On 5 January 2022, the new Law on Innovation Activity came into force, replacing the previous law from 2005, and introducing new legal terms and provisions in the area of information technologies, which will partially harmonize the legislation with the situation in practice and attempt to bring the law in line with needs of the IT sector.
Due to the dynamics of technological innovations, legislation does not always keep pace with the development of new technologies nor the accompanying terminology. Consequently, we are in a situation where IT and startups are mentioned as the driving force of Serbian economy and the fastest growing sector, while, on the other hand, laws do not clearly regulate important terms which have become ubiquitous in practice.
That is why the adoption of the new law is important, since for the first time Serbian legislation recognizes terms such as startup, startup team, spinoff, business angels, etc. These new terms, which by their nature are fluid and subject to change depending on the needs of the economy, are defined only generally in order to avoid precise definitions and the consequent frequent changes of the law. In line with this, a startup is defined as “a newly established company or entrepreneur that develops an innovative product or service and has potential for rapid and significant growth“, while a startup team is “a group of individuals who are not organized as legal entity or entrepreneurs and who develop innovations intended for the market or for use”. Spinoff is defined as “a startup founded by an existing legal entity with the aim of developing and commercializing innovations“. As the development of startups depends on finding investors and capital that will support the development of services or products, the law also defines a new term of business angels as persons who invest funds in startups.
The law further stipulates that by the end of 2022, the Registry of Subjects of the National Innovation System will be established, which will be managed by the Fund for Innovation Activity. The Registry will take over data from the previous Registry of Innovation Activities maintained within the Ministry of Education, Science and Technological Development. Although registration before the Registry is not mandatory except for other innovative entities and other entities of innovation infrastructure (which does not include startups, spinoffs, science and technology parks, etc.), the advantage of registration is that subjects registered in this Registry will not have to prove their status as innovative companies, which is a prerequisite for different types of financial support, tax exemptions, incentives, etc. Therefore, in order to be eligible for these measures and reduce the need for constant proof of their status, we advise registration with this Registry for all entities engaged in innovation activities.
Furthermore, the law touches upon the issue of intellectual property created as part of research projects conducted in state institutes and financed from the state budget, which has no practical reach for the private sector since intellectual property created by legal or natural persons who do not operate as part of such institutes remains the property of the persons who created it.
Perhaps the most important issue for startups and innovative companies is that of access to finance. In that regard, the law envisages that the Government of Serbia will adopt and finance from the budget the program of support to innovation activities and the targeted support program. This should provide more regular and larger funds for the IT sector and companies engaged in innovation activities, while it is yet to be seen in which way and to what extent this will be implemented in practice. In parallel to this, recently Strategy of Development of Startup Ecosystem for the period 2021-2025 envisages measures for facilitating other forms of financing, which should cumulatively contribute to solving the problem of access to capital.
Milorad Glavan, partner
Damjan Despotović, partner
This text is for informational purposes only and is not legal advice. Feel free to contact us if you need additional information.