Policies Towards Foreign Direct Investment  

There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted.  There is strong growth in software development, business process outsourcing, and building services for technical maintenance.  The IT and back office outsourcing sectors have attracted a number of U.S. and European companies to Bulgaria, and many have established global and regional service centers in the country.  U.S. and foreign investors have also been attracted to the automotive sector in recent years.

While Bulgaria generally affords national treatment to foreign investors, some U.S. investors have encountered significant problems.  Two major U.S. investors in Bulgaria have had to enter into negotiations to end their  long-term government contracts.  In another instance, a U.S. company has faced bureaucratic hurdles in its efforts to compete in the energy sector with a monopolistic state-owned Russian incumbent, but now seems to be making some headway.  More often, however, investors cite general problems with corruption, rule of law, frequently changing legislation, and weak law enforcement.  Transparency International’s (TI) Corruption Perception Index for 2018 ranked Bulgaria as the worst- performing EU member in the 74th place out of 180 surveyed countries, up three places from last year’s 77th, and scoring 43 on a 100-point scale, well below the EU average of 66.

The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg/  contains general information for foreign investors.

Limits on Foreign Control and Right to Private Ownership and Establishment  

Generally, there are no existing limits for foreign and domestic private entities to establish and own a business in Bulgaria. The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) banned for business by companies registered in offshore jurisdictions with more than ten percent foreign participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a bilateral tax treaty  (including the United States).  Bulgaria has no specific law or established mechanism in place for screening individual foreign investments.  A potential foreign investment can be scrutinized on the grounds of its potential national security risk or through the Law on the Measures against Money Laundering.  As of April 2020, Bulgaria has not taken concrete action to implement the EU’s April 2019 directive on investment screening.

Other Investment Policy Reviews  

There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations.  In 2019 the OECD published reviews of Bulgaria’s healthcare sector and state-owned enterprises.  As part of Bulgaria’s Action Plan for deeper cooperation, the OECD is expected to conduct an economic survey of Bulgaria, a public governance review and an investment policy review.

Business Facilitation  

Bulgaria typically supports small- and medium-sized business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export promotion . The state-owned Bulgarian Development Bank has committed to support small- and medium-sized businesses in Bulgaria, but its recent track record of lending targeted at large- scale enterprises has called this into question.  Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well. Electronic company registration is available at: https://public.brra.bg/Internal/Registration.ra?0 .

Bulgaria dropped two places to 61st  (out of 190 surveyed economies worldwide) in the World Bank’s 2020 Doing Business Index, scoring lowest in the Starting a New Business category, in113th place, and in the Getting Electricity category, in 151st place.  The relatively large number of administrative procedures, along with the associated delays, contributed to the low score in both categories.

Outward Investment  

There is no government agency promoting outward investment promotion, and no restrictions exist for any local business to invest abroad.

Transparency of the Regulatory System  

In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement.  These factors create incentives for public corruption. Bulgarian law lists 38 operations subject to licensing. Public procurement rules are at times tailored to match certain local business interests.  The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation. The law also requires the regulating authority, or the member of Parliament sponsoring the draft law containing the regulation, to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the respective agency’s website, and interested parties are given 30 days to submit their opinions. The government  maintains a web platform, at www.strategy.bg , on which it posts draft legislation. Additionally, the GOB posts all its decision on pris.government.bg.

Following the outbreak of COVID-19, the government made its related decisions, measures and data available on coronavirus.bg.  In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities, and provides for silent consent when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. Bulgarian government licenses exports of dual-use goods and bans the export all goods under international trade sanctions lists.  The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles.  Data on government debt is publicly available but data on the debt accrued by state-owned companies is not.

International Regulatory Considerations  

Bulgaria is a WTO member. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the competence of the EU and the European Commission, which coordinates with the 27 member states.

Legal System and Judicial Independence  

The 1991 Constitution serves as the foundation of the legal system and creates an independent judicial branch comprised of judges, prosecutors, and investigators. The judiciary continues to be one of the least trusted institution in the country, with widespread allegations of nepotism, corruption and undue political and business influence. Despite some recent improvements, The busiest courts in Sofia continue to suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice and trials often take years to complete.

There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime and High Level Corruption) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000, excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000. Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria has adequate means of enforcing property and contractual rights under local legislation. In practice, however, the government’s handling of investment disputes has been slow, and intervention at the highest level is often required. Investors sometimes perceive that jurisprudence is inconsistent, and that national legislation is used to deter competition from foreign investors.

Laws and Regulations on Foreign Direct Investment  

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, as well as in education and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local governments. The most common form of PPPs presently is concessions, which include the lease of government property for private use for up to 35 years.

Foreign investors must comply with the 1991 Commercial Code, which regulates commercial and enterprise law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.

Competition and Anti-Trust Laws  

The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition. The law forbids monopolies, restrictive trade practices, abuse of market power, and certain forms of unfair competition. Monopolies can only be legally established in enumerated categories of strategic industries. In practice, the Competition Law has been applied inconsistently, and the Competition Commission has been seen as subject to influence and as having overstepped its mandate.

Expropriation and Compensation  

Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means, the Council of Ministers or a regional governor may expropriate land, provided that the owner is compensated at fair market value. Expropriation actions by the Council of Ministers or by regional authorities can be appealed at a local administrative court. In the Bilateral Investment Treaty (BIT) with the United States, Bulgaria committed to international arbitration in the event of expropriation and other investment disputes.

As noted above, two major U.S. investors were forced into negotiations to are involved in a dispute in regard to the government’s threats to abrogate their long-term contracts.

 Dispute Settlement  

ICSID Convention and New York Convention  

Bulgaria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) and the 1961 European Convention on International Commercial Arbitration. Bulgaria is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement  

Bulgaria accepts binding international arbitration in disputes with foreign investors. There are more than 20 arbitration institutions in Bulgaria, with the Arbitration Court of the Bulgarian Chamber of Commerce and Industry (BCCI) being the oldest.

International Commercial Arbitration and Foreign Courts  

Arbitral awards, both foreign and domestic, are enforced through the judicial system. The party must first petition the Sofia City Court for a writ of execution and then execute the award according to the general framework for execution of judgments. Foreclosure proceedings may also be initiated.

Bulgarian law instructs courts to act on civil litigation cases within three months after a claim is filed. In practice, however, dispute settlement can take several months and up to a few years.

Bankruptcy Regulations  

The 1994 Commercial Code Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs). The 2015 Insurance Code regulates insurance company failures, while bank failures are regulated under the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth-largest bank, Corporate Commercial bank, was a test case that showed serious deficiencies in the process of recovery and preservation of bank assets during bankruptcy proceedings.

Non-performance of a financial obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent. There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors. The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.

Bankruptcy proceedings may be initiated on two grounds: the debtor’s insolvency, or the debtor’s excessive indebtedness. Under Part IV of the Commercial Code, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings. The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property. Such cases may be initiated even after bankruptcy proceedings begin.

Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register. After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan. The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.

The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms. The license of a bank may also be withdrawn under the conditions set out in Article 36, par. 1 of the Law on Credit Institutions.  In the World Bank’s 2020 Doing Business Report, Bulgaria ranked  61st for ease of “resolving insolvency”.

Investment Incentives  

The 2004 Investment Promotion Act (revised in 2018) stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing, services, and high technology, education, and human resource development via a range of incentives, which include: helping investors purchase municipal or state-owned land without tender, providing state financing for basic infrastructure and for training new staff, and reimbursing the employer’s portion  of social security payments. The law also provides tax incentives and fast-track administrative procedures for public-private partnerships.  The government policy for investment promotion excludes a number of sectors classified as strategic.

Investment projects, which are deemed particularly important for the economy and meet the legal requirement for a minimum investment commitment of EUR 10 to 50 million and for creating 50 to 150 new jobs, are classified as priority projects. The exact amount of the required investment depends on the level of economic activity expected to be generated. Priority investors may receive incentives such as below-market prices when acquiring property rights (full or limited) on from the central or municipal government property, government grants for research and development (R&D) and education projects, and institutional support for establishing PPPs.

Additional incentives include a two-year valued-added tax (VAT) exemption on equipment imports for investment projects over EUR 2.5 million, provided the project will be implemented within a two-year period and create at least 20 new jobs. Corporate income tax exemption can also be granted for manufacturing projects, with no minimum investment requirement, that are implemented in high unemployment areas and create at least 10 jobs.

The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation  

The role of Free Trade Zones vastly diminished following Bulgaria’s full integration into the EU single market in 2007.  At the same time, EU integration encouraged local authorities to seek partnerships with the private sector and provide resources (i.e., land, infrastructure, etc.) for the development of industrial zones and technological parks. Industrial zones or technology parks with the necessary technical infrastructure to attract new investment can be designated as nationally significant projects by a Council of Ministers decision on a proposal made by the Minister of Economy.  Located favorably on one of the main highways, the Trakia Economic Zone just outside of Plovdiv, the largest in Bulgaria, consists of two industrial parks, two industrial zones, one high- tech park and one agribusiness park. In addition, the state-owned National Industrial Zones Company  currently operates fully functioning industrial zones in Sofia, Burgas, Vidin, Ruse, Svilengrad and Varna. It assists investors in these economic zones with established infrastructure, location and transport logistics.    The common thread among all these economic zones is that they are either located in regions with plenty of available labor, in poor regions where the government provides special investment incentives, or are at important cross- border points.  The high-technology Sofia Tech Park has joined efforts with the Bulgarian Academy of Sciences, several local universities, and several clusters in what is expected to become the largest R&D center and high-tech incubator in Bulgaria.

Performance and Data Localization Requirements  

Bulgaria does not impose export performance or local content requirements as a condition for establishing, maintaining, or expanding an investment. Employment visas and work permits are required for most expatriate personnel from non-EU countries. Many U.S. companies have experienced difficulties in the past obtaining work permits for their non-Bulgarian, non-EU employees. Non-EU workers cannot exceed 35 percent of the total workforce in Bulgarian small- and medium-sized Bulgarian companies or 20 percent in firms classified as large.  In 2017 the government simplified procedures and reduced issuance time for work visas for non-EU workers.

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance, nor are there mechanisms used to enforce any rules on maintaining a certain amount of data storage within Bulgaria.

Real Property  

Bulgaria assigned the rights of land use back to its original owners in early 1990s.  Restrictions still exist on ownership of agricultural land by non-EU citizens.  Companies whose shareholders are registered offshore are banned from acquiring or owning Bulgarian agricultural land.

Mortgages are recorded centrally with the Bulgarian Registry Agency.

In the World Bank’s 2020 Doing Business Index, Bulgaria  placed 67th out of 190 countries in the category of registering property. http://www.doingbusiness.org/rankings

Intellectual Property Rights  

Bulgarian patent law has been harmonized with EU law for patents and utility model patent protection.  However, in patent procedures, there have been reports of conflicts of interest and delays.  These issues, coupled with a lack of accountability of the Bulgarian Patent Office, have weakened patent protections in Bulgaria.

Bulgaria is a member of the European Patent Convention and a contracting state of the European Patent Office (EPO).  Bulgaria has also signed the London Agreement for facilitating the validation process but has yet to amend its own law accordingly.  Bulgaria is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  Bulgaria grants the right to exclusive use of inventions for 20 years from the date of patent application, subject to payment of annual fees, which range from BGN 50 (USD 29) to BGN 1,700 (USD 987) depending on the time remaining before the patent expires, and supplementary protection certificates (SPCs) are available.  Innovations can also be protected as utility models (small inventions), which are registered without examination for novelty.  The term of validity of a utility model registration is four years from the date of filing with the Patent Office and may be extended for two consecutive three-year periods, but the total term of validity may not exceed 10 years.  There is no accessible database for registered and valid patent and utility models in Bulgaria.

Under Bulgarian law, new and original industrial designs can be granted certificates from the Patent Office and entered into the state register, which does not require examination by the Patent Office for novelty and originality.  The term of protection is 10 years, renewable for up to 25 years.  Bulgaria is a contracting state of the Hague Agreement Concerning the International Deposit of Industrial Designs.

Compulsory licensing (allowing competitors to enter the market despite a valid patent) may be ordered under certain conditions, including failure to use.  Disputes arising from the creation, protection, or use of inventions and utility models can be settled under administrative, civil, or arbitration procedures.

Pursuant to the 1996 Protection of New Plant Varieties and Animal Breeds Act, the Patent Office can issue a certificate protecting new plant varieties and animal breeds for between 25 and 30 years.  Responding to long-standing industry concerns, the Bulgarian government included in its Drug Law a provision on data exclusivity (i.e., protection of confidential data submitted to the government to obtain approval to market pharmaceutical products).

Bulgaria is a member of the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.  Bulgaria enforces EU legislation for protecting geographical indications (GIs) and Traditional Specialities Guaranteed (TSG).  A new Law on Marks and Geographical Indications took effect in December 2019, altering selected procedures for trademark registration.  Trademarks, service marks, and GIs are protected pursuant to registration with the Bulgarian Patent Office or an international registration (under the Madrid Agreement and the Madrid protocol) designating Bulgaria; protection does not arise merely from use in commerce.  A trademark is typically granted within ten months of filing a complete application.  Refusals can be appealed to the Disputes Department of the Patent Office, and these decisions can be appealed to the Sofia Administrative Court within three months.  The right of exclusive use of a trademark is granted for ten years from the date of submitting the application.  Extension requests must be filed during the final year of validity and can be renewed up to six months after expiration.  Protection may be terminated upon request of a third party if a trademark is not used for a five-year period.  Trademark infringement is a significant problem in Bulgaria for U.S. cigarette and apparel producers, and smaller-scale infringement affects other U.S. products.  Bulgarian legislation provides for criminal, civil, and administrative remedies against trademark violations.  Bulgaria has implemented simplified border control procedures for the destruction of seized counterfeit goods without civil or criminal trials.  In addition to civil penalties prescribed by the Trademarks and Geographical Indications Act (TGIA), the Criminal Code prohibits use of a third person’s trademark without the proprietor’s consent.  In practice, criminal convictions for trademark and copyright infringement are rare and sentencing tends to be lenient.  Legal entities cannot be held liable under the Criminal Code.

The 1993 Copyright Act defines copyrightable work as any work of literature, art, or science that is the result of creative activity, including: literary works, publications and computer programs; musical works; stage productions; films and other audiovisual works; fine arts, including applied art, design and folk artistic crafts; architectural works and spatial development plans; photographic works; and works created in a manner similar to photographic works.  Under Bulgarian law, translations and reprocessing of existing works are also eligible for copyright protection, including folklore works, periodicals, encyclopedias, collections, anthologies, bibliographies, and databases that include two or more works or materials.  The law allows rights holders to form organizations for collective management of rights.  A copyright not registered in Bulgaria it is  deemed to exist from the time of the creation of the work.

In April 2019 a new law on trade secret protection was adopted.  The law allows  for civil action in cases of trade secret infringement.

In 2018, Bulgaria was removed from USTR’s Special 301 Watch List after demonstrating improvement in  its enforcement of IPR .

The 2019 Notorious Markets List includes an online provider of pirated content  reportedly hosted in Bulgaria.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Capital Markets and Portfolio Investment  

The Bulgarian Stock Exchange (BSE), the only securities-trading venue in Bulgaria, operates under a license from the Financial Supervision Commission and is majority-owned by the Ministry of Finance. The 1999 Law on Public Offering of Securities regulates the issuance of securities, securities transactions, stock exchanges, and investment intermediaries.

Since its 2007 entry in the EU, Bulgaria has aligned its regulation of securities markets with EU standards under the Markets in Financial Instruments Directive (MiFID). The BSE is a full member of the Federation of European Stock Exchanges (FESE) and operates under the Deutsche Boerse’s trading platform Xetra.  Overall, however, Bulgarian companies strongly prefer obtaining financing from local banks to going to the local financial markets.
Money and Banking System  

As of February 2020, there were 24 commercial banks (19 subsidiaries and 5 branches), with total assets of BGN 105111.5.6 billion (USD 6164.8 billion), equivalent to 94 percent of the full 2019 GDP. Approximately 73 percent of the banking system is owned by foreign banking groups, mostly EU-based. The top five banks’ weight in the banking system was 59.460 percent. In 2018, there was a visible trend toward consolidation.  As of late September 2019, non-performing loans stood at 7.4 percent of the total loan portfolio of the banking system.

The Bulgarian government has raised funds by issuing both Euro-denominated and Leva- denominated bonds . Commercial banks,  and private pension funds and insurance companies are the primary purchasers of these instruments. EU-based banks are eligible to be primary dealers of Bulgarian government bonds.

Repatriation of profits is possible after presenting documentation that taxes have been paid.

In 2014, United States and Bulgaria signed an intergovernmental agreement that implements provisions of the Foreign Account Tax Compliant Act (FATCA), which targets tax non-compliance by U.S. persons who do business with Bulgarian financial institutions. The Parliament ratified the agreement in 2015.

Foreign Exchange and Remittances  

Foreign Exchange  

Bulgaria operates a Currency Board Arrangement (CBA) whereby the lev (BGN) is fixed to Euro, exchanging EUR 1 for BGN 1.95583. Foreign exchange is freely accessible. The Foreign Currency Act stipulates that anyone may import or export up to EUR 10,000 or its foreign exchange equivalent without filling out a customs declaration. The import or export of over EUR 10,000 or its equivalent in Bulgarian leva or another currency across the border to or from a non-EU country must be declared to the customs authorities; in the case of an EU country, it must be declared if requested by the customs authorities. Exporting over BGN 30,000 (USD 17,340) in cash requires a declaration about the source of the funds, supported by documents certifying that the exporter does not owe taxes (unless the funds were earlier imported and declared).

As of April 2020, Bulgaria is preparing to formally apply for membership in the Eurozone’s precursor mechanism ERM II  and the EU Banking Union.

Remittance Policies  

There is no official policy regarding remittances. Remittances are an increasingly important source of funding for Bulgarian families with relatives overseas; in recent years, remittances have exceeded FDI flows.

Sovereign Wealth Funds  

Bulgaria does not have a sovereign wealth fund.

Upon EU accession, Bulgaria was recognized as a market economy, in which the majority of the companies are private. Significant state-owned enterprises (SOEs) remain, however, such as railways and the postal service. SOEs also predominate in the healthcare, infrastructure, and energy sectors; many of these are collectively managed by the same holding company (also an SOE).   Bulgaria’s roughly 220 SOEs account for about five percent of employment in the country, and their revenues amount to about 13.5 percent of the GDP.  In 2019 Parliament approved the State Enterprise Act, introducing updated corporate standards and management practices.   A list of all SOEs can be found on: http://www.minfin.bg/bg/page/948 .

Some of the SOEs receive annual government subsidies for current and capital expenditures, regardless of their actual performance.   SOEs’ budgets and audit reports are posted on the Ministry of Finance website.  The law treats equally public and private sector companies vis-à-vis bidding on concessions, taxation, or other government-controlled processes.  Bulgaria became party to the WTO’s Government Procurement Agreement (GPA) upon its entry into the EU in 2007.

Privatization Program  

No major privatizations are currently planned.  All majority or minority state-owned properties are eligible for privatization, with the exception of those included in a specific list of companies, including water management companies, state hospitals, and state sports facilities. State-owned military manufacturers can be privatized with Parliamentary approval.

Municipally-owned property can be privatized upon decision by a municipal council, or authorized body and upon publication of the municipal privatization list in the national gazette. Foreign companies may participate. The 2010 Privatization and Post-Privatization Act created a single Privatization and Post-Privatization Agency (http://www.priv.government.bg ) responsible for privatization oversight. The new State Enterprise Act in 2019 reshuffled and renamed the agency into Agency for Public Enterprises and Control.

In 2007 the government adopted a National Corporate Governance Code to encourage companies to adhere to the principles of responsible business conduct (RBC).  The non-governmental Bulgarian Network for Social and Corporate Responsibility (CSR) (https://csr.bg/ ), promotes CSR among Bulgarian companies and reports good business practices. Bulgaria does not adhere to either the OECD Guidelines for Multinational Enterprises or the Extractive Industries Transparency Initiative.

Bribery is a criminal act under Bulgarian law for both the giver and the receiver. Individuals who mediate and facilitate a bribe are also held accountable. With the gradual introduction of technology in public administration, some progress has been made in addressing petty corruption.  However, widespread higher-level corruption, particularly in public procurement and use of EU funds, continues to be one of the most difficult problems in Bulgaria’s investment climate. Human trafficking, narcotics, and contraband smuggling channels contribute to corruption in Bulgaria. Bulgaria has laws, regulations, and specialized institutions penalties on the books to combat corruption, but its law enforcement investigative capacity remains limited and the authorities often opt for easy-to-prove, low-level cases. As a result, Bulgaria has yet to convict a senior corrupt official.  There have been a few cases of high public interest, such as involving alleged siphoning of millions from the state coffers or EU funds, and in particular those involving public tenders for large energy and infrastructure projects.  The high-profile prosecutions that do take place are often seen as selective or politically motivated and typically end in acquittals after a lengthy judicial process.  Bulgaria ranks 77th  out of 180 countries in Transparency International’s Corruption Perception Index for 2019, the most challenging environment among EU members.

In early 2018, the government established a new Anti-Corruption Commission as an Center for Prevention and Countering Corruption and Organized Crime became the umbrella agency incorporating previously independent bodies combating corruption.

Bulgaria has ratified the Anti-Bribery Convention and is a participating member of the OECD Working Group on Bribery. Bulgaria has also ratified the Council of Europe’s Convention on Laundering, Search, Seizure, and Confiscation of Proceeds of Crime (1994) and Civil Convention on Corruption (1999). Bulgaria has signed and ratified the UN Convention against Corruption (2003); the Additional Protocol to the Council of Europe’s Criminal Law Convention on Corruption; and the UN Convention against Transnational Organized Crime. In 2018, the Bulgarian Parliament adopted the Anti-Money Laundering Act, which transposes the 2015 EU Directive on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.
Resources to Report Corruption  

Organizations or agencies responsible for reporting on or combating corruption:

Mr. Plamen GeorgievSotir Tsatsarov, Chairman
Commission on Corruption Prevention and Illegal Assets Forfeiture
Rakovski Blvd, Sofia, 1000
ciaf@ciaf.government.bg
Mr. Ognyan Minchev, Board President

Transparency International Bulgaria
50 Sandor Petofi Str., Sofia
mbox@transparency.bg

There have been no incidents in recent years involving politically-motivated crime.

The official adult literacy rate in Bulgaria is 98.4 percent (15 years and older), according to the most recent data from the UN’s Human Development Report, but illiteracy is significantly higher among some minorities.  Many Bulgarians have strong backgrounds in engineering, medicine, economics, and the sciences, but there is a shortage of professionals with management skills as well as of skilled workers. Foreign and local investors have also complained of a mismatch between the educational system and the labor market’s demands. Employers have also been slow to offer training. The share of Bulgarian employees who have participated in some of on- the- job training in the last twelve months is the second- lowest in Bulgaria of amongl EU countries. Emigration, particularly among young skilled professionals, has exacerbated the shortages.  Overall, the labor market has grown tighter, with unemployment falling to 4.1 percent in the last quarter of 2019, prior to spiking amid the COVID-19 outbreak.

The Bulgarian Constitution recognizes workers’ rights to join trade unions and to organize. The National Council for Tripartite Cooperation (NCTC) provides a forum for dialogue among the government, employer organizations, and trade unions on issues such as cost-of-living adjustments and social security contributions. Bulgaria has two large trade union confederations represented at the national level, the Confederation of Independent Trade Unions of Bulgaria (CITUB) and the Confederation of Labor Podkrepa (Support). CITUB, the larger of the two, has an estimated membership of about 300,000.

There are very few restrictions on trade union activity, but employees in smaller private firms are often not represented. Unionized labor is most commonly seen in the highly subsidized railway and postal sectors.  Under the Bulgarian Labor Code, employer-employee relations are regulated by employment contracts. Collective labor contracts can be concluded at the sectoral level, enterprise level, regional, and municipal levels. The Labor Code addresses worker occupational safety and health issues and mandates a minimum wage (set by the Council of Ministers).  The minimum wage in 2019 2020 is BGN 560 610 (USD 325342.57) per month.

The Bulgarian Labor Code provides for benefits for departing employees depending on the reason for termination of the employment contract and on whose initiative the termination was enacted.   In cases of forcible termination, the employee is normally entitled to compensation from the employer, generally for up to one month of the gross salary.

Disputes between labor and management can be referred to the courts, but resolution is often slow. The National Institute for Conciliation and Arbitration (NICA) has developed a framework for collective labor dispute mediation and arbitration. However, NICA-sponsored collective labor dispute resolutions remain few in number.

In 1991, the Overseas Private Investment Corporation (OPIC) and the Bulgarian government signed an Investment Incentive Agreement, which governs OPIC’s operations in Bulgaria.  Bulgaria is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). Since 2011, OPIC has funded three projects in Bulgaria: for solar energy, for small business development, and for education.

* Source for Host Country Data: Bulgarian National Bank

The data are consistent.  The data for outward investment is not available.  Note: For inward investment, the Netherlands holds the top place largely because various companies, most notably Russia’s Lukoil, channel their investments to Bulgaria through Dutch subsidiaries.  While official data routinely lists the United States as the 13th-largest source of FDI into Bulgaria, a recent study, which accounts for investment flows via European subsidiaries of U.S. companies, puts the United States into the sixth place.

Luxembourg is known to be a common place for incorporating companies whose actual ownership is Bulgarian.

Danko Tonev
Economic Specialist
Embassy Sofia
tonevdt@state.gov

Policies Towards Foreign Direct Investment

Attracting FDI is one of the government’s main pillars of economic growth and job creation. There are no laws or practices that discriminate against foreign investors. In March 2018 the government passed its “Plan for Economic Growth” (http://vlada.mk/PlanEkonomskiRast ), which provides substantial incentives to foreign companies operating in the 15 free economic zones. The incentives include a variety of measures including job creation subsidies, capital investment subsidies, and financial support to exporters. Also, North Macedonia is a signatory to multilateral conventions protecting foreign investors and is party to a number of bilateral investment protection treaties, though none with the United States.

Three government ministers and multiple agencies promote North Macedonia as an investment destination. Invest North Macedonia – the Agency for Foreign Investments and Export Promotion, http://www.investinmacedonia.com , is the primary government institution in charge of facilitating foreign investments. It works directly with potential foreign investors, provides detailed explanations and guidance for registering a business in North Macedonia, provides analysis on potential industries and sectors for investing, provides information on business regulations, and publishes reports about the domestic market. The North Macedonia Free Zones Authority, http://fez.gov.mk/ , a governmental managing body responsible for developing free economic zones throughout the country, also assists foreign investors interested in operating in the zones. It manages all administrative affairs of the free economic zones and assists foreign investors to identify appropriate investment locations and facilities. North Macedonia does not maintain a “one-stop-shop” for FDI, requiring investors to navigate through several bureaucratic institutions to implement their investments.

The government maintains contact with large foreign investors through frequent meetings and formal surveys to solicit feedback. Large foreign investors have direct and easy access to government leaders, whom they can contact for assistance to resolve issues. The Foreign Investors Council, http://fic.mk/ , advocates for foreign investors and suggests ways to improve the business environment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest directly in all industry and business sectors except those limited by law. For instance, investment in the production of weapons and narcotics remains subject to government approval, while investors in sectors such as banking, financial services, insurance, and energy, must meet certain licensing requirements that apply equally to both domestic and foreign investors. Foreign investment may be in the form of money, equipment, or raw materials. Under the law, if assets are nationalized, foreign investors have the right to receive the full value of their investment. This provision does not apply to national investors.

Invest North Macedonia conducts screening and due diligence reviews of foreign direct investments in a non-public procedure on an ad-hoc basis. The main purpose of the screening is to ensure economic benefit for the country and to protect national security. The process does not disadvantage foreign investors. More information about the screening process is available directly from Invest North Macedonia, at http://www.investinmacedonia.com . U.S. investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

There have been no third-party reviews of the government’s investment policy in the past four years. The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy published in 2019 is available at: https://www.wto.org/english/tratop_e/tpr_e/s390_e.pdf . The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2011d3_en.pdf . A 2017 regional investment policy review of South-East Europe covering seven economies including North Macedonia is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf. The International Monetary Fund (IMF) and the World Bank have assessed aspects of the government’s policies for attracting foreign investment in their regular country reports but have not provided specific policy recommendations.

Business Facilitation

All legal entities in the country must register with the Central Registry of the Republic of North Macedonia (Central Registry). Foreign businesses may register a limited liability company, single-member limited liability company, joint venture, joint stock company, as well as branches and representative offices. There is a one-stop-shop system that enables investors to register their businesses within a day by visiting one office, obtaining the information from a single place, and addressing one employee. Once the company is registered with the Central Registry it is valid for all other agencies. In addition to registering, some businesses must obtain additional working licenses or permits for their activities from relevant authorities. More information on business registration documentation and procedures is available at the Central Registry’s website, http://www.crm.com.mk . All investors may register a company online at http://e-submit.crm.com.mk/eFiling/en/home.aspx . Applications must be submitted by an authorized registration agent. The online business registration process is clear and complete, and available for use by foreign companies. The 2020 World Bank Doing Business Report put North Macedonia 78th in the world for ease of starting a business, 31 spots down from 2019.

Outward Investment

The government does not restrict domestic investors from investing abroad, but it does not promote or provide incentives for outward investments. Publicly reported total outward investments are small, worth approximately $71 million, the majority of which are in the Balkan region and the Netherlands.

Transparency of the Regulatory System

The government made progress adopting reform priorities called for by the EU, NATO, and other bodies, leading to well defined laws, institutional structures, and regulatory legal frameworks. However, laws are not regularly drafted based on data-driven evidence or assessments and are frequently moved through Parliament using shortened legislative procedures. Universal implementation of laws and regulations can also be a problem.

North Macedonia has simplified regulations and procedures for large foreign investors operating in the TIDZ. However, the country’s overall regulatory environment is complex and not fully transparent. Frequent regulatory and legislative changes, coupled with inconsistent interpretations of the rules, create an unpredictable business environment that enables corruption. The current government has published all incentives for businesses operating in North Macedonia, which are standardized and available to domestic and international companies. However, companies worth more than $1 billion that want to invest in North Macedonia can negotiate terms different from the standard incentives. The government can offer customized incentive packages if the investment is of strategic importance.

Rule-making and regulatory authorities reside within government ministries, regulatory agencies, and parliament. Almost all regulations most relevant to foreign businesses are on the national level. Businesses, the public, and NGOs play a limited role in the legislative and regulatory development process. Regulations are generally developed in a four-step process. First, the regulatory agency or ministry drafts the proposed regulations. The proposal is then published in the Unique National Electronic Register of Regulations (ENER, https://ener.gov.mk/) for public review and comment. After public comments are considered and properly incorporated into the draft, it is sent to the central government to be reviewed and adopted in an official government session. Once the government has approved the draft law, it is sent to parliament for full debate and adoption.

There is no one centralized location that maintains a copy of all regulatory actions. All newly adopted regulations, rules, and government decisions are published in the Official Gazette of the Republic of North Macedonia after they are adopted by the government or parliament, or signed by the corresponding minister or director. Public comments are not published nor made public as part of the regulation and limited information is available in English.

North Macedonia accepts International Accounting Standards, and the legal, regulatory, and accounting systems used by the government are consistent with international norms. However, North Macedonia has not yet aligned its national law with EU directives on corporate accounting and auditing.

The government has systems in place to regularly communicate and consult with the business community and other stakeholders before amending and adopting legislation, through ENER. Interested parties, including chambers of commerce, can review the legislation published on ENER. The online platform is intended to facilitate public participation in policymaking, increase public comment, and provide a phase-in period for legal changes to allow enterprises to adapt. Key institutions influencing the business climate publish official and legally-binding instructions for the implementation of laws. These institutions are obliged to publish all relevant laws, by-laws, and internal procedures on their websites, however, some of them do not maintain regular updates.

In 2018, the government adopted a new Strategy for Public Administration Reform and Action Plan (2018-2022), and the National Plan for Quality Management of Public Administration, which focus on policy creation and coordination, strengthening public service capacities, and increasing accountability and transparency. The government also adopted its Open Data Strategy (2018-2020), which puts forth measures to encourage the release and use of public data as an effective tool for innovation, growth, and transparent governance.

Public finances and debt obligations are fairly transparent. The Ministry of Finance publishes budget execution data monthly; public debt figures, including contingent liability, quarterly; and the fiscal strategy is updated annually.

International Regulatory Considerations

North Macedonia is not a part of any regional economic bloc. As a candidate country for accession to the EU, it is gradually harmonizing its legal and regulatory system with EU standards. As a member of the WTO, North Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade. North Macedonia ratified the Trade Facilitation Agreement (TFA) in July 2015 (Official Gazette 130/2015), becoming the 50th out of 134 members of the WTO to do so. In October 2017, the government formed a National Trade Facilitation Committee, chaired by the Minister of Economy, which includes 22 member institutions. The Committee identified areas that need harmonization with TFA and is working toward implementation.

Legal System and Judicial Independence

North Macedonia’s legal system is based on the civil law tradition, with adversarial-style elements, and includes an established legal framework for both commercial and contract law. The Constitution established independent courts that rule on commercial and contractual disputes between business entities, and court rulings are legally executed by private enforcement agents. Enforcement actions are may be appealed before the court. The enforcement procedure fees were lowered and simplified in 2019. Disputes up to €15,000 ($16,541 per 03/30/2020 exchange rate) require mediation as a precondition to initiating legal action within the courts. Cases involving international elements may be decided using international arbiters. Ratified international instruments prevail over national laws.

Businesses complained that lengthy and costly commercial disputes through the court system creates legal uncertainty. Numerous international reports note that rule of law remains a key challenge in North Macedonia, pointing to undue executive control over the judiciary and poor funding for administrative courts as major obstacles. The government throughout 2019 initiated major reforms to improve judicial independence and impartiality, but enforcing contracts remains a challenge for businesses.

Laws and Regulations on Foreign Direct Investment

There is no single law regulating foreign investments, nor a “one-stop-shop” website that provides all relevant laws, rules, procedures, and reporting requirements for investors. Rather, the legal framework is comprised of several laws including: the Trade Companies Law; the Securities Law; the Profit Tax Law; the Customs Law; the Value Added Tax (VAT) Law; the Law on Trade; the Law on Acquiring Shareholding Companies; the Foreign Exchange Operations Law; the Payment Operations Law; the Law on Foreign Loan Relations; the Law on Privatization of State-owned Capital; the Law on Investment Funds; the Banking Law; the Labor Law; the Law on Financial Discipline, the Law on Financial Support of Investments, and the Law on Technological Industrial Development Zones (free economic zones). An English language version of the consolidated Law on Technological Industrial Development Zones (free economic zones) is available at: https://www.worldfzo.org/Portals/0/OpenContent/Files/487/Macedonia_FreeZones.pdf . No other new major laws, regulations, or judicial decisions related to foreign investment were passed during the past year, however some existing laws were amended slightly.

Competition and Anti-Trust Laws

The Commission for Protection of Competition (CPC) is responsible for enforcing the Law on Protection of Competition. The CPC issues opinions on draft legislation that may impact competition. The CPC reviews the impact on competition of proposed mergers and can prohibit a merger or approve it with or without conditions. The CPC also reviews proposed state aid to private businesses, including foreign investors, under the Law on Control of State Aid (Official Gazette 145/10) and the Law on State Aid (Official Gazette 24/03). The CPC determines whether the state aid gives economic advantage to the recipient, is selective, or adversely influences competition and trade. More information on the CPC’s activities is available at http://kzk.gov.mk/en . There were no significant competition cases during the past year.

Expropriation and Compensation

The Law on Expropriation (http://www.mioa.gov.mk/sites/default/files/pbl_files/documents/legislation/zakon_za_eksproprijacija_konsolidiran_032018.pdf  ) states the government can seize or limit ownership and real estate property rights to protect the public interest and to build facilities and carry out other activities of public interest. According to the Constitution and the Law on Expropriation, property under foreign ownership is exempt from expropriation except during instances of war or natural disaster, or for reasons of public interest. Under the Law on Expropriation, the state is obliged to pay market value for any expropriated property. If the payment is not made within 15 days of the expropriation, interest will accrue. The government has conducted a number of expropriations, primarily to enable capital projects of public interest, such as highway and railway construction for which the government offered fair market value compensation. Expropriation procedures have followed strict legal regulations and due process. The government has not undertaken any measures that have been alleged to be, or could be argued to be, indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

North Macedonia is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the European Convention on International Commercial Arbitration. Additionally, North Macedonia has either signed on to, or has inherited by means of succession from the former Yugoslavia, a number of bilateral and multilateral conventions on arbitration including the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA); the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; the Geneva Protocol on Arbitration Clauses from 1923; and the Geneva Convention on Enforcement of Foreign Arbitration Decisions.

In April 2006, the Law on International Commercial Arbitration came into force in North Macedonia. This law applies exclusively to international commercial arbitration conducted in the country. An arbitration award under this law has the validity of a final judgment and can be enforced without delay. Any arbitration award decision from outside North Macedonia is considered a foreign arbitral award and is recognized and enforced in accordance with the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards.

Investor-State Dispute Settlement

North Macedonia accepts binding international arbitration in disputes with foreign investors. Foreign arbitration awards are generally recognized and enforceable in the country provided the conditions of enforcement set out in the Convention and the Law on International Private Law (Official Gazette of the Republic of North Macedonia, No. 87/07 and No. 156/2010; http://www.slvesnik.com.mk/besplatni-izdanija.nspx?pYear=2010 ) are met. So far, the country has been involved in three reported investor-state disputes resolved in front of international arbitration panels with three more cases pending. None of those cases involved U.S. citizens or companies. Local courts recognize and enforce foreign arbitration awards issued against the Government of North Macedonia. The country does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

North Macedonia accepts international arbitration decisions on investment disputes. The country’s Law on International Commercial Arbitration is modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but seldom utilized. A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. North Macedonia requires mediation in disputes between companies up to €15,000 ($16,541 per 03/30/2020 exchange rate) in value before companies can go to court.

There is no tracking system of cases involving State Owned Enterprises (SOEs) involved in investment disputes in North Macedonia, and post is not aware of any examples.

Bankruptcy Regulations

North Macedonia’s bankruptcy law governs the settlement of creditors’ claims against insolvent debtors. Bankruptcy proceedings may be initiated over the property of a debtor, be it a legal entity, an individual, a deceased person, joint property of spouses, or a business. However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of North Macedonia. The Government of North Macedonia announced March 31, 2020 bankruptcy proceedings would be forbidden during the COVID-19 crisis as well as for six months thereafter. The 2020 World Bank Doing Business Report ranked North Macedonia 30th out of 190 countries for resolving insolvency.

The Macedonian Credit Bureau (https://mkb.mk/en/ ) serves as a credit monitoring authority in addition to commercial banks and the National Bank of the Republic of North Macedonia serving as credit monitoring authorities..

Investment Incentives

Both the Law on Technological Industrial Development Zones (TIDZs) and the Law on Financial Support of Investments offer incentives to investors. Investors in the TIDZs are eligible for tax exemptions for a period of up to 10 years of operation in proportion to the size of investment and number of employees. Investors in the TIDZs are exempt from paying duties for equipment and machines as well as municipality tax for construction. The land lease rate is symbolic, and investors are eligible for a grant equal to 10 percent of the cost of plant construction and new machinery, as well as a grant for improving competitiveness. North Macedonia’s legislative framework for FDI is generally harmonized with EU state aid regulations.

The salaries of employees working for TIDZ employers are exempt from personal income tax for a period of up to ten years after the first month in which the employer starts paying out salaries.

The government does not issue guarantees or jointly finance foreign direct investment projects. Depending on the industry and size of the investment, the government may decide to cover up to 50 percent of eligible investment costs over a period of 10 years.

Foreign Trade Zones/Free Ports/Trade Facilitation

North Macedonia currently has 15 free economic zones in various stages of development throughout the country. The Directorate for Technological Industrial Development Zones (TIDZ) (http://fez.gov.mk/ ) is responsible for establishing, developing, and supervising 14 of them, including seven fully operational TIDZ: Skopje 1 and 2, Prilep, Stip, Kicevo, Struga and Strumica. The Tetovo TIDZ is a public-private partnership. U.S. companies operate in TIDZs throughout North Macedonia, including automotive components manufacturer ARC Automotive (Skopje 1), Adient (Stip and Strumica), Aptiv (Skopje 1), Gentherm (Prilep), Lear (Tetovo), Dura Automotive (Skopje 2), and electronic component manufacturer Kemet (Skopje 1).

Performance and Data Localization Requirements

North Macedonia does not impose performance requirements, such as mandating local employment (working level or management level) or domestic content in goods or technology, as a condition for establishing, maintaining, or expanding an investment. Foreign investors in the TIDZ may employ staff from any country. In 2016, North Macedonia simplified the procedure for expatriates to obtain permission to live and work in the country.

North Macedonia does not impose a “forced localization” policy for data. The government does not prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. Post is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to encryption. Furthermore, there are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. However, based on the new EU General Data Protection Regulation (GDPR), which came into force in May 2018, North Macedonia’s Directorate for Personal Data Protection is amending the Law on Personal Data Protection to harmonize North Macedonia’s laws with the new EU regulations.

Depending on the sector and type of investment, various government authorities oversee and assess the fulfillment of investment promises made by FDIs. Government entities include the Agency for Foreign Investments and Export Promotion (Invest North Macedonia), Directorate for Technological Industrial Development Zones (TIDZs), and the Ministry of Economy.

There is no discriminatory export or import policy affecting foreign investors. Almost 96 percent of total foreign trade is unrestricted. Current tariffs and other customs-related information are published on the website of the Customs Administration, http://www.customs.gov.mk/index.php/en/ .

Real Property

Laws protect ownership of both movable and real property, but implementation of these laws remains inconsistent. Mortgages and liens are regularly utilized, and the recording system is reliable. Highly centralized control of government owned “construction land,” the lack of coordinated local and regional zoning plans, and the lack of an efficient construction permitting system continues to impede business and investments. Over the past few years, however, the government has improved the cadaster system, which has increased the security and speed of real estate transactions. Over 97 percent of real estate records are digitized. The 2020 World Bank Doing Business Report ranked North Macedonia 48th out of 190 for the ease of registering property, two places up from 2018, and 15th for the ease of dealing with construction permits.

Land leased or acquired by foreign and/or non-resident investors is regulated by the Law on Ownership and Other Real Rights. EU and OECD residents have the same rights as local residents in lease or acquisition of construction land or property, whereas non-EU and non-OECD residents’ property ownership is regulated under terms of reciprocity. Foreign residents cannot acquire agricultural land in North Macedonia. Foreign investors may acquire property rights for buildings used in their business activities, as well as full ownership rights over construction land through a locally registered company. If a foreign company registers a local company in any form (subsidiary, local partner, or joint venture representation office), it can acquire land with full ownership rights similar to a domestic company.

Purchased land belongs to the owner and even if it remains unoccupied, cannot revert to other owners such as squatters. The exception to this is agricultural land granted by government as concessions. If the consignee does not use the land per the agreement, then the government can cancel the concession and take back possession of the land.

Intellectual Property Rights

Responsibility for safeguarding intellectual property rights (IPR) is distributed among numerous institutions. The State Office of Industrial Property governs patents, trademarks, service marks, designs, models, and samples. A very small unit within the Ministry of Culture administers the protection of authors’ rights and other related rights (e.g., music, film, television). The State Market Inspectorate is responsible for monitoring markets and preventing the sale of counterfeit and pirated goods. The Ministry of Interior is responsible for IPR-related crimes committed on the Internet. The Customs Administration has the right to seize suspect goods to prevent their distribution pending confirmation from the rights holder of the authenticity of the goods. The National Coordination Body for Intellectual Property periodically organizes interagency raids to seize counterfeit products usually focused on small sellers in open-air markets.  Measures taken by the coordination body are rare and mostly target trademark infringements.

As North Macedonia begins to open EU accession negotiations, it will need to harmonize its IPR laws and regulations with EU standards and demonstrate adequate enforcement of those laws. The European Commission’s 2019 report on North Macedonia confirmed the country’s legislative framework was sufficiently aligned with the EU acquis and acknowledged some progress had been made to raise awareness about the threats of counterfeit goods to health, but noted a need for further improvement of North Macedonia’s royalty fee collection system. The report recommended North Macedonia increase its efforts in the following areas: to investigate and prosecute IPR infringement, particularly in the area of industrial property and misuse of trademarks; improve its legal framework on copyright and related rights; and improve coordination among law enforcement institutions by establishing an information platform to exchange IPR-related data. The business community frequently complains the State Office for Industrial Property does not register patents or take enforcement actions in a timely manner.

While North Macedonia has many laws in place to protect IPR, infringement is frequent and the court system should be improved. Prosecutors and judges for both civil and criminal cases are aware of IPR but lack adequate experience due to the small number of IPR cases. There are no specialized courts to handle IPR cases. Many rights holders do not pursue legal action since IPR violators usually lack the financial resources to pay damages. Courts are sometimes reluctant to find accused IPR violators guilty due to stiff mandatory minimum sentences for small distributors of counterfeit goods. The penalties for IPR infringement range from 30 to 60 days closure of businesses, monetary fines of up to €5,000 ($5,624), or a prison sentence of up to five years. North Macedonia does not track and report cumulative statistics on IPR infringement or seizures of counterfeit goods, and therefore lacks a credible enforcement record. North Macedonia is not included in the U.S. Trade Representative Special 301 Report or the Notorious Market List. However, for over 10 years, the government has used unlicensed Microsoft software products and, in early 2018, the government initiated talks to resolve the issue. As of March 2020, the government continued to use unlicensed software throughout its institutions.

North Macedonia is a member of the World Intellectual Property Organization (WIPO) and party to a number of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

Capital Markets and Portfolio Investment

The government openly welcomes foreign portfolio investors. The establishment of the Macedonian Stock Exchange (MSE) in 1995 made it possible to regulate portfolio investments. North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2019 was $3.4 billion, a 14.3 percent rise from the previous year. The main index, MBI10, increased by 34 percent, reaching 4,649 points at year-end. Foreign portfolio investors accounted for an average of 22.3 percent of total MSE turnover, 8.8 percentage points higher than in 2018. The current regulatory framework does not appear to discriminate against foreign portfolio investments.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members to trade in securities and regulates the market. In 2019, the total number of listed companies was 106, one more than in 2018, but total turnover dropped by 26.1 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions. Individuals generally trade at the MSE as individuals, rather than through investment funds, which have been present since 2007.

There are no legal barriers to the free flow of financial resources into the products and factor markets. The National Bank of the Republic of North Macedonia (NBRNM) respects IMF Article VIII and does not impose restrictions on payments and transfers for current international transactions. A variety of credit instruments are provided at market rates to both domestic and foreign companies.

Money and Banking System

In its regular report on Article IV consultations, published January 2020, the International Monetary Fund assessed that North Macedonia’s banking sector is healthy, well-capitalized, liquid, and profitable; and banks comfortably meet capital adequacy requirements, but efforts are needed to further mitigate credit risk. Domestic companies secure financing primarily from their own cash flow and bank loans, due to the lack of corporate bonds and other securities as credit instruments.

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 15 banks and a central bank, the NBRNM. It is a highly concentrated system, with the three of the largest banks controlling 56.6 percent of the banking sector’s total assets of about $9.6 billion and collecting 69.2 percent of total household deposits. The largest commercial bank in the country has estimated total assets of about $2.2 billion, and the second largest of about $1.8 billion. The 10 smallest banks, which have individual market shares of less than 6 percent, account for 25.3 percent of total banking sector assets. Out of them, the five smallest banks hold a combined market share of just 7.2 percent. Foreign banks or branches are allowed to establish operations in the country at equal terms as domestic operators, subject to licensing and prudent supervision from the NBRNM. In 2019, foreign capital remained present in 14 of North Macedonia’s 15 banks, and was dominant in 11 banks, controlling 71.8 percent of total banking sector assets, 80.3 percent of total loans, and 70.2 percent of total deposits.

According to the NBRNM, the banking sector’s non-performing loans at the end of 2019 (latest available data) were 4.8 percent of total loans, dropping by 0.4 percentage points on an annual basis. Total profits in 2019 reached $122 million, which was 20 percent less than in 2018.

Banks’ liquid assets at the end of 2019 were 32.4 percent of total assets, 1.8 percentage points higher compared to the same period of 2018, remaining comfortably high. In 2019 NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed that the banking sector is healthy and resilient to shocks, with a capital adequacy ratio remaining above the legally required minimum of eight percent. The actual capital adequacy ratio of the banking sector at the end 2019 was 16.3 percent, 0.2 percent lower compared to the end of 2018, with all banks maintaining a ratio above the required minimum.

There are no restrictions on a foreigner’s ability to establish a bank account. All commercial banks and the NBRNM have established and maintain correspondent banking relationships with foreign banks. The banking sector did not lose any correspondent banking relationships in the past three years, nor were there any indications that any current correspondent banking relationships were in jeopardy. There is no intention to implement or allow the implementation of blockchain technologies in banking transactions in North Macedonia. Also, alternative financial services do not exist in the economy—the transaction settlement mechanism is solely through the banking sector.

Foreign Exchange and Remittances

Foreign Exchange

The constitution provides for free transfer, conversion, and repatriation of investment capital and profits by foreign investors. Funds associated with any form of investment can be freely converted into other currencies. Conversion of most foreign currencies is possible at market terms on the official foreign exchange market. In addition to banks and savings houses, numerous authorized exchange offices also provide exchange services. The NBRNM operates the foreign exchange market, but participates on an equal basis with other entities. There are no restrictions on the purchase of foreign currency.

Parallel foreign exchange markets do not exist in the country, largely due to the long-term stability of the national currency, the Denar (MKD). The Denar is convertible domestically, but is not convertible on foreign exchange markets. The NBRNM is pursuing a strategy of pegging the Denar to the Euro and has successfully kept it at the same level since 1997. Required foreign currency reserves are spelled out in the banking law.

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations. By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days. There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for Republic of North Macedonia’s households. In 2019, net private transfers amounted to $1.9 billion, accounting for 15 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

There are about 120 State Owned Enterprises (SOEs) in North Macedonia, the majority of which are public utilities in which the central government is the majority shareholder, though the 81 local governments also own local public utility enterprises. Тhe government estimated that about 8,600 people are employed in SOEs. SOEs operate in several sectors of the economy including energy, transportation, and media. There are also industries such as arms production and narcotics in which private enterprises may not operate without government approval. SOEs are governed by boards of directors consisting of members appointed by the government. All SOEs are subject to the same tax policies as private sector companies. SOEs are allowed to purchase or supply goods or services from the private sector and are not given advantages that are not market-based, such as preferential access to land and raw materials.

There is no published registry with complete information on all SOEs in the country.

Following media reports that SOEs continued to employ party members and their relatives in 2019, the government announced it would review SOE hiring decisions and implement broader public administration reform, which is yet to be completed. North Macedonia is not a signatory to the OECD Guidelines on Corporate Governance for SOEs. In February 2018 the government sent its bid to the World Trade Organization to upgrade its status from observer to a fully-fledged member of the Government Procurement Agreement (GPA). The negotiation process is still ongoing.

Privatization Program

North Macedonia’s privatization process is almost complete, and private capital is dominant in the market. The government is trying to resolve the status of one remaining state-owned loss-making company in a non-discriminatory process through an international tender. Foreign and domestic investors have equal opportunity to participate in the privatization of the remaining state-owned assets through an easily understandable, non-discriminatory, and transparent public bidding process. Neither the central government nor any local government has announced plans to fully or partially privatize any of the utility companies or SOEs in their ownership.

Responsible business conduct (RBC) is a nascent concept in North Macedonia. The government has not taken any major measures to encourage RBC and has not defined RBC or policies to actively promote or encourage it. The government has not conducted a “National Action Plan” on RBC and does not factor RBC policies into its procurement decisions.

There have not been any high-profile controversial instances of private sector impact on human rights or resolution of such cases in the recent past. In the past, the government has failed to fully enforce laws related to labor rights, consumer protection, environmental protections, and other laws and regulations intended to protect individuals from adverse business impacts.

North Macedonia passed the Law on Trade Companies in 2004 and the Securities Law in 2005 which regulate corporate governance. Together these laws provide a clear distinction between the rights and duties of shareholders versus the operations and management of the company. Shareholders generally cannot be held liable for the acts or omissions of the company.

The American Chamber of Commerce in North Macedonia has a committee on Community Engagement and Responsible Business Conduct, which, beginning in 2015, organizes seminars on relevant topics and maintains an online database of corporate social responsibility activities carried out by over 260 companies (http://amcham.mk/csr/ ). The government does not take any measures to encourage adherence to the OECD Due Diligence Guidance for Responsibility Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. North Macedonia does not participate in the Extractive Industries Transparency Initiative.

North Macedonia has laws intended to counter bribery, abuse of official position, and conflicts-of-interest, and government officials and their close relatives are legally required to disclose their income and assets. However, enforcement of anti-corruption laws has at times been weak and selectively targeted government critics and low-level offenders. There have been credible allegations of corruption in law enforcement, the judiciary, and many other sectors. The State Commission for the Prevention of Corruption (SCPC) (https://www.dksk.mk/index.php?id=home ), established in 2002 to prevent corruption and conflicts of interest, did not function for a year between March 2018 and February 2019 due to the resignation of its members after media revealed excessive and fraudulent travel invoicing. Following the passage of new anticorruption legislation in January 2019 and the appointment of new commissioners in February 2019, the commission restarted its work. The appointment of the new SCPC commissioners was done in a more transparent manner than before, and in the past year the SCPC has been more proactive in fighting corruption. The Special Prosecutor’s Office (SPO) was established in 2015 to investigate cases linked to a wiretapping scandal that revealed extensive abuse of office by public officials, including alleged corruption in public tenders. After the Chief Special Prosecutor was indicted in a corruption scandal in November 2019, all cases were transferred to the Public Prosecution Office’s Organized Crime and Corruption Prosecution Office . Transparency International ranked North Macedonia 106th out of 180 countries on the 2019 Corruption Perception Index, a drop of 13 places, following the SPO corruption scandal.

To deter corruption, the government uses an automated electronic customs clearance process, which allows businesses to monitor the status of their applications. In order to raise transparency and accountability in public procurement, the Bureau for Public Procurement introduced an electronic system that allows publication of notices from domestic and international institutions, tender documentation previews without registration in the system, e-payments for system use, electronic archiving, and electronic complaint submission (https://www.e-nabavki.gov.mk/PublicAccess/Home.aspx#/home ).

The government does not require private companies to establish internal codes of conduct prohibiting bribery of public officials. A number of domestic NGOs focus on anti-corruption, and transparency in public finance and tendering procedures. There are frequent reports of nepotism in public tenders. The government does not provide any special protections to NGOs involved in investigating corruption. North Macedonia has ratified the UN Convention against Corruption and the UN Convention against Transnational Organized Crime and has signed the Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery.

Many businesses operating in North Macedonia, including some U.S. businesses, identified corruption as a problem in government tenders and in the judiciary. No local firms or non-profit groups provide vetting services of potential local investment partners. Foreign companies often hire local attorneys, who have knowledge of local industrial sectors and access to the Central Registry and business associations, and can provide financial and background information on local businesses and potential partners.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:

State Commission for the Prevention of Corruption
Ms. Biljana Ivanovska, President
Dame Gruev 1
1000 Skopje, North Macedonia
+389 2 321 5377
dksk@dksk.org.mk

Organized Crime and Corruption Prosecution Office
Ms. Vilma Ruskovska, Chief
Boulevard Krste Misirkov BB, Sudska Palata
1000 Skopje, North Macedonia
+389 2 321 9884
ruskovska@jorm.gov.mk

Ministry of Interior
Organized Crime and Corruption Department
Mr. Lazo Velkovski, Head of the Department
Dimce Mircev bb
1000 Skopje, Macedonia + 389 2 314 3150
+ 389 2 314 3150

Transparency International – Macedonia
Ms. Slagjana Taseva, President
Naum Naumovski Borce 58
P.O. Box 270
1000 Skopje, North Macedonia
+389 2 321 7000
info@transparency.mk

North Macedonia generally has been free from political violence over the past decade, although interethnic relations have been strained at times. Public protests, demonstrations, and strikes occur sporadically, and often result in traffic jams, particularly near the center of Skopje.

After the 2016 elections resulted in a change of government and the subsequent parliamentary majority elected Talat Xhaferi, an ethnic Albanian, as speaker, an organized group of protestors leveraged ongoing protests and stormed the parliament building on April 27, 2017. More than 100 people were injured, including several members of government and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attacks, including the former head of the Public Security Bureau (who had previously served as Minister of Interior) and former security officers. The trial against the suspected organizers, including former Prime Minister Nikola Gruevski, the former parliament speaker, two former ministers, and a former director of the Department of Security and Counterintelligence, is ongoing.

There is neither widespread anti-American nor anti-Western sentiment in North Macedonia. There have been no incidents in recent years involving politically motivated damage to projects or installations. Violent crime against U.S. citizens is rare. Theft and other petty street crimes do occur, particularly in areas where tourists and foreigners congregate.

North Macedonia formally deposited its instrument of accession to the North Atlantic Treaty and was formally accepted as NATO’s 30th member March 27, 2020. On March 22, 2004, the country submitted its application for EU membership and, on March 25, 2020, the General Affairs Council of the European Union decided to open accession negotiations with North Macedonia, which was endorsed by the European Council the following day.

Foreign investors, especially those in labor-intensive industries, find North Macedonia’s competitive labor costs and high number of English speakers attractive. The average net wage in 2019 was MKD25,213 ($458) per month, but reportedly, about 60 percent of workers receive below average wages. In November 2019, the minimum net wage was raised to MKD14,300 ($260) per month, effective December 2019. The government promised to raise the minimum wage to MKD16,000 ($320) per month by the end of its mandate in 2020.

In 2019, North Macedonia’s labor force consisted of 964,014 people, of which 797,651 (47.3 percent) were officially employed and 166,363 (17.3 percent) were officially unemployed. North Macedonia’s employed labor force is roughly 59.9 percent male and 40.1 percent female. The largest number of employees are engaged in manufacturing at 19.8 percent, trade 14.1 percent, and agriculture 13.9 percent. The total unemployment rate for youth ages 15 to 24 years old is 35.6 percent. About 20 percent of the unemployed have a university education. Informal sectors of the economy, including agriculture, are estimated to account for 22 percent of employment.

Despite the relatively high unemployment rate, foreign investors report difficulties in recruiting and retaining workers. Positions requiring technical and specialized skills can be especially difficult to fill, due to a mismatch between industry needs, the educational system, and graduates’ aspirations. Many well-trained professionals with marketable skills, such as IT specialists, outsource their skills to foreign companies or choose to work outside the country. To address shortages of factory workers, the government encourages the dispersal of labor-intensive manufacturing investments to different parts of the country, and companies often bus in workers from other areas. The Operational Plan for Active Programs and Measures for Employment and Services in the Labor Market for 2020 (http://av.gov.mk/content/%D0%9E%D0%9F/OP-2020.pdf ) defines active government measures, programs and services for self-employment, and employment that will stimulate job creation, as well as provides subsidies for companies creating new jobs, internships, and digitalization and vocational trainings for unemployed persons or re-qualification/retraining.

Relations between employees and employers are regulated by individual employment contracts, collective agreements, and labor legislation. The Law on Working Relations regulates all forms of employment relations between employees and employers to include retirement, lay-offs, and union operations. Severance and unemployment insurance are also covered by the same law. Most labor-related laws are in line with international labor standards and generally within recommendations of the International Labor Organization (ILO). Labor laws apply to both domestic and foreign investments, and employees in both segments are equally protected.

Employment of foreign citizens is regulated by the Law on Employment and Work of Foreigners: http://mtsp.gov.mk/content/pdf/zakoni/Zakon_vrabotuvanje_stranci_21715.pdf .

There is no limitation on the number of employed foreign nationals or the duration of their stay.  Work permits are required for foreign nationals and an employment contract must be signed upon hiring. The employment contract, which must be in writing and kept on the work premises, should address the following provisions: description of the employee’s duties, duration of the contract (finite or indefinite), effective and termination dates, location of the work place, hours of work, rest and vacation periods, qualifications and training, salary, and pay schedule.

The law establishes a 40-hour work week with a minimum 24-hour rest period, paid vacation of 20 to 26 workdays, and sick leave benefits. Employees may not legally work more than an average of eight hours of overtime per week over a three-month period, or 190 hours per year. According to the collective agreement for the private sector between employers and unions, employees in the private sector have a right to overtime pay at 135 percent of their regular rate.  In addition, the law entitles employees who work more than 150 hours of overtime per year to a bonus of one month’s salary. Although the government sets occupational safety and health standards for employers, those standards are not enforced in the informal sector.

Trade unions are interest-based, legally autonomous labor organizations. Membership is voluntary and activities are financed by membership dues. About 22 percent of legally employed workers are dues-paying union members. Although legally permitted, there are no unions in the factories operating in the free economic zones. Most unions, with the exception of a few branch unions, are generally not independent of the influence of the government officials, political parties, and employers.

There are two main associations of trade unions: The Union of Trade Unions and the Confederation of Free Trade Unions. Each association is comprised of independent branch unions from the public and private business sectors. Both associations, along with the representatives of the Organization of Employers of North Macedonia and representatives from relevant government ministries, are members of the Economic – Social Council. The Council meets regularly to discuss issues of concern to both employers and employees and reviews amendments to labor-related laws.

The rights of workers in the industry branches are regulated by National Collective Bargaining Agreements, and there are two on the national level – one for the public sector and one for private sector. Only about 25 percent of the labor force is covered by these agreements. National collective agreements in the private sector are negotiated between representative labor unions and representative employer associations. The national collective agreement for the public sector is negotiated between the Ministry of Labor and Social Policy and labor unions. Separate contracts are negotiated by union branches at the industry or company level. Collective bargaining agreements are most prevalent in the metal industry, private sector education, and court administration.

An out-of-court mechanism for labor dispute resolution was introduced in 2015 with ILO assistance. North Macedonia’s labor regulations comply with international labor standards and are in line with the ILO. In 2018, the Government adopted a number of changes in the Law on Labor relations, most of which related to workers’ rights in procedures for termination of work contracts, severance pay, and apprenticeships. http://www.mtsp.gov.mk/content/pdf/zakoni/2018/ZRO%20izmeni%202018.pdf 

Financing and insurance for exports, investment, and development projects are made possible through agencies such as the U.S. Trade and Development Agency (USTDA); the U.S. Export-Import Bank (EX-IM); the U.S. International Development Finance Corporation (DFC); the European Bank for Reconstruction and Development (EBRD); the International Bank for Reconstruction and Development (World Bank); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the Southeast Europe Equity Fund (SEEF). Most of the funding for major projects is achieved through co-financing agreements, especially for transportation and energy infrastructure development.

Political risk insurance and project financing have been available to investors in North Macedonia since 1996 first through OPIC and now through the DFC. DFC focuses on debt financing, political risk insurance, equity investment, and supporting private equity investment funds. MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors who make qualified investments in developing member countries.

Although its primary focus is export assistance, including direct loans and capital guarantees aimed at the export of non-military items, EX-IM also provides insurance policies to protect against both political and commercial risks. USTDA, SEEF, the World Bank, and the EBRD focus more directly on financing agreements.

* Source for Host Country Data: State Statistical Office (SSO) publishes data estimates on GDP; National Bank of the Republic of North Macedonia (NBRNM) publishes data on FDI. Data is publicly available online, and is published immediately upon processing with a lag of less than one quarter. End-year data for previous year is usually published in March of current year.

The results from the International Monetary Fund (IMF) are consistent with host country data. Sources of portfolio investments are not tax heavens.

Arben Gega
Commercial Specialist
U.S. Embassy – Skopje
Samoilova 21
1000 Skopje, Republic of North Macedonia
Tel: +389 2 310 2403
E-mail: gegaa@state.gov