2009 Investment Climate Statement - Serbia

2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009

Openness to Foreign Investment

Serbia is open to foreign direct investment (FDI), and attracting FDI is increasingly a priority for the government of Serbia (GoS). Serbia has a long history of international commerce, even under communism, and it once attracted a sizeable foreign company presence.

Serbia has enacted specific legislation outlining guarantees and safeguards for foreign investors. The current Law on Foreign Investments establishes the framework for investment in Serbia. The law eliminates previous investment restrictions; extends national treatment to foreign investors; allows the transfer/repatriation of profits and dividends; provides guarantees against expropriation; and allows customs duty waivers for equipment imported as capital-in-kind. In order to attract FDI, Serbia developed a range of incentives for investors in 2006, including cash grants to investors that create significant new jobs, as well as tax incentives in the form of credits, cuts in payroll contributions and reduced corporate tax rates. In addition, in July 2008, the Government expanded these programs.

The government announced a "guillotine of regulations" in order to remove one third of Serbia's unnecessary and outdated regulations.

The privatization process for the remaining socially-owned companies (not larger state-owned firms) is wrapping up, with tenders and auction procedures started for the approximately 400 remaining socially-owned companies. Serbia welcomes foreign participation in privatization.

A foreign investor or entity may not establish an enterprise in the defense sector or in areas defined as restricted zones by law. A foreign investor may establish an enterprise in the above-mentioned field or areas, or invest in it together with a domestic entity, but without acquiring the majority rights to manage such an enterprise, and only with the consent of the Ministry of Defense.

The Serbian Investment and Export Promotion Agency (SIEPA) provides direct assistance to investors. In addition, the Agency for Privatization provides information and works with potential investors to educate them about the privatization program and related opportunities.

Conversion and Transfer Policies

The Serbian Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia.

Serbian law allows capital flows, including:

  1. Payment and transfer of capital related to direct investments of residents and legal entities, entrepreneurs and physical entities, as well as non-residents in Serbia;
  2. Payments for the purpose of acquiring real estate by residents abroad and non-residents;
  3. Payment for the purpose of purchasing equities abroad which do not represent direct investment, as well as long-term debt securities issued by OECD member countries and international financial organizations, or securities whose level of risk rating and issuer country may be prescribed by the National Bank of Serbia;
  4. However, non-residents may transfer capital for the purpose of purchasing domestic short-term securities.

Serbian law permits non-residents to keep foreign exchange and dinar accounts without restrictions. These accounts can be used to make or receive payments in foreign currency.

Payments, collections and transfers on current transactions between residents and non-residents are executed freely.

Foreign exchange is readily available and may be purchased through exchange bureaus by physical persons and through commercial banks by legal persons.

Expropriation and Compensation

Serbia’s Law on Expropriation (2001) defines justifications for expropriation and lays out procedures that must be followed. The law cites various economic and security circumstances affecting Serbia’s "common interests" in which expropriation is permitted: education, public health, social welfare, culture, water management, sports, transport, power and public utility infrastructure, national defense, local/national government needs, and exploration for or exploitation of mining and other resources. The Government of Serbia issues a determination on "common interests" and the law designates Serbia’s Supreme Court as the appellate mechanism.

Following this determination, a proposal for expropriation may be filed with the competent local authorities. The authorities are obliged to hold proceedings and issue a decision. The Ministry of Finance is designated to resolve complaints filed against first-instance decisions.

In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law stipulates various criteria for arriving at the amount of compensation with respect to different types of land (agricultural, vineyards, forests) or easements that affect land value. The local municipal court will intervene and decide compensation if there is not an agreement within two months of the expropriation order.

The Law on Foreign Investment provides safeguards against arbitrary government expropriation of foreign investments. There have been no cases of expropriation of foreign investments in Serbia.

Serbia has outstanding claims, however, related to property nationalized under the Socialist Federal Republic of Yugoslavia. Serbia has not passed a comprehensive law on restitution. According to the Property Directorate for the Republic of Serbia, some 78,000 claims were received.

Dispute Settlement

Like most of Europe, Serbia's judicial system is based on European civil law. However, higher court decisions can be used as “guidance” by lower courts. Serbia’s judiciary lacked independence and was subject to political manipulation during the communist and Milosevic eras. The Government of Serbia is working to overhaul the court system in order to create an independent, efficient, responsible and transparent judiciary. The U.S. Government, through USAID and the Department of Justice, is providing assistance on improving criminal justice procedure and court reform.

In December 2008, the Parliament approved a package of judicial reform laws including laws on the High Judicial Council, on the State Prosecutors’ Council, on the Public Prosecution, on Judges, and on the Organization of Courts. The laws create a new network of courts designed to improve the efficiency of the judiciary. They also transfer responsibility to the High Judicial and Prosecutors’ Councils for drafting and implementing criteria for selection, discipline, and dismissal of judges and prosecutors in accordance with EU standards. The Agency for Business Registers reduced the time to register a new business from 51 days in 2005 to 2 days in 2008. The law stipulates that this timeframe should not exceed five days.

Serbian bankruptcy law incorporates international standards. It provides creditor participation, debtor eligibility criteria to filter inappropriate petitions, a claim resolution procedure and penalties for submitting false documents and claims.

According to the law, foreign creditors have the same rights regarding the commencement of, and participation in, a proceeding under this law as creditors in Serbia. Claims in foreign currency are included in the bankruptcy estate in that currency, but they are calculated in the dinar at the dinar exchange rate on the date the bankruptcy proceeding starts.

In May 2006, Serbia enacted its first Law on Arbitration permitting the use of institutional and ad hoc arbitration in all kinds of disputes (commercial, labor, etc.). The law is based on the UN Commission on International Trade Law (UNICTRAL) model law. International arbitration is accepted as a means for settling investment disputes between foreign investors and the state. The Foreign Trade Court of Arbitration (founded in 1947) is located within the Serbian Chamber of Commerce and is a domestic arbitration body. Arbitration is voluntary and conforms to the UNICTRAL model law.

Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:

  • 1923 Geneva Protocol on Arbitration Clauses,
  • 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions,
  • 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions;
  • 1961 European Convention on International Business Arbitration; and,
  • 1965 Washington Convention on the International Center for the Settlement of Investment Disputes (ICSID).

Performance Requirements and Incentives

In order to provide further financial incentives for foreign and domestic greenfield and brownfield investment in specific industries, the Serbian Government adopted a decree in 2006 to permit cash grants to investment projects in all areas, except for trade, tourism, hospitality and agriculture. Eligible companies must establish new ventures in manufacturing, in services , or in R&D. The incentives and conditions are:

Investments in manufacturing:
  • Available incentive: starting at EUR 2,000, up to EUR 5,000 for each new employee,
  • Minimum investment: between EUR 1 million and EUR 5 million, depending on the unemployment rate in the local municipality,
  • Minimum number of new positions: 50.

Investments in international services:
  • Available funds: starting at EUR 2,000, up to EUR 10,000 per new employee,
  • Minimum investment: EUR 1 million
  • Minimum number of new positions: 10.

Investments in the R&D sector:
  • Available funds: starting at EUR 5,000 up to EUR 10,000 per new employee,
  • Minimum investment: EUR 1 million,
  • Minimum number of new positions: 10.

Serbia’s tax law offers several tax incentives to new investors. Corporate profit tax is levied under the current law at the uniform rate of 10%, with non-residents taxed only on income earned in Serbia. Companies are exempt from corporate profit tax for up to 10 years, from the first year in which they realize profit, if:

  1. they invest in fixed assets in an amount exceeding 600 million dinars (approximately $11 million), and
  2. during the investment period employ at least 100 additional employees.

Companies that do not meet the requirements for the 10-year exemption still may use an investment tax credit that permits a reduction in tax due equal to 20% of the amount invested in fixed assets for the respective tax period. This reduction may not exceed 50% of the total tax liability. If not used entirely in the course of one year, this tax credit can be carried forward for up to 10 years.

A number of sectors (agriculture, production of yarn and fabrics, garment manufacture, leather processing, production of base metals and standard metal products, production of any sort of machinery, electronic goods, medical instruments, or motor vehicles, recycling, and video production) may obtain a tax credit in the amount of 80% of investments made in fixed assets, with the unused portion carried forward up to 10 years. Small enterprises outside of these sectors may receive tax credits equal to 40% of the amount invested in fixed assets in the current year (credit cannot exceed 70% of the total tax liability).

In addition, the tax law offers incentives for employing new workers. An employer that employs new workers is entitled to a tax reduction equal to 100% of the gross salary. This tax credit is available for two years from the date of employment of new workers, provided that employment is not reduced during that period.

The tax law also provides for accelerated depreciation of fixed assets, tax exemptions for concession-related investments, exemptions from social insurance contributions, income tax credits, and customs duty exemptions for certain goods and equipment imports.

In addition, in July 2008 the Government expanded its 2006 investment incentives. The GOS will refund 25% of investments to each greenfield investor that invests at least $317 million and creates 1,000 jobs in the automobile, electronics, information and telecommunications technology industries.

Right to Private Ownership and Establishment

Private entities can freely establish, acquire and dispose of interests in business enterprises. Private companies compete equally with public enterprises in the market, and in access to credit, supplies and licenses. However, the Public Procurement Law adopted in December 2008 gives preference to domestic suppliers over foreign companies in public purchases if a foreign company’s offer is not more than 20% better than the domestic offer (in price and other scored characteristics). Regulations under this new legislation will be important to how the government will implement these preferences.

Protection of Property Rights

According to the WB Doing Business 2009 report Serbia ranks at 96th position among 181 countries with 635 days needed to enforce a contract, while it ranks 97th with 111 days needed to register property. The property register exists in Cadastre and in land books. Approximately 60% of all immovable property in Serbia has been registered with the cadastre, under the auspices of the ongoing WB project, while the remaining property should be registered by 2010. The register of movable goods has existed in the Agency for Business Registers since 2005. The legal system that protects property is in place.

In December 2005, Serbia adopted a Law on Mortgages that allows banks to issue mortgages on buildings under construction. The previous law did not permit the registration of unfinished buildings in land registries, making the securing of loans during construction difficult.
Following adoption of these laws Serbia has seen strong growth in housing loans from almost zero to over $2 billion by the middle of 2008.

Serbia is making progress on Intellectual Property Rights (IPR) protection with a legal framework in place and with improved state control over pirated goods. The estimated rate of software piracy rate dropped to below 70% in 2008.

Serbia adheres to key international agreements on IPR. Serbia is a WIPO member and signatory to all key agreements administered by WIPO. Protection for patents, copyrights, trademarks, semiconductor chip layout design, geographical indications and designs is adequate. The Law on Copyright and Related Rights, the Law on Patents, the Law on Trademarks, the Law on Legal Protection of Designs, and the Law on Protection of Integrated Circuit Topographies were approved in 2004, while the Law on Geographical Indications was adopted in June 2006. All of the laws are WTO-TRIPs compliant.

Adequate steps have been taken to implement and enforce the WTO TRIPS agreement with TRIPS provisions included in Serbia’s IPR laws and enforced by courts and administrative authorities. The Serbian government signed and ratified the WIPO internet treaties on June 13, 2003.

Although pirated optical media (DVDs, CDs, software) as well as counterfeit trademarked goods, particularly sneakers and clothing, are still available, the GoS has stepped up its actions to deal with IPR violations.

The Serbian government continues to pursue membership in the WTO. The government has publicly stated the desire to join the WTO in 2009 and is working to achieve that goal.

As of December 19, 2006 Serbia is a member of the Central European Free Trade Agreement (CEFTA) - a multilateral free trade agreement between Southeast European countries including: Croatia, Macedonia, Serbia, Montenegro, Bosnia-Herzegovina, Albania, Moldova and UNMIK (representing Kosovo). CEFTA aims to facilitate trade and investment in the region with almost 30 million customers.

Transparency of Regulatory System

According to the World Bank Doing Business 2009 report, which measures business regulation across 181 economies, Serbia was ranked 94 in 2008. This was a drop from its 2007 ranking of 91. The drop was due to weak assessments in the areas of starting a business, construction licenses and paying taxes.

In 2008 the Government announced a "regulatory guillotine" initiative. The goal of the initiative is to remove one third, or 15,000, of Serbia’s unnecessary and outdated regulations in order to make the regulatory system more efficient, increase competitiveness, and attract private investment. The initiative is led by the Economy and Regional Development Ministry and the business community has taken an active role in making suggestions about regulations that should be changed or eliminated.

To establish transparent rules and regulations, foster competition and attract investments, the Government of Serbia has established most of the necessary independent agencies and bodies, including the Anti-Monopoly Commission, Energy Regulatory Agency and Regulatory Agency for Telecommunications.

Efficient Capital Markets and Portfolio Investment

The banking sector comprises 90% of the total assets of the financial sector in Serbia. By the end of September 2008, consolidation had reduced the sector to 34 banks with total assets of $23.5 billion (about 50% of GDP), with 75% of the market held by foreign-owned banks. After several years without issuing new licenses, meaning foreign banks could enter the Serbian market only through the acquisiton of a local bank, the National Bank of Serbia issued a new banking license to the Bank of Moscow in 2008.

The banking sector in Serbia remained stable in 2008 despite increased risks as a result of a spill-over effect of the global financial crisis, mostly due to conservative monetary policies from previous years which resulted in high capital adequacy ratios and high liquidity.

Serbia has a capital market infrastructure, but the equity and bond markets are underdeveloped. Securities are traded at the Belgrade Stock Exchange (BSE). Out of 1,700 companies listed on the market, only about 300 companies trade regularly (more than once a week).

The Securities Commission (SC), established in 1995, regulates the securities market. The SC supervises investment funds in accordance with the Investment Funds Law that came into force in January 2006. As of January 2009 there were 17 registered investment funds.

Political Violence

Since October 2000, Serbia has been led by democratically-elected governments that have publicly committed to supporting stability and security in the region.
Following the assassination of Serbia’s prime minister in the spring of 2003 by a criminal group the government launched a crackdown on organized crime.

There is continuing localized violence between competing political groups in the Sandzak region of Serbia. This violence is usually directed at opposing party figures and has not targeted unrelated civilians or businesses.

Immediately following Kosovo's February 17, 2008 declaration of independence, groups twice broke away from larger demonstrations and attacked Embassies of countries that had recognized Kosovo. Since these attacks in February 2008 there have not been additional incidents.


In October 2008, the Serbian Parliament approved the creation of the Anti-Corruption Agency (ACA), changes to the Law on Political Parties Financing, the Law on Confiscation of the Property from the Criminal Acts and the Law on Responsibilities of the Legal Entities from the Criminal Acts.

The ACA will be an independent government body accountable to the Serbian Parliament. The Agency will unify current activities against corruption including enforcing the National Strategy to Fight Corruption, monitoring conflict of interest settlement, tracking politicians’ property and assets, monitoring political party financing and facilitating international anti-corruption cooperation. The ACA is to be fully operational by January 2010.

Serbia is a signatory to the Council of Europe Civil Law Convention on Corruption and has ratified the Council's Criminal Law Convention on Corruption, the United Nations Convention Against Transnational Organized Crime and the United Nations Convention Against Corruption. It is also a member of GRECO (the Group of States against Corruption), a peer monitoring organization that allows members to assess anti-corruption efforts on a continuing basis.

In Serbia, both giving and receiving a bribe is a crime. Bribes by local companies to foreign officials are also criminal acts punishable by law.

In the 2008 Corruption Perception Index survey compiled by Transparency International (TI), an international anti-corruption watchdog organization, Serbia received an index score of 3.4 out of 10 (10 being best), the same as in 2007.

Bilateral Investment Agreements

Serbia has 41 investment protection treaties/agreements with the following countries: Albania, Austria, Belarus, Belgium and Luxemburg, Bosnia and Herzegovina, Bulgaria, Russia, China, Cyprus, Croatia, Cuba, Czech Republic, Egypt, Finland, FYR Macedonia, France, Germany, Ghana, Greece, Guinea, Hungary, Holland, India, Iran, Israel, Italy, Kuwait, Libya, Lithuania, Morocco, Nigeria, Poland, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, UK, Ukraine, Zimbabwe.

The United States does not have a Bilateral Investment Treaty (BIT) with Serbia.

In April 2008, the Government signed the Stabilization and Association Agreement with the EU, however, the EU put on hold implementation of the SAA's interim trade agreement with Serbia pending fulfillment of cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY). Serbia decided to unilaterally apply the interim trade agreement beginning January 1, 2009, but then postponed it until February 1, 2009.

OPIC and Other Investment Insurance Programs

Serbia and Montenegro signed a Bilateral Agreement with the U.S. Overseas Private Investment Corporation (OPIC) in July 2001 and became eligible for OPIC programs in November 2001 with ratification of the Agreement. OPIC products include:

  1. insurance for investors against political risk, expropriation, damages due to political violence and currency convertibility; and
  2. insurance for certain contracting, exporting, licensing and leasing transactions.
For more information see: http://www.opic.gov.

Serbia became a member of the Multilateral Investment Guarantee Agency (MIGA) -- a World Bank affiliate – in April 2002.


Serbia has a total labor force of approximately 3.2 million people, with 2.8 million employed and 14% or 450,000 unemployed, according to ILO methodology. A large drop in the previously reported unemployment rate of 18% was due to adjustment to the newest methodology of European statistical office – Eurostat.

The private sector employs approximately 71% of workers in Serbia, while 24.6% are employed in the state-owned sector including the government and state-owned companies. As a result of privatization, only 2.4% remain in socially-owned (a Yugoslavia-era definition for "worker-owned" firms) companies.

Labor costs are relatively low in Serbia. The minimum wage for the period July-December was set by the Social Economic Council at approximately $250 per month. According to figures released in December 2008, the average take-home salary in November 2007 was approximately $500.

Foreign-Trade Zones/Free Ports

Three trade zones, in Pirot, Zrenjanin and Subotica, have government approval under the 2006 Law on Free Zones.

The law allows up to 100% foreign ownership of the managing company of the free trade zone. Companies working in the free trade zone do not have customs or tax incentives for export but have customs and tax incentives for work within the zone. Goods intended for processing in the zone are exempt from customs duty and other import duties.

Foreign Direct Investment Statistics

Estimated total foreign direct investment (FDI) in 2008 was $3.6 billion, the same as in 2007.

Besides privatization, in 2008 the main channels of FDI were takeovers and greenfield investment. Heineken acquired two private breweries in Serbia and the Dutch branch of PepsiCo bought snack producer Marbo Product. Merrill Lynch bought 25% of real estate firm MPC Properties. Greenfield investments accounted for 40% of total FDI in 2008. Real estate and trade were leading sectors for FDI, followed by energy, car spare parts production, textiles and the chemical industry.

State-owned car manufacturer Zastava was privatized through a strategic partnership with Fiat for almost $1 billon and the Serbian government concluded an agreement to sell state-owned oil firm NIS to Russia’s Gazprom for $550 million.

According to SIEPA, the leading investor country in Serbia in 2008 was the Netherlands, followed by Austria, Italy, Slovenia, Switzerland and Croatia. Many U.S.-based firms invest through subsidiaries in the Netherlands.

The following were some major FDI transactions announced in Serbia:

Company: Fiat
Country: Italy
Investment: $950 million for 67% of state-owned car producer Zastava

Company: Gazprom
Country: Russia
Investment: $550 million for 51% of state-owned oil industry NIS with $670 million of investment by 2012.

Company: Consortium of Intercontinental Hotels Group (IHG) Management and NBGP Properties Belgrade
Country: U.S. (through the Netherlands) and Serbia
Investment: $210 million for property of Genex including the hotel formerly licensed as an Intercontinental and upscale business and residential apartments of more than 72,000 square meters in Belgrade's business center.

Company: US Steel Serbia
Country: United States
Investment: $100 million for a new galvanizing production line.

Company: Ball Packaging
Country: United States
Investment: $45 million for installation of a can end production line.

Company: Heineken
Country: Netherlands
Investment: Takeover of brewery in Novi Sad and Zajecar.

Company: PepsiCo
Country: United States (through its Netherlands branch)
Investment: Purchase of 100% of snack producer Marbo Product.

Company: Merrill Lynch
Country: United States
Investment: 25% equity stake in real estate firm MPC Properties