Compensation, Cession and Assignment in Foreign Business

November 30, 20210
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Compensation, Cession and Assignment in Foreign Business

Apart from different forms of foreign trade, business practice also includes a number or payment and collection methods related to those trades. According to the applicable regulations, export collections and payments for the import of goods and services are carried out as follows:

  1. a) via compensation
  2. b) via collection i.e. payment to another non-resident, not the non-resident the money is claimed from or owed to
  3. c) via cession, when a resident transfers his claims from a non-resident to another resident
  4. d) via assignment, when a resident – debtor instructs another resident to make a payment to a creditor, who is a non-resident
  5. e) by offsetting payables and receivables based on the realized foreign trade of goods and services
  6. f) by offsetting payables and receivables based on international credit operations performed in foreign currencies

In order to conduct international compensation transactions, it is necessary to know the following regulations determining the terms and methods of their realization:

– Foreign Trade Act

– Law on Foreign Exchange Operations

– Decisions on Detailed Requirements for Payment, i.e. Collection in Goods, i.e. Services

Before concluding an international compensation transaction contract, it is necessary to bear in mind the following:

  1. a) these transactions can be conducted after obtaining a corresponding Ministry decision
  2. b) these international transactions should not be identified with the offsetting of payables with foreign receivables

There are five cases in which the Ministry approves compensation transactions:

  1. If the export of goods and services pays for the lease of equipment, import of equipment, intermediate and raw materials earmarked for the production of goods and provision of services, which can be considered to be a criterion for orientation towards export
  2. If the export of goods and services pays for the import of equipment, intermediate and raw materials that are not produced in Serbia or are not produced in the amount, which is enough to supply the domestic market
  3. When the money for the outward processing service is collected, i.e. paid in the goods, which are subject to the outward processing, i.e. in outward processed goods
  4. If the import or rental fee of equipment, raw or intermediate materials, which are used as raw material for their own production, is payed
  5. Cross-border electricity traffic in compliance with the Treaty Establishing the Energy Community

The regulations related to the regular export i.e. import are applicable to the export and import of goods and services in all the listed cases. This means that, if it is necessary to obtain a permit or some other document for a specific type of goods, the permit shall be obtained before submitting a request for approval of a international compensation transaction.

Prescribed Forms Submitted in Order to Obtain a Compensation Transaction Approval

Decision on the approval of an international compensation transaction is made by the Ministry of Trade, Tourism and Telecommunications based on a written request submitted in the forms prescribed by the Decision. This Decision prescribes five types of documents that are used to submit a compensation transaction request.

The Decision prescribes the Form no. 1 – Request for Approval of Compensation Transaction, which contains the following data:

Export (tariff number, quantity, type and price of goods, total goods (service) value, manufacturer of exported goods, owner of exported goods, domestic exporter, foreign buyer, country of export, export deadline and schedule)

Import (tariff number, name of goods and import type, quantity, type and price of goods, total goods (service) value, domestic importer, user of goods, foreign seller, country of import, country of origin, import deadline and schedule)

Other transaction data – other relevant data that can be important for making the decision to approve a compensation transaction.

Request for Approval of a Compensation Transaction When the Outward Processing Service Is Payed i.e. Charged in the Goods That Are Subject to Outward Processing

The Decision prescribes the Form no. 1a – Request for Approval of Compensation Transaction When the Outward Processing Service Is Payed i.e. Charged in the Goods That Are Subject to Outward Processing and it contains the following data:

Intermediate material received for revision, revision, revised exported (imported) goods, goods in which the payment is made.

Request for Extension – Amendment of the Decision on Compensation Transaction Approval

The Decision prescribes the Form no. 2 – Request for Extension – Amendment of the Decision on Compensation Transaction Approval, which contains:

Statement of the reasons for the requested amendment of decision, conducted export value, import value, attachments containing copies of an initial decision and all decisions on the initial decision amendments.

Request for Compensation Transaction Reduction

The Decision prescribes the Form no. 3 – Request for Compensation Transaction Reduction, which should contain:

Number and date of the decision on compensation transaction approval, type of exported goods and services, type of imported goods and services, the amount to which the decision is reduced, difference between values, data on the export of goods.

Request for Dismissal of the Decision on Compensation Transaction Approval – it is submitted within 15 days from the moment of renouncing the transaction to the competent Ministry

Calculation of Compensation Transaction Execution – submitted after conducting compensation transaction in the form of a memorandum to the competent Ministry

Cession and Assignments in Foreign Business

Regulated by the provisions of Article 7 of the Law on Foreign Exchange Operations, based on which we can conclude the following:

Transfer, payment and collection of receivables and payables arising from realized foreign trade can be conducted directly i.e. bylaws are not adopted.

Transfer of receivables and payables can be conducted for all types od realized foreign trade except from commercial credits and loans.

Transfer of receivables and payables arising from foreign trade of goods and services can be conducted by a non-resident but they can be conducted only based on the contract concluded between the transferor and the recipient of receivables. A special procedure is prescribed for residents: state owned companies, legal entities with state owned capital, legal entities in the process of restructuring and privatization. For these types of companies, a special concent of the Government of the Republic of Serbia is obtained. Payments between residents based on purchase of claims and assumption of debts can be made in both dinars and foreign currencies.

Transfer of Receivables and Payables

There are two cases in which the transfer of receivables and payables is conducted: 1) when a resident settles claims and debts on the grounds of export and import of goods and 2) professional buyers of receivables (factoring).

When it comes to the transfer of receivables between residents, there are two types of sale: 1) a resident, who claims his receivables from a non-resident, transfers those receivables to another entity to which he has an obligation and which becomes a new creditor and 2) a resident, who claims his receivables from a non-resident, sells his receivables to a resident, who undertakes to pay the receivables countervalue to the seller with compensation and collect receivables from a non-resident in his own name and on his own behalf. The transfer of receivables between residents is regulated by Contracts on Transfer of Receivables and Assumption of Debts.

Transfer of Receivables and Debt Assumption Between Non-Residents

This is regulated by provisions of Article 33 of the Law on Foreign Exchange Operations. Residents can conduct collection from i.e. pay to another non-resident but not to the non-resident, to whom they owe money. When it comes to dinar credits approved to residents by international financial organizations, they can be payed off by debtors in another international financial organization. The transfer of receivables between non-residents can be conducted based on the Contract or the Statement of a resident claiming that he is notified i.e. that he approves the transfer of payables. Residents are obliged to inform the National Bank of Serbia about the changes related to international credit operations.

 

 

 

Stefan


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