remedied, whereas an application is considered inadmissible if it was submitted by a person who cannot be a beneficiary of incentives in accordance with the Law. In the aforementioned case, the Minister shall issue a conclusion on the dismissal of the application, which shall be final and against which an administrative dispute may be initiated before the competent court.
In the event that the business entity does not meet the requirements for exercising the right to incentives, when the project does not meet the conditions and requirements prescribed by the Law and this Decree, or when the consent of the line ministry has not been granted, the Minister, upon the proposal of the Commission, shall issue a decision on the rejection of the application, which shall be final and against which an administrative dispute may be initiated.
2.4. Completion of the Procedure for Approving the Right to Incentives
Following the evaluation of an application that is admissible and complete, and if the requirements for exercising the right to incentives are met, the Commission shall determine the proposed incentive amount, which, together with the project, is submitted through the Ministry to the Government for review and adoption.
Following the Government’s decision on approving the project and the incentive amount to be granted, the Ministry, together with the business entity, shall prepare a draft agreement on granting incentives for investments of special importance, which shall regulate mutual rights and obligations.
The agreement shall be concluded after the Government grants its consent to the draft agreement, subject to the prior opinion obtained from the line ministry, and it shall be signed by the Minister and the incentive beneficiary.
The agreement shall regulate the key elements of the incentive implementation, including the subject matter, the amount and dynamics of the investment, the dynamics of employment, implementation deadlines, the amount and dynamics of the incentive disbursement, as well as the obligations of the incentive beneficiary regarding the continuation of business operations, preservation of the number of employees, reporting on project implementation, submission of guarantees and promissory notes, methods of monitoring the performance of contractual obligations, as well as other matters of importance for the implementation of the agreement.
2.5. Supervision of Agreement Implementation
The competent ministry and the line ministry shall monitor the implementation of the agreement and perform control over the fulfillment of contractual obligations, including the right to request the incentive beneficiary to submit periodic reports on project implementation.
The incentive beneficiary shall be obliged to enable the Ministry to control the project implementation and to grant access to the necessary documentation, as well as to facilitate other forms of implementation control.
In the event of deviations from contractual obligations or the emergence of circumstances affecting project implementation, the incentive beneficiary shall notify the Ministry and, if necessary, submit a request for the conclusion of an annex to the agreement, which may be concluded if it is determined that the reasons are justified and that the prescribed conditions are met.
If the beneficiary fails to fulfill contractual obligations, the Ministry may initiate the agreement termination procedure at any stage of implementation.
2.6. Disbursement and Refund of Incentives
The disbursement of incentives shall be made from the budget of the Ministry, as a lumpsum or successively in installments, in accordance with the concluded agreement and available budgetary funds. The amount and dynamics of the disbursement shall be determined as a percentage of the total approved incentive, depending on the stage of implementation of investments in tangible and intangible assets or the achieved employment in each project year, whereby it may be calculated based on one of the aforementioned grounds or a combination thereof.
The incentive beneficiary shall submit a request for the disbursement of a portion of the incentive to the Ministry within the deadlines established by the agreement. Along with the request for the disbursement of a portion of the incentive, the beneficiary shall submit an authorized auditor’s report on project implementation. The incentive beneficiary shall be obliged to grant access to business documentation and enable verification of the fulfillment of contractual obligations. The Ministry shall, ex officio, obtain data from the Tax Administration of the Republic of Srpska in order to verify the number of newly employed persons and the taxes and contributions paid.
Based on the submitted documentation and the verifications performed, the Ministry shall decide on the disbursement or the rejection of disbursement of a portion of the incentive for the specific project year. In the event of non-fulfillment of contractual obligations, the beneficiary shall be invited to submit a request for the conclusion of an annex to the agreement or to terminate the agreement and refund the disbursed incentive; otherwise, the procedure for the agreement termination and the refund of the disbursed incentive shall be initiated.
The Decree prescribes that the incentive beneficiary shall be obliged to submit, as a security for the refund of funds, a bank guarantee payable on first demand, prior to the disbursement of the incentive. The amount of the guarantee shall depend on the stage of project implementation, whereby a guarantee covering the total amount of approved installments shall be submitted during the disbursement of installments, whereas a guarantee in the amount of the total approved incentive shall be submitted after the final disbursement, with differently prescribed validity periods depending on the size of the business entity.
Failure to submit a bank guarantee shall constitute grounds for the termination of the agreement and the refund of the disbursed funds.
In the event of non-fulfillment of contractual obligations and if an annex to the agreement is not concluded, the Ministry shall invite the beneficiary to refund the granted incentive within the provided deadline. If the beneficiary fails to act upon the invitation, the Ministry shall initiate the collection procedure through the bank guarantee and blank promissory notes for the purpose of refunding the disbursed incentive, including the calculation of statutory default interest.
Author: Milica Gostovic
