HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Serbia

# 					2018 Investment Climate Statements: Serbia			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Serbia’s investment climate continues to slowly improve, driven by macroeconomic reforms, greater financial stability, improved fiscal discipline, and a European Union (EU) accession process that provides impetus for legal changes that improve the business environment. The government has successfully completed its three-year Stand-by Arrangement with the International Monetary Fund (IMF), with the government exceeding all of its fiscal targets in 2017. The government also announced the possible signing of a new coordination arrangement with the IMF in mid-2018. On the World Bank’s *Doing Business* list, Serbia moved up four places in 2017, and is now ranked 43rd globally in terms of ease of doing business, up from 59th two years earlier.

Attracting foreign investment remains an important priority for the Serbian government. U.S. investors in Serbia are generally positive, highlighting the country’s strategic location, well-educated and affordable labor force, investment incentives, and free trade arrangements with key markets, particularly the EU. Generally, U.S. investors enjoy a level playing field with their Serbian and foreign competitors. The U.S. Embassy in Belgrade often assists investors when issues arise, and Serbian leaders are responsive to our concerns.

Despite notable progress in Serbia, however, challenges remain – for example with regard to bureaucratic delays and corruption. Significant risks to the investment climate include unresolved loss-making state-owned enterprises (SOEs), a large informal economy, corruption, and an inefficient judiciary.

The Serbian government has identified economic growth and job creation as its top concerns, and has committed itself to resolving a number of long-standing issues related to the country’s slow transition to market-driven capitalism. On the legislative front, the government has passed significant reforms to the labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. The government also is making slow progress on resolving state-owned enterprises. Where possible, this has been done through bankruptcy or privatization. For example, bankruptcy protection was removed for 17 problematic state-owned companies in May 2016. At the end of 2017, the IMF reported that the situation of seven of these 17 companies still remained to be fully resolved. The government is also slowly decreasing Serbia’s bloated public sector workforce, mainly through attrition and hiring freezes – although layoffs may also be an option as the government implements more reforms in the future.

If the government delivers on promised reforms, business opportunities could continue to grow in the coming years. Sectors that could benefit include agriculture and agro-processing, solid waste management, sewage, environmental protection, information and communications technology (ICT), renewable energy, health care, mining, and manufacturing.

Women in Serbia generally enjoy equal treatment in business, and the government offers various programs to support women’s businesses. One recent program will provide approximately USD 1 million in 2018 to support women’s innovative entrepreneurship, in the form of small grants.

Investors should monitor the government’s implementation of reforms as well as the government’s changing investment incentive programs.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Toward Foreign Direct Investment**

Serbia is open to FDI, and attracting FDI is a priority for the government. Even during its communist past, Serbia prioritized international commerce and attracted a sizeable international business community. This trend continues, and the Law on Investments passed in October 2015 extends national treatment to and eliminates discriminatory practices against foreign investors. The law also allows the repatriation of profits and dividends, provides guarantees against expropriation, allows customs duty waivers for equipment imported as capital in kind, and enables foreign investors to qualify for government incentives.

The Government’s investment promotion authority is the Development Agency of Serbia (*Razvojna agencija Srbije* – RAS: http://ras.gov.rs/ ). RAS offers a wide range of services, including support of direct investments, export promotion, and coordinating the implementation of investment projects. RAS serves as a one-stop-shop for both domestic and international companies. The government maintains a dialogue with businesses through associations such as the Serbian Chamber of Commerce, American Chamber of Commerce in Serbia, Foreign Investors’ Council (FIC), and Serbian Association of Managers (SAM).

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Foreign and domestic private entities have the right to establish and own businesses, and to engage in all forms of remunerative activity. The Law on Investments ended discriminatory practices that prevented foreign companies from establishing companies in the production and trade of arms (for example, the defense industry) or in specific areas of the country. Further liberalization of investment in the defense industry will be possible following planned amendments to the Law on Production and Trade of Arms and Ammunition, currently before Parliament for adoption in 2018. The amendments are expected to enable foreign ownership of up to 49 percent in seven state-owned companies that are collectively referred to as the “Defense Industry of Serbia.” Also, the draft law envisions eliminating foreign ownership limits for arms and ammunition manufacturers.

Foreign citizens and companies are prohibited from owning agricultural land in Serbia. However, EU citizens were exempted from this ban as of August 28, 2017. EU citizens may buy up to two hectares of agricultural land under certain conditions. They must permanently reside in the municipality where the land is located for at least 10 years, practice farming on the land in question for at least three years, and own adequate agriculture machinery and equipment. However, it is important to note that foreign ownership restrictions on farmland do not apply to companies registered in Serbia, even if the company is foreign-owned. Unofficial estimates suggest that Serbian subsidiaries of foreign companies own some 20,000 hectares of farmland in the country.

For some business activities, licenses are required – for example, financial institutions must be licensed by the National Bank of Serbia prior to registration. Licensing limitations apply to both domestic and foreign companies active in finance, energy, mining, pharmaceuticals, medical devices, tobacco, arms and military equipment, road transportation, customs processing, land development, electronic communications, auditing, waste management, and production and trade of hazardous chemicals.

Serbian citizens and foreign investors enjoy full private property ownership rights. Private entities can freely establish, acquire, and dispose of interests in business enterprises. By law, private companies compete equally with public enterprises in the market and for access to credit, supplies, licenses, and other aspects of doing business. Serbia does not maintain investment screening or approval mechanisms for inbound foreign investment. U.S. investors are not disadvantaged or singled out by any rules or regulations.

**Other Investment Policy Reviews**

Serbia has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), or United Nations Conference on Trade and Development (UNCTAD).

**Business Facilitation**

According to the World Bank’s 2018 Doing Business report, it takes five procedures and 5.5 days to establish a foreign-owned limited liability company in Serbia. This is faster than the average for Europe and Central Asia. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Serbia must translate its corporate documents into Serbian.

Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in English at www.apr.gov.rs/eng/Home.aspx . All entities applying for incorporation with SBRA can use a single application form and no longer need signatures on applications notarized.

Companies in Serbia can open and maintain bank accounts in foreign currency, although they must also have an account in Serbian dinars (RSD). The minimum capital requirement is symbolic at RSD 100 (less than USD 1) for limited liability companies, rising to RSD 3 million (approximately USD 31,000) for a joint stock company. A single-window registration process enables companies which register with SBRA to obtain a tax registration number (PIB) and health insurance number concurrently with registration. In addition, companies must register employees with the Pension Fund at the Fund’s premises. Amendments to the Labor Law adopted in December 2017 require employers to register new employees before their first day at work; previously, the deadline was registration within the first 15 days of employment. These amendments represent an attempt by the government to decrease the grey labor market by allowing labor inspectors to penalize employers if they find unregistered workers.

Pursuant to the Law on Accounting, companies in Serbia are classified as micro, small, medium, and large, depending on the number of employees, operating revenues, and value of assets.

RAS supports direct investment and promotes exports. It also implements projects aimed at improving competitiveness, supporting economic development, and supporting small- and medium-sized enterprises (SMEs) and entrepreneurs. More information is available at http://ras.gov.rs .

Serbia’s business facilitation mechanisms provide for equitable treatment of both men and women when a registering company, according to the World Bank’s 2018 Doing Business report. The government has declared 2017-2027 a *Decade of Entrepreneurship* with special programs to support entrepreneurship by women.

**Outward Investment**

The Serbian government neither promotes nor restricts outward direct investment. However, there are restrictions regarding short-term capital transactions – i.e. portfolio investments. Residents of Serbia are not allowed to purchase foreign short-term securities, and foreigners are not allowed to purchase short-term securities in Serbia. There are no restrictions on payments related to long-term securities.

Capital markets are not fully liberalized for individuals. Citizens of Serbia are not allowed to have currency accounts abroad, or to keep accounts abroad, except in exceptional situations listed in the Law on Foreign Exchange Operations (such situations may include work or study abroad).

							2. Bilateral Investment Agreements and Taxation Treaties					

Serbia does not have a bilateral investment agreement with the United States. Serbia has bilateral investment treaties in force with Albania, Algeria, Austria, Azerbaijan, Belarus, Belgium-Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Cuba, the Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Finland, France, Germany, Ghana, Greece, Guinea, Hungary, India, Indonesia, Iran, Israel, Italy, Kazakhstan, Kuwait, Libya, Lithuania, Macedonia, Malta, Montenegro, Morocco, the Netherlands, Nigeria, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Arab Emirates, United Kingdom and Zimbabwe. (See http://mtt.gov.rs/download/Pregled%20Zemalja.pdf ).

Serbia does not have a bilateral taxation treaty with the United States. Serbia has signed and implemented bilateral taxation treaties with Albania, Armenia, Austria, Azerbaijan, Belgium, Belarus, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Iran, Ireland, Italy, Kazakhstan, Kuwait, Latvia, Lithuania, Libya, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Montenegro, the Netherlands, Norway, Pakistan, Poland, Qatar, the Republic of Korea, Romania, Russia, Slovakia, Slovenia, Spain, Sri Lanka, Switzerland, Sweden, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Vietnam. The treaties with Armenia, Kazakhstan, South Korea and Luxemburg came into force on January 1, 2017. (See Serbian Finance Ministry website at http://www.mfin.gov.rs/pages/issue.php?id=7063 ).

Serbia has signed and ratified Bilateral Taxation Treaties with Ghana, Guinea, Indonesia, Morocco, Palestine, the Philippines and Zimbabwe. However, the foreign legislatures have not yet ratified these agreements.

Serbia is a member of the Central European Free Trade Agreement (with Albania, Bosnia and Herzegovina, Macedonia, Moldova, Montenegro, and Kosovo). It enjoys free trade status for almost all products exported to the European Customs Area (the EU plus the European Free Trade Association states of Iceland, Liechtenstein, Norway and Switzerland). Serbia has bilateral free trade agreements (FTAs) with Belarus, Kazakhstan, Russia, and Turkey.

Serbia is in negotiations for a multilateral free trade agreement with the Eurasian Economic Union (EEU – Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia), which would supersede its current bilateral FTAs with most EEU member countries.

Serbia enjoys duty-free treatment of certain exports to the United States under the Generalized System of Preferences (GSP), valid until December 31, 2020.

							3. Legal Regime					

**Transparency of the Regulatory System**

Serbia’s record on transparency of the regulatory system is mixed. Serbia is undertaking an extensive legislative amendment process aimed at domestic reforms and harmonizing its laws with those of the European Union’s *acquis communautaire*. As part of that process, Serbia has adopted new legislation and amended numerous existing laws and regulations. These changes have created a more favorable legal environment; however, Serbia still needs to address a number of problems with respect to transparency in the development, adoption, and implementation of regulations. The harmonization of Serbian law with the *acquis*has required intensive reforms and a high volume of adopted legislation, representing a challenge for the government, Parliament, the business sector, and society as whole.

When a new law is proposed, the competent Ministry within the government establishes a working group, usually comprised of representatives of state authorities and organizations as well as experts in specific fields. These are mostly *ad hoc* bodies that review specific issues, provide proposals, opinions, and professional explanations.

At this stage in the legislative process, public discussion or debate is generally optional. However, if the proposed law would substantially change the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public, public debate is mandatory. In recent years, many laws have been adopted through “urgent procedure, which excludes parliamentary debate, and therefore reduces public debate as well. The European Commission’s 2016 Progress Report for Serbia stated that “Public and inter-ministerial consultations on proposals are often conducted formalistically and at too late a stage of the process, not enabling all interested parties to provide qualitative input.” The government’s Rulebook outlines the details and procedures regarding public debate. The government publishes laws and regulations undergoing public hearings at: http://javnerasprave.euprava.gov.rs/ .

Concerns regarding public debate on Serbian legislation have been echoed by the Council of Europe’s Group of States against Corruption (GRECO), which observed in a 2015 report on Serbia that the transparency of Serbia’s legislative process could be improved by ensuring that draft legislation, amendments and the agendas and outcome of committee sittings are disclosed in a timely manner, and that adequate timeframes are in place for submitting amendments and that the urgent procedure is applied as an exception and not as a rule. GRECO also recommended further developing rules on public debates and public hearings, and ensuring their implementation in practice. GRECO reiterated these concerns in a compliance report on Serbia in October 2017, stating that “a large majority of laws and decisions are still adopted under the emergency procedure, which in effect prevents timely information and participation in legislative work. According to the Rules of Procedure of the National Assembly, it is still possible and it is still the rule to a large extent, to present amendments up to 24 hours before the discussion in the emergency procedure. No additional safeguards have been introduced to either curb the use of this procedure or provide for new deadlines for submitting amendments. Thus, most of GRECO’s concerns regarding this part of the recommendation remain valid...”

To adopt a law, a minimum of 126 members of the National Assembly must vote in favor, after which the law is sent to the President of Serbia, who may promulgate the law or return it to Parliament for reconsideration.

Serbia’s budget information is publicly available. However, there are serious concerns about the legislative process, which severely limited Parliament’s review and debate of the draft 2018 budget when it was passed in December 2017. For example, opposition parties have accused the ruling coalition of obstructing debate in Parliament by filing several hundred amendments, which were often almost identical in content, to use up the allocated time for debate and prevent legislators from scrutinizing the budget and debating substantive amendments. Just before the vote, the ruling coalition withdrew most of its amendments.

Publicly listed companies apply International Financial Reporting Standards. There are no informal regulatory processes managed by NGOs or private sector associations.

Several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors Council publishes an annual White Book (http://www.fic.org.rs/projects/white-book/white-book.html ), NALED publishes a Grey Book (https://www.slideshare.net/NALED/grey-book-10-recommendations-for-eliminating-administrative-obstacles-to-doing-business-in-serbia ), and AmCham publishes similar materials on its website (http://www.amcham.rs/home.1.html ).

Serbia’s National Assembly website (http://www.parlament.gov.rs/narodna-skupstina-.871.html ) provides a list of adopted laws and those that have been proposed. In addition, individual ministries generally provide access to the relevant legislative framework under which the ministry operates on the ministry’s website.

The Business Entities Register (http://www.apr.gov.rs/eng/Registers/Companies/CompaniesRegister.aspx ) is a centralized electronic database of business entities in Serbia and contains registration data.

Serbia has a system of official inspectorates charged with regulatory enforcement. Nationally there are currently 37 different inspectorates within 12 ministries that apply over 1,000 regulations. There is no overarching law to regulate inspections and there are shortcomings with regard to the coordination of inspections. Administrative courts are the legal entities which consider appeals to inspection decisions.

**International Regulatory Considerations**

Serbia is not a member of the World Trade Organization or the EU. However, under the National Program for Integration into the EU, Serbia is adopting the EU’s *acquis communautaire*. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations in January 2014. The modernization of Serbian legislation has begun to improve the investment climate.

**Legal System and Judicial Independence**

The legal system of Serbia is based on principles of both Roman law and continental civil law. It is composed of the Serbian Constitution and a system of laws. Contract law in Serbia is similar to contract law in the United States.

According to the Constitution, Serbia’s judicial system is legally independent of the executive branch, but in practice experts raise questions about judicial independence in Serbia. Significant obstacles remain in the way of true judicial independence. The High Judicial Council proposes judges, which are elected by the National Assembly. Judicial office is permanent after an initial three-year term. However, in a January 2017 survey of elected judges, approximately 40 percent of those interviewed stated that they felt exposed to political pressure. In January 2018, the Ministry of Justice (MoJ) published draft amendments to the Serbian Constitution pertaining to the reorganization of the Serbian judiciary and prosecution service, purportedly to increase their independence and professionalism. Civil society actors have been highly critical of the MoJ for failing to involve them in the drafting process, or to take seriously their objections to the draft amendments. The MoJ is evaluating the objections, after which it will publish and submit a revised draft to the Venice Commission, a Council of Europe body tasked with evaluating the proposed constitutional changes.

Serbia’s main court system handles most types of civil and criminal law, with specialized departments and judges to handle different types of cases. Basic Courts and High Courts are the courts of first instance, with appeals to Appellate Courts. There are also separate systems of Commercial, Administrative, and Misdemeanor Courts to handle specialized cases in those areas. The highest court of appeal for all these systems is the Supreme Court of Cassation.

The Constitutional Court is a separate institution that may assess the constitutionality of almost all legal acts. A constitutional appeal may be lodged against individual acts or actions of state bodies or organizations entrusted with public authority.

**Laws and Regulations on Foreign Direct Investment**

Significant laws for investment, business activities, and foreign companies in Serbia include the Law on Investments, the Law on Foreign Trade, the Law on Foreign Exchange Operations, the Law on Markets of Securities and other Financial Instruments, the Company Law, the Law on Registration of Commercial Entities, the Law on Banks and Other Financial Institutions, Regulations on Conditions for Establishing and Operation of Foreign Representative Offices in Serbia, the Law on Construction and Planning, the Law on Financial Leasing, the Law on Concessions, the Customs Law, and the Law on Privatization. These acts set out the basic rules foreign companies must follow if they wish to establish subsidiaries in Serbia, invest in local companies, open representative offices in Serbia, enter into agency agreements for representation by local companies, acquire concessions, or participate in a privatization process in Serbia.

Key tax legislation includes the Law on Value Added Tax, Law on Income Tax, Law on Corporate Profit Tax, Law on Real Estate Tax, and the Law on Mandatory Social Contributions. Laws and regulations related to taxes can be found on the Finance Ministry’s website at: http://www.mfin.gov.rs/pages/issue.php?id=1578 .

Laws and regulations related to business operations can be found on the Economy Ministry’s website at:http://www.privreda.gov.rs/cat_propisi/zakoni/ .

Laws and regulations on portfolio investments are on the Securities Commission’s website at:http://www.sec.gov.rs/ .

Laws and regulations related to payment operations can be found on the National Bank of Serbia’s website at:http://www.nbs.rs/internet/english/20/index.html .

In October 2017, the Serbian Institute for Standardization, with support of the Serbian Chamber of Commerce, OSCE and the U.S. Department of Justice, adopted international standard ISO 37001 on Anti-bribery Management Systems, the first international standard to specify requirements and provide guidance for establishing, implementing, maintaining and improving an anti-bribery management system. The standard can be applied by any type of organization – all levels of government, state-owned enterprises, private sector companies (large and small) and non-government organizations. ISO 37001 requires an organization to implement a series of measures to prevent bribery that are proportionate and reasonable to the risks. For more information, see http://www.iss.rs/en/standard/?keywords=37001&Submit .

**Competition and Anti-Trust Laws**

The Law on Protection of Competition was enacted in 2009 and amended in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and implements the law as an independent agency reporting directly to the National Assembly. In 2016, the Commission completed 59 proceedings for violations of competition rules, approved 111 mergers (and rejected none), and issued 99 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online at:http://www.kzk.gov.rs/izvestaji .

Laws and regulations related to market competition are available at:http://www.kzk.gov.rs/en/zakon-2 .

**Expropriation and Compensation**

Serbia’s Law on Expropriation authorizes expropriation (including eminent domain) for the following reasons: education, public health, social welfare, culture, water management, sports, transport, public utility infrastructure, national defense, local/national government needs, environmental protection, protection from weather-related damage, mineral exploration or exploitation, resettlement of persons holding mineral-rich lands, property required for certain joint ventures, and housing construction for the socially disadvantaged.

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 sets forth various criteria for arriving at the amount of compensation applicable to different types of land (e.g. agricultural, vineyards or forests), or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually agreed resolution within two months of the expropriation order.

The Law on Investment provides safeguards against arbitrary government expropriation of investments. There have been no cases of expropriation of foreign investments in Serbia since the dissolution of the former Federal Republic of Yugoslavia in 2003. There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia, which was dissolved in 1992.

The 2014 Law on Restitution of Property and Compensation applies to property seized by the government since the end of World War II (March 9, 1945), and includes special coverage for victims of the Holocaust, who are authorized to reclaim property confiscated by Nazi occupation forces. Under the law, restitution should be in kind when possible, and otherwise in the form of state bonds. Many properties are exempt from in-kind restitution, including property previously owned by corporations. Heirless property left by victims of the Holocaust is subject to a separate law, which was approved in February 2016.

Compensation of citizens for property seized by the government since the end of World War II should begin in 2018. If amendments to the Law on Restitution and Compensation are adopted, requests for the restitution of confiscated enterprises will be treated separately.

Serbia committed itself under its restitution law to allocate EUR 2 billion, plus interest, for financial compensation in bonds. The restitution law caps the amount of compensation that any single claimant may receive at EUR 500,000 (approximately USD 620,000). The government postponed the issuance of these bonds from January 2015 to 2018, pending approval of necessary by-laws that would regulate bond issuance. The bonds will be denominated in euros, carry a two-percent annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution received over 74,000 property claims, and the adjudication process is still ongoing. Information about the Agency for Restitution and the status of cases is available on its website at www.restitucija.gov.rs/eng/index.php .

**Dispute Settlement**

*ICSID Convention and New York Convention*

When negotiating contracts, the parties may agree on the manner in which to resolve disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil procedures. Under Serbian commercial law, contractual relations are regulated by the Law on Obligations (also known as the Law on Contracts and Torts). Contract-related disputes are governed by Chapter 34 of the Civil Procedure Law, which details the procedure in commercial disputes. Commercial Courts have jurisdiction over commercial disputes between domestic and foreign commercial and legal entities only. Exceptionally, a natural person can be a party as a substantial intervener in the case. Appeals are referred to the Higher Commercial Court.

Parties to a contract are free to decide which substantive law shall govern the contract. The law of Serbia does not have to be the governing law of a contract entered into in Serbia.

Judgments of foreign courts are enforceable in Serbia only if they are recognized by Serbian courts. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. Procedures for recognition of foreign court decisions are regulated by the Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements. One condition is reciprocity.

*Investor-State Dispute Settlement*

Although Serbia is a signatory to many international treaties regarding international arbitration, enforcement of an arbitration award can be a slow and difficult process. Serbia’s Privatization Agency refused for five years (2007-2012) to recognize an International Chamber of Commerce/International Court of Arbitration award in favor of a U.S. investor. The dispute caused the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, to severely restrict its activities in Serbia. The U.S. Embassy facilitated a settlement agreement between the Serbian government and the investor, which took effect in January 2012. OPIC reinstated its programs for Serbia in February 2012, but in 2015 and early 2016 both a first instance and appellate Serbian court dismissed OPIC’s request for enforcement action to collect damages awarded to it by an international arbitration board in the same case. Serbia has no Bilateral Investment Treaty (BIT) with the United States. In the past 10 years, two investment disputes have involved U.S. citizens.

*International Commercial Arbitration and Foreign Courts*

The Law on Arbitration authorizes the use of institutional and *ad hoc* arbitration in all disputes and regulates the enforcement of arbitration awards. The law is modeled after the United Nations Commission on International Trade Law (UNICTRAL Model Law).

Commercial contracts in which at least one contracting party is a foreign legal or natural person may incorporate arbitration clauses, invoking the jurisdiction of the Foreign Trade Court of Arbitration of the Serbian Chamber of Commerce, or any other foreign institutional arbitration body, including *ad hoc* arbitration bodies. Arbitration is voluntary. International arbitration is an accepted means for settling disputes between foreign investors and the state.

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 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention);
- 1961 European Convention on International Business Arbitration;
- 1965 International Centre for the Settlement of Investment Disputes (ICSID).

Serbia allows for mediation to resolve disputes between private parties. Mediation is a voluntary process and is conducted only when both parties agree. The Law on Mediation regulates mediation procedures in disputes in the following areas of law: property, commercial, family, labor, civil, administrative and in criminal procedures where the parties act freely, unless the law stipulates exclusive authority of a court or other relevant authority.

Mediators can be chosen from the list of the Serbian National Association of Mediators, or from an official registry within the Ministry of Justice. There are two types of mediation: court-annexed and private mediation. A person can also be referred to mediation by a court, advocate, local ombudsman, employees of municipal or state authorities, an employer, or the other party to the conflict.

**Bankruptcy Regulations**

The Bankruptcy Law brings Serbian bankruptcy procedures in line with international standards. According to the law, the goal is to provide compensation to creditors via the sale of the assets of a debtor company. The law stipulates 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 ensures a faster and more equitable settlement of creditors’ claims, lowers costs, and clarifies rules regarding the role of bankruptcy trustees and creditors’ councils. Parliament adopted new amendments to the Bankruptcy Law in December 2017. These amendments enable better collection and reduced costs for creditors; provide shorter deadlines for action by bankruptcy trustees and judges; improve the position of secured creditors; anticipate new ways of assessing debtors’ assets by licensed appraisers; and introduce a special rule to lift bans on the execution of debtor assets that are under mortgage, giving rights to the secured creditor to sell such assets under rules that apply to mortgage sales.

Foreign creditors have the same rights as Serbian creditors with respect to initiating or participating in bankruptcy proceedings. Claims in foreign currency are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced. Under Serbia’s Criminal Code, causing or faking a bankruptcy are criminal acts.

The 2018 World Bank Doing Business Report ranked Serbia 43 out of 190 economies with regard to resolving insolvency, with an average of two years needed resolve insolvency and a cost of 20 percent of the estate. The recovery rate was estimated at 34 cents on the dollar (http://www.doingbusiness.org/data/exploreeconomies/serbia ).

The Credit Bureau of Serbia is part of the Association of Banks of Serbia (http://www.ubs-asb.com/Default.aspx?tabid=541 ). Its primary aim is to check the credit capacity of potential banking clients. The Credit Bureau records all financial obligations of citizens and companies toward banks and other service providers, and tracks if clients meet their obligations. Credit Bureau data are considered accurate, as most participants provide information on client indebtedness on a daily basis. Credit Bureau data include debts related to loans, credit cards, leasing, mobile telephony service providers, current accounts, and issued guarantees.

							4. Industrial Policies					

**Investment Incentives**

The 2015 Law on Investment defines Serbia’s investment incentives program. Incentives are available to both domestic and foreign investors. The law established a Council for Economic Development and the Development Agency of Serbia (RAS). The Council has oversight responsibility for the investment incentives program, while RAS plays a more operational role.

The level of available subsidies for investment projects is determined under the Decree on Terms and Conditions for Attracting Direct Investments, approved for the current year in March 2018. Investors are obliged to provide 25 percent of eligible costs from their own resources. For investment projects valued at EUR 50-100 million, subsidies are limited to 25 percent of the total investment, falling to 17 percent for projects over EUR 100 million. However, under certain conditions large companies can gain support for up to 50 percent of eligible costs for investment projects, medium-sized companies up to 60 percent, and small companies up to 70 percent.

Under the Decree on Terms and Conditions for Attracting Direct Investments, state subsidies are available for any company that invests the equivalent of EUR 100,000 and employs at least 10 persons in a “devastated area.” The required minimum investment and employment levels for subsidies increase on a sliding scale according to the level of development of the investment location. For each new job created in a devastated area, the state will pay the investor the equivalent of EUR 7,000; the subsidy declines to EUR 3,000 per job in the most developed regions. For labor-intensive projects that create more than 200 new jobs, the government can approve additional incentives. The state will also provide subsidies for the purchase of fixed assets, again on a sliding scale based on the level of development at the investment location. The subsidy reaches 30 percent of eligible asset costs in a devastated area, and declines to 10 percent in the most developed areas of Serbia. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance. In addition to manufacturing, international trade services and agriculture, the Decree also makes available funds for investment projects in spa hotel accommodation projects with a minimum investment value of EUR 2 million and that provide at least 70 new jobs for an indefinite period of time. For more details visit: http://ras.gov.rs/invest-in-serbia/why-serbia/financial-benefits-and-incentives .

The Decree on Attracting Direct Investments also establishes criteria for granting local incentives to investments of importance for local development.

At the provincial level, the government of the Vojvodina region offers investment incentives, which are substantially very similar to those described above. The main difference is that the program is implemented by the Development Agency of Vojvodina, which was established in February 2017 as the successor to the Vojvodina Investment Promotion Agency (VIP) (http://rav.org.rs/business-environment/incentives ).

Local municipalities may sell land for construction at below-market rates for investments that promote local economic development. Other major incentives at the local level include exemptions or deductions on land-related fees and other local fees.

Serbia’s tax laws offer several incentives to new investors. The corporate profit tax rate is a flat 15 percent, one of the lowest in the region. Non-resident investors are taxed only on income earned in Serbia. A ten-year tax holiday on corporate profits is available for investors who hire more than 100 workers and invest more than RSD 1 billion (USD 10.5 million). The tax holiday begins once the company starts making a profit.

In February 2018, the government approved a new decree on film incentives that allows both domestic and foreign filmmakers to receive a refund of 25 percent of qualified costs, an increase from an earlier 20 percent incentive. The government has doubled the budget for film incentives in 2018 to RSD 800 million (USD 8.4 million).

Employment incentives allow payroll tax deductions for persons registered with the National Employment Service for more than six months. The incentives currently in place are valid from the moment of employment until December 31, 2019:

- 1-9 new jobs: 65 percent deduction;
- 10-99 new jobs: 70 percent deduction;
- 100+ new jobs: 75 percent deduction.

Some subsidized loans for start-ups, entrepreneurs and SMEs are available through the state-owned Fund for Development and various ministries, and part will be issued through RAS. Detailed information is available at www.fondzarazvoj.gov.rs  (Serbian only). These loans are available to foreign-owned companies registered in Serbia, provided the Serbian registered company has not recorded losses in the previous two years.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

Serbia maintains 14 designated customs free zones, in Apatin, Belgrade, Kragujevac, Krusevac, Novi Sad, Pirot, Priboj, Sabac, Smederevo, Svilajnac, Subotica, Uzice, Vranje, and Zrenjanin. The free zones, established in accordance with the 2006 Law on Free Zones, are intended to attract investment by providing tax-free areas for company operations. Businesses operating in the zones qualify for benefits including unlimited duty-free imports and exports, preferential customs treatment, and tax relief in the form of value-added tax (VAT) exclusions. If goods produced within zone use a minimum of 50 percent of domestic components, they are considered to be of Serbian origin and are therefore eligible to be imported into Serbian territory or exported without customs pursuant to free trade agreements. Companies operating within a free zone are subject to the same laws and regulations as other businesses in Serbia, except for their tax privileges.

Goods entering or leaving the free zones must be reported to customs authorities, and payments must be made in accordance with regulations on hard-currency payments. Goods delivered from free zones into other areas of Serbia are subject to customs duties and tax. Earnings and revenues generated within free zones may be transferred freely to any country, including Serbia, without prior approval, and are not subject to any taxes, duties or fees.

In 2016 there were a total of 260 companies operating in Serbia’s free economic zones, of which 154 were domestically owned and 86 foreign-owned. The companies employed a total of 25,175 workers. Total exports from free zones exceeded USD 2.3 billion, which is approximately 16 percent of Serbia’s total exports. Total imports into the zones were approximately USD 2.2 billion, or 11 percent of total imports. Total annual turnover in the free zones stands at some USD 5.5 billion. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic. Additional information about Serbia’s free zones is available at: www.usz.gov.rs/eng/index.php .

**Performance and Data Localization Requirements**

The Serbian government does not mandate local employment or have onerous visa, residence, or work permitting requirements for foreign nationals. It does not impose conditions for foreign investors to receive permission to invest.

The Serbian government does not maintain a policy of forced localization designed to oblige foreign investors to use domestic content in goods or technology. Similarly, the government does not force foreign investors to establish or maintain a certain amount of data storage within the country. There are no requirements for foreign IT providers to turn over source code or provide access to encryption.

Serbia plans to approve a new Personal Data Protection Law, and currently continues to follow EU practice in implementation of data transfer rules.

The Decree on Terms and Conditions for Attracting Direct Investments defines conditions and limitations for investment incentives, such as maintaining investments at a defined location for up to five years. Similarly, investors are obliged to maintain the number of newly engaged employees for up to five years. Potential investors who want to use state grants are required to provide a minimum of 25 percent of eligible costs from their own resources. The deadline for implementation of investment projects and the creation of new work places is three years from the date of applying for state grants. This deadline may be extended for up to five years based on a written justification. Beneficiaries are obliged to provide a bank guarantee as security for the eventual return of received funds. In case of non-fulfilment of the conditions provided for in the state grant contract, the Ministry of Economy and the Council for Economic Development may decide to terminate the contract at any time. However, authorities have generally shown great flexibility in favor of investors to succeed. Conditions are applied uniformly to both domestic and foreign investors.

							5. Protection of Property Rights					

**Real Property**

Serbia has an adequate body of laws for the protection of property rights, but enforcement of property rights through the judicial system can be very slow. A multitude of factors can complicate property titles – restitution claims, unlicensed and illegal construction, limitation of property rights to rights of use, outright title fraud and other issues. Investors are cautioned to investigate thoroughly all property title issues on land intended for investment projects.

During the country’s socialist years, 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 July 2015, the government adopted a law that allows for property usage rights to be converted into ownership rights with payment of a market-based fee.

In March 2015, the government implemented new amendments to the Law on Planning and Construction that separated the issuance of permits from conversion issues. These amendments cut the administrative deadline for issuing construction permits for a potential investor to 30 days and introduced a one-stop shop for electronic construction permits.

Serbia’s real property registration system is based on a municipal cadaster and land books. Serbia has the basis for an organized real estate cadaster and property title system. However, legalizing tens of thousands of structures built over the past twenty years without proper licenses remains an enormous challenge, as two million buildings in Serbia are not registered in the cadaster, of which almost half are residential properties. According to some estimates, every third building in Serbia was not legally built. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 120,000 decisions on legalization have been issued.

The World Bank’s 2018 Doing Business Report ranks Serbia 57 of 190 countries for time required to register real property (21 days).

**Intellectual Property Rights**

Serbia is a World Intellectual Property Organization (WIPO) member and a signatory to all key agreements administered by WIPO. The government has taken steps to implement and enforce the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Serbia’s intellectual property rights (IPR) laws include TRIPS-compliant provisions and are enforced by courts and administrative authorities.

For the most part, Serbia’s IPR legislation is modern and compliant with both the EU *acquis communautaire* and international standards. According to the EU’s 2016 Progress Report, Serbia has done a good job aligning its IP legislation with the *acquis*. Serbian laws extend legal protections to all major forms of IPR (including patents, trademarks, copyrights, industrial designs, geographic indicators, and semiconductor products). Serbia aims to adopt amendments to the Law on Trademarks (particularly with respect to introducing a procedure for third-party objection), the Law on Patents, the Law on Semiconductor Circuits, and the Law on Copyright and Related Rights. An initial deadline for aligning IP legislation with the *acquis*by September 2018 has now been extended several months due to the changes in the relevant EU legislation, thus allowing Serbian legislators to incorporate new requirements as well. Amendments to the Law on Special Competence for Efficient Protection of Intellectual Property Rights are also expected, with the goal of restructuring enforcement responsibilities among inspectorates.

The level of IPR protection in Serbia is improving. Enforcement remains haphazard, but is roughly consistent with levels in neighboring countries. The government has a Permanent Coordination Body for IPR enforcement activities with participation of the tax administration, police, customs, and a number of state inspection services. The Public Procurement Law requires bidders to affirm that they have ownership rights to any IPR utilized in fulfilling a public procurement contract. Counterfeit trademarked goods, particularly athletic footwear and clothing, are available, although the government has stepped up its actions to combat illegal street sales and seize pirated goods at the border. Upon seizure, authorities cannot destroy goods unless they receive formal instructions from the rights holders. Then storage and destruction of counterfeit goods is billed to the rights holders. The Customs Administration and Trade Inspection issue periodic reports on seizures, but these are segregated according to the type of goods (e.g. cigarettes or apparel), rather than type of infringement (e.g. IPR or tax payments). Data on seizures is not publicly available. It is however possible to monitor the Customs Administration’s daily border seizures via their official Facebook page: https://www.facebook.com/upravacarina.rs/ .

The tax administration checks software legality during its regular tax controls of businesses, but seeks to cease its software inspection operations on the grounds that it is a non-core activity. The estimated value of Serbia’s illegal software market is approximately USD 116 million. According to the most recent International Data Corporation (IDC) study, dated 2015, software piracy in Serbia is around 67 percent. Although this is down from 72 percent in 2011, it remains among the highest piracy rates in the Balkan region. However, the number of legal entities using illegal software continues to drop and was estimated at 55 percent in 2016.

Procedures for registration of industrial property rights and deposit of works of authorship with the Serbian Intellectual Property Office are straightforward and similar to procedures in most European countries. Relevant information is available at http://www.zis.gov.rs/home.59.html .

Regarding copyright and related rights, Serbia has room to improve, particularly with regard to the digitalization of orphan works and broadcasting of audiovisual works, including cross-border, satellite, and cable broadcasting. Potential improvements include:

- Amend the Criminal Procedure Code and related procedural laws, particularly in the area of cyber-crime;
- Adopt implementing regulations for various IPR laws that specify enforcement procedures and steps, currently subject to different interpretation by relevant authorities;
- Reverse Copyright Law amendments from December 2012, when the National Assembly exempted small businesses from paying royalties for copyrighted music, capped fees payable to collective rights managers, and allowed businesses to pay one collective bill for all music rights;
- Amend the Copyright Law regarding collective rights for video works;
- Align the Laws on Copyright, Topographies of Semiconductor Products, Patents and Trademarks with the EU  acquis , including with the IPR Enforcement Directive;
- Amend the Law on Trademarks to enable third parties to oppose trademark registration if the submitted trademark resembles that party’s registered trademark.

Enforcement actions by state authorities, such as inspectorates or customs authorities, can be relatively fast. However, enforcement of IPR rights in the court system often lasts up to two years. With the creation of semi-specialized IP courts, which began operating in 2015, these proceedings have improved, according to the Foreign Investors’ Council. The Serbian Intellectual Property Office continues to organize IPR-focused training for judges, with the expectation that more specialized understanding of IPR rights will enable more timely court decisions.

Serbia is not listed in the Office of the United States Trade Representative (USTR) Special 301 Report or the USTR Out-of-Cycle Review of Notorious Markets. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/details.jsp?country_code=RS .

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. However, there are restrictions on short-term portfolio investments – residents of Serbia are not allowed to purchase foreign short-term securities, and foreigners are not allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2017 Serbia recorded net outflows of USD 910 million in portfolio investment, according to the National Bank of Serbia (NBS). The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached USD 9.8 billion in February 2018, with 63.3 percent in Serbian dinars, 36.1 percent in euros, and 0.6 percent in U.S. dollars.

Total Serbian government-issued debt instruments on the domestic and international markets stood at USD 15 billion in February 2018 (see http://www.javnidug.gov.rs/upload/Bilteni/2018%20Mesecni/Februar/Mesecni%20izvestaj%20Uprave%20za%20javni%20dug%20-%20CIR%20%20Februar%202018.pdf ).

Serbia’s international credit ratings are improving. In March 2017, Moody’s upgraded the Government of Serbia’s long-term issuer ratings to Ba3, from B1. In December 2017, Standard&Poor’s raised its ratings for Serbia from BB- to BB. Also in December 2017, Fitch raised Serbia’s credit rating from BB- to BB. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE). Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2017 was USD 600 million, which is 50 percent higher than the volume of 2016. However, trading volumes have declined since 2007, when the total turnover reached USD 2.7 billion.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of February 2018, 19 registered investment funds operate in Serbia (see http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds ).

Market terms determine credit allocation. In September 2017, the total volume of issued loans in the financial sector stood at USD 19 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing as impediments to business expansion. Around 69 percent of all lending is denominated in euros, which provides lower rates to borrowers and minimizes exchange-rate risks to lenders. Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

**Money and Banking System**

Serbian companies often do not access credit, and look to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued so far, and the financial market is not well developed.

The NBS regulates the banking sector. Foreign banks are allowed to establish operations in Serbia, and foreigners can freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91 percent of the total assets of the financial sector. As of September 2017, consolidation had reduced the sector to 30 banks with total assets of USD 30 billion (about 75 percent of GDP), with 76 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets are Banca Intesa (Italy, USD 5.6 billion); Komercijalna Banka (Serbian government, USD 3.9 billion); UniCredit (Italy, USD 3.7 billion); Société Générale (France, USD 2.7 billion); Raiffeisen (Austria, USD 2.7 billion); AIK Banka Nis (Serbia, USD 1.8 billion); Eurobank EFG (Greece, USD 1.5 billion); Erste Bank (Austria, USD 1.5 billion) Postanska Stedionica (Serbian government, USD 1.4 billion); and Vojvodjanska Banka (Greece, USD 1.3 billion). See http://www.nbs.rs/internet/latinica/55/55_4/kvartalni_izvestaj_III_17.pdf .

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly USD 1 billion. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. By February 2018, savings deposits in the banking sector reached USD 11.8 billion, exceeding pre-crisis levels.

In December 2017, the IMF assessed that Serbia’s banking sector remains robust, with large liquidity and capital buffers. Profitability of the sector is on the rise. Deposit growth has continued and results of lending surveys point to more relaxed lending standards for SMEs amid greater competition, cheaper sources of funding, and higher risk tolerance. The IMF said it supports NBS efforts to enhance prudential policies in the context of implementing the Basel III framework on capital adequacy. In a recent review, the IMF pointed to the continued resilience of the banking sector, with an average capital adequacy ratio exceeding 21 percent and a gradual improvement in asset quality.

The IMF assessed in 2017 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. NPLs have declined to 12.2 percent, their lowest level since January 2009. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined by 10.1 percent. NPLs remain fully provisioned. In addition, there are significant foreign exchanges risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro).

The NBS, as chief regulator of the financial system, recently announced that cryptocurrencies are not regulated by law in Serbia. NBS is not currently preparing such regulations, as the volume of cryptocurrency use is still very low. NBS said it therefore does not have the authority to issue licenses for trading in cryptocurrencies or for setting up cryptocurrency ATMs. Nor are cryptocurrency traders or internet platforms subject to NBS oversight. NBS stressed that those engaging in cryptocurrency transactions or activities are the sole carriers of risk. Despite the lack of regulation, trading in cryptocurrencies in Serbia does occur. The company ECD Group has installed an online platform for trading in cryptocurrencies (bitcoin BTC, light coin LTC, and itirium ETH) at https://ecd.rs/ . The company claims to have over 1,000 registered users of the platform. ECD Group has also installed three ATMs for cryptocurrencies in Serbia, two of which are only for buying bitcoins and light coins, while one supports two-way transactions – i.e. both buying and selling.

Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign currency and dinar denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign exchange market to that end. In 2017, the NBS sold a total of USD 700 million on the interbank currency market and bought USD 1.5 billion to prevent sharp fluctuations of the dinar. In the one-year period ending March 2018, the dinar depreciated five percent against the euro and twenty percent against the U.S. dollar. There is no evidence that Serbia engages in currency manipulation. The IMF reported that as of February 2015, Serbia maintained a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad.

*Remittance Policies*

Personal remittances constitute a significant source of income for Serbian households. In 2017, total remittances from abroad reached USD 3.1 billion, or approximately 7.6 percent of GDP.

The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that there are no limitations on investment remittances in Serbia.

**Sovereign Wealth Funds**

Serbia does not have a sovereign wealth fund.

							7. State-Owned Enterprises					

The Law on Public Enterprises, adopted in February 2016, defines a public enterprise as “an enterprise pursuing an activity of common interest, founded by the State or Autonomous Province or a local government unit.” The law also defines “strategically important companies” as those in which the state has at least a 25 percent ownership share.

The law aimed to introduce responsible corporate management in public companies and strengthen supervision over public companies’ management. The law requires that directors of public companies be selected through a public application procedure and that they not hold any political party positions while serving. The law also requires that a portion of public companies’ profits be paid directly to the state, provincial, or local government budget. However, Transparency International Serbia analyzed implementation of the law in September 2017 and concluded that almost none of these requirements have been implemented, including the professionalization and transparency of management. The full report can be seen at: http://transparentnost.org.rs/images/publikacije/Political_influence_on_public_enterprises_and_media.pdf .

State-owned enterprises (SOEs) dominate many sectors of the economy, including energy, transportation, utilities, telecommunications, infrastructure, mining, and natural resource extraction. According to the Ministry of Economy, Serbia has 727 SOEs, which employ more than 250,000 people, or approximately 15 percent of the formal workforce. A list of all public enterprises is available at the Ministry of Economy’s website (http://www.privreda.gov.rs/wp-content/uploads/2015/05/Spisak-Javnih-Preduzeca-25.05.2016..pdf ). In addition to these companies, there are around 150 companies with nearly 52,000 employees that were not resolved by the now disbanded Privatization Agency. The Ministry of Economy is preparing all 150 of these companies for divestiture (see Privatization Program, below).

A quasi-governmental watchdog agency, the Fiscal Council, assessed in September 2017 that unreformed and un-privatized state-owned companies represent the most significant threat to Serbia’s state budget. The Council estimated that in 2014, SOEs generated losses of around three percent of GDP or USD 1.1 billion– both directly and indirectly, through arrears. In December 2016, the Serbian government committed to the IMF to significantly reduce the fiscal cost of SOEs by curtailing direct and indirect subsidies, strictly limiting the issuance of new guarantees, and enhancing accountability, transparency, and monitoring of SOEs. The IMF said the focus was on restructuring and reducing state aid to major companies in the electricity, mining, natural gas, and transportation sectors. In December 2017, the IMF assessed that reforms of Serbia’s large state-owned enterprises, such as in the railway sector, have resulted in reduced fiscal risks. However, significant action is still needed in the energy and mining sectors and in general SOE governance, management, and investment. According to the Fiscal Council, the government is postponing the bankruptcy of a number of SOEs hoping to find interested buyers, even though the deadline for privatization passed long ago.

In June 2017, the Fiscal Council published a separate study on state-owned local utility and service companies, and assessed that they received subsidies up to EUR 200 million (0.7 percent of GDP) annually but still generated losses of EUR 50 million. In addition, they have accumulated payment arrears totaling some EUR 150 million. At the same time, the quality of the services they provide is very low. For example, 98 percent of waste ends up at landfills without any processing – compared to 25 percent in EU. Only 15 percent of waste water is treated, compared to 85 percent in neighboring countries. The Council assessed that these local companies fail to collect 10 percent of their receivables, and the bulk of unpaid obligations are from SOEs.

In principle, SOEs are treated the same as private sector competitors. SOEs can purchase goods from the private sector and foreign firms under the Public Procurement Law. For example, foreign companies regularly win public tenders for the construction of roads and other infrastructure projects. Under the Public Procurement Law, a buyer must select a domestic supplier if the domestic supplier’s price is no more than five percent higher than a foreign supplier’s price. The Public Procurement Office (PPO) is an independent state body that supervises implementation of the Law on Public Procurement. Private enterprises have the same access to financing, land, and raw materials as SOEs, as well as the same tax burden and rebate policies. However, the IMF estimated that in 2014, SOEs enjoyed benefits amounting to approximately two percent of GDP.

Serbia is not a party to the WTO’s Government Procurement Agreement (GPA).

In February 2018, Serbia joined the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the framework, 112 countries and jurisdictions are collaborating to implement measures against BEPS.

**Privatization Program**

In 2001-2015, the Serbian government privatized 3,047 SOEs. The government cancelled 646 of these privatizations, alleging that investors did not meet contractual obligations related to employment and investment. According to the Privatization Law, the deadline for the privatization of the 646 companies in the Privatization Agency’s portfolio was December 31, 2015. However, 150 companies were still unresolved at the end as of December 2017. These companies include 11 spas, which all have unresolved property issues; 19 companies in Kosovo; 15 veterinary stations which were transferred to local municipalities; and 19 companies that employ disabled persons.

Most significantly, the Ministry of Economy must still resolve seven large, strategically important SOEs. These include copper mining company RTB Bor, the Resavica coal mine, agriculture firm PKB, several petrochemical companies, and others. (Belgrade based pharmaceutical company Galenika, which was on this list last year, was successfully privatized in November 2017.) In many cases, closing these companies would mean leaving whole regions of Serbia destitute, since these companies are drivers of local economies. The Serbian government continues to engage foreign investors in the privatization process, inviting them to submit bids, participate in auctions, and purchase company shares. Invitations for privatization and bidding are published on the Ministry of Economy website at http://www.priv.rs/Naslovna .

In January 2018, the government awarded French Vinci Airports a 25-year concession to run Belgrade’s Nikola Tesla airport in an open tender procedure. According to official statements, Vinci had offered EUR 501 million to manage the airport and EUR 732 million in investment, as well as an annual fee of up to EUR 16 million, which was assessed to be the best offer according to all three criteria – financial, technical, and legal. The state telecommunications company Telekom Srbija has garnered investor interest, but the Serbian government has twice canceled its privatization, most recently in December 2015. The government has also committed to privatizing the second largest bank in the country, Komercijalna Banka, although this process has moved slowly.

							8. Responsible Business Conduct					

Responsible Business Conduct (RBC) is a relatively new concept in Serbia, and many Serbian companies view it mainly as a public relations tool. Multinational companies are more effective practitioners and often bring best practices, with U.S. companies among the most active. For example, Molson Coors in Serbia supported Serbia’s Special Olympics team in Rio de Janeiro in September 2016. Companies such as Eaton and Ball Packaging Serbia have contributed to their communities through can recycling, public service campaigns, educational and environmental initiatives, and donations in kind. Since 2003, Phillip Morris Serbia alone has donated over USD 17 million to community initiatives in Serbia.

The Serbian government has no formal mechanism in place to encourage companies to follow RBC principles. The government adopted a National Strategy for the Development and Promotion of Socially Responsible Business Conduct in Serbia for 2010-2015, and the creation of a new RBC Strategy, as intended by the Serbian Chamber of Commerce’s Council for Responsible Business Conduct, would be a further step toward this goal. The Law on Public Procurement allows the government to ask bidders to fulfill additional conditions, especially those related to social and environmental issues, and allows the government to consider criteria such as environmental protection and social impact when evaluating bids.

The United Nations Development Program’s Global Compact initiative has 54 participants in Serbia, and has organized a number of educational events intended to strengthen RBC capacity in Serbia.

Several local organizations, such as the American Chamber of Commerce, Foreign Investors’ Council, and the Serbian Chamber of Commerce (PKS) promote the concept of RBC among the Serbian business community and the public. PKS presents a national award to Socially Responsible Businesses. The Trag Foundation supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia. The NGO Smart Kolektiv is providing consulting services in RBC and establishing an RBC Index, which is the first national platform for assessing responsible business conduct in Serbia. Responsible Business Conduct Forum and Smart Kolektiv launched the index with USAID support in 2016. RBC Index is a tool to recognize, reward, and promote good business practices and to create a national list of good businesses, as a basis for inclusive growth of the economy. The first RBC Index, announced in December 2016, included 20 companies: 13 large enterprises, five medium-sized enterprises, and two small businesses.

According to a 2016 OECD study on small and medium enterprises, Serbia has no national strategy which targets environmental policy toward SMEs (see http://www.oecd.org/education/sme-policy-index-western-balkans-and-turkey-2016-9789264254473-en.htm ). The study found no evidence of any financial or regulatory incentives to promote the greening of SMEs. Serbia’s 2011 Corporate Law introduced contemporary corporate standards, but business associations indicate that implementation is inconsistent. The government does not maintain a national contact point for OECD guidelines, including OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. The government does not participate in the Extractive Industries Transparency Initiative.

							9. Corruption					

Surveys show that corruption in Serbia is believed to be pervasive, but it is difficult to quantify. In Transparency International’s 2017 Corruption Perception Index (CPI), Serbia ranked 77 of 176 compared countries, worse than its ranking of 72 in 2016. In its 2017 progress report on Serbia, the EU said corruption remained a serious problem, and anti-corruption efforts had yet to yield meaningful results.

Some U.S. firms have identified corruption as an obstacle to foreign direct investment in Serbia. Corruption appears most pervasive in cases involving public procurement, natural resource extraction, government-owned property, and political influence/pressure on the judiciary and prosecutors.

Serbia is a signatory to the Council of Europe’s 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. Serbia also is a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members’ anti-corruption efforts on a continuing basis.

The Serbian government has worked to bring its legal framework for combating corruption more in line with EU norms, and a dedicated state body – the Anti-Corruption Agency (ACA) – oversees efforts in this area. The Criminal Code specifies a large number of potential offenses that can be used to prosecute corruption and economic offenses, including but not limited to giving or accepting a bribe, abuse of office, abuse of a monopoly, misfeasance in public procurement, abuse of economic authority, fraud in service, and embezzlement.

In November 2016, Serbia’s National Assembly further strengthened anti-corruption laws through three pieces of legislation. The Law on Organization and Competence of State Organs in Suppressing Corruption, Organized Crime for the first time established specialized anti-corruption prosecution units and judicial departments, mandated the use of task forces, and introduced liaison officers and financial forensic experts. The Law on Asset Forfeiture was amended to expand coverage to new criminal offences, and amendments to the Criminal Code made corruption offenses easier to prosecute. Following these legal changes, specialized anti-corruption departments started operations in March 2018 in Novi Sad, Belgrade, Kraljevo and Niš to prosecute offenders who have committed crimes of corruption valued at less than RSD 200 million (USD 2.1 million). Cases valued above this level are handled by the Organized Crime Prosecutor’s Office (OPCO).

In 2016, there were 1,767 judgments in cases with an element of corruption, of which 63 percent resulted in conviction. This compares to 1,876 judgments with 71 percent convictions in 2015. The number of investigations in cases involving corruption also declined, from 816 in 2015 to 514 in 2016. While Serbia has begun to establish a track record in low-level corruption convictions, the EU noted in its 2016 progress report that there are still very few convictions for high-level corruption. There have also been allegations that, in some cases, criminal law was being applied in a discriminatory manner. In one prominent example, a report by Serbia’s Administration for the Prevention of Money Laundering indicated a large number of bank accounts and a number of potentially suspicious transactions by the Mayor of Belgrade, but the Higher Prosecutor’s Office decided not to launch an investigation. In another, the ACA filed a criminal report with OPCO regarding an earlier purchase of real estate with unexplained funds by Serbia’s current Minister of Defense; OCPO dismissed the case, saying no evidence of a crime had been found.

In 2015, 2016, and early 2017 there were a series of large scale arrests of former officials and government employees on allegations of corruption and abuse of position. In total, these actions resulted in the arrest of over 150 people. To date the arrests have resulted in approximately 40 criminal complaints, but none of the cases has concluded in either conviction or acquittal.

The law requires income and asset disclosure by appointed or elected officials, and regulates conflict of interest for all public officials. The disclosures cover assets of the officials, spouses, and dependent children. Declarations are publicly available on the ACA website and failures to file or to fully disclose income and assets are subject to administrative and/or criminal sanctions. Significant changes to assets or income must be reported annually, upon departure from office, and for a period of two years after separation. In a report covering the first six months of 2017, the ACA said that criminal charges were dismissed against five public office holders in the period. The report noted that there was only one first-instance conviction in a basic court, resulting in a six-month term of imprisonment for failure to report or false reporting of property/income. This sentence was converted to a two-year term of probation; the same defendant saw a bribery charge dismissed because the statute of limitations had expired.

Serbian authorities do not require private companies to establish internal codes of conduct related to corruption or other matters, but some professional associations – e.g. for attorneys, engineers and doctors – enforce codes of conduct for their members. Private companies often have internal controls, ethics, or compliance programs designed to detect and prevent bribery of government officials. Large companies often have elaborate internal programs, especially in industries such as tobacco, pharmaceuticals, medical devices, and industries regularly involved in public procurement.

Serbian law does not provide protection for non-governmental organizations involved in investigating corruption. However, the criminal procedure code provides witness protection measures, and Serbia enacted a Whistleblower Protection Law in June 2015, under which individuals can report corruption in companies and government agencies and receive court protection from retaliation by their employers. In June 2016, the Higher Court in Novi Sad ruled in favor of a whistleblower who reported malfeasance in the local government. The court ruled that the whistleblower should be allowed to return to his workplace and be compensated financially. In 2017, 229 cases were filed under the Law.

U.S. firms interested in doing business or investing in Serbia are advised to perform due diligence before concluding business deals. Legal audits generally are consistent with international standards, using information gathered from public books, the register of fixed assets, the court register, the statistical register, as well as from the firm itself, chambers, and other sources. The U.S. Commercial Service in Belgrade can provide U.S. companies with background information on companies and individuals via the International Company Profile (ICP) service. An ICP provides information about a local company or entity, its financial standing, reputation in the business community and includes a site visit to the local company and a confidential interview with the company management. For more information, see https://2016.export.gov/serbia/servicesforu.s.companies/index.asp . The U.S. Commercial Service also maintains lists of international consulting firms in Belgrade, local consulting firms, experienced professionals, and reliable corporate/commercial law offices.

The Regional Anti-Corruption Initiative maintains a website with updates about anti-corruption efforts in Serbia and the region: http://rai-see.org/ .

**Resources to Report Corruption**

Serbian Anti-Corruption Agency:

Carice Milice 1, 11000 Belgrade, Serbia+381 (0) 11 4149 100office@acas.rs

Transparency International Serbia:

Transparentnost SerbiaPalmoticeva 27, 11000 Belgrade, Serbia+381 (0) 11 303 38 27ts@transparentnost.org.rs

							10. Political and Security Environment					

Since October 2000, Serbia has had democratically elected governments that have committed publicly to supporting regional stability and security. Governments have increasingly taken to calling early elections on the local and national level, which often leaves politicians and elected officials focused on the next campaign. Elections in Serbia are generally free, without incidents of violence. The government has pledged to combat organized crime and corruption, though arrests and investigations generally focus on low or mid-level technocrats. There were large protests following the presidential election in April 2017 and after the illegal demolition in 2016 of residential buildings in Belgrade, but these were not violent.

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

The 2010 LGBT Pride Parade in Belgrade was marred by significant and widespread violence. The Serbian government cancelled the subsequent three Pride Parades at the last minute, ostensibly because of threats of violence by the same nationalist and extremist groups that attempted to disrupt the 2010 parade. In 2014-2017, the government allowed Pride Parades to take place in central Belgrade, under heavy police protection, but without incident.

Sports hooliganism in Serbia frequently is linked to organized crime. There has been no serious ultra-nationalist, sports-related violence since January 2012. Violent hooliganism remains a concern at matches of rival soccer teams within Serbia.

A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. There have been incidents of these organizations harassing certain Serbian political leaders, local NGOs, and media outlets alleged to be pro-Western. Their calls for action against their targets, however, have not resulted in any violent incidents. Two far-right political parties passed the five-percent threshold for parliamentary representation in the 2016 legislative elections – the Serbian Radical Party and Dveri.

							11. Labor Policies and Practices					

According to the Statistical Office, Serbia has a total labor force of approximately 3.2 million people, of which 2.8 million are employed (56 percent men and 44 percent women). In the fourth quarter of 2017, the formal employment rate was 46.3 percent and the informal employment rate was 19.8 percent, with two thirds of the total informally employed in the agriculture sector. Unemployment in the last quarter of 2017 was 14.7 percent, compared to 13.8 percent a year earlier. Youth unemployment remains relatively high at 31.9 percent, and the share of youth in the total population drops from year to year. The leading sector for employment is the government and public administration, followed by trade, services, transport, agriculture, forestry and fishery, manufacturing, and construction.

Demand for IT experts (web developers, programmers, designers) is significantly higher than supply. The National Employment Service (NES) administers various employment support schemes, including new employment, apprenticeship, and re-training programs. For more details see http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives  and http://rav.org.rs/business-environment/incentives/ .

Labor costs are relatively low in Serbia, especially compared to European averages. In 2017, the average net take-home salary was approximately USD 492 per month. The minimum wage is approximately USD 260 per month. Investors routinely cite favorable labor costs, as well as a highly educated, multi-lingual workforce as advantages to doing business in Serbia. Almost 58 percent of the workforce has completed secondary education, while 25 percent have completed higher education.

Serbia amended the Labor Law in 2014. The amendments simplified procedures for hiring and dismissing workers, and changed rules for collective bargaining and the extension of collective agreements to non-negotiating parties. The law also changed severance payment requirements so that the employer pays severance based on the years of service with that specific employer, rather than on the employee’s total years of employment, as was the case previously.

The official mechanism for tripartite labor dialogue is the Social and Economic Council, an independent body with representatives of the government, the Serbian Association of Employers, and trade unions. The Council is authorized to conclude an umbrella collective agreement at the national level covering basic employment conditions for all companies in Serbia. Additional information about the Council is available at http://www.socijalnoekonomskisavet.rs/eng/pocetna_eng.html .

Serbia has ratified all eight International Labor Organization core conventions including Forced Labor (No. 29), Freedom of Association and Protection of the Right to Organize (No. 87), Right to Organize and Collective Bargaining (No. 98), Equal Remuneration (No. 100), Abolition of Forced Labor (No. 105), Discrimination (No. 111), Minimum Age (No. 138), and Worst Forms of Child Labor (No. 182).

The Department of Labor’s report on the World Forms of Child Labor in Serbia can be found online at http://www.dol.gov/ilab/reports/child-labor/serbia.htm . The Human Rights Report on Serbia is available at http://www.state.gov/documents/organization/236786.pdf .

							12. OPIC and Other Investment Insurance Programs					

The former Serbia and Montenegro signed a bilateral agreement with the U.S. Overseas Private Investment Corporation (OPIC) in 2001. Following Serbia and Montenegro’s dissolution, the agreement remained in effect for Serbia. In 2009, OPIC severely restricted its programs for Serbia over an investment dispute involving a U.S. company that held OPIC insurance policies on its Serbian investments. The Serbian government and the investor concluded a settlement agreement in 2012. OPIC filed an arbitration claim against the investor and was awarded damages. OPIC then sought to use the Serbian court system to enforce the arbitration decision and collect from the investor’s property in Serbia. However, both the first instance and appellate courts rejected OPIC’s request. OPIC has reinstated its full range of programs for Serbia.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Source of GDP data: Ministry of Finance of the Republic of Serbia at http://www.mfin.gov.rs/pages/article.php?id=13053 .*Source of FDI data: National Bank of Serbia (NBS) at http://www.nbs.rs/internet/cirilica/80/platni_bilans.html .

NBS data on FDI significantly differ from U.S. data. The NBS calculates FDI according to the country from which the investment arrives, rather than by the ownership of the investing company. Frequently, U.S. investments in Serbia are carried out through subsidiaries of U.S. companies located in another European country. If a U.S. company invests in Serbia through a Dutch subsidiary, for example, the NBS records the investment as coming from the Netherlands rather than from the United States.*Table 3: Sources and Destination of FDI*

*Table 4: Sources of Portfolio Investment*

Data not available.

							14. Contact for More Information					

Theodore FisherEconomic SectionBulevar kneza Aleksandra Karadjordjevica 9211040 Belgrade, Serbia+381-11-706-4282SerbiaInvestment@state.gov

## View report by:

### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

Tags

Bureau of Economic and Business AffairsBureau of European and Eurasian AffairsSerbia

Back to Top

01 / Select a Year

02 / Select Sections	

                  -  Select All Sections 

03 / Select Countries You can add more than one country or area.

                - White House
                - USA.gov
                - Office of the Inspector General
                - Archives
                - Contact Us

follow us
FacebookXInstagramYouTubeFlickrGovDelivery

              - Privacy Policy
              - Accessibility Statement
              - Copyright Information
              - FOIA
              - No FEAR Act

## U.S. Department *of* State

#### The Lessons of 1989: Freedom and Our Future