HRP compliance in the Western Balkans: complex processes in an even more complex region

HRP compliance in the Western Balkans: complex processes in an even more complex region

26 October 2016

Employment without Establishment region-wide, minimum wage in Serbia, directorship in Bosnia, correctness of payslips in Croatia - how aware are we of the risks of being non-compliant?

Since the breakup of Yugoslavia there have been many attempts to arrive at an adequate appellation for the region in question, and it appears that we have finally settled on the ‘Western Balkans’. However, when it comes to business rather than politics, most companies still refer to it as Southeast Europe, tossing all these fledgling states into the same pot with a score of other countries whose economic histories and entrepreneurial environments may be completely different…or, to make matters even more complicated, that may be different to some former Yugoslav republics but quite similar to certain others.

To illustrate: Slovenia and Croatia are both EU member states, but do not have a common language. Montenegro and Bosnia and Herzegovina, which do share the same language with Croatia, are yet to enter the EU – but all of the four mentioned countries’ recent economic histories have been marked by long or very long recessions, high levels of State interference, and (more or less) inefficient judicial systems, and, within the regional context, comparatively high taxes and labour costs (especially in Croatia).

Conversely Serbia, language-wise another closest relative of the aforementioned trio, has been attracting manufacturers for quite some time courtesy of a cocktail of low labour costs and zesty governmental incentives for foreign investors (thus competing, in terms of FDI, with the likes of Bulgaria and Romania, and by extension Slovakia and Poland); whilst Macedonia, whose language is mutually intelligible with Bulgarian, has implemented a flat tax and has, all its political instability and name disputes notwithstanding, managed to survive in the epicentre of the proverbial Balkan powder-keg.

In other words, this potpourri of overlapping, intersecting and conflicting disparities and similarities does translate rather well into the practicalities of doing business in the region. Rather logically – at least at first sight – many companies have decided to set up their (sub)regional headquarters in Belgrade or Zagreb or Ljubljana; only to realise, very early on, that the regulatory realities in these three cities and beyond require markedly different approaches and solutions.

Now let us envision a company with its HQ in Zagreb which, for its own reasons, does not wish to have registered entities across the region, merely a few people in each of the countries engaging, say, in marketing activities. In Slovenia, this company could have recourse to an elegant solution called Employment without Establishment (EwE), which allows employees to conduct (certain types of) business on behalf of a foreign employer without any need to set up a company or representative office – but that is possible only in other EU member states, meaning only in Slovenia (and, if we were to reverse the scenario, in Croatia). In other countries it would probably have to go the way of staff leasing via a representative office – but in Serbia, for instance, although offered and provided as a service, staff leasing is yet to be functionally regulated by a set of legislative acts.

In Bosnia, a country with arguably one of the most complex political systems in the world, regulations often vary between the two constituent entities – the Federation on one hand and Republika Srpska on the other – meaning there is often a conflict between how things ought to be carried out in Sarajevo as opposed to some place in the Serb entity. Any company that has ever tried to change directors in the Bosnian Register must have at least a glimpse of what is being discussed here.

A question of accuracy

Simply put, a clear question arises: how sure can anyone be of, say, the correctness of payroll calculations across different territories, especially as it is not uncommon, in this region, for a company to have four different service providers in four different countries?

How aware are we of the risks of being non-compliant? I need not say that TMF Group, with its global network of offices, integrated local knowledge, and an ability to provide a single point of contact, can solve these conundrums rather efficiently.

All the countries in question – apart perhaps from Slovenia – are still in transition, meaning the relevant legislation changes often and at times not necessarily for the better. To illustrate, did you know that as of 1 January 2017, the Serbian Government is instituting the new minimum wage of RSD 130 (cca €1) net per hour, as well as the new obligatory VAT report, to be filed simultaneously with the VAT return? Also, did you know that if an employee does not receive a salary (or one of its elements) in line with Labour Law provisions, he/she can claim repayment as well as all the accrued interest for up to three years after the incident?

Did you know that in Croatia most payroll providers actually deliver to their clients the so-called incomplete payslips, meaning that only the final gross is registered rather than all recorded types of working hours per employee as per prescribed categories? Did you know that the penalty for omitting payslip content as prescribed by the law is HRK 61,000-100,000 (Euro 8,150-13,300) for companies and HRK 7,000-10,000 (Euro 930-1,330) for physical persons responsible? That said, the same penalty is also applicable if, say, a termination is not submitted in writing, adequately explained, and delivered to the worker – and this is just the beginning of a long list of HRP-related penalties for non-compliance. Finally, are you aware – and this is true of all the aforementioned territories – how important it is that all employer sick-leave refunds be calculated and submitted by very clear and non-negotiable deadlines, for anything less than that means that the funds in question will be irretrievably forfeited?

It could be argued, at this point, that we have wrought these realities into something resembling a tangle of thorns. Then again, we are talking about complex processes in, as we have established, an even more complex region. Now let us untangle it.

Do not hesitate to get in touch, TMF Group experts on the ground will know how to proceed…

Written by

Igor Dakic

Market Head of Business Development Southeast Europe Sales

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