Serbia ‒ Emerging East European IT Hub to Inspire Development

Serbia creates opportunities. The expression is now widely used and promoted by not just mass media, but also the global business environment. It happens for a reason, and at the same time one important aspect requires clarification. Serbia creates opportunities in its IT sector. The country has turned into a major East European digital hub. If the IT business segment is exactly what you are interested in, the article below is right for you.

Let’s get to the point from the very start. With its well-developed and diversified economy, Serbia boasts a favorable business environment, especially considering the country’s low taxes and multiple tax incentives. The latter contribute to Serbia being often referred to as the leading East European offshore. True to the core. As for the Serbia IT sector, digital economy and digitalization processes in general, they have a much higher development potential, in part, due to the tax incentives enjoyed by the Serbia IT sector.

Reasons to invest in Serbia IT sector

Various factors make investing in Serbia’s digital economy and business appealing and potentially profitable in case of both national and foreign investment.  Some of them, like multiple tax incentives, are universal and not linked to namely Serbia, while the others stem from certain peculiarities of the country’s economy and its national mentality. If potentially highly profitable low-risk foreign investment is your goal, Serbia may appear your primary choice. 

Here’s why Serbia is so appealing to IT investors:

• superb engineering potential and highly qualified specialists in Serbia IT sector, `with sufficient professional skills and training
• low business launch and operation expenses
• meaningful benefits and tax incentives on top of full government support
• well-developed modern infrastructure
• political, economic, and financial stability
• multiple tax incentives for Serbia IT sector investors
• favorable geographic position between the East and the West.

Tax incentives attractive for IT investors in Serbia are listed below:

• remarkably profitable IP BOX (Intellectual Property Box, Patent Box, Knowledge Development Box ‒ preferential tax regime and tax incentives for IP revenue streams) of 3% only
• double R&D (Research and Development) deductions
• lower R&D contributions and wage tax rates
• tax incentives and deductions for start-up investors
• lower contributions and tax rates for recent graduates
• tax incentives for shares held by IT company employees
• lower contributions and tax rates for foreign IT specialists and returnees
• tax incentives and deductions for VC fund investors.

Please note that these are all real working tax incentives and benefits and not just some dubious projects. Serbia is the country that is actually creating the environment for IT business to blossom, and various tax incentives for IT businesses is a part thereof. Just like Singapore, known to be among the world’s leading economies.

Innovations, fourth industrial revolution, and foreign business

A major paradigm shift is obvious to everyone. With the fourth industrial revolution in full swing, previous leaders face a mammoth task of transforming their economies so that calling them digital would actually mean something. 

To acknowledge it, the Serbian government banked on the maximum digitalization of the country’s economy. Potentially detrimental for their immediate interests, the bet has paid off. Sebia managed to launch transformation processes in both the society and the country’s economy, resulting in an environment to stimulate effective development. 

Comparing Serbia and Singapore in the above context is totally appropriate. After taking office in 1959, Singapore Prime Minister Lee Kuan Yew refused to focus on manufacturing and mainstreamed foreign investment in the country’s business and finance sector instead. Although hated and criticized, Lee Kuan Yew still achieved his ends. This way, choosing a digital development course for Serbia is amply justified.

Below, several international companies investing in the Serbian digital economy are mentioned:

• Stellantis
• Microsoft
• Siemens
• Schneider Electric
• NCR
• Johnson Electric
• Vinci
• MTU Maintenance.

IT sector in Serbia

A leading blogger once remarked Serbia was a great place to come together. We dare say, it is not far off the mark. Even if the magnificent local nature, historic sights, and delicious cuisine are left out, Serbia still boasts an effective communication environment for people, businesses, investors, and  XXI century digital trends.

Here are several facts about Serbia that may surprise you:

• Serbia offers a visa-free entry for citizens of the US, the EU, China, India, and some other countries.
• It holds the honorable first place in the Financial Times global greenfield FDI (Foreign Direct Investment) performance ranking.
• Serbia managed to move 43 positions up in the prestigious WB Doing Business rating, which is an excellent trend.
• Belgrade (the Serbian capital) is officially referred to as a city of the future in Southern Europe.
• ICT (Information and communication technology) sector enjoying multiple tax incentives is the country’s most significant export industry.
• According to Startup Genome, Serbia is among the TOP-5 countries with the most available talent, as well as the highest blockchain and digital gaming popularity.

Serbian IT sector and collaboration with leading high tech companies

Traditionally, emerging markets and developing economies have been used for quick-and-dirty software development, talent outsourcing, and head hunting. It is never about equal, fair, and mutually beneficial cooperation. The scheme works for everyone, with the donor state receiving small budget revenues, the IT company cutting corners on R&D and having a free hand to poach talent, and outsource studios themselves enjoying a stable and rather high (as they see it) profit. Serbia, in this context, is quite a different story. Cooperation between leading transnational IT companies and Serbia may rightly be referred to as equal.

Serbia and Microsoft

• Modern MDC center ‒ one of the most innovative European hubs.
• Focus on variety and exclusivity.
• 400 software engineers.
• Participation in developing a full range of Microsoft products and services, with Serbian pros primarily working on AI systems and databases.

Serbia and Schneider Electric

• In-house R&D department headquartered in Novi Sad.
• Software and hardware systems developed in conjunction with Serbian specialists to effectively manage energy flows in San Francisco, Seattle, Ostin, Phoenix, Philadelphia, Vancouver, Toronto, and many other cities around the globe.

Serbia and Continental

• In-house R&D department headquartered in Novi Sad.
• First prize at CVS R&D Innovation Award (out of 110 applications in total).

Serbia and Wonder Dynamics

• Wonder Dynamics is an innovative media start-up, with AI-based solutions allowing independent studios to create low-budget blockbusters.
• Tye Sheridan (the actor starring in Ready Player One), the Wonder Dynamics founder, claims his start-up will soon make it possible to seamlessly combine cinema and technology.

Serbia and Everseen

• In-house R&D center in Serbia (Belgrade).
• Google recognized the Everseen solutions as the best tech innovations in 2020.

Gaming industry

E-sports (aka cybersport) know no limits, national differences, or geographic boundaries. Gaming studios with commercially successful products in their portfolios generate significant profits at the least cost and are an attractive niche for foreign investment. At the same time, you can find very few examples of studios that develop their end products independently, without considering the publisher’s opinion. Many of those selected few have Serbian roots.

Serbia and Nordeus

• Over 170 employees.
• Take-Two Interactive acquired for nearly USD 400,000.
• More than 200,000 active registered users (Top Eleven, Heroic, and Golden Boot projects).
• Nordeus Hub launched to combine teaching and learning, with a global aim to develop the Serbia gaming ecosystem. 

Serbia and 3Lateral

• Headquartered in Novi Sad.
• One of the leading developers in human appearance and motion digitalization.
• Start-up has recently joined the Epic Games team to develop a popular game engine known as Unreal Engine.

Serbia IT start-ups develop products and services very popular with companies and consumers. Put it otherwise, these are not still-born ideas with no practical benefits but the solutions ready to be used in real life. Over USD 700,000 invested in the Serbia tech market is a nice proof thereof.

Examples of the latest mergers and acquisitions you may find below:

• Nordeus ‒ T2
• Epic Games ‒ 3Lateral
• GoDaddy ‒ Devana
• Nutanix ‒ Frame
• Schneider Electric ‒ DMS NS.

The fact that the Serbia IT sector grows annually by 25% stimulated by various tax incentives is an even more significant indicator of the Serbian government’s right policy towards IT companies and start-ups than the above USD 700,000 invested therein. It is next to impossible to achieve such expansion in a traditional economy or any other business sphere not related to IT.  Taken together, these factors make the Serbia IT sector appealing for foreign investment.

IT ecosystem in Serbia

Serbia is a rather small country with the population of around 7,000,000 and the territory of 88,500 square kilometers. Considering the above, the number of IT ecosystem objects is striking. Many larger and more populous European countries can’t boast such resources. You should also remember that the IT sector in Serbia is constantly growing and expanding, with its rapid expansion promoted by multiple tax incentives and foreign investment therein.

Take a look at the basic IT infrastructure objects in Serbia:

• 8 universities
• 4 technoparks
• 15 start-up centers
• over 20 coworking hubs
• 5 IT clusters.

The digitization process in the Serbian economy is government-inspired and stimulated by various tax incentives and foreign investment the Sebia IT sector enjoys. This is especially important for the digital revolution in the industry to win and succeed. To top it off, a number of private (non-government commercial) initiatives in the sphere promote and speed up the country’s digital development, with the Digital Serbia project being among the best known ones. As of the late summer 2022, 30 specialized agencies, companies, and organizations in the sphere of digital technologies worked together under its roof.

Innovative IT infrastructure in Serbia

For long-term national and foreign investment to efficiently work and bring profit, investors enjoying effective tax incentives need to realize the payback period is long enough. This applies to both civil infrastructure and objects promoting the IT sector development. It is not that money is spent on IT projects like water in Serbia but the number of science parks, start-up centers and smart cities in the country is growing hard beyond imagination promoted by lavish tax incentives.

Science and technology parks in Serbia are

• Beograd
• Novi Sad
• Niš
• Čačak.

Start-up centers in Serbia are

• Subotica
• Zrenjanin
• Stara Pazova
• Valjevo
• Kragujevac
• Užice
• Gornji Milanovac
• Pripoj
• Kruševac
• Zubin Potok
• Niš
• Pirot.

Smart cities in Serbia are

• Loznica
• Mali Zvornik
• Čajetina
• Ivanjica
• Vrnjačka Banja
• Sokobanja.

Once again, these are all centers to be found in Serbia, by far not the largest European country. Out of all European states, the concentration thereof is among the highest in Serbia. Without a doubt, it is for a reason that the interest in multiple Serbia IT technologies is so high nowadays, and generous tax incentives plus extensive foreign investment are a part of the picture.

National data center

The above national data center was created to process data in a centralized manner and secure the maximum protection thereof without compromising functionality, convenience, practicality, or accessibility. Most often, such ambitious goals either remain unachieved or their implementation deadlines are postponed till some distant future. The national data center, however, was launched as planned and is fully functional.

The most prominent features thereof are listed below:

• fully compliant with Tier 3+ standard
• services offered meet ISO 27001 security standard, ISO 9001 quality standard, and ISO 20000 service standard
• national data center services both public institutions and private companies.

Talent pool as the pillar of Serbian economy digitalization 

The ambitious goal to digitalize the Serbian economy is so complex that it is impossible to achieve without significant foreign investment and personnel reserves. An effective modern system for training specialists will secure the necessary talent pool and make it possible to drastically reduce the country’s dependence on outsourced workforce.

This applies to all education tiers, including higher, secondary, and elementary education. While the situation with specialized college graduates is crystal clear, the 2 remaining tiers are often regarded as optional for IT education purposes. The Serbian government, however, is not guided by immediate challenges. It rather has courage to think in a forward-looking way.

Higher education

Serbian university graduates (even those not heading for the IT sector) possess solid background knowledge in engineering, IT, physics, and math. As a result, Serbia has the 22nd highest number of higher-educated specialists in the field of science, technology, engineering, and mathematics (Global Innovation Index).

Higher education system in Serbia (with the number of higher educational establishments and faculties) is described below:

• public higher education ‒ 8 / 82
• private higher education ‒ 10 / 48.

Here’s the country’s higher education ecosystem and the most popular specialties:

• social sciences (including, inter alia, business and law) ‒ 28%
• exact sciences (mathematics and IT) ‒ 16%
• manufacturing and engineering ‒ 18%.

The STEM sector (science, technology, engineering, and mathematics) boasts a rather high share of university graduates (34%, or around 85,000) brought in to the industry for multiple reasons, including, inter alia, lavish tax incentives and foreign investment therein . The figure would be more typical of highly populous countries. Many Serbian uni graduates speak at least one foreign language, placing the country 17th in the world on this measure. University graduates in Serbia speak English (86%), German and Russian (12%), French and Spanish (6%), as well as Italian (4%).

Secondary education

Prospective university students mostly come from secondary schools. The system of secondary education in Serbia enompasses 517 schools, with around 60,000 students graduating annually. Although not all of them are eager to go on with their studies, the knowledge received already makes it possible for them to find decent employment without any major trouble. They are highly likely to find jobs in either the country’s IT sector or any related fields.

Serbia is the only state in the region where dual education principles are anchored in the national legislation. Switzerland and Germany employ the like model providing for a combination of classical academic education and  practical professional activities.

Take a look at the most popular career fields (with the number of students who decided in favor of this or that specialty):

• electronics ‒ 11,756
• economics, law, and business administration ‒ 8,224
• trade and tourism ‒ 5,140
• agro-industrial sector ‒ 4,062.

Elementary education

Focused on contemporary realities, the Serbian educational system is capable of efficiently training professional personnel from the very early education stages. With an approach like this, children can decide what they would like to do in life a lot quicker. This improves the overall efficiency of the national educational system.

Practical implementation of modern educational principles in Serbia and components thereof are as follows:

• mandatory programming (coding) classes starting from grade 5, with Scratch, Python, Pygame, and Jupither studied as programming languages 
• information technology faculties to be found in every preparatory school
• growing number of students studying STEM subjects
• interdisciplinary master’s programs
• guaranteed employment for 1000 PHD students every year.

Favorable business environment

Focus on real business needs and profiting from student training have nothing in common. The approach implemented in Serbia significantly reduces the risk that young talented specialists will stay unemployed and economy transformation programs in Serbia will not translate into reality due to staffing bottlenecks.

Government regulation principles include

• simplified recruitment procedures for highly qualified employees and workers from all over the world (with priority given to Serbian citizens)
• fast-track work permit application processing for certain foreign specialists
• strong IP protection based on the country’s advanced legal framework
• multiple tax incentives for Serbia IT sector companies
• two functioning sandboxes, namely, FinTech and MedTech.

New Law on Digital Assets

Adopted in December 2020, the Serbian Law on Digital Assets promotes crypto currencies and creates a strong legal framework for efficient DFA usage.

Here are the basic provisions implemented by the Law on Digital Assets:

• actual recognition of virtual currencies and digital tokens as legal digital assets
• cryptocurrency legalization
• permission to buy, sell, transfer, exchange, and use DFA as a means of payment.

The last item is of utmost practical importance, as it lays the foundations for cryptocurrency IT sector financing in Serbia. Reducing the shadow economy share, together with all the related benefits is an important free bonus.

Serbia as new European biotechnology center

Biology is another economic branch benefiting from the government IT support and multiple IT sector tax incentives in Serbia. IT technologies enjoy great popularity in the industry and are actively promoted on the national level. A new powerful biomedical complex is to appear in Serbia in the near future. We are talking about the BIO4 campus to deal with every practical aspect of complex biomedical, bioinformatic, and biotechnological solutions and techniques. The campus is supposed to turn into a hub that brings people, technologies, knowledge, foreign investment, businesses, and infrastructures together.

BIO4 basic components include

• 2 scientific institutes ‒ TIV (Torlak Institute for Virology) and IMGGI (Institute of Molecular Genetics and Genetic Engineering)
• 2 faculties ‒ Faculty of Pharmacy and Faculty of Biology
• Science technology park in Belgrade tightly integrated with BIO4
• R&D center pooling efforts of multiple pharmaceutical, biomedical, and biotech companies.

Artificial intelligence

AI technologies are not the economy basis yet, however, they are not at a laboratory state any longer either. AI-related industries are being actively developed in Serbia, with AI being the focus of all life spheres, including, inter alia, business and commerce. It is also a major draw for foreign investment. 

Basic AI development strategies in Serbia include

• Education. Complex multi-level competency development and integrated training for business company and government agency employees, with staff retraining, where necessary.
• Economy. Establishing and developing vertical relationships between all interested individuals and companies working with AI in the main economy branches (including agriculture, IT, medicine, tourism, etc.).
• Information access. AI information and data necessary to make basic business and industry development decisions should be publicly available.
• Science and innovative technologies. Desire to move forward is vitally important for successful development of both the IT sector in Serbia and the country in general. To achieve this strategic goal, scientific funds actively support (inter alia, financially) new advanced research, development, and related projects.
• Ethics. Development of ethical canons and norms of AI usage in real life and public debate on the subject.

Institute for Artificial Intelligence

The Institute for Artificial Intelligence, Research, and Development is already a familiar institution in Serbia. In other European countries, structures like this are about to be incorporated but do not exist yet. The Serbian government aims to turn the country into an AI leader producer for the whole region. Raising foreign investment and creating a favorable environment therefor is a more practical objective to be accomplished in the near future.

Government efforts in Serbia to develop AI-related industries have paid off. The country is the best region to raise foreign investment in IT industries and AI technologies. It ranks 46th out of 172 states on the Government AI Readiness Index. The COVID-19 pandemic together with sharp political deterioration around Ukraine in the international context resulted in a certain slowdown of the increasing positive trends. General prospects, however, still shine bright. 

Tax incentives for IT businesses

Imperfect and/or inadequate tax legislation is a stumbling block for many important initiatives preventing foreign investment therein, no matter how well-timed and promising they may be. The above issue is typical of many advanced economies. This is especially true if the economic basis that was functional and worked well with traditional business relationships turns out to be a complete failure in the digital era.

Realizing this, the Serbian government implemented measures to promote the IT sector development through tax incentives and raise foreign investment therein. The decision to introduce the above tax incentives for the Serbian IT sector companies is understandable considering the Serbian officials are still rather young. The country’s president Aleksandar Vučić is 52, while his colleague, prime minister Ana Brnabić, is only 46.

Tax incentives most significant for Serbia IT sector are listed below:

• corporate income tax for IT companies (IP BOX) ‒ 3%
• lower CIT due to double charge of qualified R&D costs
• mandatory salary contributions reduced by 70% for R&D projects
• obligatory contributions for foreigners and returnees decreased by 70% for 5 years since the talents’ move to Serbia, provided their salary is 3 times above the country’s average
• tax liabilities reduced by 70% for persons entering the Serbian labor market, where their gross salary exceeds EUR 650
• capital gain tax on Employee Stock Purchase (ESP) is only paid at the sale date, with Step Up in Basis for persons coming with their assets from abroad
• no salary tax for IT start-up founders for the period of 3 years
• tax credits (the maximum credit amount makes 30% of the IT start-up investment in Serbia)
• opportunity to obtain a tax credit for income tax payments (the maximum credit amount makes 50% of the IT start-up investment in Serbia)

The above tax incentives are an important factor stimulating foreign investment in the Serbia IT sector.

Comparing Serbia with other countries of the region

By default, any comparisons are biased and inaccurate, so please do not give high priority to the section below.  Even with this in mind, it would be inappropriate to ignore the direct comparison of Serbia and other Southern European countries based on several strategic indicators.

Opportunity to purchase office premises (square meters per EUR 100) is as follows in Serbia:

• Belgrade ‒ 6
• Bucharest ‒ 5.2
• Warsaw ‒ 4.2
• Budapest ‒ 4.

Take a look at the corporate income tax (excluding discounts and deductions):

• Serbia ‒ 15%
• Romania ‒ 16%
• Slovenia ‒ 19%
• Czechia ‒ 19%.

Power availability for several EU countries is compared below (kW per EUR 0.5):

• EU average (28 countries) ‒ 4.1
• Serbia ‒ 6.2
• Romania ‒ 4.9
• Slovakia ‒ 3.8.

Serbia as a great place to reside in

In Serbia, prioritizing the IT sector did no harm to any other industries. Tourism may easily become an alternative route for the country’s economic development. Thankfully, Serbia boasts everything necessary therefor. The tourist market of Serbia grows by 12% per annum, and this earned the country the reputation of a place where the East meets the West.

Some comments from reputable publications may be found below:

• The Economist. Belgrade is to enter the TOP-5 global improvers (Global Liveability Index)
• Forbes. Your 18 best tourist destinations ‒ all in Serbia
• The Guardian. 10 best ways to enjoy a city holiday
• The New York Times. In Belgrade, nighttime is the right time.

Tourist pearls of Serbia include

• Belgrade. The city is known as the country’s business, educational, cultural, scientific, and public life center. Belgrade is oftentimes compared to Paris and Berlin, with the benefits of the latter being not so apparent. Belgrade is a wonderful mix of nightlife, daytime business, clubs, street art, noisy bars, and city parks, with their cozy romantic walkways. 
• Niš. It is a place where worlds, concepts, traditions, and roads meet and collide. Where Belgrade is compared with Paris and Berlin, Niš is set against Jerusalem. In this corner of the world, history is inseparable from modernity, the East from the South, business from city glamor, and traditions from modern trends.
• Novi Sad. The center of science and culture, a university hub, a home for multiple start-ups and transnational companies, an R&D hub, and a business hub in Serbia, Novi Sad is hard to miss. The city holds the popular European EXIT festival and is regarded as a youth capital of Europe.
• Kragujevac. The place is no doubt the country’s industrial and automotive center. This is the city housing the FIAT official representative office, and it would be quite appropriate to compare Kragujevac to either Detroit or Maranello, famous as a city where Ferrari is headquartered.

Recommendations and conclusions

In the contemporary world, Serbia may easily become an international business center. Known as the place where the East meets the West, Serbia manages to successfully balance between 2 different civilization, culture, tradition, and mentality types. If you make up your mind to start a company here, you may set your hopes quite high.

1. With the IT sector, high tech, and science-intensive industries given high priority, Serbia boasts high development potential. Not only has the country legalized cryptocurrencies, but also promotes start-ups and high tech companies. Singapore could be a close analogue, however, Serbia, with its Slavic mentality and lifestyle, is an even more profitable place to invest in.

Extra information sources to learn more about Serbia:

• Residence Permits in Serbia in 2022 Leading to Citizenship in the Future
• Open a Company with a Bank Account in Serbia Remotely
• Why Serbia may be the best destination for you

Popular Serbia-related services offered by International Wealth:

• Buy a Ready-to-Use Company in Serbia with an Open Bank Account
• Set Up a Company in the Serbian Free Zone and Save 20% on VAT
• Open a Company with a Bank Account in Serbia Remotely

The International Wealth consultants will be happy to discuss any questions you may have left during an individual consultation. You are welcome to contact us at info@offshore-pro.info.