2011 Investment Climate Statement - Serbia

2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011

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 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 2006, Serbia developed a range of incentives designed to attract FDI, including cash grants to investors that create specified numbers of new jobs, tax incentives in the form of credits, cuts in payroll contributions and reduced corporate tax rates. The Government expanded these programs in July 2008 and in May 2010.

These and other legislative changes designed to bring Serbia into compliance with European Union requirements were largely adopted on a piecemeal basis. In 2009, the Government initiated a much-needed "regulatory guillotine" project that aimed to streamline laws and regulations that impede businesses by removing up to one third of Serbia's business regulations, many of which are unnecessary, outdated or contradictory. The GoS received suggestions for trimming regulations from the foreign investment community, but has made limited progress implementing these and other changes. The Serbian Government has had some success in reducing the time required to register a new business from an average of 51 days in 2005 to 2 days in 2008. In 2009, the Agency introduced “one stop shopping” for business registration to ensure the time required to register a business remains within the five day period mandated by law.

Serbia welcomes foreign participation in privatization. A tender for 51% of Telekom Srbija shares has been announced and could be finalized in 2011. Other large state-owned enterprises remain candidates for privatization of all or a portion of their shares, including JAT Airways, Nikola Tesla airport, EPS utility, and Galenika Pharmaceutical. The 2008 Law on Privatization stipulates that privatization of socially-owned entities (a Yugoslav-era definition for "worker-owned" firms, as opposed to larger state-owned firms) was to have been completed by the end of 2008, but approximately 100 socially owned companies remain unprivatized. The number of failed privatizations has increased over the past year.

Foreign investors and entities may not establish enterprises in the defense sector or areas legally designated as restricted zones. A foreign investor may, however, acquire minority rights to such investments, subject to Ministry of Defense approval.

The Serbian Investment and Export Promotion Agency (SIEPA) provides direct assistance to investors. In addition, the Privatization Agency provides information and works with potential investors to educate them about the privatization program and related opportunities. In 2010, Serbia established Economic Advisors to promote foreign investment at selected foreign missions, including the Serbian Consulate in Chicago.

Serbia’s ranking by key indices is as follows:




TI Corruption Index


3.5 – 78 of 178 countries

Heritage Economic Freedom


58 – 101 of 179 countries

World Bank Doing Business


89 of 183 economies

Gov’t Effectiveness

(Worldwide Governance Indicators)


Governance Score (-2.5 to +2.5): -0.15 Percentile rank (0-100): 49.5

Rule of Law

(Worldwide Governance Indicators)


Governance Score (-2.5 to +2.5): -0.41

Percentile rank (0-100): 42.5

Control of Corruption

(Worldwide Governance Indicators)


Governance Score (-2.5 to +2.5): -0.19

Percentile rank (0-100): 52.4

Fiscal Policy

(IMF World Economic Outlook)

2010 (est.)

Government deficit: 4.1% of GDP

Trade Policy

(Heritage Economic Freedom)


75.2 – slightly above the average 74.8

Regulatory Quality

(Worldwide Governance Indicators)


Governance Score (-2.5 to +2.5): -0.10

Percentile rank (0-100): 50.0

Business Start Up

(World Bank Doing Business)


83 of 183 economies

Land Rights Access

(World Bank Doing Business)


Construction Permits: 176 of 183 economies

Registering Property: 100 of 183 economies

Natural Resource Mgmt

(Natural Resource Management Index)


91.9 out of 100. (Note: Serbia is listed as “Yugoslavia”)

Conversion and Transfer Policies

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

Serbian law permits relatively free flows of capital, as follows:

(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 in Serbia;

(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 not transfer capital for the purpose of purchasing domestic short-term securities.

Serbian law permits non-residents to maintain 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 may be 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

In March 2009, the Serbian Parliament approved changes to the 2001 Law on Expropriation in order to harmonize the law with the Constitution, expand the definition of "public interest" pursuant to which expropriation is permitted, and clarify compensation amounts. The Finance Ministry presented the amended law as a "temporary and transitional measure" that will be changed after adoption of a Restitution Law.

The law defines various economic and security justifications as authorized bases for expropriation and lays out procedures that must be followed to effect an expropriation. Previously, expropriation was possible for reasons that included: education, public health, social welfare, culture, water management, sports, transport, power and public utility infrastructure, national defense, local/national government needs, environmental protection, protection from weather related damage, exploration for or exploitation of minerals, and housing construction for the poor. The 2009 amendments additionally permit expropriation of land needed for re-settlement of people holding mineral-rich lands and property needed for certain joint ventures. Finally, the law clarifies that the competent subject matter courts have jurisdiction over expropriation claims.

Following a determination that there is a legal basis for the expropriation, 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 as the competent authority to resolve appeals or 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 is authorized to intervene and decide compensation if there is no mutually agreed resolution 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 since the dissolution of the former Republic of Yugoslavia.

There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia. Serbia still has not passed a comprehensive law on restitution despite repeated pronouncements of its intention to do so. GoS officials have stated the Government is waiting for the decision of the Serbian Constitutional Court on the constitutionality of the Law on Restitution of Property to Churches and Religious Communities, which is being challenged on grounds that it discriminatory, before taking final action on the general restitution law. According to Serbia's Property Directorate, some 150,000 restitution claims concerning nationalized property have been filed and are awaiting passage of the law to determine their disposition. Under its recently published Action Plan for attaining EU candidate status, the government has set a deadline of adopting a law on restitution by June 2011.

Dispute Settlement

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 reform the court system to create a more 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, Parliament approved a package of judicial reform laws that included laws on the High Judicial Council, on the State Prosecutors’ Council, on the Public Prosecutor, on Judges, and on the Organization of the Courts. The laws created a new network of courts and prosecutors’ offices designed to improve the efficiency of the judiciary. The new legislation also created High Judicial and State Prosecutors’ Councils, which are now responsible for selection, discipline, and dismissal of judges and prosecutors, and for administrative oversight of the courts. In December 2009, the Councils selected prosecutors, deputy prosecutors, judges and magistrates for the new court system and nominated first-time appointees who were elected to their positions by the Parliament. Those appointments, as well as the new network of courts and prosecutors’ offices, took effect on January 1, 2010.

The December 2009 election process has been challenged by non-elected judges, prosecutors and deputy prosecutors, professional associations of judges and prosecutors, as well as high-ranking EU representatives. Approximately 1,500 appeals and constitutional appeals had been filed with the Constitutional Court of Serbia, all of which challenge in one way or another the election process. As of late 2010, the Constitutional Court has reviewed only two such appeals and in both cases found defects in the process, remanding the reviewed cases back to the High Court Council for reconsideration. The EU expressed serious concerns about the manner in which the election/appointment process was carried out in its 2010 Serbia Progress Report.

To address these challenges, on December 29, 2010 Parliament passed amendments and addenda to the laws on judges, prosecutor’s office, High Court Council and the State Prosecutor’s Council. These amendments, among other things, provide for transfer of the appeals pending before the Constitutional Court back to the High Court Council and the State Prosecutor’s Council for assessment by those bodies. It is expected that the process of reassessment will take place in the first half of 2011.

In December 2009, Parliament approved a new Bankruptcy Law that brings Serbian bankruptcy procedures closer to international standards. Under the 2005 law, the average bankruptcy procedure lasted for three years. The new law introduces “automatic bankruptcy” for legal entities whose accounts have been blocked for more than three years, and allows debtors and creditors to initiate bankruptcy proceedings. The law aims to provide faster and more equitable settlement of creditors’ claims, lower costs, and clarify rules regarding the role of bankruptcy trustees and creditors councils.

According to the law, foreign creditors have the same rights as Serbian creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. 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 commences.

In May 2006, Serbia enacted its first Law on Arbitration, which authorizes the utilization of institutional and ad hoc arbitration in all manner 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).

Although Serbia is a signatory to many international treaties concerning foreign arbitration, since May 2007 Serbia has refused to respect an International Chamber of Commerce (ICC)/International Court of Arbitration award in favor of an American investor in an investment dispute with Serbia’ Privatization Agency. As a result, in July 2009, the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, informed the Government of Serbia it would severely restrict OPIC's programs in Serbia. U.S. Government officials have repeatedly encouraged the Government of Serbia to resolve this outstanding issue.

Performance Requirements and Incentives

To provide financial incentives for foreign and domestic greenfield and brownfield investment in specific industries, in 2006 the Serbian Government adopted a decree authorizing 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. In 2008, the Government expanded investment incentives applicable to investments in targeted sectors, i.e. the automotive, electronics, information and telecommunications technology industries. New incentive measures adopted in May 2010 provide additional incentives for investments in “devastated areas,” defined as regions where development is less than 50% of the national level and other areas designated to be of special state interest.

These incentives and conditions are as follows: (Note: None of these incentives have been challenged as violations of the WTO’s Trade Related Investment Measures (TRIMs) requirements.)

Investments in manufacturing:

-- Available incentive: starting at €2,000, up to €5,000 for each new employee,

-- Minimum investment: between €1 million and €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 €2,000, up to €10,000 per new employee,

-- Minimum investment: €1 million

-- Minimum number of new positions: 10.

Investments in targeted sectors, such as R&D, automotive, electronics, information technology, and telecommunications:

-- Available funds: starting at €5,000 up to €10,000 per new employee,

-- Minimum investment: €1 million,

-- Minimum number of new positions: 10.

Investments that exceed € 50 million and that create at least 300 new jobs may qualify for an incentive equal to 20% of the total investment value, and up to 25% in the case of investments that exceed € 200 million and 1000 new jobs.

The above incentive measures are temporary and will be available until December 31, 2012.

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 applicable tax period. This reduction may not exceed 50% of the total tax liability. This tax credit can be carried forward for up to 10 years if not used fully in the course of one year.

Investors in 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 (but the 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 their 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.

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).

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 for access to credit, supplies and licenses.

Protection of Property Rights

Serbia is still grappling with the consequences of the nationalizations and confiscations of all forms of private property following World War II. Prior owners of nationalized land became “users” of the land and acquired “rights of use” that, until 2003, could not be freely sold or transferred. In 2003, a new Law on Urban Planning and Construction recognized sales and transfers of property rights of use (the right of use was limited, however, to 99 years).

The October 2006 Constitution recognized private rights in “construction land” (a term of art referring generally to land in urban areas). A new September, 2009 Law on Planning and Construction (Official Gazette of the Republic of Serbia No. 72/2009) recognized the transformation of land use rights into rights of freehold private ownership of construction land. Companies that had gained land pursuant to privatization, bankruptcy or other means are able under the new law to transform usage rights into ownership rights by paying a fee representing the difference between the current market value of construction land and the costs of acquiring the land rights. However, the Law did not set forth defined procedures for property right conversions. In the absence of clear procedures, land registries tend to avoid positive resolution of conversion requests, and public attorneys offices commonly challenge land registry actions that do recognize conversion applications.

The 2009 Law on Planning and Construction also addressed zoning and urban planning, construction permitting procedures, and legalization of property titles. Serbia has not yet enacted all by-laws needed to implement these provisions. Serbia’s Foreign Investors Council reported that the number of issued construction permits declined 30.9% from in the first six months 2010 from the same period of 2009, due to a combination of the global financial crisis and problems related to implementation of the Planning and Construction Law. The Serbian Statistics Office reported that the number of issued construction permits in the first eleven months of 2010 fell 21% compared to the same period in 2009, though there was an uptick late in the period (a 14.4% increase in November 2010 compared to November 2009).

Restitution issues stemming from World War II and the Socialist Era continue to cloud real estate titles. Serbia has yet to enact a comprehensive general restitution law addressing how property nationalized under the Socialist Federal Republic of Yugoslavia will be restituted or compensated. Although Serbia enacted legislation on restitution of religious properties, the constitutionality of the law has been challenged in Serbia’s courts. Efforts to enact a general restitution law have stalled pending resolution of this legal challenge. In the meantime, approximately 150,000 restitution claims have been filed by domestic and international claimants, including some American citizens. The 2009 Law on Planning and Construction provides that proceeds from transactions in which land usage rights are converted to land ownership rights are to be shared equally between local government budgets and a National Restitution Fund. Establishing the Fund and the principles for its operation, however, are dependent on passage of a general restitution law.

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 it difficult to securing loans during construction. Following adoption of these laws, Serbia has seen strong growth in housing loans from almost zero to over $ 3.5 billion by the end of November 2010. The Foreign Investors Council’s November, 2010 “White Book“ recommended extensive legislative changes in order to harmonize the mortgage laws with the 2009 Planning and Construction Law.

Serbia’s real property registration system is based on municipal cadastre and land books. Approximately 91.3% of all real property in Serbia has been registered in a central database of municipal cadastres under the auspices of an ongoing World Bank project. The World Bank expects that all municipal cadastres will be included in this central cadastre by October 2011. There exist, however, approximately 790,000 buildings that were constructed without permits that are not included in any cadastre. The World Bank Doing Business 2011 report ranks Serbia 100th of 183 countries with respect to time required to register real property (average of 91 days). A register of movable goods has been in place through the Agency for Business Registers since 2005.

Serbia is making progress on Intellectual Property Rights (IPR) protection. A modern legal framework is in place and state control over pirated goods has improved in recent years. Serbia has made strides towards modernizing its core IPR laws and harmonizing them with European Union, Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), and other international standards. In 2009 and 2010, Parliament enacted five new IPR laws, each dealing with a particular form of intellectual property rights. Those laws are: (1) the Law on Trademarks (2009); Law on Indications of Geographical Origin (2010); Law on Copyrights and Related Rights (2009); Law on Protection of Topographies of Integrated Circuits (2009); and Law on Protection of Industrial Designs (2009). These laws, together with other legislation passed in recent years, such as the Law on Patents (2004), extend legal protections to all major forms of IPR -- patents, trademarks, copyrights, rights of performers and producers, industrial designs, integrated circuits, etc. The major pieces of Serbia’s IPR legislation largely conform to EU and international standards, though the Law on Patents requires modernization to harmonize with EU standards and the European Patent Convention.

Serbia is a World Intellectual Property Organization (WIPO) member and a signatory to all key agreements administered by WIPO. Adequate steps have been taken to implement and enforce the WTO TRIPS Agreement. TRIPS-compliant provisions are 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.

With the passage of these laws, and accession to the leading international IPR conventions and organizations, the legal framework governing intellectual property rights in Serbia is nearly complete. The most significant missing pieces are: (1) passing an Optical Disc Law to combat DVD, CD, and software piracy; (2) adopting the Draft Law on Patents, which will strengthen and extend patent protections in some areas and conform Serbian law with EU Directives and the European Patent Convention; (3) incorporating provisions in the new Company Law to bar disclosure of trade secrets to ensure the law’s compliance with the TRIPS Agreement; (4) amendments to the Criminal Procedure Code and related procedural laws, particularly in the area of cyber-crime; and (5) adoption of implementing regulations to various IPR legislation.

Serbia’s record in enforcement of IPR laws and protection of IPR rights is mixed. 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 combat illegal street sales. The Ministry of Trade and Services, for example, organized a public event to mark the destruction of tens of thousands of seized pirated optical discs in December, 2010. Government efforts to combat software piracy have also been somewhat effective, as the estimated rate of software piracy has fallen from about 99% ten years ago to approximately 74% in currently. A May 2009 Business Software Alliance (BSA) Global Software Piracy Study ranked Serbia 6th on its list of countries with improved piracy ratings. The May 2010 BSA Piracy Study identified Serbia as one of a handful of countries in which tax audits include software license verification. The BSA attributed improved IPR compliance, in part, to this practice. (See http://portal.bsa.org/globalpiracy2009/studies/09_Piracy_Study_Report_A4_final_111010.pdf) Illicit internet downloading of music and films, however, remains a serious issue. Film and music industry representatives estimate that more than 95% of the films and music downloaded in Serbia is through unauthorized channels.

Serbia has an adequate body of laws for the protection of property rights, but enforcement of property rights through the judicial system can be extremely slow. The World Bank Doing Business 2011 report, for example, ranks Serbia 94th of 183 countries with respect to time required to enforce a contract through the courts (average of 635 days).

Transparency of the Regulatory System

According to the World Bank Doing Business 2010 report, which measures business regulation across 183 economies, Serbia was ranked 88 in 2009. The weak improvement from its 2008 ranking of 90 reflects a mixture of major improvements for starting a business and obtaining credit and a slight worsening in dealing with construction permits, employing workers, registering property, protecting investors, paying taxes, trading across borders and slow processes for closing a business.

In 2008, the Serbian Government announced a "regulatory guillotine" initiative whose goal is to remove one third, or 15,000, of Serbia’s unnecessary and outdated regulations in an effort to make the regulatory system more efficient, increase competitiveness, and attract private investment. The Ministry of Economy and Regional Development is the lead agency for the initiative, and the business community has taken an active role in suggesting regulations that should be changed or eliminated. In December 2009, the Government approved an initial package of 208 by-laws for annulment. The guillotine initiative has stalled, however. The Government acted on only 69 out of 600 regulations proposed to be annulled, changed or amended in 2010.

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 State Auditing Institution, Anti-Monopoly Commission, Energy Regulatory Agency and Regulatory Agency for Telecommunications.

Efficient Capital Markets and Portfolio Investment

The banking sector comprises 91% of the total assets of the financial sector in Serbia. By the end of September 2010, consolidation had reduced the sector to 33 banks with total assets of $30 billion (about 70% of GDP), with 74% 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 acquisition of a local bank, the National Bank of Serbia issued a new banking license to the Bank of Moscow in 2008.

The banking sector successfully weathered the recent global financial crisis, largely due to conservative banking policies and regulations that require high capital adequacy ratios and high liquidity. The banking sector has recovered from panic withdrawals in October 2008, when depositors withdrew over $1.4 billion (20% of total deposits). Serbia experienced no bank failures or bailouts during the crisis. The banks honored all withdrawal requests and appear to have regained consumer trust, as evidenced by the gradual return of the withdrawn deposits to the banking system during 2009 and 2010. By November 2010, savings deposits in the banking sector reached $9.1 billion, exceeding the pre-crisis October 2008 level.

Serbia has a capital market infrastructure, but the equity and bond markets are underdeveloped. Securities and Republic of Serbia bonds are traded at the Belgrade Stock Exchange (BSE). Out of 1,750 companies listed on the stock market, shares in fewer than 100 companies trade regularly (i.e., more than once a week). Total annual turnover at the BSE was halved in 2009 to 442 million Euros (about $580 million) and halved again in 2010 to about 222 million Euros (about $300 million). The declines are generally attributed to the global economic crisis.

In 2009, the Serbian Treasury began to issue dinar denominated T-bills for 3 month, 6 month, and 12 month terms. The program expanded in 2010 to include 18 and 24 month issuances. The initial issuances had a 100% purchase rate, but the purchase rate dipped to as low as 25% for some auctions held in 2010, despite interest rates as high as 14.9%. As a result, the Serbian Government was compelled to borrow from commercial banks to finance its budget deficit. The total value of issued T-bills reached $2 billion as of September 2010.

In order to boost capital market development and reduce financial risks for investors, the Serbian Government in late December, 2010 modified a number of laws governing the capital markets and financial system. The proposed laws, which are awaiting passage by Parliament, include amendments and changes to the Capital Markets Law, the Foreign Exchange Act, and the Law on Financial Leasing.

According to the Ministry of Finance, the amended Capital Markets Law will liberalize capital markets, introduce a new multilateral trading platform and enable expanded buying and selling of shares over open capital markets. Amendments to the Foreign Exchange Act will enable foreign financial institutions to issue long-term dinar denominated bonds in Serbia. The amendments also establish a unified register of foreign currency accounts of legal entities. Amendments to the Law on Financial Leasing include measures to develop the leasing market, extend legal protections for investors, and prevent money laundering. Taken as a whole, the new financial measures are intended to develop the domestic capital market, increase the availability of dinar loans, and stimulate investment.

The Securities Commission (SC), established in 1995, regulates the Serbian securities market. The SC supervises investment funds in accordance with the Investment Funds Law that came into force in January 2006, as amended in July 2009. As of December 2010, 21 registered investment funds operated in Serbia.

Competition from State-Owned Enterprises

Serbia maintains 35 State Owned Enterprises (SOEs) and 550 municipal enterprises in select sectors of the economy. In accordance with the 2007 Law on Public Companies and Public Interest Activities, public companies can be established by the national, provincial or local governments to offer services of "public interest." Any other company (including those with a foreign ownership) or entrepreneur may offer public interest services as long as it receives the appropriate permission from the authorized institution, usually the relevant national ministry. Such private companies are entitled to equal treatment with the SOE, unless the law states otherwise.

Serbian law clearly establishes SOEs in the following sectors: production, transmission, and distribution of electricity; production and processing of coal; R&D, production, processing, transport and distribution of crude oil, natural gas and LNG; trade of crude oil and oil derivatives; railway; postal and air traffic services; information and telecommunications; issuance of the official gazette of the Republic of Serbia; publishing of school books; usage, management, protection and development of public interest goods (including water, roads, mineral resources, forests, rivers, and lakes); and utility services.

In some public sectors, Serbia has started opening or preparing for the opening of markets to competition. For example, in early 2010 Norwegian mobile provider Telenor won a 10-year renewable license from Serbia's Telecommunications Agency (RATEL) to operate telephone landlines, thus ending state telecom operator Telekom Srbija's landline monopoly. In February 2010, the Serbian Government initiated a tender process for the sale of a majority share in state-owned Telekom Srbija, which is expected to conclude in 2011. The state-owned petroleum company was sold to Russia’s Gazpromneft in 2008, and liberalization of the domestic oil and oil derivatives market commenced on January 1, 2011. Electricity production remains the monopoly of state-owned power utility EPS, but private trading in electricity is permitted and a flourishing private cross-border power market has developed.

SOEs in Serbia have both a Managing Board and Director to manage their operations. The SOEs may also have a Supervisory and Executive Board of Directors. All members of the Managing Board and the SOE Director are appointed by the Government at either the national, provincial or local level. The Director reports to the Managing Board, which in turn reports to the relevant Government ministry. In practice, the appointment of these positions tends to fall to the political parties that comprise the government in power. SOEs have an obligation to submit annual reports to the Government.

Corporate Social Responsibility

Corporate social responsibility (CSR) is a relatively new concept in Serbia and is still poorly understood by the Serbian public. The business sector is gradually becoming more acquainted with the concept of CSR, though many Serbian companies view CSR only as a public relations tool to help improve their image or reputation. Although the largest Serbian companies have a growing awareness of the importance of CSR, multinational companies that possess wide experience in this field are its primary and most effective practitioners. In general, the Serbian public has a limited understanding of CSR principles and is often skeptical about the intentions of the business sector. During 2010, the corporate sector partnered with NGOs and other relevant organizations in organizing a number of events and conferences to raise awareness of CSR principles.

Since its launch in Serbia in 2007, the UN Development Program’s (UNDP) Global Compact initiative has organized a number of educational events intended to strengthen capacity in areas relating to CSR. Global Compact is a voluntary international network of companies and non-corporate actors committed to improving human rights, labor practices, environment protection, and anti-corruption efforts. All UNDP Global Compact members are obliged to incorporate theses principles in their business practices. In Serbia, this organization has created a Steering Committee comprised of five members, a Secretariat maintained by UNDP Serbia and the National Bank of Serbia, and five working groups.

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.

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 from Serbia, groups twice broke away from larger demonstrations and attacked embassies of countries that had recognized Kosovo, including the U.S. Embassy in Belgrade. Since these attacks in February 2008 there have been no major violent incidents related to Kosovo.

The October 10, 2010 Pride Parade in Belgrade was marred by violence. Approximately 6,000 demonstrators, mostly young soccer hooligans and nationalist extremists, attempted to attack and disrupt the parade. When police prevented them from reaching the parade, they attacked several buildings, including foreign embassies and political party headquarters, in downtown Belgrade. The rioters injured 147 police officers and caused approximately $1.4 million in property damage.

Following the assassination of Serbia’s prime minister in the spring of 2003 by a criminal group, the Serbian Government launched a crackdown on organized crime. Starting in 2008, the Government passed and began implementing new legislation to strengthen the tools available to law enforcement and prosecutors to combat organized crime. The Government also increased cooperation with other governments in the region, resulting most notably in the April 2009 arrest by Serbian police of a leading Serbian organized crime figure wanted by Croatia for alleged involvement in the murder of a prominent Croatian newspaper owner.

Organized crime in Serbia is frequently linked to sports hooliganism. In 2009, sports hooligans in Serbia attacked and killed a visiting French national. The government responded with a renewed crackdown on organized crime and sports clubs promoting hooliganism. In October 2010, Serbian ultra-nationalist soccer hooligans clashed with Italian police in the northern Italian city of Genoa during the two countries’ Euro 2012 qualifying game. At least sixteen people were hospitalized and 17 Serb fans were arrested after violent riots caused a 40-minute delay in the match, and then forced the game to be abandoned six minutes in. Serbian officials expressed concern afterwards about a right-wing extremist plot against Serbia’s entry into the European Union. Security forces increased their presence substantially at all ensuing international soccer matches in Serbia.


Although difficult to quantify, corruption in Serbia is believed to be pervasive.

In the 2010 Corruption Perception Index survey compiled by Transparency International (TI), an international anti-corruption watchdog organization, Serbia received an index score of 3.5 out of 10 (10 being best). Although this is the same score received in 2009, Serbia’s rank on the list of countries improved from 83rd place in 2009 to 78th place in 2010.

In an effort to combat corruption, the Serbian Parliament in October 2008 approved the creation of the Anti-Corruption Agency (ACA). The ACA finally began functioning on January 1, 2010, as an independent government body accountable to the Serbian Parliament. The ACA is charged with unifying current anti-corruption activities, 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 still lacks the capacity, most notably sufficient qualified staff, to be fully operational and effective.

In what was widely seen as a step backwards in the fight againt corruption, in July 2010 the Serbian Parliament passed amendments and addenda to the Law on the Anti-Corruption Agency that, among other things, allow certain public officials to hold multiple positions (an exception to the general ban on holding multiple public offices). The constitutionality of this amendment is being challenged by the ACA before the Serbian Constitutional Court.

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. Corruption offences are handled by higher courts and prosecutors offices. On January 1, 2010, the Organized Crime Prosecutor’s Office assumed jurisdiction over corruption related offences involving high-level public officials or which involve more than US $2.7 million in illicit proceeds.

In November 2010, the Serbian Parliament passed amendments and addenda to the Anti-Money Laundering and Counter-Terrorism Law. Among other things, these amendments require banks and other financial institutions to gather data about legal and natural persons that electronically transfer money and to monitor unusual transactions. The amendments also expand the role of the Anti-Money Laundering Unit of the Ministry of Finance by vesting it with supervisory authority over a number of institutions and business, including money transmitters and factoring and forfeiting entities.

In light of numerous shortcomings of the existing Law on Financing of Political Parties, the Ministry of Justice began work in 2010 on a revised law that is expected to be forwarded to Parliament in early 2011. The draft law extends certain obligations pertaining to receipt of funds now applicable to political parties to other bodies, including political coalitions and citizens groups. The draft law also imposes limits on the amount of money private sources can provide to political parties. Parties, coalitions and groups of citizens who receive funds must report receipts and expenditures to the ACA. The draft law has been reviewed by the Council of Europe’s Venice Commission, which provided a number of suggestions on how to strengthen the control, oversight, and sanctioning mechanisms in the law.

Bilateral Investment Agreements

Serbia has concluded investment protection treaties/agreements with the following 47 countries: Albania, Austria, Belarus, Belgium and Luxemburg, Bosnia and Herzegovina, Bulgaria, Russia, China, Cyprus, Croatia, Cuba, Czech Republic, Democratic People’s Republic of Korea, Denmark, Egypt, Finland, Macedonia, Malta, France, Germany, Ghana, Greece, Guinea, Hungary, Holland, India, Iran, Israel, Italy, Kazakhstan, Kuwait, Libya, Lithuania, Nigeria, Montenegro, Poland, Portugal , Romania, , Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Ukraine, Zimbabwe.

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

In April 2008, the Serbian Government signed a Stabilization and Association Agreement with the European Union. Implementation of the SAA's interim trade agreement with Serbia was put on hold for a period over the issue of Serbia’s cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY). Serbia unilaterally applied the interim trade agreement beginning February 1, 2009. In December 2009, the EU Council of Ministers decided to implement the interim trade agreement following a positive report from the ICTY prosecutor on Serbia's cooperation. The EU's Member States only started the ratification process in June 2010. Eleven Member States have completed ratification as of the end of 2010. The European Parliament approved the SAA in January 2011.

The Serbian Government continues to pursue membership in the World Trade Organization (WTO). The Government made steady progress in multilateral and bilateral negotiations as part of the WTO accession process in 2010. Serbia has a realistic chance of finalizing the accession process in 2011.

Serbia has been a member of the Central European Free Trade Agreement (CEFTA) since December 19, 2006. CEFTA is a multilateral free trade agreement among southeastern European countries, including: Croatia, Macedonia, Serbia, Montenegro, Bosnia-Herzegovina, Albania, Moldova and UNMIK/Kosovo. CEFTA’s primary objective is to facilitate and expand trade and investment among its members, whose collective population is almost 30 million. Serbia served as CEFTA Chair in 2010.

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 upon the agreement’s ratification. 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 complete information on OPIC programs, see: http://www.opic.gov.

In July 2009, OPIC severely restricted its programs for Serbia over the Serbian Government’s refusal to honor an April 2007 International Chamber of Commerce (ICC)/International Court of Arbitration award in favor of an American investor who held an OPIC insurance policy on an investment in Serbia. Repeated requests from OPIC to the Serbian Government to comply with the arbitral award and resolve the dispute have been rebuffed. Specifically, OPIC has suspended programs for Serbia for any activity involving the Government of Serbia or Serbia’s Privatization Agency (the respondent in the ICC arbitration), and for projects in which the investor is required to post an on-demand guarantee or in which the parties have agreed to a dispute resolution procedure.

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 2.95 million people, with 2.38 million employed and 566,720 unemployed (19.2% of the workforce, according to ILO methodology) as of the end of 2010. Approximately 448,996 people work in the agriculture sector.

The private sector employs approximately 67% of workers in Serbia, while 29.3% are employed in the public sector, including the government and state-owned companies. “Socially-owned companies” employ 2.1% of the workforce. (Note: The privatization process is gradually eliminating remaining socially-owned companies in Serbia.) Moderate cuts from the top-heavy public payrolls occurred in 2010 in accordance with the International Monetary Fund’s Stand-By Arrangement with Serbia.

Labor costs are relatively low in Serbia. The minimum wage for the period July-December 2010 was set by the Social Economic Council at approximately $206 per month. According to figures released in November 2010, the average take-home salary was approximately $430.

Foreign-Trade Zones/Free Ports

Serbia has seven designated free trade zones (FTZs) (Subotica, Pirot, Zrenjanin, Kragujevac, Sabac, Novi Sad, and Uzice) established in accordance with the 2006 Law on Free Trade Zones. The FTZs are intended to attract investment by providing tax-free areas to companies. Business activities conducted in these areas receive benefits such as unlimited imports and exports, preferential customs treatment and tax relief/VAT exclusions. Goods coming in or out of the FTZs must be reported to the customs authorities and payments must be made in accordance with regulations on hard currency payments. Earnings and revenues generated within an FTZ may be transferred freely to any country, including Serbia, without prior approvals, and are not subject to any kind of taxes, duties or fees. Companies must provide information to the Administration for Free Trade Zones and, other than the financial benefits described above, are subject to the same laws and supervision as other businesses in Serbia. The law allows up to 100% foreign ownership of the FTZ’s managing company. The Serbian Government is preparing to open two additional FTZs in 2011: Nis and Smederevo.

Foreign Direct Investment Statistics

The National Bank of Serbia (NBS) and the Republic Statistics Office report that foreign direct investment (FDI) in Serbia was $880 million for the first ten months of 2010. Total FDI in 2010 is estimated to be approximately $1 billion.

Details on specific foreign investment transactions are reported by the Serbian Investment and Export Promotion Agency (SIEPA) (http://www.siepa.gov.rs/site/en/home/). The largest FDI transaction announced in 2010 was a $610 million investment by Russia’s Gaspromneft, owner of Nafta Industria Serbia (NIS), to modernize NIS’ refinery at Pancevo. Other important foreign investment projects in 2010 included approximately $200 million by the Italian car maker Fiat Group for reconstruction of the Zastava plant in Kragujevac and $130 million invested by Croatia’s Agrokor into the Serbian food processing industry. Financial services, construction, and real estate were the leading FDI sectors, followed by various types of manufacturing, (i.e., basic metals, food and beverage products, furniture, chemical products), transportation, agriculture, energy and fisheries.

According to the NBS, the leading investor country in Serbia in 2010 was the Netherlands, followed by Austria, the United Kingdom , United States, Slovenia, Italy, and Croatia. (Note: Many firms, including U.S.-based firms, invest through subsidiaries in the Netherlands under the favorable terms of a Serbia-Netherlands bilateral investment treaty.)

The following were some major FDI transactions announced in Serbia in 2010:

Company: Gazprom

Country: Russia

Investment: $612 million in NIS petroleum to modernize existing facilities and construct a new hydro cracking facility in the Pancevo refinery

Company: Fiat Group

Country: Italy

Investment: $197 million for reconstruction of the Zastava automobile factory in Kragujevac

Company: Agrokor

Country: Croatia

Investment: $131 million for privatization and greenfield investments in the Serbian food processing industry

Company: Bluehouse and Energoprojekt

Country: Greece and Serbia

Investment: $92 million in commercial real estate construction

Company: Magneti Marelli

Country: Italy and Serbia

Investment: $79 million joint venture for construction of an automotive components factory

Company: Diplon and Safran

Country: China

Investment: $46 million for construction of a shopping mall

Company: Mercator

Country: Slovenia

Investment: $26 million for expansion of retail stores

Company: Heineken

Country: Netherlands

Investment: $25 million for business expansion