In 2009 , the Republic of Serbia adopted the Law on Planning and Construction (("Official Gazette of Republic of Serbia", no. 72/2009 and 81/2009) ) inter alia aiming to legalise the privatization procedure of state-owned construction land through the conversion of the right to use the land into an ownership right. Namely, Article 103 of the Law prescribes that companies that "were subject to application of privatization, bankruptcy or enforcement laws" may convert their right to use construction land into ownership right upon payment of a conversion fee. The Law sets out the conversion fee as the amount equal to the difference between the market value of the land at the time of conversion and the amount paid by the investor for the acquisition of the right to use such land.

In line with the Law, the Government of the Republic of Serbia adopted a Decree clarifying the Criteria and the Procedure for the Determination of the Conversion Compensation. Upon testing the Decree in practice, the investors faced problems due to insufficient and unclear provisions in the Decree. Therefore, the Government enacted a new Decree amending the previous one which should remedy deficiencies which prevented the implementation of the lawmaker's intention to convert the right of use into an ownership right.

Based on the Decree, the evaluation of the market value of the land and the amount paid by the investors for the acquisition of the right to use such land was an obligation of the municipalities. Given the lack of experts in municipalities, the Amendments shifted this competence to the Tax Authorities which are entitled to appoint experts or appraisers in each specific case. Determination of the conversion right and the amount of the conversion fee however, still remains under the authority of the municipality.

Further to the above and in contrast to the Decree, the Amendments elaborate in more detail criteria, methods and formula on the basis of which the appointed expert or appraiser performs the evaluation. For example, the Amendments clarify that the average transfer value of the construction land (srednja prometna vrednost grañevinskog zemljiata) which forms with other elements the market value shall be established on the basis of the market value of the same or comparable land when deciding on transfer tax within the preceding year. In the absence of the noted transfers of land, the average transfer value shall be calculated by multiplying the last recorded transfer price with the percentage of increase or decrease of the prices for the same or comparable land.

Apart from the amount paid by the investor for the right to use the land, as the deductible amount from the market value shall be also recognised the purchase price paid for the acquisition of the object built on the construction land on which the investor has the right of use on the basis the agreement certified before the court.

The Amendments introduce another deductible amount which is equal to the purchase price paid by the new investor for the acquisition of shares or assets. This is applicable in cases when the privatisation contract was terminated due to the fact that the former investor failed to fulfill its obligations. Thus, the sum of the purchase price paid by former investor and purchase price paid by the new investor shall be deducted from the market value. This is a logical consequence of numerous lately terminated privatisation contracts where the state wants to avoid double charging and to place the new investor in an equal position as the previous one.

The Amendments introduced an exemption regarding the obligation for payment of the conversion fee in case when on the state-owned non-constructed construction land a building is built in line with the planning document, i.e. when the land is in line with zoning. This exemption is introduced for the benefit of the investors who acquired the right of use on construction land under factories and facilities and fulfilled or fulfil their undertaken obligations in respect to continuation of the production without any intention to build new buildings.

In conclusion, one may argue that the Government of the Republic of Serbia through the enactment of the Amendments is making an effort to speed up the privatization process for the benefit of investors who acquired factories and facilities with the intention to continue operations rather than facilitating , investors whose ultimate r purpose was to obtain cheap construction land in order to build new buildings upon demolition of existing ones.

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.