Croatia’s EU membership has enhanced its economic stability and provided new opportunities for trade and investment. Despite having access to a substantial amount of EU funds, the Croatian economy has yet to gain the full benefits of membership in terms of growth and sustainability. Croatia will receive more than $30 billion in EU funding through 2030, which has the potential to provide a significant boost to the economy, if the government directs the funds to productive activities that stimulate job creation and growth. Croatia joined the European Exchange Rate Mechanism (ERM II) in July 2020, and the government is committed to eurozone accession by mid-2024.
The Croatian economy had experienced a five-year period of growth and stability, but the COVID-19 pandemic coupled with three devastating earthquakes that caused more than $20.3 billion worth of damage to Zagreb and central Croatia led the economy to contract by 8.4 percent in 2020. The budget deficit reached approximately 7.4 percent in 2020. 8.4 percent in 2020. The tourism sector, which directly accounts for 12 percent of Croatia’s GDP and indirectly as much as 20 percent, achieved only 50 percent of the prior year’s revenues. The government doled out more than $1.5 billion in job-retention and economic stabilization measures. Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019. The European Commission estimates that the Croatian economy will grow 5.3 percent in 2021 and 4.6 percent in 2022.
The economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contribute to poor performance and relatively low levels of foreign investment. The Croatian government has taken some positive steps to reduce para-fiscal fees and taxes and to simplify procedures for opening a business. However, it has been slow to implement additional steps to reduce barriers to investment, streamline bureaucracy and public administration, and reform the judiciary. The government continues to implement economic reforms designed to create sustainable economic growth and development, to connect education to the labor market, and to sustain public finances.
The government is willing to meet at senior levels with interested investors and to assist in resolving problems. Prime Minister Andrej Plenkovic, elected to a second consecutive term in July 2020, is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions. His government is working with the World Bank and other international institutions to improve the business climate and to attract investment. Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure.
Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, healthcare, and banking. Investment opportunities are growing in Croatia’s robust IT sector, and the coming years will offer new opportunities related to energy transition. Starting in 2020, Croatia offers visas for so-called “digital nomads” to work in Croatia without having to pay local taxes in order to attract individuals with bigger spending capabilities and connections to strong IT sectors abroad.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below. However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.
Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors. For more information, see: http://investcroatia.gov.hr/. The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.
Limits on Foreign Control and Right to Private Ownership and Establishment
Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities. Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors: inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare. Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at http://psc.hr/en/sectoral-requirements/. Over 90 percent of the banking sector is foreign owned.
Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.
The Croatian government offers two e-government options for on-line business registration, www.hitro.hr and start.gov.hr , both of which provide 24-hour access. Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office. The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered. The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent. Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.
In 2020, the Global Enterprise Registration website (www.GER.co) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category. The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.
Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures. The government does not promote or incentivize outward investment. Croatia has no restrictions on domestic investors who wish to invest abroad.
3. Legal Regime
Transparency of the Regulatory System
Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations. The complete text of all legislation is published both on-line and in the National Gazette, available at: www.nn.hr . There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.
The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county. Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval. The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at https://esavjetovanja.gov.hr/ECon/Dashboard. The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.
Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses. Publicly listed companies must adhere to these accounting standards by law.
Croatian courts are responsible for ensuring that laws are enforced correctly. If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court. However, judicial remedies are frequently ineffective due to delays or political influence.
The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020. The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances. Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.
More information can be found at www.fina.hr . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement. Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at: http://www.mfin.hr/en .
Croatia, as an EU member, transposes all EU directives. Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally-based legislation that overrides national legislation. Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects. International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.
Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.
Legal System and Judicial Independence
The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts. The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.
The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over civil and criminal cases. It hears appeals from the County Courts, High Commercial Court, and Administrative Court. Regulations and enforcement actions are appealable and adjudicated in the national court system.
On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, which will be responsible for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.
The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases. The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting ICT infrastructure upgrades, court process improvements, and other reforms that will improve justice sector services to improve the business climate. This effort will be led by the Ministry of Justice and Public Administration, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024.
Reforms are underway, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures. Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency. Croatian courts have decreased the number of civil, criminal. and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog. The 2020 European Commission Country Report for Croatia assessed that the length of court proceedings continues to be a burden for business.
Laws and Regulations on Foreign Direct Investment
There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.
The Ministry of Economy and Sustainable Development Internationalization Directorate (https://investcroatia.gov.hr/en/) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.
According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders. Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital. (Note: This list is not exhaustive.)
Competition and Anti-Trust Laws
The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit, and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to SOEs constituted unlawful state aid, however state aid issues are now handled by the Ministry of Finance. Information on authorities of the Agency and past rulings can be found at www.aztn.hr. The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.
Expropriation and Compensation
Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property in economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects. However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice and Public Administration within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process. Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.
Article III of the U.S.-Croatia Bilateral Investment Treaty (BIT) covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate, and effective compensation.
ICSID Convention and New York Convention
In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID). Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.
Investor-State Dispute Settlement
The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution.
The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment but can be appealed within three months.
In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at www.fina.hr.
Article Ten of the U.S.-Croatia BIT sets forth mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment.
Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases, pending for years, regarding U.S. investor claims before Croatian courts. Both investors have also announced plans to file claims at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court, and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.
Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. The Chamber of Economy’s Mediation Center has been operating since 2002 – see http://www.hok-cba.hr/hr/center-za-mirenje-hoka .
There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.
Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency. All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The last available World Bank Ease of Doing Business 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries. Bankruptcy is not considered a criminal act.
The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure.
The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.
In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company, which resulted in the creation of the Fortenova Group that took on the core business of the former Agrokor food and retail company.
4. Industrial Policies
The Investment Promotion Act (IPA), amended in 2021, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services. The incentives are either tax refunds or cash grants. After they are approved for implementation, they are not distributed immediately. Those who receive cash grants are required to provide documentation proving they have fulfilled the criteria per which the request was granted for every year they have received approval for the incentive. Tax refunds are provided to companies on an annual basis, based on information provided in tax returns. Incentive measures can be combined or used individually.
The IPA provides the following incentive measures: tax refunds for microenterprises; tax advantages for small, medium and large enterprises; cash grants for eligible costs of new jobs linked to the investment project; cash grants for eligible training costs linked to the investment project; additional aid for development and innovation activities, business support and high value-added services; cash grants for capital costs of investment projects; cash grants for labor intensive investment projects; incentives for investments which utilize inactive government-owned property; and incentives to modernize business processes through automation and digitalization of production and manufacturing processes.
All incentive measures can be used by entrepreneurs. Entrepreneurs are defined as individuals subject to Croatian corporate income tax or companies registered in Croatia investing the minimum amount of USD 59,000 in fixed assets, and creating at least three new jobs for microenterprises or 10 new jobs for companies investing in information computer technology (ICT) systems and software development centers, or USD 177,000 in fixed assets and creating at least five new jobs for small or medium enterprises, and large companies, and USD 590,000 in fixed assets for modernizing and increasing business process productivity.
Substantial tax cuts on profits are available depending on the size of the investment and the number of new jobs created. A 50 percent reduction applies for up to ten years for companies that invest up to USD 1.18 million and create at least five new jobs (three jobs for microenterprises or 10 jobs for companies investing in ICT system and software development centers). This reduction increases to 75 percent for companies investing USD 1.18-USD 3.54 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over USD 3.54 million and create at least 15 new jobs.
Profit tax reductions are also available for investments modernizing the manufacturing industry. These projects must include a minimum fixed asset investment of USD 590,000, all employees must be retained for the project duration, and the per-employee productivity after three3 years must increase at least 10 percent compared to the one-year period prior to the project. A 50 percent profit tax rate reduction applies for companies that invest up to USD 1.18 million,75 percent for companies investing USD 1.18 to -USD 3.54 million, and up to 100 percent for companies that invest over USD 3.54 million.
Cash grants for new jobs created can be up to USD 10,600 per new position, depending on the location of the investment and category of the person employed. Financial support of 10 percent of expenses, which is not subject to reimbursement, or up to USD 3,500per new position can be used to create jobs in counties with unemployment levels up to 10 percent. This support increases to 20 percent or up to USD 7,000 per position in counties with unemployment levels from 10 to 20 percent, and up to 30 percent or USD 10,600 per new position in counties with unemployment levels above 30 percent.
There are also programs to reimburse costs for employee education and training connected to an investment project which can cover up to 50 percent of the of education and training costs for large companies, up to 60 percent for medium sized companies or if training is given to workers with disabilities, or up to 70 percent for small businesses and microenterprises. Incentives for education cannot exceed 70 percent of eligible costs of education and training.
Additional incentives for job creation are available for development and innovation activities that affect the development of new products or significantly improve existing products, production series, manufacturing processes, and/or production technologies. There are also incentives for business support activities such as customer support, outsourced business activities centers, or logistics and distribution centers, as well as ICT systems and software development centers. Finally, the government offers support for activities such as hospitality and tourism accommodation facilities categorized as at least four stars. Support services for the above-listed types of accommodations with high value are added in a range of categories; nautical tourism projects; and amusement and theme park projects; as well as for creative services, and industrial engineering services.
Additional incentives for job creation are offered for labor-intensive investment projects within the first three years of the project start date. Cash grants for job creation are increased by 25 percent for projects creating 100 or more positions, by 50 percent for projects creating 300 or more jobs, and by up to 100 percent or the total cost (or up to the maximum allowed limit) for creating 500 or more jobs.
Cash grants for the capital costs of investment projects are approved for investments over USD 5.9 million which generate 50 new positions within 3 years of the start of the investment. They cover 10 percent of the cost of new factory construction, production facility construction, or the purchase of new equipment (up to USD 590,000) in counties where the unemployment rate is from 10-20 percent. This incentive increases to 20 percent of the investment cost (up to USD 1.18 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is in machines or equipment and that at least 50 percent of those machines or equipment are of high-value technology. There are also grants for buying equipment or machinery for research and development activities up to 20 percent of the cost of the equipment, or up to USD 590,000.
There are incentives for investment projects which revitalize inactive state-owned property and provide free land leases for investors investing USD 3.2 million and creating at least 15 new jobs. Additional information regarding the types of incentives offered by the Ministry of Economy and Sustainable Development can be found at https://investcroatia.gov.hr/.
The Act on Strategic Investment Projects went into effect in November 2013 and was amended in 2018. This Act facilitates and accelerates administrative procedures for projects deemed to be of strategic interest for Croatia based on a number of conditions listed in the Act. Strategic projects can include private, public-private, or public investments in economy, mining, energy, tourism, transport, infrastructure, electronic communication, postal services, environmental protection, public utilities, agriculture, forestry, water management, fishery, health care, culture, audio-visual activities, science, defense, judiciary, technology, construction, and education.
The minimum amount for an investment to be considered strategic is approximately USD 11.8 million, which is significantly less than the previous minimum of USD 23.6 million. All investments over this amount may be considered strategic and will be entitled to accelerated permitting and registration procedures. Investments may also be treated as strategic if they are valued at USD 1.4 million or more, and are implemented in assisted areas, or if they are implemented on the islands or are in the agriculture, fisheries, and forestry sector. A guide and application materials for private investors interested in applying for status under the Act on Strategic Investment Projects can be found at: https://investcroatia.gov.hr/en/.
The Construction Act allows investors to secure permits through an e-licensing system. The investor may obtain a license valid for three years, which allows for a three percent change in the dimensions of the project from start to finish. The e-licensing system can be accessed at https://dozvola.mgipu.hr/.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are 10 operational duty-free zones (called “free zones” in the EU) in Croatia. Contact information for each of the zones can be found at: https://www.croatianfreezones.org/primjer-stranice. Both domestic and foreign investors are afforded equal treatment in the zones. After Croatia entered the European Union in 2013, many of the zones that operated throughout Croatia were slowly transitioned to industrial/business zones. Investment incentives are available in these zones. For more information regarding these zones go to http://investcroatia.gov.hr/lokacije-za-investiranje/.
Performance and Data Localization Requirements
Croatian law does not impose performance requirements on or mandate employment requirements for foreign or domestic investors, nor are senior management or board of directors’ positions mandated in private companies. In regard to U.S. investors, Article VII of the U.S.-Croatia BIT prohibits mandating or enforcing specified performance requirements as a condition for a covered investment.
The amended Law on Foreigners also allows for digital nomads, defined as “a third country national who is employed or performs work through communication technology for a company or their own company that is not registered in the Republic of Croatia and does not work or provide services to employers in the Republic of Croatia.” Temporary stay for this purpose is granted for up to one year and cannot be extended.
There are no government-imposed conditions for investment, nor are there “forced localization” policies for investors in terms of goods and technology. There are no performance requirements, or associated enforcement procedures. Foreign IT providers are not required to turn over source code or give access to surveillance. There are no measures that prevent companies from freely transmitting customer or other business-related data outside the country’s territory. There are no requirements for investors to maintain or store data within the territory of Croatia.
5. Protection of Property Rights
The right to ownership of private property is enshrined in the Croatian Constitution and in numerous acts and regulations. A foreign natural or legal person incorporated under Croatian law is considered to be a Croatian legal person and has the right to purchase property. The Ownership and Property Rights Act establishes procedures for foreigners to acquire property by inheritance as well as legal transactions such as purchases, deeds, and trusts. Croatia has a well-functioning banking system, which provides mortgages, while courts and cadaster offices handle property records.
However, real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes more generally. For all of these reasons, investors should seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys (https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/). The Ministry of Economy Directorate for Investment, Industry and Innovation helps those seeking information about property status in Croatia.
While the cadaster offices reliably maintain records, there is a portion of property in Croatia which has changed hands without appropriate documentation for various reasons, including avoidance of paying the title transfer fees or hiding wealth. Historically, individuals and companies spent years in court attempting to resolve improper real estate documentation. For this reason, potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately).
In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive the approval from the Ministry of Justice and Public Administration. Approval can be delayed, owing to a lengthy interagency clearance process. While EU citizens are afforded the same rights as Croatian citizens in terms of purchasing property, the right of all other foreigners to acquire property in Croatia is based on reciprocity.
In the case of the United States, reciprocity exists on a (sub-federal) state-by-state basis. Croatia’s Ministry of Foreign and European Affairs has confirmed the existence of positive reciprocity for real estate purchases for residents of the following states: Alabama, Arizona, Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
Alternatively, for U.S. citizens from Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, property acquisition is only allowed with the condition of Croatian permanent residence. Residents of other states could face longer waiting periods. The Foreign Ministry has confirmed that Croatian nationals can purchase real estate throughout the United States without restrictions. A foreign investor, incorporated as a Croatian legal entity, may acquire and own property without ministry approval, with the caveat that the purchase by any private party of certain types of land (principally land directly adjacent to the sea or in certain geographically designated areas) can be restricted to foreign investors for purposes of national security.
Inheritance laws have led to situations in which some properties have claims by dozens of legal owners, some of whom are deceased and others who have emigrated and cannot be found.
It is also important to verify the existence of necessary building permits, as some newer structures in coastal areas have been subject to destruction at the owner’s expense and without compensation for not conforming to local zoning regulations. Investors should be particularly wary of promises that structures built without permits will be regularized retroactively. The Act on Legalization of Buildings and Illegal Construction is intended to resolve ambiguities regarding ownership of real estate.
Land ownership is distinct from ownership of buildings or facilities on the land. Investors interested in acquiring companies from the Ministry of Physical Planning, Construction, and State Assets should seek legal advice to determine whether any deal also includes the right to ownership of the land on which a business is located, or merely the right to lease the land through a concession. Property may be mortgaged. Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past. Croatian law restricts construction and commercial use within 70 meters of the coastline.
When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land. The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes. The Agricultural Land Agency works with local governments to review potential agricultural land purchases. The sale of privately owned farmland is treated solely as the subject of a sales agreement between the parties. Buyers of this type of land should still proceed with caution and be aware of potentially unresolved legacy issues with land ownership. Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.
The Ministry of Justice and Public Administration and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues. This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data. For more information see http://www.uredjenazemlja.hr/default.aspx?id=17 where information is available in English.
Croatia is also working with the World Bank on implementation of the Integrated Land Administration System project (ILAS) to modernize the land administration and management system in order to improve the efficiency, transparency and cost effectiveness of government services. Croatia continues to process a backlog of cases and potential investors should seek a full explanation of land ownership rights before purchasing property.
Note that Croatia’s land records are also available online (see www.pravosudje.hr and https://www.katastar.hr/en/#/). Katastar.hr includes information on over 14 million pieces of land throughout the country and provides information in English.
The last published World Bank Ease of Doing Business 2020 report ranked Croatia as 38th out of 190 countries on ease of registering property, up 13 spots from the 2019 ranking of 51st.
There is no property tax in Croatia.
Intellectual Property Rights
Croatian intellectual property rights (IPR) legislation includes the Patent Act amended in January 2020, the Trademark Act, the Industrial Design Act, the Act on the Geographical Indications of Products and Services, the Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights, which was entirely rewritten in 2020. The Law on Protecting Unpublished Information with Market Value went into force in 2018. These acts define the process for protecting and enforcing IPR in Croatia. Texts of these laws are available on the website of the State Intellectual Property Office at https://www.dziv.hr/en/ip-legislation/national-legislation/). All of the laws are harmonized with EU legislation. The Law on Protecting Unpublished Information with Market Value went into force in 2018.
Croatian law enforcement officials keep public records of seized counterfeit goods. According to a 2020 report from the Customs Office, officials stopped 581 international imports related to IPR violations, that resulted in a total of 805 procedures for temporary detainment of goods for a total of 427,873 items. Customs also issued 169 domestic violations and seized 95,933 counterfeit goods. They initiated seven criminal proceedings against individuals involved in violation of trademark rights. Croatian customs officials and the Ministry of Interior work together to locate and seize infringing goods.
Although some areas of IPR protection and enforcement remain problematic, Croatia is currently not included in the U.S. Trade Representative’s Special 301 Report or the Notorious Markets List. Problem areas are piracy of digital media and counterfeiting. Due to its geographic location, Croatia is also a transit route for various illegal products bound for other countries in the region. There have been no problems reported with regard to registration of IPR in Croatia by American companies. The American Chamber of Commerce maintains dialogue with the Croatian government on IPR issues.
As a WTO member, Croatia is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Croatia is also a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at http://www.dziv.hr/hr/zakonodavstvo/medjunarodni-ugovori/.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad. Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions. Non-residents and residents are afforded the same treatment in spending and borrowing. These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website (https://www.hnb.hr/en/).
Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991. Regulations that govern activity and participation in the ZSE can be found (in English) at: https://zse.hr/en/legal-regulations/234. There are three tiers of securities traded on the ZSE. The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020. The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities. These amendments also give HANFA more authority over corporate management of those companies listed on the capital market. All legislation associated with the Capital Market act can be found (in English) at: http://www.hanfa.hr/regulations/capital-market/.
There is sufficient liquidity in the markets to enter and exit sizeable positions. There are no policies that hinder the free flow of financial resources. There are no restrictions on international payments or transfers. As such, Croatia is in accordance with IMF Article VIII. The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.
Money and Banking System
The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers. French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia. The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.” As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.
The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share. The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share. According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at https://www.hnb.hr/en/. Non-residents are able to open bank accounts without restrictions or delays. The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.
Foreign Exchange and Remittances
The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory. Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).
The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments. The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds. The law also allows Croatian entities and individuals to invest abroad. Funds associated with any form of investment can be freely converted into any world currency.
The exchange rate is determined by the Croatian National Bank through “managed floating.” The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.
No limitations exist, either temporal or by volume, on remittances. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.
Sovereign Wealth Funds
Croatia does not own any sovereign wealth funds.
7. State-Owned Enterprises
There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake. The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP). The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership. CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.
These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities. The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion. The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.
CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at https://imovina.gov.hr/ and on CERP’s website at http://www.cerp.hr/.
County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious. The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en. The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.” The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”
The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”
The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780. Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.
Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP. There are no restrictions against foreigners participating in privatization tenders. When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects. There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output. The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html).
There is a general awareness of societal expectations regarding responsible business conduct which is regulated by law. The Croatian Financial Services Supervisory Agency has established a Corporate Governance Code of Ethics for all Zagreb Stock Exchange (ZSE) participants, and the Company Act, Audit Law, Accounting Law and Credit Institutions law are the sources for corporate governance provisions. Publicly listed companies are required to upload their annual corporate governance reports on the ZSE website. The existing code, drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE, was updated in a project between the European Bank for Reconstruction and Development, ZSE, and HANFA, which created significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities.
No high profile or controversial instances of private sector labor rights violations have occurred in Croatia. Forced labor, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders are not permitted by law. The government effectively implements and enforces domestic laws in order to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations even exceed European Union standards. Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct. Labor unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on labor, environmental, or consumer rights in the business sector. In terms of security, the government employs private security companies for security of buildings, however security for defense purposes is handled by official Croatian state authorities, such as the army or police forces.
Croatia became a signatory of the Montreaux Document on Private Military and Security Companies in May 2013. Croatia is not currently a supporter of the International Code of Conduct for Private Security Service Providers, nor a member of the International Code of Conduct for Private Security Service Providers Association.
Although Croatia is not a member, Croatia supports the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and considers minerals from conflict affected areas to be illegal. Croatia does not participate in the Extractive Industry Transparency Initiative. Various laws related to forest and water management, concessions, and environmental protection are implemented in extractive and mining businesses to maintain high environmental and human rights standards. All procedures for mining or extraction tenders are publicly available and transparent.
Croatia has a suitable legal framework, including regulations and penalties, to combat corruption. The Criminal Code and the Criminal Procedure Act define the tools available to the investigative authorities to fight corruption. The criminal code also provides for asset seizure and forfeiture. In terms of a corruption case, it is assumed that all of a defendant’s property was acquired through criminal offences unless the defendant can prove the legal origin of the assets in question. Financial gain in such cases is also confiscated if it is in possession of a third party (e.g., spouse, relatives, or family members) and was not acquired in good faith. Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members, and political parties. The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment, and obstruction of justice. The Act on the Office for the Suppression of Corruption and Organized crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.
The Law on Public Procurement is entirely harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities. Government officials use public speeches to encourage ethical business. The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found at: https://www.hgk.hr/documents/kodeksposlovneetikehrweb581354cae65c8.pdf.
Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; the Act on Public Services; the Code of Conduct for Public Officials; and the Code of Conduct for Judges. Whistleblowers are protected by the Law on Whistleblower Protections, as well as by provisions in the Labor Law and Law on Civil Servants.
Croatia has requested to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Croatia is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis. Croatia has been a member of INTERPOL since 1992. Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI). Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.
Croatian legislation provides protection for NGOs involved in investigating or drawing attention to corruption. GONG, a non-partisan citizens’ organization founded in 1997, which also acts as a government watchdog, monitors election processes, educates citizens about their rights and duties, encourages communication between citizens and their elected representatives, promotes transparency within public services, manages public advocacy campaigns, and assists citizens in self-organizing initiatives. The Partnership for Social Development is another nongovernmental organization active in Croatia dealing with the suppression of corruption.
The business community continues to identify corruption in the healthcare and construction sectors, as well as the public procurement process as obstacles to FDI. During the years ahead of EU accession, Croatia invested considerable efforts in establishing a wide-ranging legal and institutional anti-corruption framework. The government is currently implementing the Strategy for Combatting Corruption from 2015-2020. The Ministry of Justice and Public Administration will submit for Parliamentary approval by mid-2021 a new Strategy for Combating Corruption that will cover a ten-year period. Croatian prosecutors have secured corruption convictions against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.
Resources to Report Corruption
The State Prosecutor’s Office for the Suppression of Corruption and Organized Crime (USKOK) is tasked with directing police investigations and prosecuting cases. USKOK is headquartered in Zagreb, with offices in Split, Rijeka, and Osijek. In addition, the National Police Office for the Suppression of Corruption and Organized Crime (PN-USKOK) conducts corruption-related investigations and is based in the same cities. Specialized criminal judges are situated in the four largest county courts in Zagreb, Rijeka, Split, and Osijek, and are responsible for adjudicating corruption and organized crime cases. The cases receive high priority in the justice system, but still encounter excessive delays. The Ministry of Interior, the Office for Suppression of Money Laundering, the Tax Administration, and the Anti-Corruption Sector of the Ministry of Justice and Public Administration, all have a proactive role in combating and preventing corruption.
Contact information below:
Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855 firstname.lastname@example.org
Office for the Suppression of Corruption and Organized Crime
Vlaska 116, 10000 Zagreb, Republic of Croatia
+385 1 2375 654 email@example.com
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444 firstname.lastname@example.org
10. Political and Security Environment
The risk of political violence in Croatia is low. Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU. Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.
11. Labor Policies and Practices
Croatia has an educated, highly skilled, and relatively high-value labor force as compared to regional averages, but remains relatively low cost as compared to the entire EU. Employment is regulated by the constitution, international conventions, treaties, labor law, collective agreements, and employment agreements.
There are no recent reliable reports on the size of the grey economy, but estimates range from 10 percent to 35 percent of GDP. Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019, due to the government’s financial support packages for job retention throughout the COVID-19 pandemic.
The Labor Law governs employment and prescribes general labor regulations. Among other items, the Labor Law prohibits discrimination, defines various types of leave including maternity, and provides terms for striking, salaries, and other labor related issues. The government is committed to increasing jobs, especially for youth, through various programs funded by the EU. Companies report that Croatia’s labor law makes it relatively expensive to hire and dismiss employees in comparison to the United States and other countries in Europe at the same level of development.
There are currently labor shortages reported in the construction, food production, and tourism sectors. The Law on Foreigners was amended in November 2020 to abolish employment quotas for foreign workers. Foreign or migrant workers do not play a significant role in any sector yet, but there are growing numbers of foreign workers in the construction sector. Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually. The government has indicated, however, that a significant number of Croatians returned to Croatia during the COVID-19 pandemic as jobs became scarce in other EU countries. The Government maintains the www.mjere.hr website with information regarding measures to keep workers in Croatia. These measures are divided into nine categories and include financial support for employers and the self-employed, as well as for training and seasonal work programs. A large portion of the funding is intended to support active employment, while a portion will fund specialized programs for groups that have a hard time entering the labor market.
Croatian law does not require the hiring of Croatian nationals. Employers are bound by law to offer severance pay to individuals laid off due to restructuring or down-sizing. The labor law defines the conditions and amounts of severance pay. To be eligible for severance: 1) the employer must terminate the employee, 2) the termination must not be the result of behavioral issues, and 3) the employee must have been employed for two consecutive years. The Croatian Employment Agency provides unemployment payments for those laid off due to economic reasons.
Labor laws are strictly implemented and not waived to retain or attract investment. Collective bargaining is a common tool, mostly implemented by unions, which overwhelmingly represent workers associated with government spending and state-owned enterprises. The http://baza.kolektivni-ugovori.info/ website provides an updated database of collective agreements signed in 1995 to date. The Labor Law provides a mechanism for resolving collective and individual labor disputes by arbitration. No appeal is permitted against an arbitration award.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
Development projects in Croatia may be eligible for International Development Finance Corporation (DFC) political risk insurance. Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see www.miga.org.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
* GDP for 2019 and FDI at www.hnb.hr. Note: U.S. Bureau of Economic Analysis (BEA) does not have GDP or FDI data available for 2020 at time of publishing. 2018 is the last available date for Host Country FDI in the U.S.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Serbia’s investment climate has modestly improved in recent years, driven by macroeconomic reforms, greater financial stability, fiscal discipline, and a European Union (EU) accession process that encourages legal changes that improve the business climate. The government successfully completed a 30-month Policy Coordination Instrument with the International Monetary Fund (IMF) in January 2021 and is now negotiating a new stand-by arrangement. Serbia improved four places in 2020 on the World Bank’s Doing Business index and is now ranked 44th globally. Attracting foreign investment remains an important priority for the government; and in 2021 the United States and Serbia signed a new Investment Incentive Agreement that may facilitate opportunities in a variety of sectors. U.S. investors in Serbia are generally positive due to the country’s strategic location, well-educated and affordable labor force, excellent English language skills, investment incentives, and free-trade arrangements with key markets, particularly the EU. U.S. investors generally 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 investment concerns. However, challenges remain, particularly bureaucratic delays and corruption, as well as loss-making state-owned enterprises (SOEs), a large informal economy, and an inefficient judiciary. Political influence on the decisions of nominally independent regulatory agencies is also a concern.
The Serbian government has identified economic growth and job creation as top priorities and has committed to resolving several long-standing issues related to consolidating market-driven capitalism. The government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Companies and officials have noted that the adoption of reforms has sometimes outpaced thorough implementation of these reforms. Digitizing certain functions (e.g., construction permitting, tax administration, e-signatures, and removing the previously ubiquitous requirement for ink stamps) has not yet brought a dramatic improvement in processing times and may not be consistently implemented.
The government is slowly making progress on resolving troubled SOEs. Where possible, this has been achieved through bankruptcy or privatization actions. The government plans to privatize 78 more companies and is also slowly reducing Serbia’s bloated public-sector workforce, mainly through attrition and hiring limitations that cap new hiring at 70% of the previous year’s attrition.
If the government delivers on promised reforms during its EU accession process, business opportunities will likley continue to grow in the coming years. Sectors that stand to 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. Starting in 2017, a Serbian government program provides approximately 1 million USD annually in grants from the government budget to support women’s innovative entrepreneurship.
Investors should monitor the government’s implementation of reforms, as well as its changing investment incentive programs.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Attracting FDI is a priority for the Serbian government. The Law on Investments extends national treatment to foreign investors and prohibits discriminatory practices against them. The Law also allows the repatriation of profits and dividends, provides guarantees against expropriation, allows waivers of customs duty 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. Serbia has no investment screening or approval mechanisms for inbound foreign investment. U.S. investors are not disadvantaged or singled out by any rules or regulations.
For some business activities, licenses are required (e.g., 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.
Agribusiness: Foreign citizens and foreign companies are prohibited from owning agricultural land in Serbia. However, 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. EU citizens are exempt from this ban, although they may only 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.
Defense: The Law on Investments adopted in 2015 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 continued via a new Law on the Production and Trade of Arms and Ammunition, adopted in May 2018. The law enables total foreign ownership of up to 49% in seven SOEs, collectively referred to as the “Defense Industry of Serbia,” so long as no single foreign shareholder exceeds 15% ownership. The law also cancels limitations on foreign ownership for arms and ammunition manufacturers.
Other Investment Policy Reviews
Serbia has not undergone any third-party investment policy reviews in the past three years.
According to the World Bank’s 2020 Doing Business report, it takes seven procedures and seven days to establish a foreign-owned limited liability company in Serbia. This is fewer days but more procedures 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 Serbian at www.apr.gov.rs/home.1435.html. All entities applying for incorporation with SBRA can use a single application form and are not required to have signatures 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 1 USD) for limited liability companies, rising to RSD 3 million (approximately 29,900 USD) for a joint stock company. (Some foreign companies have difficulties opening a bank account due to a requirement from the Law on Prevention of Money Laundering and Terrorist Financing that requires companies to disclose their ultimate owner). A single-window registration process enables companies that register with SBRA to obtain a tax registration number (poreski identifikacioni broj – PIB) and health insurance number with registration. In addition, companies must register employees with the Pension Fund at the Fund’s premises. Since December 2017, the Labor Law requires employers to register new employees before they start their first day at work; previously, the deadline was registration within 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 2020 Doing Business Index. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.
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, Indonesia, Iran, Ireland, Israel, Italy, Kazakhstan, Kuwait, Libya, Lithuania, Macedonia, Malta, Montenegro, Morocco, the Netherlands, Nigeria, Poland, Portugal, Qatar, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Zimbabwe. (See http://mtt.gov.rs/download/Pregled percent20Zemalja.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, Hong Kong, India, Indonesia (as of January 1, 2019), Iran, Ireland, Italy, Israel, Kazakhstan, Kuwait, Latvia, Lithuania, Libya, Luxembourg, Macedonia, Malta, Moldova, Montenegro, the Netherlands, Norway, Pakistan, Poland, Qatar, the Republic of Korea, Romania, Russia, San Marino (as of January 1, 2019) Slovakia, Slovenia, Spain, Sri Lanka, Switzerland, Sweden, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Vietnam. (See the Serbian Finance Ministry website at https://www.mfin.gov.rs/propisi/ugovori-o-izbegavanju-dvostrukog-oporezivanja/.
Serbia has signed and ratified bilateral taxation treaties with Ghana, Guinea, 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 signed a free-trade agreement with the Eurasian Economic Union (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) on October 25, 2019. The Serbian Parliament ratified the agreement on February 25, 2020, and the Russian Parliament ratified it on November 3, 2020, but it has yet to be ratified by the other signatory countries. Once it comes into force, 60 days following final ratification by other signatory countries, it will replace the current bilateral FTAs with most EAEU member countries.
Serbia’s duty-free treatment of certain exports to the United States under the Generalized System of Preferences (GSP) expired on December 31, 2020. Serbia has Most Favored Nation status on exports of other goods. The U.S. Congress did not re-authorize the GSP program before adjourning for the year. As a result, imports entering the United States that were previously eligible for duty-free treatment under GSP are now subject to regular, Normal Trade Relations (MFN) rates of duty, which are shown in the U.S. tariff schedule under the “General” column heading. Congress may choose to renew the program retroactively, as it has previously. If so, duties paid on GSP-eligible items will be refunded. Importers should continue to mark GSP-eligible importations with the applicable special program indicator (SPI) for GSP (“A,”) which will allow CBP to process duty refunds automatically.
3. Legal Regime
Transparency of the Regulatory System
Serbia is undertaking an extensive legislative amendment process aimed at harmonizing its laws with those of the European Union’s acquis communautaire. Harmonization of Serbian law with the acquis has created a legal and regulatory environment more consistent with international norms.
The government, ministries, and regulatory agencies develop, maintain, and publish a plan online of all anticipated legislation and regulations, as well as deadlines for their enactment. Serbian law requires that the text of proposed legislation and regulations be made available for public comment and debate if the law would significantly affect the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public. The website of Serbia’s unicameral legislature, called the National Assembly (www.parlament.gov.rs ), provides a list of both proposed and adopted legislation. There is no minimum period set by law for the text of proposed legislation or regulations to be publicly available.
In recent years, Serbia’s National Assembly has adopted many laws through an “urgent procedure”. By law, an urgent procedure can be used only “under unforeseeable circumstances,” to protect human life and health, and to harmonize legislation with the EU acquis. Bills proposed under an urgent procedure may be introduced with less than 24 hours’ notice, thus limiting public consideration and parliamentary debate. Use of the urgent procedure for the adoption of laws was concerningly frequent in the previous period. Concerns regarding the consequent lack of transparency in the legislative process were regularly reported by the European Commission and the Council of Europe’s Group of States against Corruption (GRECO). The 2019 European Commission Staff Working Document for Serbia stated that “some steps were taken to address shortcomings in the work of the parliament with the reduction of urgent procedures and previous practices of filibustering.” Urgent parliamentary procedures were reduced from 44% of all legislative acts in the previous reporting period (2018-2019) to 19% between March 2019 and March 2020.
International Financial Reporting Standards (IFRS) are required for publicly listed companies and financial institutions, as well as for the following large legal entities, regardless of whether their securities trade in a public market: insurance companies, financial leasing lessors, voluntary pension funds and their management companies, investment funds and their management companies, stock exchanges, securities brokerages, and factoring companies. Additionally, IFRS standards are required for all foreign companies whose securities trade is in any public market.
In 2018, Serbia enacted a Law on Ultimate Beneficial Owners Central Registry (“Law”). This Law was adopted to harmonize domestic legislation with international standards and to improve the existing system of detecting and preventing money laundering and the financing of terrorism. The Law on Ultimate Beneficial Owners Central Registry introduced a single, public, online electronic database maintained by the Serbian Business Registers Agency (www.apr.gov.rs), containing information on natural persons which are the ultimate beneficial owners of the companies (“Register”). Companies incorporated before December 31, 2018, are obliged to prepare and keep documentation regarding their ultimate beneficial owners at their offices, while new companies are obliged to register this information with the Register within 15 days of their incorporation. All companies were required to be registered accordingly in 2019.
In February 2018, Serbia joined the OECD 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.
Regulatory inspections in Serbia are numerous and decentralized despite the existence of the Coordination Commission for Inspection Supervision. Nationally, there are 37 different inspectorates, operating within the competence of 12 different ministries. They operate without any significant cooperation or coordination, there is overlapping and duplication of functions among inspectorates, and there is a lack of consistency even within individual inspectorates, which represents a source of additional burdens and difficulties for business operation. The administrative court is the legal entity that considers appeals from inspection decisions.
Serbia’s public finances are relatively transparent, as the government regularly publishes draft and adopted budgets, as well as budget revisions. The government has also published, and Parliament has adopted, all end-of-year budgets from 2002 through 2020. The government regularly publishes information related to public debt on the website www.javnidug.gov.rs. This information is updated daily.
International Regulatory Considerations
Serbia is not a member of the World Trade Organization or the EU. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations. Serbia has formally opened 18 chapters of the EU acquis communautaire and has provisionally closed two. Most recently, Chapter VI on Free movement of capital was opened on December 10, 2019. None of the remaining 17 chapters have been opened since, including the chapters on free movement of goods, competition policy, energy, taxation, environment, and transport policy. The WTO accepted Serbia’s application for accession on February 15, 2005, and Serbia currently has observer status. No accession dates have been set for Serbia’s membership in either the EU or WTO.
Legal System and Judicial Independence
Serbia has a civil law system. The National Assembly codifies laws; the courts have sole authority to interpret legislation with the exception of so-called “authentic interpretation” reserved for the legislature itself. Although judicial precedent is not a source of law, written judgments have the non-binding effect of helping to harmonize court practices. Serbia has a law on contracts and commercial law.
In general, contract enforcement is weak, and the courts responsible for enforcing property rights remain overburdened. When negotiating contracts, the parties may agree on the means of resolving disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil litigation. Under Serbian commercial law, the Law on Obligations regulates contractual relations (also known as the Law on Contracts and Torts). Civil Procedure Law, which details the procedure in commercial disputes, governs contract-related disputes. Serbian law need not be the governing law of a contract entered into in Serbia. Foreign courts’ judgments are enforceable in Serbia only if Serbian courts recognize them. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. The Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements, regulates the procedures for recognition of foreign court decisions.
The organization of the court system and jurisdiction of courts in Serbia are regulated by statute. The court system consists of the Constitutional Court, courts of general jurisdiction, and courts of special jurisdiction. Basic courts are courts of first instance and cover one or more municipalities. Higher courts cover the territory of one or more basic courts and are also courts of first instance, while acting as courts of second instance over basic courts. Commercial courts adjudicate commercial matters, with the Commercial Appeal Court being the second-instance court for such matters. Appellate courts are second instance courts to both basic and higher courts, except when higher courts act as second instance courts to basic courts. The Constitutional Court decides on the constitutionality and legality of laws and bylaws, and it protects human and minority rights and freedoms. The Supreme Cassation Court, the country’s highest court, is competent to decide on extraordinary judiciary remedies and to ensure uniform application of the law and equality of the parties in court proceedings. Regulations and regulatory enforcement actions are appealable within the national court system.
Serbia’s legal system distinguishes between Commercial Courts and courts of general jurisdiction. Commercial Courts have original jurisdiction over disputes arising from commercial activities, including disputes involving business organizations, business contracts, foreign investment, foreign trade, maritime law, aeronautical law, bankruptcy, civil economic offenses, intellectual property rights, and misdemeanors committed by commercial legal entities. Their jurisdiction extends to legal and natural persons only if a natural person has a joint or related interest with the legal entity (already) in dispute, in cases where both parties are economic operators. When only one of the parties is an economic operator and the other is not, such disputes are decided by courts of general civil jurisdiction and not by Commercial Courts. As an exception, in bankruptcy and reorganization proceedings, Commercial Courts have jurisdiction over all disputes where an economic operator is in bankruptcy in relation to other economic or non-economic operators.
Jurisdiction over civil commercial disputes is organized on two levels: Commercial Courts hear first instance cases; and the Appellate Commercial Court decides on appeals against lower court decisions. Commercial courts have broad jurisdiction. There are 16 trial-level Commercial Courts in Serbia. They handle disputes between legal entities, those between domestic and foreign companies; disputes concerning intellectual property and related rights; those arising under the application of Serbia’s Company Law and its regulation; and those relating to privatization and securities; relating to foreign investments, ships and aircraft, navigation at sea and on inland waters, and involving maritime and aviation law. Commercial courts also conduct bankruptcy and reorganization proceedings.
Congestion in the Commercial Courts is high. The time to case disposition in commercial litigation is in line with EU averages. However, there is inconsistent application of the law across Serbia, including in Commercial Courts.
According to the Constitution, Serbia’s judicial system is legally independent of the executive branch; but in practice, significant obstacles remain to true judicial independence. The current constitutional and legislative framework leaves room for undue political influence over the judiciary, and political pressure on the judiciary remains high. The European Commission’s 2020 Staff Working Document for Serbia re-stated that Serbia’s judicial system made no progress and that the scope for continued political influence remains a serious concern.
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 statutes 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. Other relevant laws include:
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.
Serbia undertook major anti-money laundering and counter-financing of terrorism regime (AML/CFT) legislative reforms following the intergovernmental Financial Action Task Force’s (FATF) February 2018 finding that Serbia had strategic deficiencies in its AML/CFT regime. To respond to the deficiencies, twelve new laws and over 60 regulations came into force. The new legislation includes a new AML/CFT Law, as well as amendments to the Criminal Code that address money laundering. Among other AML/CFT reforms, Serbia introduced a Law on Ultimate Beneficial Owners Central Registry. The Serbian Business Registers Agency maintains a single, public, online electronic database containing information on natural persons who are the ultimate beneficial owners of legal entities. FATF removed Serbia from its monitoring process in June 2019, but Serbia remains subject to enhanced follow-up procedures by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, known as MONEYVAL.
There is no primary or “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors. However, numerous Serbian firms that provide legal and other professional services publish comprehensive information for foreign investors, including PricewaterhouseCoopers, https://www.pwc.rs/en/publications/assets/Doing-Business-Guide-Serbia-2019.pdf.
Competition and Antitrust 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 in principle implements the law as an independent agency reporting directly to the National Assembly. In some cases, companies have reported perceptions that political factors have influenced the Commission’s decision-making. In 2019, the Commission completed ten proceedings for violations of competition rules, approved 172 mergers (and dismissed four), and issued 23 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
A foreign investor is guaranteed national treatment, which means that any legal entity or natural person investing in Serbia enjoys full legal security and protection equal to those of local entities. A stake held by a foreign investor or a company with a foreign investment cannot be the subject of expropriation. The contribution of a foreign investor may be in the form of convertible foreign currency, contribution in kind, intellectual property rights, and securities.
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 March 9, 1945, shortly before the end of World War II, 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.
Serbia committed itself under its restitution law to allocate €2 billion, plus interest, for financial compensation to citizens in bonds and in cash. The restitution law caps the amount of compensation that any single claimant may receive at 500,000 EUR (approximately 586,400 USD). With amendments to the Law on Restitution and Compensation adopted in December 2018, the government postponed for the third time issuance of these bonds until December 2021, pending approval of necessary by-laws that would regulate bond issuance. The Law mandates that by-laws be adopted by Government of Serbia by June 2020. The bonds will be denominated in euros, carry a 2% 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 75,414 property claims, and the adjudication process is still ongoing. Parliament adopted new amendments to the Law on Restitution and Compensation in December 2020. These amendments enable a special way of compensating the beneficiaries of restitution to whom, according to the final decisions on compensation, the corresponding amount of compensation does not exceed the amount of 1,000 EUR, in which case the payment will be made exclusively in cash, starting in 2022. The amendments also regulate the dynamics and technique of issuing compensation bonds, starting in 2022.
Serbia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention), and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Law on Arbitration and the Law on Management of Courts regulate proceedings and jurisdiction over the recognition of foreign arbitral awards.
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, and 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, three publicly known investment disputes have involved U.S. citizens. There is no history of extrajudicial action against foreign investors.
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. 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.
Serbia’s bankruptcy law is in line with international standards. According to the bankruptcy 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 it 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. The latest amendments to the Law on Bankruptcy were adopted in December 2018, providing the amount up to which the advance payment can be determined, and guidelines to bankruptcy judges within which they can determine the advance payment in each specific case. A draft of the latest amendments to the Bankruptcy Law is being prepared. As explained by the Ministry of Economy, the purpose of these amendments is to provide conditions for creating a better business environment and more efficient implementation of bankruptcy proceedings.
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. Serbia’s Criminal Code criminalizes intentionally causing bankruptcy, and fraud in relation to a bankruptcy proceeding. The 2020 World Bank Doing Business index ranked Serbia 41 out of 190 economies with regards to resolving insolvency, with an average time of two years needed to resolve insolvency and average cost of 20% of the estate. The recovery rate was estimated at 34.5 cents on the dollar (https://www.doingbusiness.org/content/dam/doingBusiness/country/s/serbia/SRB.pdf).
4. Industrial Policies
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 Defining Conditions for Approving Incentives in Attracting Direct Investments, approved for the current year in January 2019. Investors are obliged to provide 25% of eligible costs from their own resources. For investment projects valued at 50-100 million EUR, subsidies are limited to 25% of the total investment, falling to 17% for projects over 100 million EUR. Under certain conditions, large companies can gain support for up to 50% of eligible costs for investment projects, medium-sized companies up to 60%, and small companies up to 70%.
The Decree makes available funds for investment projects in manufacturing and customer service centers. For manufacturing investments, state subsidies are available for any company that invests the equivalent of 100,000 EUR and employs at least 10 persons in a “devastated area.” For service center investments, subsidies are available for companies investing the equivalent of 150,000 EUR and creating at least 15 new jobs anywhere in the country. 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 investment project in a devastated area, the state will pay the investor 40% of the eligible gross salary costs for newly employed people in the two-year period after reaching employment commitments, up to the equivalent of 7,000 EUR per new job; the subsidy declines to 20% of eligible costs up to 3,000 EUR 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% of eligible asset costs in a devastated area and declines to 10% in the most developed areas of Serbia. The total amount of subsidies granted cannot exceed the amount allowed under Serbia’s EU-compliant state aid regulations. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance.
There is a separate Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments in Production of Food Products also approved in January 2019 with almost identical conditions to those mentioned above. The only difference is that state subsidies are available for any company that invests the equivalent of the minimum 2 million EUR and employs at least 30 new employees regardless of the level of the municipality development. For projects investing over 20 million EUR in the fixed assets, the government will approve additional incentives.
The government also approved a Decree on Conditions and Methods of Attracting Direct Investments in the Hotel Accommodation Service Sector in May 2019, making similar state subsidies available for any company that invests a minimum of the equivalent of 2 million EUR and employs at least 70 new employees in the sector. For investment projects valued at up to 30 million EUR, subsidies are limited to 20% of the of the eligible costs of investment in fixed assets, falling to 10% for projects over 30 million EUR. Details on all three decrees are available at: http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives/ and https://privreda.gov.rs/cat_propisi/uredbe1/.
The decrees on Attracting Direct Investments also establish 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 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%, 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 (10 million USD). The tax holiday begins once the company starts making a profit.
According to the December 2019 Decree on Film Incentives, both domestic and foreign filmmakers are eligible to apply for a refund of 25% of qualifying costs. For film projects over €5 million, the government offers a refund of up to 30% of qualifying costs. The 2021 budget for film incentives is 7.1 million USD.
Employment incentives allow payroll tax deductions for persons registered with the National Employment Service for at least six months continuously. The incentives currently in place are valid from the moment of employment until December 31, 2021:
1-9 new jobs: 65% deduction
10-99 new jobs: 70% deduction
100+ new jobs: 75% deduction
The Serbian Innovation Fund provides various granting opportunities for young entrepreneurs and start-ups, including mini grants for development of technological innovation, matching grants for commercialization of research and development, and a collaborative grant scheme for joint R&D projects creating new products and services. These grants are mainly available for companies established in Serbia with majority private Serbian ownership.
Some subsidized loans for start-ups, entrepreneurs and SMEs are available through the state-owned Fund for Development and various ministries, and part are issued through RAS. Detailed information is available at https://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.
The government issues guarantees or jointly finances foreign direct commercial investment projects. The government participates as a minority partner in financed infrastructure projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Serbia maintains 15 designated customs-free zones: in Apatin, Belgrade, two zones in Kragujevac (the second one was established on October 1, 2019), Krusevac, Novi Sad, Pirot, Priboj, Sabac, Smederevo, Svilajnac, Subotica, Uzice, Vranje, and Zrenjanin. The zones, established under 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. 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 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 unless they contain a minimum of 50% Serbian inputs. 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 2019 (the most recent year for which complete information is available), there were a total of 209 companies operating in Serbia’s free economic zones, of which 157 were domestically owned and 47 foreign-owned. The number of companies dropped by 21% compared to 2016 (from 265 companies in 2016 to 209 in 2019). The companies employed a total of 37,855 workers, which represents an increase of 7% compared to 2018. Total exports from free zones exceeded$2.5 billion USD in 2019, which is approximately 13% of Serbia’s total exports. Total imports into the zones were approximately 1.7 billion USD, or 6% of total imports. Total annual turnover in the free zones in 2019 stood at some 5 billion USD, a 1.5% drop compared to 2018. The largest drop came in the Kragujevac zone, where total turnover dell by 33% year-on-year, mostly due to production cuts at the Fiat manufacturing plant. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Tigar Tyres, Ametek, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic.
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 specified 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.
With the Data Protection Law passed in November 2018, Serbia has implemented the requirements of the EU’s General Data Protection Regulation (GDPR). The law entered into force in August 2019 after a nine-month transition period. Some experts have criticized the law as unclear, citing provisions transcribed from EU law that include mechanisms that do not yet exist in Serbia’s domestic legal system, which leads to questions regarding the law’s implementation. Other experts have argued that with the law, Serbia has enacted a high personal data-protection standard, and that defects will be resolved over time.
The Decree on Conditions for Approving Incentives in Attracting Direct Investments defines conditions and limitations for investment incentives, such as maintaining investments at a specified 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% of eligible costs from their own resources. The deadline for implementation of investment projects and the creation of new workplaces 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
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 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 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 an estimated 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 built in accordance with legal requirements. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 230,000 decisions on legalization have been issued. The deadline set by the law for legalization of all buildings constructed without proper permits is November 2023.
The World Bank’s 2020 Doing Business Index ranks Serbia 58th of 190 countries for time required to register real property (33 days).
Intellectual Property Rights (IPR)
Serbia is a member of the World Intellectual Property Organization (WIPO) and party to all major WIPO treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. While Serbia is not a member of the WTO, the Serbian government has taken steps to adhere to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Serbia’s IPR laws include TRIPS-compliant provisions and are enforced by courts and administrative authorities.
Serbia’s IPR legislation is modern and compliant with both the EU acquis communautaire and international standards. According to the EU’s 2019 Progress Report, Serbia has generally aligned its IPR legislation with the acquis.
Procedures for registration of industrial property rights and deposit of works and 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.
Enforcement of IPR remains haphazard but is roughly consistent with levels in neighboring countries. The government has a Permanent Coordination Body for IPR enforcement activities with participation from the tax administration, police, customs, and several state inspection services. Cooperation with the Special Department for High-Technology Crime has resulted in court decisions to impose penalties in test cases against online traders and counterfeits. The Public Procurement Law requires bidders to affirm that they have ownership of any IPR utilized in fulfilling a public procurement contract. Although still present, trade in counterfeit goods—particularly athletic footwear and clothing—is declining in volume as the government has increased its enforcement efforts, including at the border. Upon seizure, however, authorities cannot destroy the goods unless they receive formal instructions from the rightsholders, who are billed for the storage and destruction of the counterfeit goods. Rightsholders are encouraged to register their IPR with the Customs Office by filling out an application for surveillance measures.
Inspectorates and customs authorities’ actions against IPR violations are relatively fast. However, enforcement of IPR in the court system often lasts up to two years in the first instance. Proceedings improved after the creation of semi-specialized IPR courts in 2015 according to the Foreign Investors’ Council. The Serbian Intellectual Property Office continues to train judges on IPR to enable more timely court decisions.
Digital IPR theft is not common, but many digital brands are not properly protected, and there is a risk of trademark squatting.
Developments in 2019 and 2020
Patents: The Law on Patents in 2019 introduced significant changes to an employer’s ability to patent their employees’ inventions. The amended law allows employers to file a patent application for a former employee’s innovations for up to one year after the employment ends, providing a higher level of legal certainty for corporations.
Topography of Semiconductor Products: The Law on the Legal Protection of Topography of Semiconductor Products was amended in 2019 and made fully compliant with EU legislation. There is no publicly available data indicating that anyone has ever exercised these rights in Serbia.
Copyright: Amendments made in 2019 to the Law on Protection of Copyright and Related Rights extends the definition of a work of authorship to include the technical and user documentation associated with software. The Law also addresses two additional issues: first, that multiple authors of a software product will all be deemed to be co-authors, and second, that an employee may require their employment contract to include additional remunerations for any software they create that their employer uses. However, if the employment agreement lacks such provisions, the employee is not entitled to remuneration after the fact, even if their software generates revenue for their employer. These provisions also apply to database producers. With respect to digital works, the 2019 amendments draw a clear line between digital and physical works. Owners or purchasers of a digital copy of a video game, TV show episode, or software are not entitled to further share and/or distribute copies.
Enforcement of Copyright: Court procedures for copyright infringement and related rights case are defined comprehensively, for they emphasize the need to preserve evidence and render urgent precautionary measures, including before an official claim might be submitted or the alleged infringing party is able to respond to the claim. The 2019 amendments clarify that a revision (as a legal remedy) may be filed in copyright infringement and related rights cases regardless of the claim’s value. The amendments also explicitly authorize the courts to summon any retailer or user of illegally downloaded mp3 files, software, or TV episodes.
Trademarks: Serbia recently adopted a new Law on Trademarks that came into force on February 1, 2020. The law includes two major changes. The first is the introduction of an opposition system. As before, the Intellectual Property Office performs an official examination of the refusal grounds for a trademark application, but now the trademark applications are published before the trademark is granted so that interested parties can challenge the validity of the pending registration. Interested parties have three months to file opposition proceedings from the date of publication, and the trademark applicant must respond within another 60 days or opposition is granted and the trademark is refused. This approach is similar to that of other European countries. The second major change due to Serbia’s new Law is the allowance of parallel imports. Serbia’s previous national trademark exhaustion system authorized brand-holders to prevent parallel imports. In contrast, the new worldwide system means that the trademark-holder cannot prohibit others from reselling the products that are legally in circulation anywhere in the world. Serbia is now compliant with U.S. standards. The former national system was aligned with EU legislation, which differentiates between goods circulating within the single market and those that were imported from a country outside of the EU market. During its EU accession process, Serbia is required to align its legislation with that of the EU.
Administrative Fees: Amendments to Serbia’s Law on Administrative Fees entered into force in December 2019 and decreases the filing fee for applications filed electronically compared to those filed on paper. The fees for electronic filing of patents and utility model applications have been reduced by 50%, and electronic fees for industrial design and trademark applications have been reduced by 25%. These measures are meant to encourage electronic filings and make the process more accessible for individuals and small companies.
Market inspectors perform regular on-demand and ex-officio inspections. In 2020, there were 2,664 controls performed, and 228,758 articles were seized. The statistics are accessible at: https://mtt.gov.rs/informator-o-radu/.
The tax administration checks software legality during its regular tax controls of businesses. The estimated value of Serbia’s illegal software market is approximately 51 million USD. According to the 2018 BSA Global Software Survey, software piracy in Serbia is around 66%. Although this is down from 72% in 2011, it remains among the highest piracy rates in the Balkan region. Serbia is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.
The outbreak of COVID-19 pandemic temporarily affected Serbia’s IPR registration and enforcement. The courts and administrative authorities were not operational for approximately one month, and pending proceedings faced delays throughout the year. Since May 2020, authorities resumed work at full capacity. Market Inspectors seized a significant level of pirated and counterfeit e-commerce goods throughout the year by using specialized software tools for detecting and investigating trade of illicit goods online.
Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed most restrictions on short-term portfolio investments in April 2018. Residents of Serbia, both companies and persons, are now allowed to purchase foreign short-term securities issued by EU residents and EU countries, and by international financial organizations who have EU countries in their membership. Banks registered in Serbia can also purchase short-term securities issued by OECD countries. Foreigners may only purchase short-term securities in Serbia if they have residency and/or headquarters in EU countries. Payments related to long-term securities have no restriction.
In January-November 2020, Serbia recorded net inflows of 1.5 billion USD in portfolio investment, according to the National Bank of Serbia. Analysts explain that this inflow mostly as a result of Serbia’s issuance of Eurobonds on the international market. 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 12.4 billion USD in December 2020, with 77% in dinars and 23% in euros. In addition, Serbia issued a total value of 5.1 billion EUR of Eurobonds on the international market. The share of dinar denominated securities held by non-residents was 26%, which was equal to 2.5 billion USD at the end of December 2020.
Total Serbian government-issued debt instruments on the domestic and international markets stood at $18 billion in December 2020.
Serbia’s international credit ratings are improving. In March 2021, Moody’s Investors Service upgraded Serbia’s long-term issuer and senior unsecured ratings from Ba3 to Ba2 while adjusting its outlook from positive to stable. In December 2019, Standard & Poor’s raised its ratings for Serbia from BB to BB+ with a positive outlook. In May 2020 S&P maintained its BB+ rating after raising it from BB in December 2019, but it modified the outlook from positive to stable; it confirmed the BB+ rating on December 14, 2020. Fitch raised Serbia’s credit rating from BB to BB+ in September 2019 and confirmed it in September 2020 with a stable outlook. 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) www.belex.rs. 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 2020 was 455 million USD, which represents a decrease of 47%. The trading volumes have declined since 2007, when the total turnover reached 2.7 billion USD.
Market terms determine credit allocation. In September 2020, the total volume of issued loans in the financial sector stood at 26 billion USD. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 62% of all lending is denominated in euros, an additional 0.1% in Swiss francs, and 0.2% in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers.
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.
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.
Money and Banking System
Serbian companies often do not access credit, instead turning to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued, and the financial market is not well developed. In April 2020, the government amended corporate-bond issuance legislation to increase companies’ access to financing in response to COVID-19’s economic impact. According to a statement from the Finance Minister, the amendments aim to cut the timeline for issuing corporate bonds from 77 to 17 days and cut the price to issue a corporate bond from 88,000 USD to 11,000 USD. State-owned Telekom Srbija issued corporate bonds for the first time with a total value of 200 million EUR, of which the National Bank of Serbia (NBS) purchased around 70 million EUR.
The NBS regulates the banking sector. Foreign banks may establish operations in Serbia, and foreigners may freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91% of the total assets of the financial sector. As of September 2020, consolidation had reduced the sector to 26 banks with total assets of 43 billion USD (about 80% of GDP), with 86% of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets, are Banca Intesa (Italy, 6.8 billion USD in assets); UniCredit (Italy, 5.1 billion USD); Komercijalna Banka (recently sold to Slovenia’s NLB Bank, 4.6 billion USD); OTP (Hungary, 3.7 billion USD); Raiffeisen (Austria, 3.7 billion USD); Erste Bank (Austria, 2.8 billion USD) AIK Banka Nis (Serbia, 2.3 billion USD); Eurobank EFG (Greece, 1.9 billion USD); Vojvodjanska Banka (Hungary, 2.4 billion USD); and Postanska Stedionica (Serbian government, 2.7 billion USD). For more information, see:
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 1 billion USD. 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. In December 2020, savings deposits in the banking sector reached 14.4 billion USD, exceeding pre-crisis levels.
The IMF assessed in its January 2021 report on Serbia’s Policy Coordination Instrument that the financial sector has shown improved resilience since the 2017 Article IV Consultation. As of June 2020, banks’ capital adequacy was stable at 22.7%, well above the regulatory minimum, while asset quality is improving. Banks’ profitability remains robust with return on assets and return on equity ratios of 1.1% and 6.5% respectively in December 2020. The IMF assessed in 2018 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. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 21.6% to 3.7% of the total loan portfolio as of December 2020. NPLs remain fully provisioned. In addition, there are significant foreign-exchange risks, as 67% of all outstanding loans are indexed to foreign currencies (primarily the euro). In April 2019, the government adopted a law that protected consumers who had taken mortgage loans denominated in Swiss francs by converting them into euros. Banks and the state shared losses resulting from a reduction of outstanding principal and interest balances. This law enabled borrowers to continue servicing debt on more favorable terms.
The parliament adopted Serbia’s first Law on Cryptocurrencies in December 2020 to be implemented as of June 29, 2021. The law regulates the issuance, trade, and service provision of digital assets, as well as the NBS and Securities Commission’s supervision of digital assets. The law will regulate cryptocurrencies market and protect consumers, as it defines standards which every cryptocurrencies service provider must fulfill. Companies trading in this area must be licensed. The law limits issuance of digital assets per issuer at 3 million EUR per year. While trading in cryptocurrencies is free for persons and most companies, the law prohibits possession and trade of digital assets for financial institutions under NBS supervision. The government must adopt related bylaws before the law can be implemented. The Serbian Administration for Prevention of Money Laundering and Terrorist Financing oversees every transaction in cryptocurrencies performed on ATMs or online in Serbia. As of February 2021, there were total of 24 ATMs for cryptocurrencies in Serbia installed in Belgrade, Novi Sad, Nis, Subotica, Indjija and Kopaonik.
The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, Ethereum ETH, Tether, and Bitcoin Cash) at https://ecd.rs/. The company claims to have over 20,000 registered users of the platform, while the Chief Operating Officer of the company claims that a total of 50,000 people in Serbia have opened an account and executed at least one transaction. EDC claims that it has executed over 100,000 transactions since it was established in 2012. As of June 2019, Xcalibra established a new digital platform (Xcalibra.com) to trade cryptocurrencies in Serbian dinars without mediator currencies, which will avoid currency exchange loss. There is also a Bitcoin Association of Serbia.- http://www.bitcoinasocijacija.org.
Foreign Exchange and Remittances
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.
Many companies have raised concerns that the NBS uses excessive enforcement of the Foreign Exchange Law to individually examine all cross-currency financial transactions – including intra-company transfers between foreign headquarters and local subsidiaries, as well as loan disbursements to international firms – thus raising the cost and bureaucratic burden of transactions and inhibiting the development of e-commerce within Serbia. For this reason, international financial institutions and the business community have urged revision of the law. The NBS has defended the measure as necessary to prevent money laundering and other financial crimes.
The NBS targets inflation in its monetary policy and regularly intervenes in the foreign-exchange market to that end. In 2020, the NBS made net sales of 1.4 billion EUR on the interbank currency market to prevent sharp fluctuations of the dinar. In 2020, the dinar remained stable against the euro and appreciated 10% against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad. In February 2021, JP Morgan announced it would include Serbian government bonds into the JP Morgan GBI-EM Index of Emerging Market bonds beginning June 30, 2021.
Personal remittances constitute a significant source of income for Serbian households. In 2020, total remittances from abroad reached 3 billion USD, approximately 6% 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 Serbia has no limitations on investment remittances.
Sovereign Wealth Funds
Serbia does not have a sovereign wealth fund.
8. Responsible Business Conduct
Responsible Business Conduct (RBC) and Corporate Social Responsibility are relatively new concepts in Serbia, and until recently many Serbian companies viewed them mainly as public relations tools.
The Serbian government has no formal mechanism in place to encourage companies to follow a due-diligence approach to RBC. A Council for Philanthropy held its first session in September 2018. Founded with grant support from USAID, the Council aims to use public policy to create a more encouraging environment for corporate giving in Serbia. Chaired by the Prime Minister, other members of the Council include ten government ministers, the Belgrade Mayor, the Director of the Tax Administration, and several NGOs. The council had 29 member companies in April 2020. Donors have pointed to issues that have a negative impact on philanthropy, including a lack of tax incentives for donors, no available VAT exemptions for in-kind donations, the lack of a system for monitoring donations from companies, and the absence of official data on charities. According to the 2019 World Giving Index published by the Charities Aid Foundation, Serbia was ranked 123rd out of a total of 126 countries listed in a 10-year aggregate survey of number of people who donate to charity or participate in volunteer work: https://www.cafonline.org/docs/default-source/about-us-publications/caf_wgi_10th_edition_report_2712a_web_101019.pdf .
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 118 participants in Serbia and has organized a number of educational events intended to strengthen RBC capacity in Serbia. The list of members is available at: http://www.ungc.rs/srb/clanovi .
Several local organizations, such as the American Chamber of Commerce (AmCham), the 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. The Responsible Business Forum Serbia is a network of socially responsible companies that contribute to the development of the community, stimulating the development of corporate social responsibility and the establishment of firm and lasting socially responsible practices in the business sector. It was established in 2008 on the initiative of 14 leading companies in Serbia. More info available at: https://odgovornoposlovanje.rs/vesti .
Multinational companies often bring international best practices, with U.S. companies among the most active. For example, Molson Coors 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 has donated over 17 million USD to community initiatives in the country. During the COVID-19 pandemic, many large companies donated money and goods to help government combat the crisis; more info is available at: https://odgovornoposlovanje.rs/vesti .
The government does not maintain a national point of contact for OECD’s Guidelines for Multinational Enterprises, 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 or the Voluntary Principles on Security and Human Rights.
Serbia has a private sector security industry but is not a signatory of the Montreux Document on Private Military and Security Companies. Serbia is also not a supporter of the International Code of Conduct for Private Security Service Providers and is not a participant in the International Code of Conduct Association.
Surveys show that corruption is believed to be prevalent in many areas and remains an issue of concern. Serbia was ranked 91st in Transparency International’s 2020 Corruption Perceptions Index, down from 87th in 2018. However, its score – 39 out of 100 possible points – remained unchanged.
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 UN Convention against Transnational Organized Crime, and the UN 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. Twenty-five local governments are participating in USAID’s anti-corruption program and are introducing and increasing transparency measures in their processes.
The Serbian government has worked to bring its legal framework for preventing and combating corruption more in line with EU norms, and a dedicated state body— the Corruption Prevention Agency (CPA) (formerly the Anti-Corruption Agency) plays a preventative role in fighting corruption, while dedicated Anticorruption Police and prosecutors investigate and prosecute cases of corruption. 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. However, a new National Strategy for Fighting Corruption to replace the expired 2013-2018 version has yet to be drafted – a concern frequently raised by the European Commission and Serbia’s Anti-Corruption Council, an advisory body to the government.
In 2018, Serbia’s National Assembly strengthened anti-corruption laws through three pieces of legislation. The Law on Organization and Jurisdiction of State Organs in Suppressing Organized Crime, Terrorism and Corruption for the first time established specialized anti-corruption prosecution units, police 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 (2 million USD). Cases valued above this level are handled by the Organized Crime Prosecutor’s Office.
Serbian law also requires income and asset disclosure by appointed or elected officials, and it regulates conflicts of interest for all public officials. The disclosures cover assets of officials, spouses, and dependent children. Declarations are publicly available on the CPA 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 September 2020, a new Law on the Prevention of Corruption went into effect, officially renaming the Anti-Corruption Agency to the Corruption Prevention Agency, expanding its role as the state body for preventing corruption, and extending the statute of limitations for asset disclosures from one to five years.
A new Law on Public Procurement was adopted in 2020, which governs procedures related to public procurement, and introduced mandatory use of an electronic portal for public procurement. While the portal noticeably improved transparency and procedures, watchdogs reported that more than half of completed public procurement tenders since the implementation of the new law have resulted in only one offer, which indicated continued issues with transparency of public procurement procedures.
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. In December 2020, the Parliament adopted a Parliamentary Code of Conduct, aimed at addressing GRECO recommendations regarding conflict of interest and other issues of ethics among parliamentarians. However, the code lacks enforcement mechanisms.
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.
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, and 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, contact the local office at email@example.com and visit www.export.gov/serbia . The U.S. Commercial Service also maintains lists of international consulting firms in Belgrade, local consulting firms, experienced professionals, and corporate/commercial law offices, in addition to its export promotion and advocacy services for U.S. business.
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.
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
Corruption may be reported to officers at any police station. If dedicated anti-corruption law-enforcement personnel are not available, the officer in charge is to contact Anti-Corruption Police personnel to report to the location so that a complaint may be filed.
Transparency International Serbia
Palmoticeva 27, 11000 Belgrade, Serbia
+381 (0) 11 303 38 27 firstname.lastname@example.org
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, however, frequently call early elections at the local and national level, which often leave politicians and elected officials focused on the next campaign. During the 2020 COVID-19 crisis, Serbia’s first regularly scheduled parliamentary elections in several cycles were postponed due to the state of emergency declared by President Vucic. When elections were finally held in June 2020, most opposition parties boycotted the elections, claiming an unfair media and electoral environment which favored the ruling party. As a result, the current Parliament is overwhelmingly controlled by the ruling Serbian Progressive Party (SNS), and 97% of current MPs are part of the ruling coalition. Although the current Parliament has a four-year mandate, President Vucic has already announced that he plans to call early parliamentary elections in 2022. Elections in Serbia are generally free and without incidents of violence, although observers have noted irregularities at polling stations and incidents of vote-buying and pressure on voters during past elections. After the 2020 elections, Serbia’s Republic Electoral Commission decided to hold new elections in 234 of the country’s 8,253 polling stations – an unusually high number – after finding calculation errors, missing records, and other irregularities.
The government has made EU membership a primary goal, but progress toward that goal is slow, with only 18 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. The European Commission did not recommend opening any new chapters in 2020, indicative of the stagnation in Serbia’s accession process. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn out and subject to a lengthy appeal process.
Protests are not uncommon, particularly in urban areas, and most protests are peaceful. In July 2020 significant protests occurred over the government’s handling of the COVID-19 crisis, including lockdown measures. Protests in Belgrade were at times violent, with protestors attempting to enter the parliament building. Press noted that in addition to concerns regarding COVID, many of the demonstrators were also protesting political corruption.
Although previous years had seen some assaults against participants in LGBTQI events in Serbia, following its sixth successive incident-free Pride Parade, Serbia was selected to host EuroPride in 2022. Although this indicates some confidence that a recurrence of wide-scale violence against Serbia’s LGBTQI community is unlikely, discrimination and physical attacks continue.
Since 2017, there has been an increase in criminal activity linked to transnational organized crime groups. Sport hooliganism in Serbia is often associated with organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia. A significant police operation in January 2021 against a major organized crime group, linked to Belgrade’s Partizan football club, resulted in the arrest of the group’s leader, who was suspected of multiple crimes. A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, minority groups, and media outlets considered to be pro-Western, but these incidents are infrequent. Incidents include attacks on Roma settlements and anti-Roma riots in 2010, 2012, and 2013, and attacks on shops and bakeries owned by ethnic Albanians in Vojvodina in 2014.
11. Labor Policies and Practices
According to the Statistical Office, in 2020, Serbia had a total active labor force of approximately 3.18 million people, of which close to 2.9 million were employed (55.6% men and 44.4% women), and 286,600 were unemployed. In 2020, the formal employment rate was 49.1%, and the informal employment rate was 16.4%, compared to 18.1% the previous year, with most of the total informally employed in services and agriculture. Unemployment in 2020 averaged 9%, compared to 10.4% the prior year. Youth unemployment remained relatively high at 26.6%. Emigration of younger high-skilled working-age citizens is a serious concern, and the share of youth in the total population drops from year to year. The role of foreign or migrant workers is extremely limited. The leading sector for employment is manufacturing, followed by government and public administration, agriculture and forestry and fishery, trade, transport, construction, and hospitality services.
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 December 2020, the average net take-home salary was approximately 666 USD per month. The minimum wage is approximately 324 USD per month. Investors routinely cite favorable labor costs, as well as a highly educated, multilingual workforce, as advantages to doing business in Serbia, while availability of skilled labor is limited by ongoing, large-scale emigration. Approximately 57% of the workforce has completed secondary education, while some 26% have completed higher education.
Amendments to the Labor Law in 2014 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. Employees may be hired for up to 24 months on a provisional basis before it is required to engage them on an indefinite basis.
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/.
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).
In December 2019, a Staff Leasing Law was approved and went into force from March 2020. The law regulates leased employees’ status, the staffing agencies, and recipient employers. According to the law, employers can hire up to 10% of its workforce with fixed-term contracts through an agency, with no limit on those with indefinite-term employment contracts.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International
Source of Data:
BEA; IMF; Eurostat;
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
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions), 2019
Inward Direct Investment
Outward Direct Investment
Bosnia and Herzegovina
“0” reflects amounts rounded to +/- $500,000.
Table 4: Sources of Portfolio Investment
Data not available.
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