Law on Digital Property Enters Into Force Tomorrow
At its session held on 17 December 2020, the National Assembly of the Republic of Serbia adopted the Law on Digital Property (“Law“).
The Law was published in the “Official Gazette of the Republic of Serbia” No. 153/2020, on 21 December 2020, and enters into force on the eighth day from the date of its publication.
In order to leave enough time for digital property service providers to harmonize their business and general acts with the provisions of the Law, the Law is envisaged to apply after 6 months from the date of entry into force.
The most important reasons for passing this law are:
- regulating the digital property market, in order to improve and develop it, on the one hand, and prevent the misuse of digital property for criminal purposes, on the other hand;
- enabling financing with investment tokens;
- improvement and development of the capital market using digital technology;
- strengthening the framework for combating abuse in the digital property market, as well as money laundering and terrorist financing.
Digital property, i.e. virtual property, as defined by the Law, is a digital record of value that can be digitally bought, sold, exchanged or transferred and which can be used as a means of exchange or for investment purposes.
From the notion of digital assets, the legislator excludes those digital currency records that are legal tender, as well as other financial assets that are regulated by other laws.
Digital assets come in 2 basic forms:
- virtual currency is defined as a type of digital asset that is not issued and whose value is not guaranteed by the central bank or other public authority, which is not necessarily tied to legal tender and has no legal status of money or currency, but is accepted by individuals or legal entities. as a medium of exchange and may be bought, sold, exchanged, transmitted and stored electronically;
- digital token is a type of digital asset and means any intangible property right that in digital form represents one or more other property rights, which may include the right of the user of the digital token to be provided with certain services.
Some of the most important issues regulated by the Law are the following:
- Digital asset issuance procedure
The most significant novelty concerns the introduction of the “white paper” institute, which is made by the issuer before the issuance of digital assets or its primary issue, and which contains all the necessary data that, given the special characteristics of the issuer and digital assets offered, allow investors to investing and to assess the risks associated with investing in digital assets.
Mandatory content of white paper and criteria for approval of its publication are prescribed.
The request for approval of the publication of white paper is submitted by the issuer or an authorized person on behalf of the issuer to the supervisory body, which within 30 days from the date of receipt of the request makes a decision on publishing white paper and submits it to the applicant.
In case the draft of the white paper does not have the content provided by law or the deficiency concerns the accompanying documentation, the supervisory body will inform the applicant within 15 days and give him a deadline to eliminate the deficiency.
If the publication of a white paper is approved for the initial offer, the issuer is obliged to publish a report on the outcome of the initial offer of digital property on its website within three working days from the day of the end of the initial offer.
- Secondary trading of digital assets
It is envisaged that secondary trading in digital property is allowed in the Republic of Serbia, regardless of whether it was issued in the Republic or abroad, as well as regardless of whether white paper was approved for its issuance or not.
Secondary trading of digital assets is performed by a provider of services related to digital assets who is registered as an organizer of the platform.
- OTC trading
OTC trading is permitted, and the parties are not required to use the services of any digital asset service provider to conclude and conduct transactions through the OTC market.
- Digital assets with the status of a financial instrument
The Law on Capital Market applies to the issuance of digital assets that have the characteristics of a financial instrument, as well as to secondary trading and provision of services related to such digital assets.
Exceptionally, the Capital Market Law will not apply to digital assets that have all the characteristics of a financial instrument if 3 conditions are cumulatively met:
- that there are no action features;
- that it is not substitutable for shares;
- that the total value of digital assets issued by one issuer during a period of 12 months does not exceed the amount of EUR 3,000,000 in RSD equivalent at the official middle exchange rate of the dinar against the euro determined by the National Bank of Serbia on the day of issue, ie during the primary sale.
- Providing services related to digital assets
The provider of services related to digital assets must have the legal form of a company within the meaning of the Companies Act.
The minimum capital of a company that submits an application for a license to provide services related to digital assets is prescribed, depending on the type of services it provides.
Services related to digital assets include:
- receiving, transferring and executing orders relating to the purchase and sale of digital assets on behalf of third parties;
- services of buying and selling digital assets for cash and / or funds in the account and / or electronic money;
- digital asset exchange services for other digital asset;
- storage and administration of digital assets for the account of users of digital assets and related services;
- services related to the issuance, offer and sale of digital assets with the obligation to purchase it (sponsorship) or without that obligation (agency);
- keeping a register of liens on digital property;
- digital asset acceptance / transfer services;
- digital asset portfolio management;
- organizing a platform for trading digital assets.
- Pledge on digital assets
A lien on digital property is acquired by entry in the register of lien maintained by the service provider related to digital property and licensed by the supervisory authority.
The division of competencies between the National Bank of Serbia and the Securities Commission is established, as well as their duty to cooperate in performing the competencies provided by this Law.
Supervision over the implementation of the Law in an indirect and direct manner is performed by the Securities Commission and the National Bank of Serbia, as supervisory bodies.
- financial institutions under the jurisdiction of the National Bank of Serbia will not be able to own digital assets;
- virtual currencies will not be able to be deposited as a contribution to the company, but can be converted and exchanged for money that can be paid later;
- Taxation of donated and inherited digital property is introduced.
The aim of this law is to improve the business environment and contribute to the further digitalization of services in the economy in the Republic of Serbia, with adequate management of security and financial risks arising from the nature of this form of property.
In this way, Serbia strives to keep pace with modern trends in global digital and electronic business, but also to further encourage its IT entrepreneurship in the field of information and communication technologies, in a standardized and controlled manner, above all in accordance with international standards in the areas of fight against crime and prevention of money laundering.