Subsidies only with a strong international brand – Government tightens conditions for state aid for construction of luxury hotels

The Serbian Government has adopted amendments to the Regulation on the conditions, manner of allocation and use of incentive funds for improving the quality of hotel accommodation, which significantly specify the criteria for obtaining subsidies and tighten control over the implementation of investments.

Stricter criteria for international brands

The biggest changes relate to a clearer definition of an international hotel chain, the content of the franchise agreement, the obligation of own financial participation and increased supervision over the implementation of the investment.

The amendments to the regulation have for the first time precisely defined the criteria that an international hotel chain with which an investor signs a contract must meet. While a franchise arrangement with an international brand was previously required, specific quantitative conditions have now been introduced.

Namely, the chain must operate at least 50 hotels owned or under direct management, have at least 100 hotels in the franchise network, operate in at least ten countries on at least two continents and be present in at least five internationally recognized tourist destinations. This practically narrows the circle of brands that may be eligible for projects financed with state incentives.

The requirements regarding the franchise agreement itself have also been further specified. It must last for at least ten years and relate to a hotel of at least four stars, and it is now clearly stated that it must include not only the right to use the brand, but also operational procedures, digital systems such as reservation platforms, PMS and CRM solutions, as well as marketing tools. A new option has been introduced, namely the submission of a letter of intent in a situation where the contract has not yet been formally concluded.

The regulation now explicitly stipulates the obligation of the investor to provide at least 25% of the justified costs from its own or commercial sources, without public assistance, as well as to submit an appropriate security instrument.

The regime for controlling the implementation of projects has also been significantly tightened. More detailed audit reports have been introduced, which are submitted already in the phase before the hotel opens, then at least once a year during the implementation of the investment, as well as during the monitoring period lasting five years, or three years for small and medium-sized enterprises. In the event of irregularities or failure to fulfill contractual obligations, the contract will be terminated and the funds will be returned with interest.

As an additional procedural tightening, it is stipulated that the application for the grant of incentives must be submitted before work starts on the project.

The amendments also delete the third point of Article 16 of the previous regulation, which allowed for a smaller amount of incentive to be awarded to beneficiaries in the last place in the ranking in the event of insufficient budget, with the consent of the beneficiary and the obligation to provide their own share of the investment value.

The maximum amount of the subsidy remains up to EUR 5 million.

I. Z.

Vlada Republike Srbije

Government of Serbia

Regulation on the conditions manner of allocation and use of incentive funds for improving the quality of hotel accommodation