Serbia

Market Overview

Business Environment

In the process of joining the European Union, Serbia has been improving the investment environment for many years, as well as amending numerous laws to attract foreign investment. The purpose of the amendments to laws is harmonization with the EU legislation, as well as making Serbia a competitive investment market.

This significant change has put Serbia in a high position on the list of countries, which investors all around the world take into consideration when deciding where to invest.

Since 2007, Serbia has attracted over €37 billion of inward foreign direct investment. From the onset of economic reforms, the country has grown into one of the premier investment locations in Central and Eastern Europe. A list of leading foreign investors is topped by world-class companies such as Bosch, Michelin, Siemens, ZF, Panasonic, Continental, Microsoft, Schneider Electric, NCR, Johnson Electric, Leoni, MTU and many others. While Serbia might not be the easiest place to do business in, it does offer a lot of opportunities as a market, or as convenient regional headquarters for Central European operation.

Located in southeast Europe, with a total area of 88.361 km², Serbia boasts perfect position - access to the Adriatic Sea through neighboring Montenegro and to inland Europe and the Black Sea through the River Danube. The capital city of Belgrade generates 40% of the national wealth, while Southern and Eastern Serbia only account for 14%. The population is 7’186’862, the median age is 43.4 years and a GDP per capita is USD 8,750.

Hundreds of foreign firms from different parts of the world, large and small, are successfully operating in Serbia today. Competitive advantages of Serbia, as regional hub for market development (outsource, export, import, production, distribution) has proven to be a highly efficient decision of many companies. Because of the geographic position, in which the routes of Corridors X and VII intersect, Belgrade could become one of the key hubs for the most important European river, road and railway routes of international importance. Added value of investors’ market entrance to Serbia are export opportunities to third markets under free trade agreements.

The business structures of the country

According to the Law on Companies (“Law on Companies“), there are four legal forms of companies: limited liability company (“DOO“), joint stock company (“AD“), general partnership (“OD“) and limited partnership (“KD“).

Limited liability company In the Republic of Serbia, the limited liability company is the most dominant legal form of the business entity. Pursuant to the Serbian Law on Companies, a limited liability company (DOO) is a company founded by one or more foreign or domestic natural persons or legal entities holding a share in the company’s capital. The main characteristic of a DOO is that the company is legally liable for its obligations with its total assets, while the shareholders are liable for the obligations of the company only up to the amount of the share they hold in the company’s assets. One of the reasons why DOO is a very common legal form is that such companies can conduct most business activities, except those for which the law specifically prescribes a different legal form (such as banking activities, where the law requires that banks are established in the form of joint stock companies). Minimal basic capital for founding a limited liability company is 100,00 RSD (0,85 EUR).

Joint stock company A joint stock company (AD) is a company founded by one or more legal or natural persons (shareholders), in order to perform certain activities, whose founding capital is determined and divided into shares. The total value of all shares comprises the initial capital of the joint stock company. A joint stock company, like a DOO, is liable for its obligations with its entire property, while shareholders are only liable up to the amount of their contribution in the capital of the company.

Minimal basic capital for founding a joint stock company is 3 million RSD (pecuniary capital). (25.000.000,00 EUR)

Branch/representative office

Branch office A company may conduct its business activities through branch offices, which are separate organizational units of the company. A branch office is not a legal entity and conducts legal transactions in the name and on behalf of the company, meaning that the company that founded the branch office has unlimited liability for obligations towards third parties relating to the business activities of its branch office.

Representative office A foreign legal entity may also conduct business through a representative office. The activities a representative office may conduct are restricted to preliminary activities and preparations for the legal transactions of its founder. It is not authorized to carry out commercial transactions (execution of contracts, payment or collection on the grounds of commercial contracts). As an exception, a representative office may carry out legal transactions relating to its own current business activities. The founder of the representative office is liable for all obligations arising from such business activities.

General and limited partnerships

General partnership A general partnership (“OD”) is a company founded by two or more natural persons and/or legal entities in the capacity of partners with the objective of conducting certain activities. The partners have unlimited joint and several liability for obligations of the partnership up to the value of their entire assets. Like other forms of business organization, general partnerships are also registered with the BRA; the registration procedure has already been explained in the section of the brochure relating to establishing a DOO.

Limited partnership A limited partnership (“KD”) is a company founded by two or more natural persons and/or legal entities with the objective of conducting certain activities, at least one of whom has unlimited joint and several liability for the obligations of the partnership (general partner), and at least one has limited liability up to the amount of its uncontributed or not paid-in contribution (limited partner).

How to invest in Serbia

As attracting foreign investments has been one of the primary economic goals to which the Republic of Serbia is continuously dedicated, measures set to encourage foreign and domestic investments are subject of constant improvement. The general legal framework for investing in the Republic of Serbia is provided in the Law on Investments (“Law on Investments”) which defines the entities for providing investment support in the interest of providing more efficient services to investors, which, inter alia, include the Council for Economic Development and the Development Agency of Serbia, specifying the rights, obligations and competences of the institutions in charge of cooperation with investors. In this regard, easier and better communication has been enabled between investors (domestic and/or foreign, natural and/or legal persons) and institutions of all levels.

In order to define the specific criteria, terms and manner of attracting direct investments and to regulate other issues of importance for attracting direct investments, the Government of the Republic of Serbia passed a Decree on Determining Criteria for Granting Incentives for Attracting Direct Investments (“the Decree”).

Pursuant to the general Decree, incentive funds for attracting direct investments, that is to say for investments in tangible and intangible assets and fixed assets of companies for:

commencement of new business activities;
expansion of existing capacities; or
expanding the existing production by new products and production processes, as well as for acquiring assets directly associated with a business company which has ceased to operate or would cease to operate if it were not purchased from third parties under market conditions, which secure new employment, are provided for in the budget of the Republic of Serbia and may be used for financing investment projects in the manufacturing sector and sector of services of service centers.

On the other hand, incentive funds cannot be used to finance investment projects in the transport sector, software development except as needed for improvement of products, production processes or providing services of service centers, hospitality, games of chance, trade, production of synthetic fibers, coal and steel, mining, tobacco and tobacco products, weapons and ammunition, shipbuilding of self-propelled trade ships with over 100 gross registered tons, airports, public utility sector and the energy sector, broadband networks, fishing and aquaculture. Regarding tax incentives, the Law on Investments stipulates tax relief for contributions of investors in equipment, wherefore the import of equipment which represents the contribution of an investor is free and exempted from customs and other import duties, provided that the equipment imported is in line with the regulations governing health and safety of citizens and environment protection. This relief does not apply to passenger vehicles and machines for entertainment and games of chance. The current regulations of the Republic of Serbia also provide for a special regime of tax incentives for investments. The most important governmental body for support for investments is the Development Agency of Serbia (“DAS”).

Economy

Currency strength

The Serbian Dinar (RSD) is the currency of Serbia. The rate has been stable, as the economy has been improving, driven by macroeconomic reforms, greater financial stability, improved fiscal discipline, and a European Union (EU) accession process that provides impetus for legal changes that improve the business environment.

Inflation rates

Serbia inflation rate for 2020 was 1.58%, a 0.27% decline from 2019.
The annual inflation rate in Serbia rose to 5.7 % in September of 2021
At the end of the first quarter / April 2022, inflation Rate in Serbia was 9.6 %.

Spill-over effects from the Russia-Ukraine war are taking a toll on the local economy, which had a positive outlook at the start of the year. Unfavorable political situation has put further pressure on commodity prices and inflation expectations, due to the region’s reliance on Russian oil and gas.

Main Trade Sectors

The strongest sectors of Serbia 's economy remain energy, the automotive industry, machinery, mining, and agriculture. The country's primary industrial exports are automobiles, base metals, furniture, food processing, machinery, chemicals, sugar, tires, clothes, and pharmaceuticals. Trade plays a major role in Serbian economic output.

Current opportunities & future prospects

What opportunities exist for clients looking to invest in your jurisdiction?

The European integration and regional cooperation are the most important priorities of Serbia, including the Open Balkans Initiative as a key regional project, that will contribute to the development of the entire Western Balkans.

In the context of that initiative and regional cooperation, there are three key areas: transport connections, i.e., development of railway and road infrastructure, energy stability and diversification of supply sources and cooperation in the field of environmental protection.

The Government of Serbia announces large investments in infrastructure improvements over the next decade, with planned spending on construction and upgrades of roads, rail, bridges, and ports. In ICT, there are opportunities to supply the public sector with e-government products, services, and solutions. There is a burgeoning tech scene in Serbia for firms to tap into, with the high-technology services sector accounting for more than six percent of Serbian GDP and a labor force of 45,000.

The Serbian Government is also committed to investing in healthcare, particularly in the medical device/imaging equipment sector and e-health solutions.

Prospects in agribusiness include irrigation, cold-chain storage, freezing equipment, and agricultural equipment for processing and packaging. Across the board, in each subsector, Serbia needs to invest in modernization of energy facilities and in environmental technologies, looking to diversify its energy supply and incorporate cleaner energy sources. The environmental technology sector is in its infancy, with substantial opportunities in remediation, municipal and industrial waste, wastewater processing, recycling, and air quality.

According to EBRD, the Western Balkans region has great potential and, it will continue to support projects in the field of green transition and digital transformation.

Sectors in focus are:

Automotive industry
Electronics industry
Forest-based industry
Agri-Food industry
Metal Machinery & Equipment
ICT
Textile industry
Chemical & Pharmaceutical industry

The Consumer

There are also considerable economic disparities among consumers, as Serbia suffers from high income inequality. Serbian consumers have gradually become price-sensitive over the recent years, with the crisis negatively affecting the purchasing power. The price remains by far the most important criterion when it comes to maintaining or changing spending habits, while country of origin of the products is still of significant interest, with a tend to favor local products, followed by those made in Germany and the EU.

When it comes to shopping habits, Serbian consumers opt more and more for online shopping (especially cross-border retail for lower prices), which is expected to grow at a compound annual growth rate of 5.59% until 2025. In 2021, 52.7% of Serbs are online shoppers and this percentage is expected to reach 61.4% in 2025.

Legal system

The judiciary system in Serbia is divided into courts of general and special jurisdiction. The courts of general jurisdiction are primary, higher, and appellate courts, as well as the Supreme Court of Cassation as the highest instance court in Serbia. Courts of special jurisdiction are: (i) commercial courts and the Commercial Appellate Court; (ii) misdemeanor courts and the Misdemeanor Appellate Court; and (iii) the Administrative Court.

The time needed for resolving disputes is often recognized as the main deficiency of the judicial system, but current practice suggests that after the implementation of lengthy judicial reforms the decision-making process is speeding up.

Foreign judicial decisions can be recognized and enforced in the Republic of Serbia under conditions prescribed by the law, and after recognition it becomes equal to the domestic court decision. The foreign court decision will be recognized in Serbia if: (i) it is final; (ii) it does not penetrate the exclusive jurisdiction of the Republic of Serbia; and (iii) there is no existing national or previously recognized foreign decision on the same subject matter.

The contemporary practice shows that the increasing number of business entities operating in Serbia opt for their disputes to be resolved before arbitration by signing arbitration agreements with their business partners. An arbitration agreement can be concluded for the disputes on rights which are at the parties’ free disposal, save the disputes that fall within the exclusive jurisdiction of the courts. The Law on Arbitration lays ground rules for resolving disputes without a foreign element (domestic arbitration) and disputes with a foreign element (international arbitration).

Serbia is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This enables for the arbitral awards rendered in more than 165 other countries to be recognized and enforced in Serbia, as well as the enforcement and recognition of the Serbian arbitral awards in those countries.

Taxation of companies

The companies in Serbia are subject to the corporate income tax at the rate of 15% calculated on the profits as determined in the financial statements of the company and adjusted in line with the corporate income tax. The effective rate can be reduced by applying one or more tax incentives e.g. for research and development, for creating the IP rights or by using the 10-year tax holiday. The legal form of the company does not have the effect on the calculation of the corporate income tax.

The companies in Serbia are also obliged to withhold the individual income tax and the social security contributions calculated to the income paid to individuals. The most important individual income tax is salary tax, payable to salaries paid to the employees at the rate of 10% and the tax on other income payable at the rate of 20% (effective rate 16%) on the reimbursement paid to individual providing services to the companies. The social security contributions rates are: (i) pension and disability insurance – 25%; (ii) health insurance – 10.3%; (iii) unemployment insurance 0.75%. The individuals which are owners of the company are subject to 15% dividends tax calculated on the amount of profits of the company distributed to them.

The companies that possess a real estate are also subject to property tax at the rate of 0.4% calculated on the book value of the real estate.

Finally, sale of goods and provision of services is taxed by VAT, while certain goods are also subject to excise tax. There are two VAT rates, regular of 20% and reduced of 10%.

Foreign investment restrictions

Regulatory environment

Pursuant to the general Decree, incentive funds for attracting direct investments, that is to say, for investments in tangible and intangible assets and fixed assets of companies for: (i) commencement of new business activities; (ii) expansion of existing capacities; or (iii) expanding the existing production by new products and production processes, as well as for acquiring assets directly associated with a business company which has ceased to operate.

The most important governmental body for support for investments is the Development Agency of Serbia (“DAS”) whose primary business activity is providing support for micro, small and medium-sized businesses, and entrepreneurs with the goal of strengthening the commercial sector of the Republic of Serbia, supporting direct investments and promoting exports, improving Serbia’s reputation and regional development.

Direct investment

Serbia is open to FDI and attracting FDI is a priority for the government.

Foreign investments enjoy national treatment in Serbia, along with the freedom of payments towards foreign countries (in terms of permitted purchase of foreign currency for such payments) in accordance with the Law on Foreign Exchange Operations, and the right of a foreign investor to transfer its financial and other assets connected to the investment (this includes profit – dividends, fees for use of IP rights, interests, and other; assets obtained after dissolution of the company, amounts obtained as a price for transferred stakes/shares, amounts obtained on the basis of decrease of the registered capital of the company, amounts obtained from additional payments, expropriation remuneration).

Restrictions on foreign capital

The foreign capital is not subject to any general restrictions. However, certain restrictions and limitations are or may be posed for certain transactions, i.e. certain specific fields. For example, foreigners cannot acquire agricultural land in Serbia, except for EU citizens that fulfill very strict conditions regarding agricultural activity. Also, acquisition of other real estate by foreigners is conditioned with reciprocity.

Continuous control, i.e. monitoring of all (domestic and foreign) entities engaged in business operations is conducted in Serbia in accordance with the Law on Prevention of Money Laundering and Financing of Terrorism by banks, financial institutions, accountants, auditors, tax advisors, companies providing brokerage services, and others.

Pursuant to the Law on Prevention of Money Laundering and Financing of Terrorism, the Ministry of Finance, the National Bank of Serbia and Securities Commission may implement various measures and impose various restrictions in regard to financial transactions and/or business operations with the entities from certain countries if they determine that certain country has strategical deficiencies in dealing against money laundering and financing of terrorism, and that business operations with entities from such countries pose a special risk.

FDI Inflow (mill EUR)
Source: National Bank of Serbia

Foreign exchange controls

Payments, collections and transfers between residents and between residents and non-residents in the Republic of Serbia are effected in dinars except if the collections and transfers are related to foreign currency-denominated lending in the country for the purposes of payment of imports of goods and services from abroad, payment of deposit as collateral, insurance premiums and transfer in respect of life insurance etc. Foreign exchange operations between residents and non-residents, as well as exchange operations, are supervised by the Sector for Exchange and Foreign Currency Transactions and Games of Chance. Both residents and non-residents are obliged to keep records of their operations in accordance with the Law on Foreign Exchange Operations.

Top tips to takeaway "What to know before Investing"

Attracting foreign investment remains an important priority for the Serbian government. Investors in Serbia are generally positive, highlighting 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.

On the legislative front, the government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Investors should monitor the government’s implementation of reforms as well as the government’s changing investment incentive programs.

In the light of continued reforms, sectors that could additionally benefit include agriculture and agro-processing, solid waste management, sewage, environmental protection, information and communications technology (ICT), renewable energy, health care, mining, and manufacturing.