(AG Real Estates) Calculation of the fee for usage of the construction land in Belgrade

This article is devoted to analysis of the existing practice of the competent authorities related to mechanisms for calculation of the amount of fee for usage of the construction land (the “FCL”) for the occupied and un occupied business premises, as well as with practical possibility for payment of the higher amount of the FCL for business premises for which the lease agreements are not concluded yet (the “Empty Premises”) and for the surfaces representing the common areas of the Buildings such as, e.g. stairways, halls, surrounding land etc. (the “Common Areas”).

Please note that this is not only matter of theory. In real life and in Belgrade some of the landlords (lessors) have been faced with practice that Common Areas and Empty Premises has same status as the leased premises. Consequently, they received decisions of the tax authorities in which calculations were made in accordance with the above described.

From the available decisions of the tax authorities of Belgrade and Ministry of Finance, it can be concluded that currently the FCL is being calculated based on the business activity of the use of premises for the surface which includes the surface of Business Premises, Empty Premises and Common Areas. At current price list for the city of Belgrade, this means monthly amount of 172.39 RSD/m2 for extra zone and 163.16 RSD for the first zone-and this is the highest possible price in the price list.

Legal background

According to Article 220 of the New Law on Planning and Construction (Official Herald of the Republic of Serbia No. 72/2009, 81/2009) , the FCL is to be paid in accordance with the previous Law on planning and construction (Official Herald of the Republic of Serbia No. 47/03 and 34/06) until stated fee is integrated into the property tax. Consequently, the rules applicable for calculating of the FCL are contained in the Decision on the Fee for Usage of the Construction Land (Official Herald of the City of Belgrade No. 37/2004, 7/2005, 19/2007, 40/2007, 53/2008, 60/2009) (the “Decision”).

The interpretation of the Decision is the “critical point” for calculation of the compensation and exposure of the landlords.

According to Decision, the FCL shall be paid by the owner of the building, and, exceptionally, in the case that the building or its special part is subject to lease/usage right, the FCL shall be paid by the lessee/holder of usage right.

Further the Decision sets forth that the monthly amount of the FCL shall be calculated based on the zone where the land is located and based on the business activity of the tax payer, further specifying the amounts of FCL for each of activities in each of zones.

The Decision stipulates that the FCL shall be calculated based on the “Usable Surface of Business Premises”, defining the Usable Surface of Business Premises as the overall surface of the premises and land which is used for performing of business activity (yards, warehouses, internal roads, garages etc.).

However, the first paragraph of Article 16 of the Decision stipulates that in case that the tax payer is performing more business activities, it shall pay the FCL proportionally to the surface of area used by such tax payer, based on the activity which is performed in such part of premises.

Second paragraph of such Article 16 is defining that the FCL for the business premises in which the business activity is not being performed shall be determined as the FCL for Group 1 (residential purposes) multiplied by 5 (five). Practical consequence of this provision is that significant difference exists between value of the FCL for leased and empty premises (see below).

Possible interpretations

Having in mind the above said, our interpretation of the respective legislative is to the
certain extent opposite than the interpretation made by the tax authorities, as follows:

(i) for the leased Business Premises, the Lessees would be obliged to pay the FCL, in accordance with their business activities. In that sense it is expected that the tax authorities should render the individual decisions on the amount of FCL for each Lessee of the particular building (i.e. different rates would apply in the different lessees, such as banks, agricultural industries, beverage producers, business consultants or the lawyers).

(ii) for the Empty Premises, the Landlords would be obliged to pay the FCL, calculated as defined in second paragraph of Article 16- as the FCL for Group 1 multiplied by 5 (five). Such calculation would leave to the significant decreases for payment of the FCL for the Empty Premises. For example and bearing in mind fact that majority of business buildings are located in the Extra or First Zone of Belgrade: According to the Decision, the monthly amount of FCL for the Group 1 is 2.60 RSD/m2 for “Extra” Zone and 2.46 RSD/m2 for the First Zone. Therefore, the monthly FCL would be 13 RSD/m2 and 12.3 RSD/m2, depending on the zone.

(iii) for the Common Areas, as no specific provisions are provided; for this reason from the legal point of view, the following interpretations can be applicable:

a. the Common Areas could be treated in the same way as the leased Business Premises, (point (i) above), which is in most cases position of the competent authorities, but we are of opinion that this position is not sustainable due to obvious reasons (it is unusual that corridors between two buildings has same status as the office or retail space);

b. the Common Areas could be treated as the business premises in which the business activity is not being performed, and therefore, the FCL shall be paid as in case of the Empty Premises (point (ii) above) – our opinion that this compromise is legally problematic, but for the landlords it can make financial benefit; and

c. as the Usable Surface of Business Premises is defined as the “overall surface of the premises and land which is used for performing of business activity” (Article 10 of the Decision) and as in case that the tax payer is performing more business activities, it shall pay the FCL proportionally to the surface of area used by such tax payer, based on the activity which is performed in such part of premises (First paragraph of Article 16 of the Decision), it can be concluded that the Lessees should pay the FCL, determined based on their business activity for the surface representing the surface of the business premises which are subject of the Lease Agreement, increased for the surface of the Common Areas used by the Lessee, calculated proportionally to the participation of the surface of leased premises in the overall area of the building. The main dilemma here is how to make such calculation and fact that tax authorities will not be delighted with the idea to make such calculations personally. We are of opinion that such option would be easier for implementation in the case that lease agreements are supplied with the adequate provisions with this respect, which can enable making of such calculations, if this interpretation of the legislation is accepted.

Possible solutions

In the case that tax authorities and the competent ministry do not change their position (voluntarily or as result of the administrative dispute) it is expected that the landlords will try to overcome this problem (i.e. try to find way for decrease of the FCL), which, under circumstances, may lead in the changing of the registered code of business or lease of the common areas to the facility managers. However, at this point it is hard to provide general advice, since such constructions needs to be tailored in the “case by case” basis.