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Executive Summary

Croatia became a member of the EU in 2013, which enhanced its economic stability and provided some new opportunities for trade and investment. Croatia is slowly accessing a substantial amount of available EU funds, but many direct benefits of EU entry are still to come.  The Croatian government pledged to take legislative and administrative steps to reduce barriers to investment, streamline bureaucracy and public administration, and program EU funds more efficiently but promised reforms in some areas, to date, have been halting in the face of opposition from vested interest groups.  

The government is willing to meet at senior levels with interested investors and to assist in resolving problems.  Prime Minister Andrej Plenkovic is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions.  Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure. Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, and banking.

However, the Croatian economy continues to be defined by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contributes to poor performance and relatively low levels of foreign investment.  Following a decade of growth from the end of the war in 1995, investment activity in Croatia slowed substantially in 2008 and remained under historic levels despite the economy’s emergence from recession at the end of 2015, relatively robust growth in 2016, and continued growth in 2017.  The banking system weathered the global financial crisis well but was saddled with financial costs related to the government-mandated conversion of Swiss Franc loans into euros in 2015.

In the last two years, the government implemented a number of financial incentives and measures designed to attract investment and support entrepreneurship.  However, these incentives are no corrective for profound deficiencies in the investment climate which include difficulty in establishing property ownership owing to incomplete public property records and an inefficient, sometimes unpredictable, judicial system that contributes to slow resolution of legal disputes.  Investors continue to face high “para-fiscal” fees, rigid labor laws, and slow and complex permitting procedures for most investments.  

The government maintains a budget deficit well within EU-recommended levels.  In January 2019, the government announced the fourth economic reform package of PM Plenkovic’s tenure.  This package aims to cut red tape, decrease the administrative burden on start-ups and established businesses, and generally stimulate economic growth.  Although the government continues to make incremental improvements to the business environment, its primary focus remains on preventing job losses from state-owned enterprises and “strategic” sectors.  In the last year, the government privatized a formerly state-owned fertilizer company by providing state guarantees equivalent to the total amount of private capital invested and is attempting to shore up the financial viability of two major shipbuilding companies. 

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 60 of 176 
World Bank’s Doing Business Report 2019 58 of 190 
Global Innovation Index 2018 41 of 128 
U.S. FDI in partner country ($M USD, stock positions) 2016 $199 Host government, Croatian National Bank


World Bank GNI per capita 2018 60 of 176 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, such as financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, excessive duration of administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate. 

The Agency for Investment and Competitiveness (AIK) — previously a stand-alone Croatian government agency providing investors with various services intended to help with implementation of investment projects — became part of the Ministry of Economy, Entrepreneurship and Crafts at the start of 2019.  The Ministry’s Directorate for Investment, Industry and Innovation has assumed the assistance role previously offered by AIK. For more information, see: The Strategic Investment Act helps investors streamline large projects by gathering all necessary information the investor needs to implement the project and then fast-tracking the necessary procedures for implementation of the project, including acquiring permits and help with location. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of national security-sensitive sectors:  inland waterways transport, maritime transport, rail transport, air ground-handling, freight-forwarding, publishing, education, and ski instruction. Apart from these, the only blocks to market access involve routine professional requirements (architect, auditor, engineer, lawyer, and veterinarian).  Over 90 percent of the banking sector is foreign-owned. 

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an investment climate review for Croatia in June 2019:

The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2018:

Business Facilitation

The Croatian e-government initiative “” (  ) provides for 24-hour access to on-line business registration. Additionally, offices are located in more than 60 Croatian cities and towns. In order to begin business activities, a company needs to register with the State Statistics Bureau to obtain a company identification number, then with a Notary Public, the Commercial Court, Tax Administration, and Health and Pension agencies.  This process can take from one to three days, depending on the efficiency of the local Commercial court, which processes the registration. Private sector participants have complained that the process can take as long as 60 days.  

In 2018, the Global Enterprise Agency rated Croatia’s business registration process 4 out of 10, while the World Bank Ease of Doing Business report ranks Croatia as 123 out of 190 countries.  The government has pledged to improve conditions for business registration. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

Outward Investment

Croatians have invested some USD 4 million in the United States.  Croatia has no restrictions on domestic investors who wish to invest abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Croatia has signed investment protection treaties or agreements with the following countries:

Albania, Argentina, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Cambodia, Canada, Chile, China, Cuba, Czech Republic, Denmark, Egypt, Finland, France, Greece, Germany, Hungary, India, Indonesia, Iran, Israel, Italy, Jordan, Kuwait, Latvia, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Poland, Portugal, Qatar, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Zimbabwe.

The U.S.-Croatian Bilateral Investment Treaty (BIT), has been in force since 2001. The full text of this and all other BITs can be found at:   

Bilateral Taxation Treaties

Croatia and the United States do not share a bilateral tax treaty.. As an EU member, Croatia avoids double taxation with the other 27 member states and has dual taxation agreements with the following countries:

Albania, Armenia, Azerbaijan, Belorussia, Bosnia and Herzegovina, Canada, Chile, China, Georgia, India, Indonesia, Iran, Iceland, Israel, Jordan, Kosovo, Kuwait, Macedonia, Malaysia, Montenegro, Morocco, Mauritius, Moldova, Oman, Qatar, Russia, San Marino, South Africa, South Korea, Syria, Serbia, Switzerland, Turkmenistan, Turkey, Ukraine, and the United Arab Emirates.

Recent changes to the Croatian tax regime reduced income and corporate tax rates. The government has committed to simplifying the tax system to facilitate business operations and more investment. The government offers a binding tax opinion procedure to investors that guarantees a fixed tax rate for a certain period of time and thus eliminates the risk of unanticipated changes to tax law that can affect investment costs. For detailed information, see: percentC4 percent87a-mi percentC5 percentA1ljenja.aspx  

Croatia has a number of so-called non-tax “para-fiscal” or administrative fees, including, for example, levies for use of radio frequencies, monument upkeep, use of water, and use of forests, paid to relevant ministries.  The Ministry of Economy has identified 3,076 various rules and obligations that a business faces. At the beginning of 2019, the government announced the “Action Plan for Removing Administrative Fees” and pledged to relieve a total of approximately USD 100 million worth of fees during the year.  The business community is currently working with the Ministry of Economy to identify which fees to eliminate.

3. Legal Regime

Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations.  All legislation is published both on-line and in in the National Gazette, available at:

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public debate. The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.  There are no informal regulatory processes, and investors should rely solely on government issued legislation to conduct business.

Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.  Publicly listed companies must adhere to these accounting standards by law.  

Croatian courts are responsible for ensuring that laws are enforced correctly.  If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court.  However, judicial remedies are frequently ineffective due to delays or political influence.  

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. The Enforcement Act was amended in August 2017 and has incorporated EU Parliament and Council provisions for making cross-border financial claims easily enforced in both business and private instances.  More information can be found at  . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.  Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at:  

International Regulatory Considerations

Croatia, as an EU member, transpose all EU directives. Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally based legislation that overrides national legislation.  Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects. International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.  The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over all civil and criminal cases. It hears appeals from the County, High Commercial, and Administrative Courts. Regulations and enforcement actions are appealable and adjudicated in the national court system.

The Ministry of Justice continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  While these reforms are underway, significant challenges remain in relation to reforming the land registry, training court officers, providing adequate resources to meet the case load, and reducing the backlog and length of bankruptcy procedures. Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  On average, Croatian courts resolve roughly the same number of cases that they receive each year, but there is a significant backlog (of sometimes tens of thousands of cases) which carries over from year to year.   

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Ministry of Economy, Entrepreneurship, and Crafts Directorate for Investment, Industry, and Innovation ( facilitates both foreign and domestic investment and is available to all interested investors for assistance. Their website offers relevant information on business and investment legislation and includes an investment guide.

According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders.  Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital.  (Note: This list is not exhaustive.)

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to SOEs constituted unlawful state aid. Information on authorities of the Agency and past rulings can be found at  . The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property under various economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects.  However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process.  Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.

Article III of the U.S.-Croatia BIT covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate and effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID).  Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.

Investor-State Dispute Settlement

The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution. 

The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment, but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at

Article Ten of the U.S.-Croatia BIT sets forth several mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment. 

Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases regarding U.S. investor claims before Croatian courts. The cases are in regard to privatization within the real estate sector and have been pending for years.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. . The Chamber of Economy’s Mediation Center has been operating since 2002 – see  

The World Bank Ease of Doing Business 2016 report commended Croatia for making enforcing contracts easier by introducing an electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole.  

There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.  All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The World Bank Ease of Doing Business 2018 rating for Croatia in the category of resolving insolvency was 59 out of 190 countries.  Bankruptcy is not considered a criminal act. 

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure. 

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company.

4. Industrial Policies

Investment Incentives

The Investment Promotion Act (IPA), amended in 2018, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services. The incentives are either tax refunds or cash grants. After they are approved for implementation, they are not distributed immediately. Those who receive cash grants are required to provide documentation proving they have fulfilled the criteria per which the request was granted for every year they have received approval for the incentive. Tax refunds are provided to companies on an annual basis, based on information provided in tax returns. Incentive measures can be combined or used individually.

The IPA provides the following incentive measures: tax refunds for microenterprises; tax advantages for small, medium and large enterprises; cash grants for eligible costs of new jobs linked to the investment project; cash grants for eligible training costs linked to the investment project; additional aid for development and innovation activities, business development support and high value-added services; cash grants for capital costs of investment projects; cash grants for labor intensive investment projects; and investment incentives for economic revitalization projects, involving previously state-owned property.

All incentive measures can be used by entrepreneurs.  Entrepreneurs are defined as individuals subject to Croatian income tax or companies registered in Croatia investing the minimum amount of USD 56,000 in fixed assets, and creating at least 3 new jobs for microenterprises or ten new jobs for companies investing in information computer technology (ICT) systems and software development centers, or USD 168,000 in fixed assets and creating at least 5 new jobs for small or medium enterprises, and large companies.

Substantial tax cuts on profits are available depending on the size of the investment and the number of new jobs created. A 50 percent reduction applies for up to ten years for companies that invest up to USD 1.12 million (USD 56,000 for microenterprises) and create at least five new jobs (3 jobs for microenterprises or 10 jobs for companies investing in ICT system and software development centers). This reduction increases to 75 percent for companies investing USD 1.12 -USD 3.4 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over USD 3.4 million and create at least 15 new jobs.

Cash grants for new jobs created can be up to USD 10,100 per new position, depending on the location of the investment and category of the person employed. Financial support of 10 percent of expenses, which is not subject to reimbursement, or up to USD 3,400 per new position can be used to create jobs in counties with unemployment levels up to 10 percent. This support increases to 20 percent or up to USD 6,700 per position in counties with unemployment levels from 10 to 20 percent, and up to 30 percent or USD 10,100 per new position in counties with unemployment levels above 30 percent.

There are also programs to reimburse costs for employee education and training connected to an investment project which can cover up to 50 percent of the of education and training costs for large companies, up to 60 percent for medium sized companies or if training is given to workers with disabilities, or up to 70 percent for small businesses and microenterprises. Incentives for education cannot exceed 70 percent of eligible costs of education and training.

Additional incentives for job creation are available for development and innovation activities that affect the development of new products or significantly improve existing products, production series, manufacturing processes, and/or production technologies; for business support activities such as customer support, outsourced business activities centers, or logistics and distribution centers, as well as ICT systems and software development centers; for activities such as hospitality and tourism accommodation facilities categorized as four or five stars, heritage hotels and other types of accommodation created through renovation of cultural and historical structures, and supporting services; for health tourism, conference and event tourism, nautical tourism, golf tourism, cultural tourism, entertainment and/or recreation centers and parks, ecological tourism projects and other innovative projects in tourism; as well as for creative services and industrial engineering services.

Additional incentives for job creation are offered for labor-intensive investment projects within the first three years of the project start date. Cash grants for job creation are increased by 25 percent for projects creating 100 or more positions, by an additional 50 percent for projects creating 300 or more jobs, and by up to 100 percent or the total cost (or up to the maximum allowed limit) for creating 500 or more jobs.

Cash grants for the capital costs of investment projects are approved for investments over USD 6.1 million which generate 50 new positions within 3 years of the start of the investment. They cover 10 percent of the cost of new factory construction, production facility construction, or the purchase of new equipment (up to USD 600,000) in counties where the unemployment rate is from 10-20 percent. This incentive increases to 20 percent of the investment cost (up to USD 1.2 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is machines or equipment and that at least 50 percent of those machines or equipment are of high-value technology.

There are also grants for buying equipment or machinery for research and development activities up to 20 percent of the cost of the equipment, or up to USD 560,340.

There are also incentives for investment projects which revitalize inactive state-owned property and provide free land leases for investors investing USD 3.4 million and creating at least 15 new jobs.

Additional information regarding the types of incentives offered by the Ministry of Economy, Entrepreneurship and Crafts can be found at

The Act on Strategic Investment Projects went into effect in November 2013 and was amended in 2018. This Act facilitates and accelerates administrative procedures for projects deemed to be of strategic interest for Croatia based on a number of conditions listed in the Act. Strategic projects can include private, public-private or public investments in economy, mining, energy, tourism, transport, infrastructure, electronic communication, postal services, environmental protection, public utilities, agriculture, forestry, water management, fishery, health care, culture, audio-visual activities, science, defense, judiciary, technology and education. A project may be considered strategic if it contributes to the employment of a large number of people, improves manufacturing or service standards, implements or develops new technologies, offers sustainable growth, or helps advance the competitiveness of the economy.

The minimum amount for an investment to be considered strategic is approximately USD 11.4 million, which is significantly less than previous minimum of USD 22.8 million. All investments over this amount may be considered strategic, and will be entitled to accelerated permitting and registration procedures. Investments may also be treated as strategic if they are valued at USD 1.5 million or more, and are implemented in assisted areas, or if they are implemented on the islands or are in the agriculture, fisheries, and forestry sector. A guide and application materials for private investors interested in applying for status under the Act on Strategic Investment Projects can be found

The Construction Act allows investors to secure permits through an e-licensing system which is a novelty in an otherwise cumbersome permit acquisition procedure. The investor may obtain a license valid for three years, which allows for a three percent change in the dimensions of the project from start to finish. The e-licensing system can be accessed at  

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently 13 Free Trade Zones operating in Croatia. Contact information for each of the Free Trade Zones can be found at the following website  . Both domestic and foreign investors are afforded equal treatment in the trade zones. After Croatia entered the European Union in 2013, many of the Free Trade Zones that operated throughout Croatia were slowly transitioned to Industrial/Business zones. Investment incentives are available in these zones. For more information regarding these zones go to  .

Performance and Data Localization Requirements

Croatian law does not impose performance requirements on or mandate employment requirements for foreign or domestic investors, nor are senior management or board of directors positions mandated in private companies. In regard to U.S. investors, Article VII of the U.S.-Croatia BIT prohibits mandating or enforcing specified performance requirements as a condition for a covered investment. The list of prohibited requirements is exhaustive and covers domestic content requirements and domestic purchase preferences, the “balancing” of imports or sales in relation to exports or foreign exchange earnings, requirements to export products or services, technology transfer requirements and requirements relating to the conduct of research and development in the host country. Article VII of the BIT makes clear, however, that a party may impose conditions for the receipt or continued receipt of benefits and incentives.

Although procedures for obtaining business visas are generally clear, they can be cumbersome and time-consuming. Foreign investors should familiarize themselves with the provisions of the Act on Foreigners. Questions relating to visas and work permits should be directed to the Croatian Embassy or a Croatian Consulate in the United States. The U.S. Embassy in Zagreb maintains a website with information on this subject at

There are no government imposed conditions for investment, nor are there “forced localization” policies for investors in terms of goods and technology. There are no performance requirements, or associated enforcement procedures. Foreign IT providers are not required to turn over source code or give access to surveillance. There are no measures that prevent companies from freely transmitting customer or other business related data outside the country’s territory. There are no requirements for investors to maintain or store data within the territory of Croatia.

5. Protection of Property Rights

Real Property

The right to ownership of private property is enshrined in the Croatian Constitution and in numerous acts and regulations. A foreign physical or legal person incorporated under Croatian law is considered to be a Croatian legal person and has the right to purchase property. The Ownership and Property Rights Act establishes procedures for foreigners to acquire property by inheritance as well as legal transactions such as purchases, deeds, and trusts. Croatia has a well-functioning banking system, which provides mortgages, while courts and cadaster offices handle property records. 

However, real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes more generally.  For all of these reasons, investors should seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys ( The Croatian Agency for Investments and Competitiveness is also a helpful service for those seeking information about property status in Croatia.

While the cadaster offices reliably maintain records, there is a significant volume of property in Croatia which has changed hands without appropriate documentation of the transfer because the owners have sought to avoid paying the title transfer fees. The embassy routinely learns of companies or individuals who have bought property in Croatia, only to learn there are conflicting claims to the property.  These individuals and companies may spend years in court attempting to resolve these claims.  For this reason potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately). 

In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive the approval of the Ministry of Justice. Approval can be delayed, owing to a lengthy interagency clearance process. While citizens of EU member states are afforded the same rights as Croatian citizens in terms of purchasing property, the right of all other foreigners to acquire property in Croatia is based on reciprocity. 

In the case of the United States, reciprocity exists on a (sub-federal) state-by-state basis. Croatia’s Ministry of Foreign and European Affairs has confirmed the existence of positive reciprocity for real estate purchases for residents of the following states:  Alabama, Arizona, Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming.  

Alternatively, for U.S. citizens from Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, property acquisition is only allowed with the condition of Croatian permanent residence.  Residents of other states could face longer waiting periods. The Foreign Ministry has confirmed that Croatian nationals can purchase real estate throughout the United States without restrictions. A foreign investor, incorporated as a Croatian legal entity, may acquire and own property without ministry approval, with the caveat that the purchase by any private party of certain types of land (principally land directly adjacent to the sea or in certain geographically designated areas) can be restricted to foreign investors for purposes of national security.

Inheritance laws have led to situations in which some properties can have claims by dozens of legal owners, some of whom are deceased and others of whom emigrated and cannot be found. 

It is also important to verify the existence of necessary building permits, as some newer structures in coastal areas have been subject to destruction at the owner’s expense and without compensation for not conforming to local zoning regulations. Investors should be particularly wary of promises that structures built without permits will be regularized retroactively. The Act on Legalization of Buildings and Illegal Construction is intended to resolve ambiguities regarding ownership of real estate.

Land ownership is distinct from ownership of buildings or facilities on the land. Investors interested in acquiring companies from the Ministry of State Owned Property should seek legal advice to determine whether any deal also includes the right to ownership of the land on which a business is located, or merely the right to lease the land through a concession. Property may be mortgaged. Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past. Croatian law restricts construction and commercial use within 70 meters of the coastline. 

When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land. The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes. The Agricultural Land Agency works with local governments to review potential agricultural land purchases. However, the Agricultural Land Act no longer covers the sale of privately owned farmland, which is now treated solely as the subject of a sales agreement between the parties. Buyers of this type of land should still proceed with caution and be aware of potentially unresolved legacy issues with land ownership. Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.

The Ministry of Justice and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues. This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data.  For more information see 

Croatia is also working with the World Bank on implementation of the Integrated Land Administration System project (ILAS) to modernize the land administration and management system in order to improve the efficiency, transparency and cost effectiveness of government services.  Croatia continues to process a backlog of cases and potential investors should seek a full explanation of land ownership rights before purchasing property. 

Note that Croatia’s land records are also available online (see   and  ). includes information on over 14 million pieces of land throughout the country. 

The World Bank Ease of Doing Business 2018 report ranks Croatia as 51st out of 190 countries on ease of registering property, up eight spots from the 2017 ranking of 58th. 

There is no property tax in Croatia; a proposal to introduce a property tax failed in 2018.

Intellectual Property Rights

Croatian intellectual property rights (IPR) legislation includes the Patent Act, Trademark Act, Industrial Design Act, Act on the Geographical Indications of Products and Services, Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights. These acts define the process for protecting and enforcing intellectual property rights. Texts of these laws are available on the website of the State Intellectual Property Office (

Legislation pertaining to Intellectual Property Rights can be found at  . The Law on Protecting Unpublished Information with Market Value went into force in 2018. 

Croatian law enforcement officials keep public records of seized counterfeit goods. According to the latest available report from the Customs Office, in 2018, customs officials stopped 540 international deliveries that resulted in a total of 593 procedures for temporary detainment of goods, which included 88,827 items.  Customs also detained 137 domestic deliveries, which contained 18,384 counterfeit goods. They initiated 3 criminal proceedings against those who were involved in the transportation of seized goods. Croatian customs officials and Ministry of Interior work together to locate and seize goods.

Although some areas of IPR protection remain problematic, Croatia is currently not on the U.S. Special 301 Watch List nor is it in the Notorious Markets List. Problem areas are piracy of digital media and counterfeiting. Due to its geographic position, Croatia is also one of the transit routes for various illegal products bound for other countries in the region. There have been no problems reported with regard to registration of intellectual property in Croatia by American companies. In May 2016, the American Chamber of Commerce in Croatia delivered to the Croatian government Recommendations for Improving the Enforcement of Intellectual Property Protection in Croatia based on discussions with their members in regard to treatment of intellectual property   (please scroll down to the 15th line). The American Chamber of Commerce continues dialogue with the Croatian government in regard to intellectual property rights issues.

As a WTO member, Croatia is a party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Croatia is also a member of the World Intellectual Property Organization (WIPO). For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at  .

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at  .

6. Financial Sector

Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad. Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in the Republic of Croatia in accordance with regulations governing securities transactions. Non-residents and residents are afforded the same treatment in spending and borrowing. These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website (

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991. Regulations that govern activity and participation in the ZSE can be found (in English) at:  . There are three tiers of securities traded on the ZSE. The Capital Markets Act regulates all aspects of securities and investment services, and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in April 2018 to give HANFA more authority in terms of investigating and punishing false annual business reporting.  All legislation associated with the Capital Market act can be found (in English) at:  

There is sufficient liquidity in the markets to enter and exit sizeable positions. There are no policies that hinder the free flow of financial resources. There are no restrictions on international payments or transfers. As such, Croatia is in accordance with IMF Article VIII. The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market on market terms.

Money and Banking System

The banking sector is now overwhelmingly privatized, consolidated, highly developed, competitive, and increasing the diversity of products available to businesses (foreign and domestic) and consumers. French, German, Italian or Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia. The banking sector suffered no long-term consequences during the 2008 global banking crisis. More than 90 percent of total banking sector assets are foreign-owned. As of December 2018, there were 21 commercial banks and four savings banks, with assets totaling USD 66 billion. The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18 billion, for a market share of 27.3 percent of total banking assets in Croatia. The second-largest is Italian-owned Privredna Banka Zagreb, with USD 13 billion, or 20.05 percent of total banking assets. The third largest is Austrian Erste Bank, with assets of USD 10 billion, with a 14.83 percent market share in Croatia. The country has a central bank system and all information regarding the Croatian National Bank can be found at  .

Non-residents are able to open bank accounts without restrictions or delays. The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.

Foreign Exchange and Remittances

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory. Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments. The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds. The law also allows Croatian entities and individuals to invest abroad. Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is determined by the Croatian National Bank. The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. The exchange rate of the Croatian kuna, while floating freely, is more tightly linked to the euro than the U.S. dollar. Any risk of currency devaluation or significant depreciation is generally low.

Remittance Policies

No limitations exist, either temporal or by volume, on remittances. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

The Republic of Croatia does not own any sovereign wealth funds.

7. State-Owned Enterprises

There are currently a total of 65 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of State Owned Property or the Center for Restructuring and Sale (CERP). In 2018, the government established an official list of 39 “special state interest” SOEs overseen by the Ministry of State Owned Property, including 19 wholly state-owned and 20 majority state-owned companies.  CERP oversees the other 26 SOEs, of which 12 are wholly state-owned and 14 are majority state-owned.  

These SOEs cover a range of sectors including infrastructure, energy, real estate, finances, transportation and utilities. The latest figures available, from December 31, 2017, show that SOEs employ a total of 73,790 people and have net revenues totaling USD 9.1 billion, while assets total USD 38.7 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence. 

CERP also oversees 374 companies; of these, the state owns from ten to 49 percent of 88 companies, and under ten percent of the remaining 260 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of State Owned Assets at   and on CERP’s website at  

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The European Bank for Reconstruction and Development (EBRD) concluded in a report on Croatian SOEs published in 2018 that a way to improve corporate governance and reduce political influence is to appoint professional boards with independent members. The International Monetary Fund Staff Concluding Statement of the 2018 IMF Article IV Mission from December 2018 noted that SOEs’ revenue-generating capacity is low, and that loss-making SOEs are a drain on the state budget.  SOEs competing on the domestic market do not receive market based advantages from the host government.  

The Zagreb Stock exchange is currently working with the EBRD on reviewing and revising the Croatian Corporate Governance Code, which is expected to be finished in August 2019. Croatia is not a member of the OECD, but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.  

Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of State Owned Assets and the Center for Reconstruction and Sales. There are no restrictions against foreigners participating in privatization tenders. The banking sector, telecommunications, and Croatia’s largest pharmaceutical company were purchased by foreign investors when Croatia initiated its privatization process in the late 1990’s. The bidding process is public and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects. There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output. The Ministry of State Owned Assets identified completing the privatization of state-owned assets and improving the management of SOE’s as its priorities in its 2018-2020 strategy.  This strategy is available (only in Croatian) at: percent20plan percent20MIDIM percent202018.-2020.pdf 

All tenders are published internationally and there are no restrictions on foreign investor participation in privatization. The bidding process is public. Tenders are in Croatian and can be found at  .

8. Responsible Business Conduct

There is a general awareness of societal expectations regarding responsible business conduct which is regulated by law. The Croatian Financial Services Supervisory Agency has established a Corporate Governance Code of Ethics for all Zagreb Stock Exchange (ZSE) participants, and the Company Act, Audit Law, Accounting Law and Credit Institutions law are the sources for corporate governance provisions. Publicly listed companies are required to upload their annual corporate governance reports on the ZSE website. The existing code was drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE.  The EBRD is currently partnering with the Croatian Financial Services Supervisory Agency and the ZSE to update and strengthen corporate governance legislation, which is expected to be finished in August 2019. It introduces significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities. 

No high profile or controversial instances of private sector labor rights violations have occurred in Croatia. The government effectively implements and enforces domestic laws in order to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations even exceed European Union standards.  Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct. Labor unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on labor, environmental, or consumer rights in the business sector. The EBRD is currently partnering with the Croatian Financial Services Supervisory Agency and the ZSE to update and strengthen corporate governance legislation.

Although Croatia is not a member, Croatia encourages the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High Risk Areas and considers minerals from conflict affected areas to be illegal.  Various laws related to forest and water management, concessions, and environmental protection are implemented in extractive and mining businesses to maintain high environmental and human rights standards. All procedures for mining or extraction tenders are publicly available and transparent.

9. Corruption

Croatia has a suitable legal framework, including regulations and penalties, to combat corruption.  The Criminal Code and the Criminal Procedure Act define the tools available to the investigative authorities to fight corruption.  The criminal code also provides for asset seizure and forfeiture. In terms of a corruption case, it is assumed that all of a defendant’s property was acquired through criminal offences unless the defendant can prove the legal origin of the assets in question.  Pecuniary gain in such cases is also confiscated if it is in possession of a third party (e.g. spouse, relatives, or family members) and was not acquired in good faith. Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members and political parties. The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment and obstruction of justice.  The Act on the Office for the Suppression of Corruption and Organized crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.  

The Law on Public Procurement is entirely harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities.  Government officials use public speeches to encourage ethical business. The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found at 

Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; the Act on Public Services; the Code of Conduct for Public Officials; and the Code of Conduct for Judges.  The Labor Act contains whistleblower protections, which as yet remain unproven.

Croatia has signed but not ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, but it is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis. Croatia has been a member of INTERPOL since 1992. Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI). Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.

Croatian legislation provides protection for NGOs involved in investigating or drawing attention to corruption.  GONG, a non-partisan citizens’ organization founded in 1997, which also acts as a government watchdog, monitors election processes, educates citizens about their rights and duties, encourages communication between citizens and their elected representatives, promotes transparency within public services, manages public advocacy campaigns, and assists citizens in self-organizing initiatives.  The Partnership for Social Development is another nongovernmental organization active in Croatia dealing with the suppression of corruption.

Historically, the business community has identified corruption in healthcare, public procurement, and construction, and continues to raise it as an obstacle to FDI.  During the years ahead of EU accession, Croatia invested considerable efforts in establishing a wide-ranging legal and institutional anti-corruption framework. The Strategy for Combatting Corruption from 2015-2020 is currently being implemented, and the Ministry of Justice published an action plan in June 2017 to complement the Strategy for 2017-2018.  Croatian prosecutors have secured corruption convictions against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.

Resources to Report Corruption

The State Prosecutor’s Office for the Suppression of Corruption and Organized Crime (USKOK) is tasked with directing police investigations and prosecuting cases. USKOK is headquartered in Zagreb, with offices in Split, Rijeka and Osijek.  In addition, the National Police Office for the Suppression of Corruption and Organized Crime (PN-USKOK) conducts corruption-related investigations and is based in the same cities. Specialized criminal judges are situated in the four largest county courts in Croatia, again in Zagreb, Rijeka, Split, and Osijek, and are responsible for adjudicating corruption and organized crime cases.  The cases receive high priority in the justice system, but still encounter excessive delays. The Ministry of Interior, the Office for Suppression of Money Laundering, the Tax Administration, and the Anti-Corruption Sector of the Ministry of Justice, all have a proactive role in combating and preventing corruption. GONG is a civil society organization founded in 1997 to encourage citizens to actively participate in the political process.

Contact information below:

Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855

Office for the Suppression of Corruption and Organized Crime
Gajeva 30a, 10000 Zagreb, Republic of Croatia
+385 1 4591 874

Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444

10. Political and Security Environment

The risk of political violence in Croatia is low. Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU. Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.

11. Labor Policies and Practices

Croatia has an educated, highly skilled, and relatively high-value labor force as compared to regional averages, but remains relatively low for the entire EU.  Employment is regulated by the constitution, international conventions, treaties, labor law, collective agreements and employment agreements.  

The World Bank estimates the grey economy accounts for 35 percent of GDP.  Unemployment rates are falling, yet Croatia maintains the 5th highest unemployment rate in the EU.  

The Labor Law is the main piece of legislation that governs employment and prescribes general labor regulations. Among other items, the Labor Law prohibits discrimination, defines various types of leave including maternity, and provides terms for striking, salaries and other labor related issues. The government is committed to increasing jobs, especially for youth, through various programs funded by the EU. Companies report that Croatia’s labor law makes it relatively expensive to hire and dismiss employees in comparison to the United States and other countries in Europe at the same level of development.

There are currently labor shortages reported in the construction, food production, and tourism sectors.  Foreign or migrant workers do not currently play a significant role in any field; the government has increased quotas for foreign workers to address these shortages.  Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually. In 2018, the Government announced measures intended to incentivize people to remain rather than working abroad.  These measures includes USD 307 million worth of financial support for employers and the self-employed, and for training and seasonal work programs. A large portion of the funding is intended to be directed at policies for active employment, while a portion will fund specialized programs for groups that have a harder time entering the labor market. 

Croatian law does not require the hiring of Croatian nationals. Employers are bound by law to offer severance pay to individuals laid off due to restructuring or down-sizing.  The labor law defines the conditions and amounts of severance pay, to include three items necessary to qualify for severance: 1) the employer must terminate the employee, 2) the termination must not be the result of behavioral issues, and 3) the employee must have been employed for two consecutive years.  The Croatian Employment Agency provides unemployment payments for those laid off due to economic reasons.

Labor laws are strictly implemented and not waived to retain or attract investment.  Collective bargaining is a common tool, mostly implemented by unions, which overwhelmingly represent workers associated with government spending and state owned enterprises.

12. OPIC and Other Investment Insurance Programs

Croatia is eligible for OPIC political risk insurance.  OPIC’s active portfolio in Croatia is USD 500,000. Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see  .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $60,892 2018 $60,805   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $138 N/A N/A BEA data available at  
Host country’s FDI in the United States ($M USD, stock positions) 2018 $56.7 N/A N/A BEA data available at  
Total inbound stock of FDI as % host GDP 2018 65.15% N/A N/A UNCTAD data available at    

[Select country, scroll down to “FDI Stock”- “Inward”, scan rightward for most recent  year’s “as percentage of gross domestic product”]

*GDP at   for 2018, FDI at    for Q1-Q3 2018 Note: World Bank and U.S. Bureau of Economic Analysis do not have GDP or FDI data available for 2018 at time of publishing.

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $39,675 100% Total Outward $7,722 100%
The Netherlands $6,856 20.4% The Netherlands $3,212 41.6%
Austria $4,326 12.9% Bosnia Herzegovina $1,448 18.8%
Italy $3,612 10.8% Slovenia $1,151 14.9%
Germany $3,215 9.6% Serbia $946 12.2%
Luxembourg $2,756 8.2% Montenegro $302 3.9%
“0” reflects amounts rounded to +/- USD 500,000.

*FDI at    for Q1-Q3 2018

Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

For more information on the investment climate in Croatia, you may contact:

Economic Section
U.S. Embassy Zagreb
Ulica Thomasa Jeffersona 2, 10010 Zagreb
Tel (+385 1) 661-2200


Executive Summary

With a population of 9.8 million, Hungary has an open economy and GDP of approximately USD 156 billion.  Hungary has been a member of the European Union (EU) since 2004, and fellow member states are its most important trade and investment partners.  Macroeconomic indicators are generally strong: the economy grew by 4.9 percent in 2018 and likely will grow by 3.5 percent in 2019. The government has kept the deficit below 2.5 percent of GDP since 2013 and has lowered public debt from more than 80 percent of GDP in 2010 to 71 percent in 2018.  Ratings agencies upgraded Hungary’s sovereign debt to two notches above investment grade in 2019.

Hungary’s central location and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI).  Between 1989 and 2017, Hungary received approximately USD 98 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors.  The EU accounts for 89 percent of all in-bound FDI. The United States is the largest non-EU investor. The Government of Hungary (GOH) actively encourages investments in manufacturing and high-value added sectors, including research and development centers and service centers.  To promote investment, the GOH lowered the corporate tax rate to 9 percent in 2017 and the labor tax to 19.5 percent in 2018, which is among the lowest rates in the EU. Hungary’s Value Added Tax (VAT) however, is the highest in Europe at 27 percent.

Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years.  Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary.  In certain industries, such as finance, energy, telecommunication, pharmaceuticals, and retail, unpredictable sector-specific tax and regulatory policies have favored national and government-linked companies.   Additionally, persistent corruption and cronyism continue to plague the public sector. Since 2010, According to Transparency International’s (TI) Corruption Perceptions Index, Hungary placed 64st worldwide and 26th out of 28 EU member states in 2018.  In 2016, the GOH withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. Both foreign and domestic investors are reporting pressure to sell their businesses to government-affiliated investors.  Those who refuse to sell often face increased tax audits or spurious regulatory and court challenges. Additionally, some executives in Hungarian subsidiaries of U.S. multinationals have noted that the GOH’s strong anti-migrant rhetoric and actions have negatively affected board members’ views of Hungary, making it more difficult for the subsidiaries to obtain approval for new investments.

Analysts remain concerned that the GOH may intervene in certain priority sectors to unfairly promote domestic ownership at the expense of foreign investors.  In September 2016, PM Viktor Orban announced that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Through various tax changes, analysts say the GOH pushed several foreign owned banks out of Hungary and increased Hungarian ownership in the banking sector to approximately 50 percent, up from 40 percent in 2010.  In the energy sector, foreign-owned company share of total revenue fell from 70 percent in 2010 to below 50 percent by the end of 2018. Foreign media ownership also has reduced drastically in recent years as GOH-friendly businesses have consolidated control of Hungary’s media environment. The number of media outlets owned by GOH-allies increased from around 30 in 2015 to nearly 500 in 2018.  In November 2018, the owners of 476 pro-GOH media outlets, comprising 85 percent of all media, donated those outlets to the Central European Press and Media Foundation (KESMA) run by (ruling) Fidesz party insiders. PM Orban exempted KESMA from scrutiny by Hungary’s media and competition authorities. Despite threats to impose new regulations and taxes for the retail sector that would disproportionately impact multinational firms, foreign retail chains continue to maintain a large presence in Hungary.  Finally, the GOH has identified tourism as a priority industry and government-allied firms have begun to invest heavily in the sector.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 64 of 180 
World Bank’s Doing Business Report 2019 53 of 190
Global Innovation Index 2018 33 of 126 
U.S. FDI in partner country ($M USD, stock positions) 2017 $7,100 
World Bank GNI per capita 2017 $12,870 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Hungary maintains an open economy and its high-quality infrastructure and central location are features that make it an attractive destination for investment.  Attracting FDI is an important priority for the GOH, especially in manufacturing and export-oriented sectors. According to some reports, in other sectors, including banking and energy, however, government policies have resulted in some foreign investors selling their stakes to the government or state-owned enterprises.  Hungary was a leading destination for FDI in Central and Eastern Europe in the mid-nineties and the mid-two-thousands, with annual FDI reaching over USD 6 billion in 2005. The pace of FDI inflows slowed in subsequent years as a result of the 2008 global financial crisis and increasing competition for investment from other countries in the region.  In 2017, net annual FDI amounted to USD 5.6 billion while total gross FDI amounted to USD 98 billion.

As a block, the EU accounts for approximately 89 percent of all FDI in Hungary in terms of direct investors and 62 percent in terms of ultimate controlling parent investor.  Germany is the largest investor, followed by the United States, Austria, France, the United Kingdom, Italy, Japan, the Netherlands, and China. The majority of U.S. investment falls within automotive, software development, and life sciences sectors.  Approximately 450 U.S. companies maintain a presence in Hungary.

The GOH actively seeks foreign investment and has implemented a number of tax changes to increase Hungary’s regional competitiveness and attract investment, including a reduction of the personal income tax rate to 15 percent in 2016, reducing the business income tax rate to 9 percent in 2017, and the gradual reduction of the employer-paid welfare contribution from 27 percent in 2016 to 19.5 percent in 2018.  As of 2016, the GOH streamlined the National Tax and Customs authority (NAV) procedure to offer fast-track VAT refund to customers categorized as “low risk” based on their internal controls and previous tax record.

Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, its retroactive nature, slow response times, and the volume of legal and tax changes.  According to the European Commission (EC), a series of progressively-tiered taxes implemented in 2014 disproportionately penalized foreign businesses in the telecommunications, tobacco, retail, media, and advertisement industries, while simultaneously favoring Hungarian companies.  Following EC infringement procedures, the GOH phased out most discriminative tax rates by 2015 and replaced them with flat taxes.

In 2017, the GOH passed a regulation that gives the government preemptive rights to purchase real estate in World Heritage areas.  The rule has been used to block the purchase of real estate by foreign investors in the most desirable areas of Budapest.

A 2014 law required retail companies with over USD 53 million in annual sales to close if they report two consecutive years of losses.  Retail businesses claimed the GOH specifically set the threshold to target large foreign retail chains.  The EC determined that the law was discriminatory and launched an infringement procedure in 2016, which resulted in the GOH repealing the controversial legislation in November 2018.

The GOH publicly declared that reducing foreign bank market share in the Hungarian financial sector is a priority.  Accordingly, GOH initiatives over the past several years have targeted the banking sector and reduced foreign participation from about 70 percent before the financial crisis in 2008 to just over 50 percent by the end of 2018.  In addition to the 2010 bank tax and the 2012 financial transaction tax levied on all cash withdrawals, regulations between 2012-2015 obligated banks to retroactively compensate borrowers for interest rate increases on foreign currency denominated mortgage loans, even though these increases were spelled out in the original contract with the customer, and were permitted by Hungarian law.

While the pharmaceutical industry is competitive and profitable in Hungary, multinational companies complain of numerous financial and procedural obstacles, including high taxes on pharmaceutical products and operations, prescription directives that limit a doctor’s choice of drugs, and obscure tender procedures that negatively affect the competitiveness of certain drugs.  Pharmaceutical firms have also taken issue with GOH moves to weigh the cost of pharmaceutical procurement as more important than efficacy when issuing tenders for public procurement.

The Hungarian Investment Promotion Agency (HIPA), under the authority of the Ministry of Foreign Affairs and Trade, encourages and supports inbound FDI.  HIPA offers company and sector-specific consultancy, recommends locations for investment, acts as a mediator between large international companies and Hungarian firms to facilitate supplier relationships, organizes supplier training, and maintains active contact with trade associations.  Its services are available to all investors. For more information, see:  

Foreign investors generally report a productive dialogue with the government, both individually and through business organizations.  The American Chamber of Commerce enjoys an ongoing high-level dialogue with the GOH and the government has adopted many AmCham policy recommendations in recent years.  In 2017, the government established a Competitiveness Council, chaired by the Minister of Economy, which includes representatives from multinationals, chambers of commerce, and other stakeholders, to increase Hungary’s competitiveness.  Many U.S. and foreign investors have signed MOUs with the GOH to facilitate one-on-one discussions and resolutions to any pending issues. For more information, see:   and  

The US-Hungary Business Council (USHBC) – a private, non-profit organization established in 2016 – aims to facilitate and maintain dialogue between American corporate executives and the top government leaders on the U.S.-Hungary commercial relationship.  The majority of significant U.S. investors in Hungary have joined USHBC, which hosts roundtables, policy conferences, briefings, and other major events featuring senior U.S. and Hungarian officials, academics, and business leaders. For more information, see:  

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is permitted with the exception of some “strategic” sectors including defense-related industries, which require special government permit, and farmland.  There are no general limits on foreign ownership or control.

Foreign law firms and auditing companies must sign a cooperation agreement with a Hungarian company to provide services on Hungarian legal or auditing issues.

According to the Land Law, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding a degree in an agricultural discipline can purchase farmland.  Eligible individuals are limited to purchasing 300 hectares (741 acres). All others may only lease farmland. Non-EU citizens and legal entities are not allowed to purchase agricultural land. All farmland purchases must be approved by a local land committee and Hungarian authorities, and local farmers and young farmers must be offered a chance to purchase the land first before a new non-local farmer is allowed to purchase the land.  For those who do not fulfill the above requirements or for legal entities, the law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. The GOH has invalidated any pre-existing leasing contract provisions that guaranteed the lessee the first option to purchase, provoking criticism from Austria and Austrian farmers. Austria has reported the change to the European Commission, which initiated an infringement procedure against Hungary in October 2014.  In March 2018, the European Court of Justice ruled that the termination of land use contracts violated EU rules, opening the way for EU citizens who lost their land use rights to sue the GOH for damages. In March 2015, the EC launched another – still ongoing – infringement procedure against Hungary concerning its restrictions on acquisitions of farmland.

The GOH passed a law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25 percent stake in a Hungarian company in certain “sensitive sectors” (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  The Ministry has up to 90 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. As of publication, we are not aware of any instances in which the Ministry has reviewed an investment.

Other Investment Policy Reviews

Hungary has not had any third-party investment policy reviews in the last three years.

Business Facilitation

Hungary maintains an open economy and its high-quality infrastructure and central location make it an attractive destination for investment.  Attracting FDI is an important priority for the GOH, especially in manufacturing and export-oriented sectors.  In 2006, Hungary joined the EU initiative to create a European network of “point of single contact” where existing businesses and potential investors can access all information on the business and legal environment, as well as connect to Hungary’s investment promotion agency.  Over the past two years, the government has strengthened investor relations and, in addition to signing strategic agreements with key investors, established a National Competitiveness Council to discuss competitiveness challenges, formulate pro-competitiveness measures, and build constructive stakeholder relationships.

The registration of business associations is compulsory in Hungary.  Firms must contract an attorney and register online with the Court of Registration.  Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process usually does not take more than three workdays.  If the Court fails to act within the given timeframe, the new company is automatically registered. If the company chooses to use a template corporate charter, registration can be completed in a one-day fast track procedure.  Registry courts provide company information to the Tax Office (NAV) eliminating the need for separate registration. The Court maintains a computerized registry and electronic filing system and provides public access to company information.  The minimum capital requirement for a limited-liability company is HUF 3,000,000 (USD 10,800); for private limited companies HUF 5,000,000 (USD 17,900), and for public limited companies HUF 20,000,000 (USD 71,400). Foreign individuals or companies can establish businesses in Hungary without restrictions.

Further information on business registration and the business registry can be obtained at the GOH’s information website for businesses:   or at the Ministry of Justice’s Company Information Service:  

Hungarian business facilitation mechanisms provide equitable treatment for women, but offer no special preference or assistance for them in establishing a company.

Outward Investment

The stock of total Hungarian investment abroad amounted to USD 28.7 billion in 2017.  Outward investment is mainly in manufacturing, services, finance and insurance, and science and technology.  There is no restriction in place for domestic investors to invest abroad. The GOH announced in early 2019 that it would like to increase Hungarian investment abroad and it is considering incentives to promote Hungarian investment.

2. Bilateral Investment Agreements and Taxation Treaties

Hungary and the United States do not have a bilateral investment treaty (BIT).

Hungary has bilateral investment treaties that the following countries: Albania, Argentina, Australia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, India, Indonesia, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxemburg, The former Yugoslav Republic of Macedonia, Malaysia, Moldova, Mongolia, Morocco, The Netherlands, Norway, Paraguay, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, United Kingdom, Uruguay, Uzbekistan, Vietnam and Yemen.

Hungary has tax treaties that eliminate many aspects of double taxation with the United States and the following other countries: Albania, Australia, Austria, Azerbaijan, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Great Britain, Greece, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Kuwait, Latvia, Lithuania, Luxembourg, The former Yugoslav Republic of Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco, The Netherlands, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Korea, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Tunisia, Ukraine, Uruguay, Uzbekistan and Vietnam

Negotiations were concluded in 2010 to revise Hungary’s current tax treaty with the United States; this is currently awaiting U.S. Senate ratification.

In January 2014, Hungary signed a Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement with the United States to improve international tax compliance through mutual assistance in tax matters and the automatic exchange of tax information.  The United States and Hungary have also signed a totalization agreement that will eliminate double social security taxation and fill gaps in benefits for workers that have divided their careers between the two countries.

3. Legal Regime

Transparency of the Regulatory System

Generally, legal, regulatory, and accounting systems are consistent with international and EU standards.  However, some executives in Hungarian subsidiaries of U.S. companies complain about a lack of transparency in the GOH’s policy-making process and an uneven playing field in public tendering.  In recent years, there has been an uptick in the number of companies, including major U.S. multinational franchises, reporting pressure to sell their businesses to government-affiliated investors.  Those that refuse to sell report an increase in tax audits, fines, and spurious regulatory challenges and court cases. SMEs increasingly report a desire to either remain small (and therefore “under the radar” of these government-friendly investors) or relocate their businesses outside of Hungary.

For foreign investors, the most relevant regulations stem from EU directives and the laws passed by Parliament to implement these.  Laws in Parliament can be found on Parliament’s website (  ).  Legislation, once passed, is published in a legal gazette and available online at  .  The GOH can issue decrees, which also have national scope, but they cannot be contrary to laws enacted by Parliament.  Local municipalities can create local decrees, limited to the local jurisdiction.

Hungarian financial reporting standards are in line with the International Accounting Standards and the EU Fourth and Seventh Directives.  The Accounting law requires all businesses to prepare consolidated financial statements on an annual basis in accordance with international financial standards.

The GOH rarely invites interested parties to comment on draft legislation.  Civil organizations have complained about a loophole in the current law that allows individual MPs to submit legislation and amendments without public consultation.  The average deadline for submitting public comment is often very short, usually less than one week. The Act on Legislation and the Law Soliciting Public Opinion, both passed by Parliament in 2010, govern the public consultation process.  The laws require the GOH to publish draft laws on its webpage and to give adequate time for all interested parties to give an opinion on the draft. However, implementation is not uniform and the GOH often fails to solicit public comments on proposed legislation.

The legislation process – including key regulatory actions – are published on Parliament’s webpage (  ).  Explanations attached to draft bills include a short summary on the aim of the legislation, but public comments received by regulators are only occasionally made public.

Regulatory enforcement mechanisms include the county and district level government offices whose decisions can be challenged at county level labor and administrative courts.  The court system generally provides efficient oversight over the GOH’s administrative processes.

In December 2018 the Parliament passed a new law on establishing a new parallel administrative court system with jurisdiction over cases relating to “public administration,” including tax, construction licensing, public procurement, competition cases, and politically sensitive matters like electoral law, freedom of information requests, and the right to protest.  The new court system will be under the control of the Minister of Justice and will start operating in January 2020.  Critics – including NGOs and opposition parties – claim the new system will further undermine the rule of law in Hungary and eliminate constitutional boundaries between the executive and judicial branches of government, paving the way for political interference.  In its opinion issued in March 2019, the Council of Europe’s Venice Commission (VC) found that the planned court system lacks effective checks and balances and said the new regime grants the Minister of Justice excessively wide powers to appoint and promote judges. The VC also determined that the head of the new administrative courts also has unjustifiably wide powers. The GOH passed amendments it claimed addressed, the VC’s concerns.  Watchdog NGOs, however, did not believe the amendments addressed the VC’s most significant criticisms.

The new administrative courts’ jurisdiction will extend to several types of cases significant for investors.  Although the creation of the administrative court is not expected to have direct economic impact, the independence of the judiciary is crucial to maintaining a positive business climate.

The GOH does not review regulations on the basis of scientific or data driven assessments, but some NGOs and academics do.  A 2017 study by Corruption Research Center Budapest (CRCB) found that in the 2010-2013 period the annual average number of new laws passed by Parliament increased, while the average time spent debating new laws in Parliament decreased significantly.  The analysis points out that the accelerating lawmaking process in Hungary in the 2010-2013 period had negative effects on the stability of the legal environment and the overall quality of legislation. The Parliament passed less new legislation in the past few years.

Hungary’s budget was widely accessible to the general public, including online through the Parliament and Finance Ministry websites and the Legal Gazette.  The government made budget documents, including the executive budget proposal, the enacted budget, and the end-of-year report publicly available within a reasonable period of time.  Information on debt obligations was publicly available, including online through the Hungarian Central Bank and Hungarian State Debt Manager’s websites.

International Regulatory Considerations

As an EU Member State, all EU regulations are directly applicable in Hungary, even without further domestic measures.  If a Hungarian law is contrary to EU legislation, the EU rule takes precedence. As a whole, labor, environment, health, and safety laws are consistent with EU regulations.  Hungary follows EU foreign trade and investment policy and all trade regulations follow EU legislation. Hungary participates in the WTO as an EU Member State.

Legal System and Judicial Independence

The Hungarian legal system is based on continental European (German-French and Roman law) traditions.  Contracts are enforced by ordinary courts or – if stipulated by contract – arbitration centers. Investors in Hungary can agree with their partners to turn to Hungarian or foreign arbitration courts.

Apart from these arbitration centers, there are no specialized courts for commercial cases; ordinary courts are entitled to judge any kind of civil case.  The Civil Code of 2013 applies to civil contracts.

The Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts) and courts of public administration and labor; courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the Hungarian Supreme Court).  Hungary also has a Constitutional Court that reviews cases involving the constitutionality of laws and court rulings. From 2020, per legislation passed in December 2018, a new administrative court system will rule on administrative cases (see above). As a result, it is expected that labor courts and judges will be merged into district courts.

Although the GOH has criticized court decisions on several occasions, ordinary courts are considered to generally operate independently under largely fair and reliable judicial procedures.  Recently, an increasing number of current and former judges have raised concerns about growing GOH influence over the court system and intimidation of judges by court administration. Most business complaints about the court system pertain to the lengthy proceedings rather than the fairness of the verdicts.  The GOH hopes to improve the speed and efficiency of court proceedings with the new Civil Procedure Code, which entered into force in January 2018.

Regulations and law enforcement actions pertaining to investors are appealable at ordinary courts or at the Constitutional Court.

Laws and Regulations on Foreign Direct Investment

Hungarian law provides strong protections for property and investment.  The Hungarian state may only expropriate property in exceptional cases where there is a public interest; any such expropriations must be carried out in a lawful way, and the GOH is obliged to make immediate and full restitution for any expropriated property, without additional stipulations or conditions

 The GOH passed a law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25 percent stake in a Hungarian company in certain “sensitive sectors” (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  The Ministry has up to 90 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. As of publication, we are not aware of any instances in which the Ministry has reviewed an investment.

There is no primary website or “one-stop shop” which compiles all relevant laws, rules, procedures, and reporting requirements for investors.  HIPA, the Hungarian Investment Promotion Agency, however, facilitates establishment of businesses and provides guidance on relevant legislation.

Competition and Anti-Trust Laws

The Hungarian Competition Authority, tasked with safeguarding the public interest, enforces the provisions of the Hungarian Competition Act.  Since EU accession in 2004, EU competition law also binds Hungary. The Competition Authority is empowered to investigate suspected violations of competition law, order changes to practices, and levy fines and penalties.  According to the Authority, since 2010 the number of competition cases has decreased, but they have become more complex. Out of more than 100 cases over the past year, only a few minor cases pertained to U.S.-owned companies.  Hungarian law does not consider conflict of interest to be a criminal offense. Citing evidence of conflict of interest and irregularities the European Anti-Fraud Office OLAF recommended opening a criminal investigation in a high profile USD 50 million EU-funded public procurement project, but Hungarian authorities declined to prosecute  the case.

Expropriation and Compensation

Hungary’s Constitution provides protection against expropriation, nationalization, and any arbitrary action by the GOH except in cases of extreme national security concern.  In such cases, immediate and full compensation is to be provided to the owner. There are no known expropriation cases where the GOH has discriminated against U.S. investments, companies, or representatives.  There have been some complaints from other foreign companies within the past several years that expropriations have been improperly executed, without proper remuneration. Parties involved in these cases turned to the legal system for dispute settlement.

There is no recent history of official GOH expropriations, but many critics raised concerns that the 2014 tobacco and advertising taxes were a de facto expropriation attempt because they intentionally and disproportionately targeted foreign firms with the intent to force them to seek a buy-out from a domestic firm.  The GOH backtracked on the taxes after a 2015 EU injunction. The increasing reports of the use of government regulatory and tax agencies to pressure businesses to sell to government-friendly investors may also be construed as a form of de-facto expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Hungary is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID Convention), proclaimed in Hungary by Law 27 of 1978.  Hungary also is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), proclaimed in Hungary by Law 25 of 1962.

There is not specific legislation providing for enforcement other than the two domestic laws proclaiming the 1958 New York Convention and the ICSID Convention.  According to Law 71 of 1994, an arbitration court decision is equally binding to that of a court ruling.

Investor-State Dispute Settlement

Hungary is signatory to the 1965 Washington Convention establishing the International Centre for Settlement of Investment Disputes (ICSID) and to UN’s 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Under the New York Convention, Hungary recognizes and enforces rulings of the International Chamber of Commerce’s International Court of Arbitration.

Hungary has no Bilateral Investment Treaty or Free Trade Agreement with the United States.  In recent years, the number of investor-State arbitration claims against Hungary has increased, although very few involve U.S. investors.

Over the past 10 years U.S. investors have been involved only in a few investment disputes, including a recent major dispute with Hungary’s state owned energy company MVM, where the U.S. claimant stepped back after it was unable to reclaim a USD 17 million compensation.  Since 2010, ten cases have been launched against Hungary at the ICSID, but none of them involved U.S. investors.

Local courts recognize and enforce foreign arbitral awards against the GOH.

In 2016 Hungarian Tax Office NAV froze the bank account and working capital of a U.S. owned company, before any wrongdoing had been confirmed.  After several months, NAV released the account, but by that time the company has suffered significant losses.

International Commercial Arbitration and Foreign Courts

Hungary has accepted international arbitration in cases where the resolution of disputes between foreign investors and the state is unsuccessful.  In the last few years, parties have increasingly turned to mediation as a means by which to settle disputes without engaging in lengthy court procedures.  Law 71 of 1994 on domestic arbitration procedures is based on the UNCITRAL model law.

Investment dispute settlement clauses are usually regulated by stipulations of the investment contract.  Hungarian law allows the parties to set the jurisdiction of any courts or arbitration centers. The parties can also agree to set up an ad hoc arbitration court.  The law also allows investors to agree on settling investment disputes by turning to foreign arbitration centers, such as the International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL’s Permanent Court of Arbitration (PCA), or the Vienna International Arbitral Centre.  In Hungary, foreign parties can turn to the Hungarian Chamber of Commerce and Industry arbitration court, which has its own rules of proceedings (  ) and in financial issues to the Financial and Capital Market’s arbitration court.

Local courts recognize and enforce foreign or domestic arbitral awards.  Arbitral ruling may only be annulled in limited cases, and under special conditions.

Domestic courts do not favor SOEs disproportionately.  Investors can expect a fair trial even if SOEs are involved.  Investors do not complain about non-transparent or discriminatory court procedures.

Bankruptcy Regulations

The Act on Bankruptcy Procedures, Liquidation Procedures, and Final Settlement of 1991, covers all commercial entities with the exception of banks (which have their own regulatory statutes), trusts, and state-owned enterprises, and brought Hungarian legislation in line with EU regulations.  Debtors can only initiate bankruptcy proceedings provided that they have not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlements.  If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination.  The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

The debtor, the creditors, the administrator, or the Criminal Court may file liquidation procedures with the court.  Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending a copy of the petition.  The debtor has eight days to acknowledge insolvency. If the insolvency is acknowledged, the company declares if any respite for the settlement of debts is requested.  Failure to respond results in the presumption of insolvency. Upon request, the Court may allow a maximum period of 30 days for the debtor to settle its debt.

If the Court finds the debtor insolvent, it appoints a liquidator.  Transparency International (TI) has raised concerns about the transparency of the liquidation process because a company may not know that a creditor is filing a liquidation petition until after the fact.  TI also criticized the lack of accountability of liquidator companies and the impractical deadlines in the process. The EU has also criticized the Hungarian system as being rescue-unfriendly, since bankruptcy proceedings typically only recover 44 cents to the dollar, compared to the OECD average of 71 cents on the dollar.

Bankruptcy in itself is not criminalized, unless it is made in a fraudulent way, deliberately, and in bad faith to prevent the payment of debts.

Law 122 of 2011 obliges banks and credit institutions to establish and maintain the Central Credit Information System to assess creditworthiness of businesses and individuals to facilitate prudent lending (  ).

4. Industrial Policies

Investment Incentives

Hungary has a well-developed incentive system for investors, the cornerstone of which is a special incentive package for investments over a certain value (typically over 10 million Euro, or USD 11 million).  The incentives are designed to benefit investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those who make tourism industry investments.  Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies. The incentive system is compliant with EU regulations on competition and state aid and is administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of National Development (MND).

Foreign Trade Zones/Free Ports/Trade Facilitation

Foreign trade zones were eliminated as a result of the EU accession.

Performance and Data Localization Requirements

Hungary does not mandate local employment.

The number of work permits issued for third-country nationals is limited by law, but in recent years, this limit was well above the actual number of registered third-country employees.  Residency and work permits are issued by the Immigration Office and the local labor offices.

As of 2019, for investments in certain strategic sectors including the military, intelligence, public utilities, financial services and electronic information systems, the Ministry of Interior issues investments permits.  There are no laws in place requiring the fulfilment of special labor force related conditions to get investment permits. However, in certain cases, the GOH has established retention of workforce as a condition to award state grants to investors.

Hungary has no forced data localization policy.  Foreign IT providers do not need to turn over source code or provide access to encryption.  Hungary follows EU rules as regards transfer of personal data outside the economy. Storage of personal data is regulated by a data protection law and it is under the authority of a Data Protection Ombudsman.

There are no general performance requirements for investors in Hungary.  However, investors may receive government subsidies in the event they meet certain performance criteria, such as job creation or investment minimums, which are available to all enterprises registered in Hungary and are applied on a systematic basis.  To comply with EU rules, the GOH no longer grants tax holidays based on investment volume. There is no requirement that investors must purchase from local sources, but the EU Rule of Origin applies. Investors are not required to disclose proprietary information to the GOH as part of the regulatory process.

Hungary, as an EU Member State, follows the General Data Protection Regulation (GDPR) rules on transmitting data outside of the EU and local data storage requirements.  The National Authority for Data Protection and Freedom of Information is responsible for enforcing GDPR rules.

5. Protection of Property Rights

Real Property

Hungary maintains a reliable land registry, which provides public information for anyone on the ownership, mortgage, and usufruct rights of the real estate or land parcel.  Secured interests in property (mortgages), both moveable and real, are recognized and enforced but there is no title insurance in Hungary.

According to the Land Law of 2013 only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience in agriculture, or holding a degree in an agricultural field, can purchase farmland.  The law allows the lease of farmland up to 1200 hectares for a maximum of 20 years. There is no restriction for purchase or lease of non-farmland properties.

Hungarian law allows acquisitive prescription for unoccupied real property if the user of the property occupies it continuously for at least 15 years.

Intellectual Property Rights

Hungary has an adequate legal structure for protecting intellectual property rights (IPR), although it lacks deterrent-level sentences for civil and criminal IPR infringement cases.  There has been no new major IPR legislation passed over the last year. According to some representatives of the pharmaceutical and software industries, enforcement could be improved if the Prosecution Office were to establish specialized units to combat IPR violations.  The most common IPR violations in Hungary include selling counterfeit goods, the sale of imported counterfeit pharmaceuticals, and Internet-based piracy. Most counterfeit goods sold in Hungary are of Chinese origin.

Hungary acceded to the European Patent Convention in 2003 and has accordingly amended the Hungarian Patent Act.  Hungary is a party to the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and most other major international IPR agreements, including the most recent World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performance and Phonograms Treaty.  It is also a party to the EU Information Society Directive and implemented the EU Enforcement Directive in 2005.

The United States and Hungary signed a Comprehensive Bilateral Intellectual Property Rights Agreement in 1993 that addresses copyright, trademarks, and patent protection.

In July 2010, the U.S. Patent and Trademark Office (USPTO) and the Hungarian Intellectual Property Office (HIPO) launched a pilot program to facilitate patent recognition between the United States and Hungary.  Due to the pilot’s success, in April 2012 the USPTO and HIPO signed a Memorandum of Understanding to further streamline and expedite patent recognition. More details about this Patent Processing Highway (PPH) program can be found on USPTO’s website at  .

Hungary is not listed in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at  .

Resources for Rights Holders

Embassy Point of Contact for IPR issues:

Donald Brown
Economic Officer

Hungary prosecutes IPR violations and authorities have the relevant statistical data.  In 2017 the total number of IPR related crime cases was 631, the total value of these crimes amounted to USD 5.7 million and authorities seized USD 2.5 million worth of counterfeit products.

6. Financial Sector

Capital Markets and Portfolio Investment

The Hungarian financial system offers a full range of financial services with an advanced information technology infrastructure.  The Hungarian Forint (HUF) has been fully convertible since 2001, and both Hungarian financial market and capital market transactions are fully liberalized.  The Capital Markets Act of 2001 sets out rules on securities issues, including the conversion and marketing of securities. As of 2007, separate regulations were passed on the activities of investment service providers and commodities brokers (2007), on Investment Fund Managing Companies (2011), as well as on Collective Investments (2014), providing more sophisticated legislation than those in the Capital Markets Act.  These changes aimed to create a regulatory environment where free and available equity easily matches with the best investment opportunities. The 2016 modification of the Civil Code removed remaining obstacles to promote collection of public investments in the course of establishing a public limited company.

The Budapest Stock Exchange (BSE)   re-opened in 1990 as the first post-communist stock exchange in the Central and East European region.  Since 2010, the BSE has been a member of the Central and Eastern Europe (CEE) Stock Exchange Group. In 2013, the internationally recognized trading platform Xetra replaced the previous trading system.  Currently, the BSE has 40 members and 62 issuers. The issued securities are typically shares, investment notes, certificates, corporate bonds, mortgage bonds, government bonds, treasury bills, and derivatives.  In 2018, the Budapest Stock Exchange had a market capitalization of USD 32 billion, and the average monthly equity turnover volume amounted to USD 1.1 billion. The most traded shares are OTP Bank, Richter Gedeon, MOL, Magyar Telekom, and FHB Mortgage Bank

Financial resources flow freely into the product and factor markets.  International currency transactions are not limited and are accessible both in domestic or foreign currencies.

Commercial banks provide credit to both Hungarian and foreign investors at market terms.  Credit instruments include long-term and short-term liquidity loans. All banks publish total credit costs, which includes interest rates as well as other costs or fees.

Money and Banking System

The Hungarian banking system has strengthened over the past two years, and the capital positon of banks is adequate.  Following several years of deleveraging after the 2008 crisis, the banking system is mainly deposit funded. Customer deposits account for roughly 60 percent of banks’ total liabilities

The Hungarian banking system is healthy and banks have a stable capital position.  The loan-to-deposit ratio has been gradually decreasing from its 160 percent peak in 2009 after the financial crisis to 78 percent in 2017, similar to regional peers.  The ratio of non-performing loans (NPLs) has declined from a high of 18 percent in 2013 to 7.4 percent in 2017 as a result of portfolio cleaning, the improving economic environment, and increased lending.  The banking sector became profitable in 2016 after several years of losses, and the return on equity increased to 14 percent, up from a record low of negative 17 percent in 2015.

The largest bank in Hungary is OTP Bank, which is Hungarian-owned and controls 25 percent of the market, with approximately USD 29 billion in assets.

Hungary has a modern two-tier financial system and a developed financial sector, although some reports that regulatory issues have arisen as a result of the Central Bank’s (MNB) 2013 absorption of the Hungarian Financial Supervisory Authority (PSZAF), which was the financial sector regulatory body.  Between 2000 and 2013, the PSZAF served as a consolidated financial supervisor, regulating all financial and securities markets. PSZAF, in conjunction with the MNB, managed a strong two-pillar system of control over the financial sector, producing stability in the market, effective regulation, and a system of checks and balances.  When the MNB absorbed PSZAF and took over all of its functions, including customer protection, this regulation system was weakened. A Hungarian State Audit Office (SAO) report published in April 2015 determined that the MNB’s consolidation of financial regulation undermined the system’s ability to provide effective enforcement. In March 2015, insolvency, lax regulations, and alleged embezzlement resulted in the failure of three brokerage firms (Buda-Cash, Quaestor, and Hungaria Ertekpapir), resulting in a total loss of over USD 1.2 billion, close to 1 percent of Hungary’s GDP. At the end of 2015, Parliament passed legislation to tighten control over brokerage firms’ operations as well as increase banks’ contribution to the fund established to compensate investors.

The proportion of foreign banks in total assets of the financial sector decreased to about 50 percent in 2017, down from its peak of 70 percent before the financial crisis.  Foreign banks are subject to central bank uniform regulations and prudential measures, which are applied to Hungary’s entire financial market without discrimination. Commercial banks have extensive direct correspondent banking relationships and are capable of transferring domestic or foreign currencies to most banks outside of Hungary.  No loss or jeopardy of correspondent banking relations has been reported.

Recent regulations restrict foreign currency loans to only those that earn income in foreign currency, in an effort to eliminate the risk of exchange rate fluctuations.  Additionally, the MNB lowered the loan-to-deposit ratio, forcing banks to restrict lending to firms in riskier sectors. Foreign investors continue to have equal – if not better – access to credit on the global market, with the exception of special GOH credit concessions such as small business loans.

There are no rules preventing a foreigner or foreign firm from opening a bank account in Hungary.  Valid personal documents (i.e. passport) is needed and as of 2015, when the Foreign Account Tax Compliance Act (FATCA) came into force, a declaration whether the individual is a U.S. citizen.  Banks have not discriminated against U.S. citizens in opening bank accounts based on FATCA.

Foreign Exchange and Remittances

Foreign Exchange

The Hungarian forint (HUF) has been convertible for essentially all business transactions since January 1, 1996, and foreign currencies are freely available in all banks and exchange booths.  Hungary complies with all OECD convertibility requirements and IMF Article VIII. Act XCIII of 2001 on Foreign Exchange Liberalization lifted all remaining foreign exchange restrictions and allowed free movement of capital in line with EU regulations.

According to Hungary’s EU accession agreement, it must eventually adopt the Euro once it meets the relevant criteria, but the GOH has not set a specific target date even though Hungary meets most of the necessary fiscal and financial criteria.  According to the Economic Ministry, Hungary‘s economic performance should mirror the Eurozone average more closely before adapting the Euro.

Short-term portfolio transactions, hedging, short, and long-term credit transactions, financial securities, assignments and acknowledgment of debt may be carried out without any limitation or declaration.  While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency. Many Hungarians took out mortgages denominated in foreign currency prior to the global financial crisis, and suffered when the Forint depreciated against the Swiss Franc and the Euro.  Despite strong pressure, the Hungarian Supreme Court ruled that there is nothing inherently illegal or unconstitutional in loan agreements that are foreign currency denominated, upholding existing contract law. New consumer loans, however, are denominated in Forints only, unless the debtor receives regular income in a foreign currency.

Market forces determine the exchange rate of the HUF to the Euro and thereby to other currencies.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.

The timeframes for remittances are in line with the financial sector’s normal timeframes (generally less than 30 days), depending on the destination of the transfer and on whether corresponding banks are easily found.

Sovereign Wealth Funds

Hungary does not maintain a sovereign wealth fund.

7. State-Owned Enterprises

In the 1990s, there was considerable privatization of former State-owned enterprises (SOEs), primarily in strategic sectors such as energy and transportation.  Since 2010, the GOH has reversed this trend by making new investments in machinery production and the energy and telecommunications sectors, with the number of SOEs increasing.

As of 2019, there are more than 400 SOEs.  The state holds majority ownership in more than half of them.  In addition, there are a large number of municipality-owned companies.  SOEs are particularly active in the energy and utility sectors, in banking, transportation, forestry, and postal services.

SOEs have independent boards, but in practice, all strategic decisions require government approval.

Major SOEs include the National Asset Management Company (MNV), Magyar Posta, state energy company MVM, Hungarian State Railways (MAV), state gambling monopoly Szerencsejatek, National Infrastructure Development Company (NIF), car manufacturer RABA, and state owned banks Exim bank, Hungarian Development Bank (MFB), Takarekbank, and Budapest Bank.  The GOH has a 25 percent stake in hydrocarbon company MOL.

A 2011 law on national assets lists the SOEs of strategic importance, which are to be kept in state ownership (  ); as of April 2019 there were 64 such companies.  There is no officially published, complete list of SOEs, but the State Asset Manager MNV has a list of companies under its control on its webpage.  The list does not cover all publicly owned companies:  

In principle, the same rules apply to SOEs as to privately owned companies in most cases, but in practice, some companies report that SOEs often enjoy preferential treatment from certain authorities.  According to many businesses, since mid-2012, the GOH has made it more difficult for foreign-owned energy companies to operate in the Hungarian market. The GOH has publicly stated its interest in nationalizing some private energy firms.  In 2013, the GOH purchased E.ON’s wholesale and gas storage divisions and RWE’s retail gas company, Fogaz. In 2014 and 2015, the GOH acquired other energy companies. By the end of 2016, state-owned Fogaz became the only remaining retail gas utility provider in Hungary.  Press has reported that the GOH intends to take over the electricity and the heating retail markets as well.

Hungary adheres to OECD Guidelines on Corporate Governance as well as to EU rules on SOEs.  The Hungarian National Asset Management Company is the state asset manager.

According to a 2015 study conducted by Transparency International (TI) Hungary, SOEs scored 61 points on a scale of 100 with regard to meeting transparency obligations in terms of data published on their websites, integrity, codes of ethics, and internal control systems.  TI noted that although there was a considerable improvement compared to the previous survey in 2013, none of the SOEs reviewed during their study was in full compliance with transparency and disclosure requirements as mandated by Hungarian law.

In a July 2018 State Audit Office (SAO) report on the monitoring of 62 SOEs, the SAO said that the investigated enterprises’ integrity and compliance regulations have improved over the past years and their current transparency and integrity level is satisfactory.  The report added that the auditing and asset management of SOEs could still be improved, and owners should investigate SOEs more often than the current practice, the report added.

Privatization Program

In the 1990s, the privatization of state owned enterprises (SOEs), including the energy sector, manufacturing, food processing, and chemistry, ushered in a significant period of change.  This policy has stopped in recent years as most SOEs have already been privatized, and in fact, the trend has reversed since 2010 as the state has taken more ownership or de facto control in certain sectors, including energy and public utilities.

8. Responsible Business Conduct

Hungary encourages multinational firms to follow the OECD Guidelines for Multinational Enterprises, which promotes a due diligence, approach to responsible business conduct (RBC).  The government has established a National Contact Point (NCP) in the Ministry of Finance for stakeholders to obtain information or raise concerns in the context of RBC. The Hungarian NCP has organized events to promote OECD Guidelines among the business community, trade unions, government agencies, and NGOs.  For more information, see:  

In recent years, the GOH has organized several conferences on RBC and announced in 2017 to formulate a National Action Plan on Businesses and Human Rights, but the document has not been prepared yet.  According to the First National CSR Action Plan formulated in 2015, key RBC priorities of the GOH included the employment of discriminated, disadvantaged, and disabled groups, environment protection, and the expansion of sustainable economy.  RBC does not typically play a role in GOH procurement decisions.

According to a survey conducted by CSR Hungary – the country’s largest CSR forum – 55 percent of businesses have a CSR policy and 44 percent of businesses think that CSR increased their competitiveness.  According to Nielsen Global Omnibus research, over 60 percent of Hungary’s adult population prefers companies committed to CSR, exceeding the 54 percent average in the EU.

In 2017, Hungary’s independent labor rights protection, consumer protection, cultural heritage protection, and environment protection agencies were merged into their relevant ministries and county level government offices.  Environmental NGOs criticized the transformation of the institutional system and warned about the lack of independent agencies.

There are several NGOs and business associations promoting RBC and CSR.  The one with the most members, CSR Hungary Forum – created in 2006 – established an annual award and trademark in 2008 to recognize business CSR efforts.

The GOH does not have policies in place to encourage adherence to OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

9. Corruption

Hungary has legislation in place to combat corruption.  Giving or accepting a bribe is a criminal offense, as is an official’s failure to report such an incident.  Penalties can include confiscation of assets, imprisonment, or both. Since Hungary’s entry into the EU, legal entities can also be prosecuted.  Legislation prohibits members of parliament from serving as executives of state-owned enterprises. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration.  It is common for prominent politicians to be forced to amend declarations of assets following revelations in the press of omission of ownership or part-ownership of real estate and other assets in asset declarations. Politicians are not penalized for these omissions. Transparency advocates claim that Hungarian law enforcement authorities are often reluctant to prosecute cases with links to high-level politics.  For example, they reported that, in November 2018, Hungarian authorities dropped the investigation into USD 50 million in EU-funded public lighting tenders won by a firm co-owned by a relative of the prime minister, despite the fact that OLAF, the European Anti-Fraud Office, raised concerns about evidence of conflict of interest and irregularities involving the deal. According to media reports, OLAF concluded that at least some of the tenders were won due to what it considered organized criminal activity.

Annual asset declarations for the family members of public officials are not public and only parliamentary committees can look into them if there is a specified suspicion of fraud.  Transparency watchdogs warn that this makes the system of asset declarations inefficient and easy to circumvent as politicians can hide assets and revenues in their family members’ name.

The Public Procurement Act of 2015 initially included broad conflict of interest rules on excluding family members of GOH officials from participating in public tenders, but Parliament later amended the law to exclude only family members living in the same household.  While considered in line with the overarching EU directive, the law still leaves room for subjective evaluations of bid proposals and tender specifications that could potentially be tailored to favored companies.

While public procurement legislation is in place and complies with EU requirements, private companies and watchdog NGOs expressed concerns about pervasive corruption and favoritism in public procurements in Hungary.  According to their criticism, public procurements in practice lack transparency and accountability and are characterized by uneven implementation of anti-corruption laws.  Additionally, transparency NGOs calculate that government allied firms have won a disproportionate percentage of public procurement awards.  The business community and foreign governments share many of these concerns.  Multinational firms have complained that competing in public procurements presents unacceptable levels of corruption and compliance risk.  A recent EU study found that Hungary had the second highest rate of one-bidder EU funded procurement contracts in the European Union.  In addition, observers have raised concerns about the appointments of Fidesz party loyalists to the heads of quasi-independent institutions like the Competition Authority, the Media Council, and the State Audit Office. Because it is generally understood that companies without political connections are unlikely to win public procurement contracts, many firms lacking such connections do not bid or compete against politically-connected companies.

The GOH does not require private companies to establish internal codes of conduct.

Generally, bigger private companies and multinationals operating in Hungary have internal codes of ethics, compliance programs, or other controls, but their efficacy is not uniform.

The Hungarian Ministry of Justice and the Ministry of Interior are responsible for combating corruption.  There is a growing legal framework in place to support their efforts. Hungary is a party to the UN Anticorruption Convention and the OECD Anti-Bribery Convention and has incorporated its provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery.  Parliament passed the Strasbourg Criminal Law Convention on Corruption of 2002 and the Strasbourg Civil Code Convention on Corruption of 2004. Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of the Council of Europe to monitor the observance of their standards for fighting corruption.  GRECO’s reports on evaluation and compliance are confidential unless the Member State authorizes the publication of its report.  Despite calls from opposition, NGOs, and other GRECO Member States to publish GRECO’s most recent compliance report on prevention of corruption in respect of MPs, judges, and prosecutors, the GOH keeps the report confidential.  Except for Belorussia, Hungary is the only Member State refusing to publish the anti-corruption body’s report.  Following a March 2019 visit of senior GRECO officials in Budapest, GRECO said it regrets that almost four years after the adoption of its Fourth Round Evaluation Report – which can be found online at    few of GRECO’s recommendations have been implemented.

In December 2016, the GOH withdrew its membership in the international anti-corruption organization the Open Government Partnership (OGP).  Following a letter of concern by transparency watchdogs to OGP’s Steering Committee in summer 2015, OGP launched an investigation into Hungary and issued a critical report.  The OGP admonished the GOH for its harassment of NGOs and urged it to take steps to restore transparency and to ensure a positive operating environment for civil society. The GOH — only the second Member State after Azerbaijan to be reprimanded by the organization — rejected the OGP report conclusions and withdrew from the organization.

Over the past few years, the GOH has amplified its attacks on NGOs – including transparency watchdogs – accusing them of acting as foreign agents and criticizing them for allegedly working against Hungarian interests.  This anti-NGO rhetoric endangered the continued operation of anti-corruption NGOs crucial to promoting transparency and good governance in Hungary. In 2017, Parliament passed legislation that many civil society activists criticized for placing undue restrictions on NGOs, including compelling organizations to register as “foreign funded” if they receive funding from international sources.  In July 2018, the GOH passed legislation that criminalizes many legal activities, primarily conducted by international NGOs that assist migrants and asylum seekers.  Although the legislation does not directly target transparency NGOs, transparency experts claim the GOH could use the overly broad definitions in the legislation to target virtually any NGO in Hungary.

Transparency International (TI) is active in Hungary.  TI’s 2018 Corruption Perceptions Index rated Hungary 64 out of 180 countries.  Among the 28 EU members, Hungary ranks 26. TI has noted that state institutions responsible for supervising public organizations were headed by people loyal to the ruling party, limiting their ability to serve as a check on the actions of the GOH.  After the GOH amended the Act on Freedom of Information in 2013 and 2015, TI and other watchdogs note that data on public spending remains problematically difficult to access. Moreover, according to watchdogs and investigative journalists, the GOH, state agencies, and SOEs are increasingly reluctant to answer questions related to public spending, resulting in lengthy court procedures simply to receive answers to questions.  Even if the court orders the release of data, by the time it happens, the data loses significance and has a weaker impact, watchdogs warn. In some cases, even when ordered to provide information, state agencies and SOE release data in nearly unusable or undecipherable formats.

U.S. firms – along with other investors – identify corruption as a significant problem in Hungary.  According to the World Economic Forum’s 2017 Global Competitiveness Report, businesses considered corruption as the second most important obstacle to making a successful business in Hungary.

State corruption is also high on the list of EC concerns with Hungary.  The EC Anti-Fraud Office (OLAF) has found high indices of fraud in EU-funded projects in Hungary and has levied fines and withheld development funds on several occasions.  Over the past few years, the European Commission (EC) has suspended payments of EU funds several times due to numerous irregularities in Hungary’s procurement system. In December 2016, after completing an investigation into the construction of the EU-funded Budapest M4 metro line, OLAF discovered that contracts valued at more than USD 1 billion had been affected by corruption and determined that Hungary should return USD 240 million to the EU.  In a January 2018 report, OLAF recommended Hungarian authorities investigate a high-profile corruption case linked to PM Orban’s son-in-law, whose firm the report alleges was fraudulently awarded EU-funded public contracts by local municipalities in Hungary. OLAF requested the GOH return USD 54 million to compensate for the amount of misused EU funds. In November 2018, Hungarian authorities announced they were closing the investigation, claiming to have found no evidence of a crime.  In February 2019, the GOH withdrew its request that the EU fund the controversial projects.

TI and other anti-corruption watchdogs have highlighted EU-funded development projects as the largest source of corruption in Hungary.  A TI study found indices of corruption and overpricing in up to 90 percent of EU-funded projects. A 2016 study by Corruption Research Center Budapest (CRCB) based on public procurement data from 2009-2015 revealed that the massive influx of EU funds reduced competition and increased levels of corruption risk and overpricing in public procurements.  According to the study, EU-funded tenders perform poorly with regard to corruption risks, competitive intensity, and transparency, compared with Hungarian-funded tenders. Besides their positive impact on GDP growth and development, EU funds in Hungary contribute to the system of political favoritism and fuel crony capitalism, the study concluded. A September 2018 CRCB report found – after analyzing more than 120,000 public procurement contracts of the 2010-2016 period – that companies owned by individuals with links to PM Orban enjoy a preferential treatment at public tenders and face less competition than other companies.

Resources to Report Corruption

GOH Office Responsible for Combatting Corruption:

National Protective Service
General Director Zoltan Bolcsik
Phone: +36 1 433 9711
Fax: +36 1 433 9751

Contact at “watchdog” organization:

Transparency International Hungary
1055 Budapest
Falk Miksa utca 30. 4/2
Phone: +36 1 269 9534
Fax: +36 1 269 9535

10. Political and Security Environment

The security environment is relatively stable.  Politically motivated violence or civil disturbance is rare.  Violent crimes are reasonably low while street crimes are the most frequently reported crimes in the country.

In January 2014, an unknown assailant bombed a CIB BANK branch in Budapest.  No one was injured. The perpetrator of this attack has not been found and the motive behind the attack remains unknown.  Italian banking firm Intesa Sanpaolo owns CIB.

Political violence is not common in Hungary.  The transition from communist authoritarianism to capitalist democracy was negotiated and peaceful, and free elections have been held consistently since 1990.

11. Labor Policies and Practices

Hungary’s civilian labor force of 4.5 million is highly-educated and skilled.  Literacy exceeds 98 percent and about two-thirds of the work force has completed secondary, technical, or vocational education.  Hungary’s unemployment rate decreased from a peak of 11.8 percent in March 2010 to 3.6 percent by March 2019, lower than the EU average of 6.5 percent.  Hungary’s employment rate for the population aged 15-64 years was 69.5 percent in March 2019, higher than the EU average of 67.7 percent. Hungary is particularly strong in engineering, medicine, economics, and science training, although emigration of Hungarians from these sectors to other EU member states has increased in recent years.

Multinationals increasingly cite a skilled labor shortage as their biggest challenge in Hungary and note that Hungarian vocational institutions and universities need to adapt to changes in the market place at a faster pace.  An increasing number of young people are attending U.S. – and European-affiliated business schools in Hungary. Foreign language skills, especially in English and German, are becoming more widespread, yet Hungary still has the lowest level of foreign language proficiency in the EU.  According to 2017 data, only 37 percent of the working-age Hungarians speak at least one foreign language, while the EU average is 66 percent.

As the rate of unemployment has declined, certain sectors have begun to face shortages of skilled and highly educated employees.  Multinational executives consistently identify labor shortages as the single largest obstacle to investment in Hungary. As Hungarians increasingly seek work abroad, shortages of highly educated and skilled labor are negatively affecting growth in certain regions and industries.  In addition, declining OECD Program of International Student Assessment (PISA) scores may signal that the workforce is losing its ability to learn new skills and adapt to changing market conditions. The government is attempting to address labor shortage by increasing the minimum wage, offering training programs to facilitate public workers employment on the labor market, and by promoting employment of young mothers and pensioners by lowering employer-paid welfare contributions, and by reforming the education and vocational training system.  Shortages of skilled workers, particularly in the IT, financial, and manufacturing sectors, are more acute in the northwest and central regions of the country. East of the Danube, unemployment levels are above average, even though the cost of labor is lower. Wages in Hungary are still significantly lower than those in Western Europe, despite the recent increase in minimum wage. Average Hungarian labor productivity is lower than the EU average, but exceeds that of other Central and Eastern European economies.

In 2016, the government, trade unions, and employer representatives signed a three-year agreement to increase the minimum wage for unskilled and skilled workers by 15 and 25 percent respectively in 2017, and 8 and 12 percent in 2018.  The GOH again increased the minimum wage for skilled and unskilled workers by 8 percent in 2019. The deal also included an almost 50 percent cut in the business tax for large companies from 19 percent to 9 percent as of 2017 as well as gradually lowering the payroll tax from 21.5 percent in 2016 by 2 percent each year, down to 17.5 percent as of July 2019  to offset companies’ increased labor costs. The GOH also is considering facilitating the employment of workers from neighboring countries, primarily ethnic Hungarian minority communities in those countries.

The GOH requires hiring of nationals in certain strategic sectors and some areas of public administration.

Labor law stipulates severance payment in case of lay-off, as well as under certain conditions for an employee terminating a work contract.  The government pays unemployment benefits for three months and offers the services of local employment offices.

Labor laws are uniform and there are no waivers to attract or retain investment available.  Collective bargaining is increasingly common in large companies, education, public transport, retail, and medical services.

The 2012 changes to the Labor Law transferred some of the collective bargaining rights from trade unions to work councils.  (Although work councils have a similar mission to those of labor unions, each firm has its own work council, and thus lacks the collective reach of an industry-wide trade union.)  Hungary’s trade union membership rate is currently about 15 percent, while the EU average is 25 percent. Following successful wage negotiations in 2019, the popularity of trade unions is started to increase.  Hungary has ratified all eight ILO core conventions.

Labor dispute resolution includes mediation as well as court procedures.  Employees, however, typically agree with employers outside court or mediation procedures

In 2019, a six-day strike at Audi Hungary was resolved with an agreement between employers and employees for a15 to 20 percent wage increase.  The success of this high-profile strike has led to a series of short-term strikes, or threats of strikes, at other companies. The majority of these strikes have been resolved quickly with wage increase concessions from management.  All recent strikes have been peaceful and complied with Hungarian labor laws.

Hungary has been a member of the International Labor Organization since 1955.  Hungary’s labor law and practice is in line with international labor standards.  Discussions between the ILO and the GOH are ongoing on certain provisions of the 2012 modification of Hungary’s labor law, including the freedom expression, registration of trade unions, and minimum level of public service in case of strike.

Hungary passed amendments to its Labor Code in December 2018 that increase the amount of overtime an employer can request and gives employers up to three years to reconcile and pay for overtime.  These highly unpopular changes led to a series of large protests throughout Hungary and currently are being reviewed by the European Commission.

12. OPIC and Other Investment Insurance Programs

Corporation (OPIC) has operated in Hungary since October 1989, offering U.S. investors financing through direct loans or guarantees, political risk insurance, and capital for private equity funds.  OPIC’s financial support ranges from small micro financings to large infrastructure project loans.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $139844 2017 $139,135   
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $2,965 2017 $7,131 BEA data available at  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $521 2017 $12,938 BEA data available at  
Total inbound stock of FDI as % host GDP 2017 60% 2017 $74% UNCTAD data available at  

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $246,610 100% Total Outward $195,205 100%
Netherlands $60,135 24.4% United States $84,108 43.1%%
Luxembourg  $38,347 15.5% Switzerland $49,437 25.3%%
Ireland $31,226 12.7% Ireland $5,563 2.8%%
Germany $21,241 8.6% South Korea $4,629 2.4%
Cayman Island $17,591 7.1% Croatia $4,286 2.2%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $13,602 100% All Countries $8,213 100% All Countries $5,390 100%
Luxembourg $4,323 31.8% Luxembourg $3,320 40.4% Luxembourg $1,004 18.6%
United States $1,545 11.4% United States $1,379 16.8% Austria $379 7.0%
Austria $949 7.0% Austria $570 6.9% Slovak Republic $379 7.0%
Germany $588 4.3% Belgium $568 6.9% Czech Republic $309 5.7%
Belgium $571 4.2% Germany $522 6.4% Poland $254 4.7%

14. Contact for More Information

Donald Brown
Economic Officer
U.S. Embassy Budapest
Szabadsag Ter 12
Budapest, Hungary


Executive Summary

Despite being one of Europe’s youngest and poorest countries, Kosovo has recorded positive economic growth rates, averaging almost four percent, during the last decade.  Kosovo has significant potential to attract more investment, but will not be able to do so until it addresses serious structural issues.

In 2017 (the most current statistics), net flow of foreign direct investment (FDI) in Kosovo was estimated at USD 323 million, up from USD 247million in 2016.  The stock of portfolio investment in 2017 totaled USD 2.14 billion, with equity securities of USD 1.67 billion and debt securities of USD 472 million. These totals compare to USD 1.47 billion in equity securities and USD 540 million in debt securities in 2016.  Real estate and leasing activities receive the most FDI, followed by financial services and construction. The food, IT, infrastructure, and energy sectors are growing and hold the most potential to attract new FDI.

Though law enforcement remains weak, Kosovo’s laws and regulations are consistent with supporting and protecting investment.  Kosovo has a flat corporate tax of 10 percent. In 2016, Kosovo ratified a strategic investment law intended to ease market access for investors in key sectors, and the government partnered with USAID and other international donors to launch the Credit Guarantee Fund, which improves access to credit.  With USAID assistance, the Ministry of Trade and Industry embarked on a program to improve Kosovo’s rank in the World Bank’s Doing Business Index. Kosovo has a good legal framework for protecting intellectual property (IP), but enforcement remains an issue, largely due to lack of resources. While there is IP theft in Kosovo, it is not widespread.

All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices.  Publicly-listed companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation, regulations are often passed with little substantive discussion or stakeholder input.

A number of factors make sustainable economic growth in Kosovo challenging, including: limited regional and global economic integration; political instability; corruption; an unreliable energy supply; a large informal sector; and tenuous rule of law, including a glaring lack of contract enforcement.  The country continues to rely on significant international financial support and remittances.

The public consistently ranks Kosovo’s high unemployment rate (officially 29.6 percent in 2018) as among its greatest concerns.  Unemployment levels for first-time job seekers and women are considerably higher than the official rate. Many experts cite a skills gap and high reservation wage as significant contributing factors.

Despite the challenges, Kosovo has attracted a number of significant investors including several international firms and U.S. franchises.  Some investors have been attracted to Kosovo’s relatively young population, low labor costs, proximity to the EU market, and natural resources.  Kosovo does provide preferential access to the EU market through a Stabilization and Association Agreement (SAA).

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 93 of 175 
World Bank’s Doing Business Report 2019 44 of 190
Global Innovation Index 2018 N/A 
U.S. FDI in partner country ($M USD, stock positions) 2018 $ 172
World Bank GNI per capita 2018 $3,900 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Kosovo seeks more FDI.  Kosovo’s laws do not discriminate against foreign investors.  The Government – including the Prime Minister’s Office, Ministry of Trade and Industry (MTI) through its Kosovo Investment Enterprise and Support Agency (KIESA), the Ministry of Finance, the Ministry of Economic Development, and the Ministry of Diaspora and Strategic Investments – recognize the importance of FDI to the expansion of the private sector.  However, the lack of a single entity empowered and responsible for cataloging investment opportunities and supporting potential investors results in an uncoordinated approach and limits competitiveness with other emerging markets.

KIESA’s mission is to promote and support foreign investments.  The agency is tasked with offering a menu of services, including: assistance and advice on starting a business in Kosovo, assistance with applying for a site in a special economic zone or as a business incubator, facilitation of meetings with different state institutions, and participation in business-to-business meetings and conferences.

Limits on Foreign Control and Right to Private Ownership and Establishment

The laws and regulations on establishing and owning business enterprises, and engaging in all forms of remunerative activity apply equally to foreign and domestic private entities.  Kosovo legislation does not interfere with the establishment, acquisition, expansion, or sale of interests in enterprises by private entities. Under Kosovo law, foreign firms operating in Kosovo are granted the same privileges as local businesses.  Kosovo does not have an investment screening mechanism.

We have no reports of restrictions from U.S. investors.  There are no licensing restrictions particular to foreign investors and no requirement for mandatory domestic partners for joint ventures.

Other Investment Policy Reviews

Kosovo is not a member of OECD, WTO, or UNCTAD; there are no investment policy reviews from these organizations. In September 2018 the European Investor Council (EIC), a Pristina-based business association of European investors, launched a “Whitebook 2018” that identifies a collection of barriers to investment and recommendations for improvement.  However, this has not been posted online. In February 2017 the Pristina think tank, Group for Legal and Political Studies, published the report, “How ‘friendly’ is Kosovo for Foreign Direct Investments: A Policy Review of Gaps from a Regional Market Perspective  ”.

Business Facilitation

The government has taken steps to facilitate businesses’ operations.  Kosovo moved up 20 spots to 40 on the 2018 World Bank’s Doing Business report, then up to 44 in the 2019 report.  This was largely due to Kosovo’s high scores in the categories of ‘ease of registering a business’ and ‘transferring property’.  Per the amended Law on Support to Small and Medium Enterprises, KIESA offers support to both domestic and foreign-owned micro, small, and medium enterprises (MSMEs), without any specific eligibility criteria.  Such services include voucher programs for training and advisory services, investment facilitation, assistance to women and young business owners, and the provision of business space with complete infrastructure at industrial parks, at minimal cost.

The Kosovo Business Registration Agency (KBRA), part of the Ministry of Trade and Industry, registers all new businesses, business closures, and business modifications.  The KBRA website is available in English and can be accessed at  .  As of February 2019, business registration can be completed online.  Successful applicants will receive a business-registration certificate, business-information document, a fiscal number, and a VAT number.  New businesses must register employees for tax and pension programs with the Tax Administration under the Ministry of Finance. Business registration generally takes one day for an individual business and up to three days for joint ventures.  A notary is not required when opening a new business unless the business registration also involves transaction of real property.

Outward Investment

Kosovo does not promote or incentivize outward investment.  There are no restrictions on investments abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Kosovo is signatory of the Central European Free Trade Agreement (CEFTA) and has finalized negotiations, but has not ratified, a free trade agreement with Turkey.  Kosovo has started the accession process for the European Free Trade Association and has expressed interest in signing a cooperation agreement with the United Kingdom in the event it leaves the European Union.

The United States does not have a bilateral investment or a taxation treaty with Kosovo.

Kosovo has signed double-taxation treaties with Luxemburg, Austria, Albania, Switzerland, Slovenia, Turkey, United Arab Emirates, Hungary, Croatia, North Macedonia and the United Kingdom.  Older treaties with Hungary, Netherlands, Germany, Finland, and Belgium from the time of the former Yugoslavia are still in effect. Kosovo is currently negotiating or is in the process of ratifying double-taxation treaties with Italy, Luxemburg, Kuwait, and Saudi Arabia.

3. Legal Regime

Transparency of the Regulatory System

The Law on Public Procurement delegates procurement authority to budgetary units (i.e., ministries, municipalities, and independent agencies) except when the government specifically authorizes the Ministry of Finance’s Central Procurement Agency to procure goods and/or services on its behalf.  All tenders are advertised in Albanian and Serbian, and for the most important projects, also in English.

The Public Procurement Regulatory Commission (PPRC) oversees and supervises all public procurement and ensures that the Law on Public Procurement is fully implemented.  The PPRC publishes contract information on its website ( The National Audit Office conducts annual procurement audits of the various Kosovo ministries, municipal authorities, and agencies that receive funds from the Kosovo consolidated budget.  The Procurement Review Body, an independent administrative body, is responsible for hearing appeals related to government procurement. As of 2019, an e-procurement platform is fully operational all procurements are handled through it, which has greatly enhanced transparency.

The Kosovo Assembly is responsible for rule-making and regulatory actions, while government ministries and agencies draft and authorize secondary legislation (i.e., implementing regulations).  Municipal assemblies and mayors have regulatory authority at the local level. The Government of Kosovo is working to align all legal, regulatory, and accounting systems in Kosovo with EU standards and international best practices.  Publicly-listed companies are required to comply with international accounting standards.

The Assembly publishes draft laws on its website.  The relevant committees also hold public hearings on proposed laws, including investment laws.  The 2016 regulation on the Minimum Standards for Public Consultation Process clarifies the standards, principles, and procedures for consultations during the drafting of legislation.  Kosovo has developed an online platform for public comments (  ) and publishes rules, regulations, and laws in the official Kosovo Gazette (  ) and on the Kosovo Assembly’s website (,191  ).  The Ministry of Finance regularly publishes detailed reports on Kosovo’s public finances and debt obligations.

Kosovo’s Better Regulation Strategy 2014-2020 is a government initiative to implement a smart regulatory system with sound implementation and effective communication.  The Law on Public Financial Management and Accountability requires a detailed impact assessment of any budgetary implications before new regulations can be implemented.

In spite of the strategy and regulatory requirements, regulations are often passed with little substantive discussion or stakeholder input.

International Regulatory Considerations

Kosovo is a CEFTA member and is pursuing EU integration.  Through the Stabilization and Association Agreement (SAA) with the EU, Kosovo is working to harmonize its laws and regulations with EU standards.  Kosovo is not a member of the WTO.

As of July 2017, Kosovo is also a signatory of Multi-Annual Action Plan for a Regional Economic Area in the Western Balkans Six  .  This action plan aims to increase regional integration in the fields of trade, investment policy, labor force mobility, and digitalization.

Legal System and Judicial Independence

In 2016, the Kosovo Assembly amended the constitution to enhance the independence of the judiciary in line with EU requirements.  Despite significant reforms and improvements in court efficiency, backlog, and sentencing procedures, the judiciary currently lacks sufficient subject-matter expertise to effectively handle complex economic issues.  While complainants have the right to challenge court decisions, regulations, and enforcement actions in the regular court system, as well as the constitutional court, Kosovo’s courts are viewed as politically influenced by the executive branch, with special treatment or “selective justice” for high-profile, well-connected individuals.  For example, while Kosovo court conviction rates match regional averages, the rate falls considerably for high-profile corruption cases.

Kosovo’s civil legal system provides for property and contract enforcement.  The Department for Economic Matters within the Basic Court of Pristina has jurisdiction for the entire territory of Kosovo economic disputes between both legal and natural persons including reorganization, bankruptcy, and liquidation of economic persons; disputes regarding impingement of competition; and protection of property rights and intellectual property.  A similar department within the Court of Appeals holds jurisdiction over “disputes between domestic and foreign economic persons in their commercial affairs” and addresses all appeals coming from the Pristina Basic Court’s Department for Economic Matters. Department for Economic Matters Commercial cases can take anywhere from six months to three years to resolve.

The Law on Enforcement Procedures permits claimants to utilize bailiffs licensed by the Ministry of Justice to execute court-ordered judgments.  In addition, the Laws on Arbitration and Mediation have helped to address key impediments to alternative dispute resolution and to enforcing arbitral awards.

Significant legislation overhauling the 2004 Criminal Code and the Criminal Procedure Code, developed by the United Nations Mission in Kosovo (UNMIK), went into force in 2013 and was amended in 2018.  This legislation brought Kosovo’s Criminal Law in compliance with the EU Convention on Human Rights, updating definitions and best practices. The Criminal Code contains penalties for tax evasion, bankruptcy, fraud, intellectual property offenses, antitrust, securities fraud, money laundering, and corruption offenses.  The Special Department of the Special Prosecutor of the Republic of Kosovo handles high-level cases of corruption, organized crime, terrorism, etc.

Laws and Regulations on Foreign Direct Investment

Foreign firms operating in Kosovo are entitled to the same privileges and treatment as local businesses.  Kosovo’s commercial laws are available to the public in English, as well as Kosovo’s official languages (Albanian and Serbian) on the Kosovo Assembly’s website (,191  ) and on the Official Gazette website (  ).

Laws of particular relevance include:

  • Law on Strategic Investments:  authorizes fast-track negotiations between the Government and private companies in targeted sectors and grants the government the option of ceding state-owned real estate for the purpose of developing and executing strategic investment projects.
  • The Law on Late Payments in Commercial Transactions:  discourages late payments and regulates the calculation of interest on late payments.
  • The Law on Bankruptcy:  regulates all matters related to the insolvency of business organizations; the provisions for the protection, liquidation and distribution of the assets of a bankrupt debtor to its creditors; and the reorganization and discharge of debt for qualified business organizations.
  • The Law on Prevention of Money Laundering and Combating Terrorist Financing:  enabled Kosovo to join Egmont Group, an inter-governmental network of 152 Financial Intelligence Units whose members exchange expertise and financial intelligence to combat money laundering and terrorist financing.
  • The Credit Guarantee Fund Law:  increased access to finance for all micro- and SMEs in Kosovo in an effort to increase employment, boost local production, and improve the trade balance.

Competition and Anti-Trust Laws

There are two main laws that regulate transactions for competition-related concerns:  The Law on Protection of Competition and the Law on Antidumping and Countervailing Measures.

The Competition Authority is responsible for implementing the Law on Protection of Competition, but generally lacks the human resources to conduct thorough investigations.  The Trade Department of the Ministry of Trade and Industry is responsible for the implementation of the Law on Antidumping and Countervailing Measures. In September 2018, Kosovo Assembly approved the Law on Safeguard Measures on Imports, which allows the Trade Minister to impose a provisional safeguard measure up to 200 days.

From 2016 through April 2019, there were 21 complaints on antidumping, of which MTI investigated five and approved antidumping measures for two.

Expropriation and Compensation

Articles 7 and 8 of the Foreign Investment Law limit expropriation to cases with a clear public interest and protect foreign investments from unreasonable expropriation, guaranteeing due process and timely compensation payment based on fair-market prices.  The Law on Expropriation of Immovable Property permits expropriation of private property by the government or municipalities when such action is in the public interest. Articles 5 through 13 of the Law on Expropriation of Immovable Property define expropriation procedures.  An eminent domain clause limits legal recourse in cases arising from the expropriation and sale of property through the privatization of state owned enterprises.

There is no history of expropriation outside of uncontroversial, undisputed expropriation for works in the public interest, such as roadway construction.

Dispute Settlement

ICSID Convention and New York Convention

In 2009, Kosovo became a party to the International Center for Settlement of Investment Disputes (ICSID) Convention and has incorporated the Convention into national law.

There is no specific legislation providing for the enforcement of the ICSID Convention, but in accordance with the Law on Foreign Investments, investors may contractually agree to arbitration or other alternative dispute resolution mechanisms.  Kosovo is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Law.

Investor-State Dispute Settlement

Kosovo’s courts recognize international arbitration awards.  There is no history of extrajudicial action against foreign investors.

The Commercial Department of Pristina Basic Court has jurisdiction over investment disputes involving SOEs.  There are no records available detailing the frequency with which domestic courts have ruled in SOEs’ favor.

Kosovo is a party to ICSID.  Over the past ten years, three foreign investors have brought claims against Kosovo.  Kosovo’s state-owned telecom company lost two cases before the London Court of International Arbitration (LCIA), one of which involved a foreign investor.  In 2013, the LCIA determined Post & Telecom Kosovo owed an Israeli company USD 9.8 million for breach of contract. In July 2016, the International Court of Arbitration in Paris awarded an Austrian printing company USD 5.6 million for Kosovo’s illegal termination of a contract to manufacture passports.  In June 2015, a German company filed a case before ICSID related to the failed privatization of Kosovo’s telecom company, but the arbitration court ruled that it had no jurisdiction over the dispute.

International Commercial Arbitration and Foreign Courts

The Foreign Investment Law stipulates that investors may utilize the following alternative dispute resolution mechanisms:

a) The ICSID Convention if both the foreign investor’s country of citizenship and Kosovo are parties to said convention at the time of the request for arbitration;

b) The ICSID Additional Facility Rules if the jurisdictional requirements for personal immunities per Article 25 of the ICSID Convention are not fulfilled at the time of the request for arbitration;

c) The United Nations Commission on International Trade Law (UNCITRAL) Rules.  In this case, the appointing authority would be the Secretary General of ICSID; or

d) The International Chamber of Commerce Rules.

Arbitration services are available at arbitral tribunals within the Kosovo Chamber of Commerce and American Chamber of Commerce in Kosovo.  Kosovo’s Arbitration Rules are based on model rules derived from the 2010 United Nations Commission on International Trade Law (UNCITRAL) Model Rules for Commercial Arbitration and are consistent with international best practices.  The Law on Foreign Investment favors the use of arbitration. To utilize this option, the law requires that the disputed agreement/contract include an arbitration clause.

Foreign arbitral awards and judgments are enforceable in Kosovo.  Recognition and enforcement of foreign arbitral awards is more efficient than recognition and enforcement of judgements and recognition and enforcement of arbitral awards is limited.  There has been no case of voluntary compliance by the Government of Kosovo or other public entities with arbitral awards; all of the cases have gone through some form of judicial process.

Additionally, in accordance with the Law on Mediation, Kosovo courts recognize mediation centers and one is operated by the American Chamber of Commerce in Kosovo.  The Ministry of Justice has adopted the rules leading to the creation of mediation services and has trained and certified a number of mediators. For more information, visit  .

Bankruptcy Regulations

The Law on Bankruptcy regulates bankruptcy and insolvency procedures and specifies provisions for the protection, liquidation, and distribution of the assets of a bankrupt debtor to its creditors and the reorganization and discharge of debt for qualified business organizations.  Under the law, foreign creditors have the same rights as domestic investors and creditors when launching and participating in bankruptcy proceedings.

In early 2006, Kosovo created a credit registry.  The Central Bank of Kosovo manages it. It serves as a database for customers’ credit history and aims to help commercial banks and non-banking institutions assess customers’ creditworthiness.  Banks and non-banking institutions are required to report to Credit Registry of Kosovo, and only authorized banking and non-banking institution personnel can access it. In addition to the Credit Registry of Kosovo, the Ministry of Trade and Industry offers a Pledge Registry Sector, a mechanism that records data for collateral pledges.

4. Industrial Policies

Investment Incentives

Kosovo’s flat corporate tax of 10 percent helps attract FDI.  The Law on Strategic Investment allows the government to make available state-owned immovable property for the purposes of developing and executing strategic investment projects, as well as to support access to basic infrastructure.  To encourage investment, the government can grant certain VAT-related privileges, such as a six-month VAT deferment upon presentation of a bank guarantee for companies importing capital goods. Suppliers may export goods and services without being required to collect VAT from foreign buyers.  Suppliers may claim credit for taxes on inputs by offsetting those taxes against gross VAT liabilities or claiming a refund. The government can issue guarantees or jointly finance foreign direct investment projects, but has not yet done so.

The Customs agency has enacted an administrative instruction that reduces the number of documents required for export and import.  Only two documents are needed to export (a commercial invoice and a customs export declaration) and only three are now required to import (a commercial invoice, a customs import declaration, and a certificate of origin).

Foreign Trade Zones/Free Ports/Trade Facilitation

The Kosovo Customs and Excise Code is compliant with EU and World Customs Organization standards, and addresses topics such as bonded warehouses, inward and outward processing, transit of goods, and free-trade zones.  In addition to imported goods, some domestically-produced goods from designated industries can be stored in bonded warehouses when these goods meet export criteria. Foreign firms are permitted to import production inputs for the manufacture of export goods without paying taxes or customs duties.

The Customs Code permits the establishment of zones for manufacturing and export purposes, and the Law on Economic Zones regulates their establishment.  In 2014, Kosovo established three economic zones in the municipalities of Mitrovica/e, Gjakovë/Djakovica, and Prizren. Currently only the economic zone of Mitrovica/e has completed the legal and administrative procedures for building infrastructure.  Three business parks and one business incubator are operational.

Kosovo announced its intention to establish an American Special Economic Zone in January 2018, but operational details are still undetermined.

Performance and Data Localization Requirements

Kosovo does not specify performance requirements as a condition for establishing, maintaining, or expanding investments in Kosovo.  There are no onerous requirements that would inhibit the mobility of foreign investors or their staff. There are no conditions on permissions to invest, and the government does not mandate local employment.  Investment incentives apply uniformly to both domestic and foreign investors, on a case-by-case basis.

Depending on the tender, Kosovo may require foreign IT providers to turn over source code and/or provide access to surveillance.  Kosovo does not yet have standard rules on data transmission or storage. The Agency for Information Society is responsible for the storage of data for the central government, and other institutions store their respective data as well.

5. Protection of Property Rights

Real Property

Generally, Kosovo’s de jure property-related laws are well structured and provide for security and transferability of rights.  The country’s legal and regulatory framework is complex. Government ministries, municipal authorities, and independent agencies jurisdictions often overlap, and the court system is backlogged with property-related cases.  Property rights and interests are enforced, but weaknesses in the legal system and the difficult of establishing title to real estate can make enforcement difficult. Kosovo has mortgages and liens but the range of financial products for both is currently limited.  Mortgage agreements must be registered in cadastral records by the Kosovo Cadastral Agency, while pledge agreements must be registered with the pledge registry, which is a centralized registry office in the Business Registration Agency. The World Bank’s 2019 Doing Business Report ranked Kosovo 37 out of 190 economies for ease of registering property.  The report noted Kosovo made transferring property easier in 2014 by introducing a new notary system and combining procedures for drafting and legalizing sale and purchase agreements.

The Kosovo Property Comparison and Verification Agency (KPCVA)  is responsible for receiving, registering, and resolving property claims on private immovable property, including agricultural and commercial property.  Decisions of the Kosovo Property Claims Commission within the KPCVA are subject to a right of appeal to the Supreme Court. The KPCVA has received 42,749 total claims, the vast majority of which relate to agricultural property.  The KPCVA holds the mandate for implementing decisions of the Housing and Property Claims Commission (HPCC) that are pending enforcement.

Resolution of residential, agricultural, and commercial property claims remains a serious and contentious issue in Kosovo and limit the development of the formal property market needed for more stable economic growth.  Many property records were destroyed or removed to Serbia by the Serbian government during the 1998-1999 conflict, which can make determining rightful ownership difficult. The country is in the process of rebuilding the property registry and an EU-facilitated Kosovo-Serbia dialogue includes a component focused on restoring the cadastral records taken from Kosovo.

While Article 121.2 of the Constitution states foreign nationals and organizations may acquire ownership rights over real estate in accordance with conditions established by law or international agreement, Kosovo has no specific legislation establishing relevant conditions.  In early 2017, Kosovo launched the national strategy on land and property rights reform, which includes a provision to clarify and codify regulations regarding property ownership by foreign and/or non-resident investors. Per Article 40 in the Law on Property and Other Real Rights, a proprietary possessor acquires ownership of immovable property after ten years of uninterrupted and uncontested possession.

Intellectual Property Rights

Registration of intellectual property rights (IPR) conforms with regional and international practices.  A trademark registration process takes approximately nine months, while patent approval takes about 18 months.

Public awareness of the importance of brand protection and associated IPR is low.  A number of counterfeit consumer goods, notably CDs, DVDs, and clothing items, are available for sale and are openly traded.  Evidence suggests there is little domestic production of counterfeit goods in Kosovo, but the importation of counterfeit goods, especially apparel, is a concern.  The government tracks and reports on seizures of counterfeit goods.

IPR protections are improving slowly.  The Law on Patents, Law on Trademarks, Law on Industrial Design, and Law on Geographical Indices, together with the relevant Criminal Code and Customs provisions, provide for strong protection of IPR; authorize enforcement of trademark, copyright, and patent laws; and comply with related international conventions.  The IPR laws were amended in 2015 to strengthen legal remedies for right holders and to further align them with the EU standards. The Ministry of Trade and Investment established the Industrial Property Rights Office (IPO) in 2007, which is tasked with IPR protection. In 2018, the Assembly approved the Law on Customs Measures for Protection of Intellectual Property Rights in order to harmonize it with EU regulations.  These laws adhere to international treaties and conventions, including the Paris Convention, Madrid Protocol, Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, Budapest Treaty, and several European Council Directives on protection of IPR.

To enhance IPR enforcement and increase interagency coordination, the government has adopted an IPR strategy and established the National Intellectual Property Council and a Task Force Against Piracy.  The Council and the Task Force have similar structures and are comprised of the IPO, the Copyright Office, Customs, Kosovo Police Departments for Economic and Cyber Crimes, Market Inspectorate, and the Ministry of Justice.  The Council also includes the Kosovo Prosecutorial Council, courts, and other government and non-governmental institutions.

Kosovo is not listed in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.  Kosovo is not a member of the World Intellectual Property Organization (WIPO), and there is no WIPO country profile for Kosovo.

6. Financial Sector

Capital Markets and Portfolio Investment

Kosovo has an open-market economy and the market determines interest rates.  Individual banks conduct risk analysis and determine credit allocation. Foreign and domestic investors can get credit on the local market.  Access to credit for the private sector is limited, but improving.

The country generally has a positive attitude towards foreign portfolio investment.  Kosovo does not have a stock exchange. The regulatory system conforms with EU directives and international standards.  There are no restrictions beyond normal regulatory requirements related to capital sourcing, fit, and properness of the investors.  The CBK has taken all required measures to improve policies for the free flow of financial resources. Requirements under the SAA with the EU oblige the free flow of capital.  The government respects the IMF’s Article VIII conditions on the flow of capital.

Money and Banking System

Kosovo has 10 commercial banks (of which 8 are foreign) and 22 micro-financial institutions (of which 14 are foreign).  The official currency of Kosovo is the euro, although the country is not a member of the Eurozone. In the absence of an independent monetary policy, prices are highly responsive to market trends in the larger Eurozone.

Kosovo’s private banking sector remains well capitalized and profitable.  Difficult economic conditions, weak contract enforcement, and a risk-averse posture have limited banks’ lending activities, although marked improvement occurred in the past several years.  On February 2019, the rate of non-performing loans was 2.6 percent, the lowest rate in the last ten years. The three largest banks own 57.5 percent of the total 4.2 billion euros of assets in the entire banking sector.  Despite positive trends, relatively little lending is directed toward long-term investment activities. Interest rates have dropped significantly in recent years, from an average of about 12.7 percent in 2012 to an average of 6.7 percent in 2019.  Slower lending is notable in the northern part of Kosovo due to a weak judiciary, informal business activities, and fewer qualified borrowers.

The Central Bank of Kosovo (CBK) (established in 2008 is an independent government body responsible for fostering the development of competitive, sound, and transparent practices in the banking and financial sectors.  It supervises and regulates Kosovo’s banking sector, insurance industry, pension funds, and micro-finance institutions. The CBK also performs other standard central bank tasks, including cash management, transfers, clearing, management of funds deposited by the Ministry of Finance and other public institutions, collection of financial data, and management of a credit register.

Foreign banks and branches can establish operations in the country.  They are subject to the same licensing requirements and regulations as local banks.  The country has not lost any correspondent banking relationships in the past three years and no such relationship is currently in jeopardy.  There are no restrictions on foreigners opening bank accounts; they can do so upon submission of valid identification documentation.

Kosovo is a signatory country to the United States’ Foreign Account Tax Compliance Act (FATCA), aimed at addressing tax evasion by U.S. citizens or permanent residents with foreign bank accounts.  For more information, visit the FATCA website:

Foreign Exchange and Remittances

Foreign Exchange

The Foreign Investment Law guarantees the unrestricted use of income from foreign investment following payment of taxes and other liabilities.  This guarantee includes the right to transfer funds to other foreign markets or foreign-currency conversions, which must be processed in accordance with EU banking procedures.  Conversions are made at the market rate of exchange. Foreign investors are permitted to open bank accounts in any currency. Kosovo adopted the euro in 2002, but is not a Eurozone member.  The CBK administers euro exchange rates on a daily basis as referenced by the European Central Bank.

Remittance Policies

Remittances are a significant source of income for Kosovo’s population, representing over 12 percent of GDP (or over USD 900 million) in 2018.  The majority of remittances come from Kosovo’s diaspora in European countries, particularly Germany and Switzerland. The Central Bank reports that remittances are mainly used for personal consumption, not for investment purposes.

Kosovo does not apply any type of capital controls or limitations on international capital flows.  As such, access to foreign exchange for investment remittances is fully liberalized.

Sovereign Wealth Funds

Kosovo does not have any sovereign wealth funds.

7. State-Owned Enterprises

Kosovo has 63 state-owned enterprises (SOEs), 44 of which are municipality managed.  These enterprises are a legacy of the Yugoslav era and are concentrated in waste management, water supply, and transportation.  Kosovo’s 17 largest SOEs hold total assets of USD 378 million and employ over 11,000 people. SOEs are generally governed by government-appointed boards.  The Ministry of Economic Development monitors SOE operations with a light hand.

Private companies can compete with SOEs in terms of market share and other incentives in relevant sectors.  There are no state-owned banks, development banks, or sovereign funds in Kosovo. State-owned enterprises are subject to the same tax laws as private companies.

The majority of Kosovo’s SOEs operate at a loss and depend on government subsidies for their survival.  SOEs do not receive a larger percentage of government contracts in sectors that are open to foreign competition.  However, the government interprets procurement law in a way that considers SOEs to be public authorities and prevents contracting authorities from procuring goods from other sources if SOEs offer such goods and/or services.  SOEs purchase goods and services from the private sector, including international firms.

Privatization Program

Kosovo has been progressively privatizing SOE assets since the early 2000s.  The Privatization Agency of Kosovo (PAK), an independent agency, is responsible for the disposition of Kosovo’s SOE assets.  PAK plans to finalize all remaining privatizations over the next three to four years, pending legal challenges. There has been a freeze on privatization of land assets since December 2017.  The privatization process is open to foreign investors and follows Kosovo’s public procurement procedures. PAK provides a live feed of bidding day procedures on its website (  The website also includes bidding information, the results of sales, and other information.

Kosovo adopted the Law on Strategic Investment in 2016 in an effort to boost foreign direct investment.  Through the law, the government can transfer ownership of lands under administration of PAK the state and offer it to strategic investors.  The law also enables Kosovo to negotiate directly with potential strategic investors without going through tendering procedures in special cases.  The media has criticized some bidding processes as non-transparent and illegal.

8. Responsible Business Conduct

Spurred in large part by the growing number of foreign investors, the topic of RBC has begun to surface in public discussions.  The American Chamber of Commerce, Kosovo CSR Network, and other entities engaged in RBC are able to advocate and monitor freely.  The government generally does not promote or encourage RBC and does not factor RBC principles into procurement decisions. In most cases, tenders are awarded to the economic operator with the lowest price offer and highest technical score.

There have not been any major cases of negative corporate impact on human rights in Kosovo.  There are occasional complaints and media reports that the health of citizens in the area near the power plant in Obiliq/Obilič is being endangered due to high levels of lignite coal pollution.  As a result of those concerns, the Kosovo Assembly approved a 2016 Law on Environmentally Endangered Zone of Obiliq/Obilič and its Surroundings, which returns 20 percent of any royalties collected in the area to the municipality.

Companies are not required to make a public disclosure of policies, procedures, or practices unless registered as a joint stock company, in which case there are added responsibilities for the disclosure of policies, procedures, and practices related to financial reporting and auditing.

Implementation of the Law on Consumer Protection is limited.  The government has not undertaken any significant action to raise awareness of consumer rights.  The government does not promote the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  Kosovo does not participate in the Extractive Industries Transparency Initiative (EITI). There are no domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals.

9. Corruption

Opinion polls attest to the public perception that corruption is widespread in public procurement and local and international businesses regularly cite corruption as one of Kosovo’s largest obstacles to attracting investment.

Kosovo has enacted strong legislation to combat corruption, but the government has thus far been unsuccessful in efforts to investigate, prosecute, jail, and confiscate the assets of corrupt individuals.  The Anti-Corruption Agency and the Office of Auditor General are the government agencies mandated to fight corruption. The Law on Prevention of Conflict of Interest and Discharge in Public Function as well as the Law on Declaration, Origin, and Control of Property of Public Officials are intended to combat nepotism.  They require senior public officials and their family members to disclose their property and its origins. The Criminal Code also punishes bribery and corruption.

The government has recently enacted measures to address corruption including a requirement to conduct all public procurement electronically and to publish the names of contract winners.

The Embassy is unaware of any government activity to encourage private companies to establish internal codes of conduct.  The embassy is also unaware of local industry or non-profit groups that offer services for vetting potential local investment partners.

In 2016, the Kosovo Assembly approved amendments to the Law on Anti-Money Laundering.  The EU-compliant law supported Kosovo’s membership in the Egmont Group, a network of 152 Financial Intelligent Units (FIU) where the members exchange expertise to combat money laundering and terrorist financing.  Laundering is believed to be most common in the real estate, construction, and gambling sectors. Kosovo’s FIU is an independent governmental agency that leads Kosovo’s efforts to investigate economic crimes.

U.S. companies operating in Kosovo must adhere to FCPA requirements.  Kosovo participated in 2013 as an observer member in the anti-corruption conference organized by the United Nations Convention Against Corruption (UNCAC), and has attended several international conferences on anti-corruption with the support of the Council of Europe and UNDP.  Kosovo’s laws protect NGOs that investigate corruption.

Resources to Report Corruption

Shaip Havolli
Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+381 38 518 980

Hilmi Jashari
The Republic of Kosovo OMBUDSPERSON Institution
Str. “MIGJENI”, no. 21, Pristina, Kosovo
+383 (0) 38 223 782

Ismet Kryeziu
Executive Director
Kosovo Democratic Institute
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038

Jeta Xharra
Executive Director
Balkan Investigative Reporting Network Kosovo
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+ 381 38 22 44 98

10. Political and Security Environment

In May 2017, a vote of no confidence heralded the fall of the existing administration.  Following elections in June 2017, a new government was formed in September 2017 with a one-vote majority (61 out of 120) in the Assembly.  The government lost its majority in the Assembly in October 2018 and at present the government finds it increasingly difficult to pass legislation through the Assembly.

In November 2018, Kosovo imposed a tariff of 10 percent on goods originating in Serbia and Bosnia and Herzegovina as a response to Serbia’s lobbying against Kosovo’s membership in INTERPOL and de-recognition campaign.  Kosovo increased the tariff to 100 percent two weeks later, essentially embargoing trade between the two countries. The tariff has become a point of contention between the Kosovo political elite and has overshadowed other political and economic developments elsewhere.

Opposition members in the Kosovo Assembly released teargas on March 21, 2018 in protest of the final vote for border demarcation with Montenegro.  The voting session was interrupted on four separate occasions when some MPs released tear gas inside the chamber. In August 2016, the Assembly building was hit by a rocket-propelled grenade.  Opposition party members were tried for the attack, but a conviction was overturned in November 2017 and is pending a retrial. There were no serious injuries reported from these incidents.

While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.

11. Labor Policies and Practices

According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s 1.8 million population is of working age (15-64).  The official unemployment rate is 29.6 percent, with youth unemployment as high as 55 percent. There are no reliable statistics on Kosovo’s informal economy, but a recent EU-commissioned estimated the informal and black market at 31 percent of GDP.  Informal businesses dominate in the agriculture, construction, and retail sectors.

Kosovo’s Law on Labor requires employers to observe employee protections, including a 40-hour work week, payment of overtime, adherence to occupational health and safety standards, respect for annual leave benefits, and up to a year of maternity leave (six months of employer paid leave at a reduced rate, followed by three months of government paid leave and three months of unpaid leave).  The Labor Law distinguishes between layoffs and firings, and mandates severance payments only for laid off workers (when at least 10 percent of employees are dismissed collectively). The government is in the process of changing the Law on Labor to make it more business friendly and discourage gender discrimination.

The law also establishes a monthly minimum wage, which the government set in 2011 at USD 146 (€130) for employees under 35 and USD 191 (€170) for those over 35 years of age.  Kosovo has no unemployment insurance or any other safety net programs for workers laid off for economic reasons.

Private-sector employers often do not provide contracts to their employees and pay them in cash.  In the public sector, employers sometime hire employees as contract workers and enroll them in the regular payroll when the budget for salaries becomes available.

The Labor Law has no nationality requirement.  Labor laws are not waived for investment purposes.  There are no additional or different labor laws for special economic zones or free zones.

Labor unions are independent by law, but in practice, many of them are closely associated with political parties.  A collective bargaining agreement between the government, labor unions, and private sector representatives was signed in 2014 and has been partially implemented.  Kosovo’s Statistical Agency and the Ministry of Labor and Social Welfare do not collect specific data on implementation. Public-sector employees – including doctors, teachers, and judges – sporadically go on strike to demand implementation of the entire agreement, better working conditions, or higher wages.  In January 2019, education and health workers went on a month-long strike demanding higher wages, only stopping the strike after the Kosovo Assembly approve the Law on Wages, which granted some of their demands. Strikes and protests in the private sector are almost inexistent. Local courts formally adjudicate labor disputes.

The Ministry of Labor and Social Welfare established a compliance office with the authority to inspect employer adherence to labor laws.  The International Labor Organization office in the country is project-focused and does not serve as a government advisor on labor legislation or international labor standards.  The Labor Inspectorate suffers from inadequate staffing and a limited budget; with 40 inspectors conducting inspections in 38 municipalities, the Inspectorate cannot meet all the inspection needs of the labor market.  The Inspectorate issues fines and penalties depending on the extent of the violation of labor legislation. The Labor Inspectorate and the judicial system investigate and prosecute labor practice violations. Municipal social work centers at the Ministry of Labor and Social Welfare investigate and report on child labor issues, while the Labor Inspectorate inspects violations of child labor practices for children aged 15-18 years.

Kosovo’s education system has been criticized for not sufficiently linking its curriculum to the needs of Kosovo’s business community.  Kosovo’s large, young labor force often remains idle due to mismatches between applicant skills and employer needs.

12. OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) has been active in Kosovo since 2000.  OPIC provides financing, political risk insurance, and other investment vehicles to U.S. investors.  In June 2009, OPIC signed an investment agreement with Kosovo which streamlines OPIC’s ability to support U.S. investments.  OPIC is currently considering partial financing for Kosova e Re Power Plant, one of the biggest projects in Kosovo’s history.  Kosovo is also a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), the International Monetary Fund (IMF), and the European Bank for Reconstruction and Development (EBRD).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $7,170  2017 $ 7,130  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $157.9 2017 $172 IMF
Host country’s FDI in the United States ($M USD, stock positions) 2017 $13.57 2017 $15 IMF
Total inbound stock of FDI as % host GDP 2017 55% 2017 59% IMF

* Source for Host Country Data: Central Bank of Kosovo

Table 3: Sources and Destination of FDI

Data from the CBK is generally consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in both categories differ slightly.  According to the CBK, total inward direct investment was USD 3,520 million and total outward direct investment was USD 299 million in 2017.

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 4,229 100% Total Outward 365 100%
Turkey 549 13% Albania 89 24.4%
Germany 449 10.6% Germany 42 11.5%
Switzerland 423 10% Macedonia, FYR 26 7.1%
Slovenia 262 6.2% Switzerland 24 6.6%
Austria 254 6% Cyprus 24 6.6%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Data from the CBK is generally consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in both categories differ slightly.  According to the CBK, total inward direct investment was USD 3,520 million and total outward direct investment was USD 299 million in 2017.

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 2,284 100% All Countries 1,779 100% All Countries 506 100%
Luxembourg 1,121 49.1% Luxembourg 1065 59.9% Italy 193 38.2%
Ireland 572 25% Ireland 572 32.2% United States 99 19.6%
Italy 193 8.5% France 137 7.7% Luxembourg 56 11.2%
France 162 7.1% United States 3 0.2% Austria 40 7.8%
United States 103 4.5% Germany 1 0.1% Germany 39 7.7%

Data from the CBK is consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in each category differ.  According to the CBK, total portfolio investment assets for 2017 were USD 2.14 billion, with total equity securities USD 1.67 billion, and total debt securities of USD 473 million.

14. Contact for More Information

Dren Pozhegu
Economic Advisor
U.S. Embassy Pristina
Nazim Hikmet 30
Pristina, Kosovo
+383 38 5959 3183


Executive Summary

Mongolia’s frontier market offers investors potential investment opportunities, but questions about the independence of the judiciary and lack of input from stakeholders during rulemaking warrant caution when considering entry.  Nonetheless, tremendous mineral reserves, agricultural endowments, and potential for services growth make Mongolia an attractive destination for investors. Mongolia’s economic model of exporting minerals and importing most other goods means it does not have many protectionist proclivities, leading to a market largely free of access barriers.  Investors also face few meaningful investment restrictions in Mongolia, enjoying mostly unfettered access to the market. However, investing into politically sensitive sectors of the Mongolian economy – such as mining – carries higher risk, as the government has expropriated domestic investor assets without compensation and sought to renegotiate large-scale deals, such as the Oyu Tolgoi mine investment agreement with Rio Tinto.

The Mongolian government’s stewardship of the economy – in particular its recent responsible fiscal and monetary policies – have helped fuel rapid economic growth and a fiscal surplus, but looming debt payments beginning in 2020 will pose a risk to Mongolia’s still fragile balance of payments situation.  Economists predict growth above 6 percent in 2020, backed by strong coal exports to China and foreign investment resulting from the Oyu Tolgoi mining project. Mongolia’s service sector – especially in food service, convenience stores, and fitness – is underdeveloped, offering investors a chance to earn profits using proven business models.  Mongolia’s cashmere sector also offers investors a potentially lucrative rate of return as Mongolia scales up its production capabilities. Agriculture also shows potential, although it carries with it the difficulties of complying with various countries’ sanitary and phytosanitary standards.

Investors’ chief complaint is lack of access to officials who draft and implement legislation that affects international commerce.  Mongolia has committed to implementing the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which will require a public comment period before new laws and regulations become final.  It will also require ministries to respond to significant public comments. Most new laws and regulations are not yet subject to public comment before becoming final, however. One example of this is a 2019 tax reform package that was adopted without investor input.

Mongolia’s judicial system has shown signs of offering investors protection, but recent reforms that simplify the removal of judges and prosecutors raise concerns about its independence.  Investors also cite long delays in reaching judgments in business disputes, then similarly long delays in obtaining enforcement of the decisions. There are also long delays by administrative inspection bodies, such as the tax authority, which in the past have failed to act on politically sensitive decisions.  Businesses note a substantial regulatory burden at the regional level as well, although a newly created “One-Stop Shop for Investors” may potentially be useful in navigating this process.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 93 of 180
World Bank Doing Business Report “Ease of Doing Business” 2018 74 of 190
Global Innovation Index 2018 53 of 126
U.S. FDI in partner country ($M USD, stock positions) 2018 $690
World Bank GNI per capita 2017 $3,270

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

Mongolia generally does not discriminate against foreign investors in general or U.S. investors in particular; however, there are two major exceptions.  First, foreign investors object to the regulatory requirement, nowhere mentioned in the Investment Law, that they invest a minimum of USD100,000 to establish a venture when the Investment Law of Mongolia states that all investors in Mongolia, without reference to nationality, are subject to national treatment.  In contrast, Mongolian investors face no investment minimums. Second, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own real estate. Additionally, while foreign investors may obtain use rights (excluding mining exploration and extraction licenses) for the underlying real estate, these rights last for five years with a one-time five-year renewal.  The government imposes no such restriction on its nationals.  There are also substantial regulations on foreign entities entering Mongolia’s financial service sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mongolia’s constitution and related statutes limit the right to own real estate to adult citizens of Mongolia.  However, no formal law exists vesting Mongolia’s pastoral nomadic herders with exclusive rights of pasturage, control of water, or real estate rights.  As such, rural municipalities unofficially recognize that traditional, customary access to these resources by pastoralists must be taken into account before, during, and after other non-resident users, particularly but not exclusively those in the mining sector, can exercise use and ownership rights.  Both foreign and domestic investors have the same rights to establish, sell, transfer, or securitize structures, shares, use rights, companies, and movable property, subject to relevant legislation and related regulations controlling such activities in all sectors. Mongolia generally imposes no statutory or regulatory limits on foreign ownership and control of investments.  The only exception is that the Mining Law of Mongolia allows the Mongolian Government to acquire up to 50 percent of mineral deposits deemed of strategic value to the state by parliament. Investors assert that regulatory discretion allows bureaucrats to exercise de facto control over use of legally granted rights, corporate governance decisions, and ownership stakes.  Finally, Mongolia has no formal or informal investment screening mechanism.

Other Investment Policy Reviews

The Mongolian Government conducted an investment policy review through the United Nations Conference on Trade and Development (UNCTAD) in 2013 and a trade policy review with the World Trade Organization (WTO) in 2014.  Although the Organization for Economic Cooperation and Development (OECD) has not conducted a comprehensive investment policy review of Mongolia, it has completed economic studies on specific aspects of investment and development in Mongolia.

For the UNCTAD Mongolia investment policy review:  .

For the WTO Mongolia investment policy review in the context of a Trade Policy Review:  .   

For OECD Mongolia reports:  .

Business Facilitation

Consistent with the World Bank’s Doing Business Report, investors report that Mongolia’s business registration process is reasonably efficient and clear.  All enterprises, foreign and domestic, must register with the State Registration Office (SRO:  Registrants obtain form UB 03-II and other required documents from the website and can submit completed documents by email.  SRO aims at a two-day turnaround for the review and approval process. However, investors report bureaucratic discretion can add weeks or even months to the process and argue more transparent adherence to the relevant laws and regulations would stabilize and streamline registration.  Once approved by SRO, a company must register with the Mongolian General Taxation Authority (GTA:  ).  Upon hiring its first employees, a company must register with the Social Insurance Agency (  ).  The General Authority for Intellectual Property and State Registration (GAIPSR) reports that notarization is not required for its registration process.

The same ease of opening a business does not apply to closing a business, however.  Foreign investors generally complain about the long delays in the latter process.

Outward Investment

Although the Mongolian Government neither promotes nor incentivizes outward investment, it does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

The United States and Mongolia signed a Bilateral Investment Treaty (BIT) in 1994, with the agreement entering into force in 1997.  The BIT states that the agreement will protect U.S. investors and assist Mongolia in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthening the development of the private sector.  More information on the BIT is available from the U.S. Department of State’s website (

In January 2017, the two countries certified completion of their respective applicable legal requirements and procedures for the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (a.k.a., the Transparency Agreement), with a 2023 deadline for full implementation.  The Transparency Agreement sets out clear processes for drafting and commenting on new legislation and regulations and requires strict transparency related to laws involving trade and investment. A copy of the Transparency Agreement is available here: .

Mongolia and the United States have no bilateral tax or free-trade agreements.

Information regarding the various other investment agreements that Mongolia has signed is available from the UNCTAD website:  .

Mongolia’s Taxation Regime

Mongolia’s parliament amended the General Law on Taxation, Corporate income Tax, Value Added Tax, and personal income tax in March 2019.  Among the many changes, industry cites as especially significant a decrease in license transfer tax for land rights. A 2017 change had increased this fee to 30 percent of the gross value of the transfer of land rights involving land possession or usage, including exploration and mining licenses and rights for water, timber, pasturage, and land use in urban areas.  While the new amendments lower the fee to 10 percent of the net rather than gross value, the tax remains a disincentive for investors in Mongolia’s risk-prone resource sector. The amendments also impose a tax of 5 percent on the interest income of commercial Mongolian banks to be paid on loans and debt instruments obtained from local and foreign stock markets, decrease the withholding tax on income provided to non-residents to 15 percent, lower from 20 percent to 5 percent the tax on dividends for foreign investors, and lower from 10 percent to 5 percent the tax on financing obtained through debt instruments from initial and secondary markets.  They also simplify reporting procedures and provide relief for companies experiencing financial difficulties.

Despite these positive changes, the law was not subject to public comment, and industry has complained that parliament approved the law without its input.  This lack of engagement has in instances led to hastily written tax rules. Once such situation concerns Article 16.2 of the Corporate Income Tax (CIT) law, which states, “Taxable income shall be determined by deducting expenses specified in article 12 of this law and amount in excess of expenses determined in stabilization certificate from gross taxable income specified in subparagraphs 8.1.1, 8.1.6-8.1.11, and 9.1.1 of this law and subparagraph 9.1.4 for a bank, non-banking financial institution, and savings and credit cooperative.”  Because non-residents’ income is covered under article 17.2.9 of the CIT law and are not mentioned in this article, tax authorities do not allow them to deduct their expenses when paying taxes. As a result, foreign companies are taxed on their gross income, whereas domestic companies are taxed on their net income.

Industry also has asked that Mongolia’s Value-Added Tax (VAT) be revised in two major areas.  Businesses complain that they may not deduct the value of construction expenses against their VAT bill, which disincentivizes the construction of new facilities.  The VAT law also has not been amended to reflect the modern array of cross border services that it should cover.

3. Legal Regime

Transparency of the Regulatory System

In September 2013, the United States and Mongolia signed the Transparency Agreement.  The agreement marked an important step in developing and broadening the economic relationship between the two countries.  Upon full implementation, the Transparency Agreement will make it easier for U.S. and Mongolian firms to do business by guaranteeing transparency in the formation of trade-related laws and regulations, the conduct of fair administrative proceedings, and measures to address bribery and corruption.  In addition, it provides for commercial laws and regulations to be published in English, improving transparency and making it easier for foreign investors to operate in the country. Parliament ratified the Transparency Agreement in December 2014, the United States and Mongolia certified that their respective applicable legal requirements and procedures were completed in January 2017, and the Transparency Agreement entered into force on March 20, 2017.  Mongolia has five years to implement fully the Transparency Agreement.  A copy of the Transparency Agreement is here: .

The Law on Legislation aligns Mongolia’s legislative processes with its Transparency Agreement obligations.  The law clarifies who has the right to draft legislation, the format of these bills, the respective roles of the Mongolian government and parliament, and the procedures for obtaining and employing public comment on pending legislation.  The Law on Legislation states that law initiators – i.e., members of parliament, the president of Mongolia, or the cabinet of Mongolia – must fulfill the following criteria: (1) provide a clear process for both developing and justifying the need for the draft legislation; (2) set out methodologies for estimating costs to the government related to the draft law’s implementation; (3) evaluate the impact of the legislation on the public once implemented; and (4) conduct public outreach before submitting legislation to the public.  

The Law on Legislation also requires that law initiators obtain public comment by posting draft legislation and required reports evaluating costs and impacts on parliament’s official website (  ) at least 30 days prior to submitting it to parliament.  These posts must explicitly state the time period for public comment and review.  In addition, initiators must solicit comments in writing, organize public meetings and discussions, seek comments through social media, and carry out public surveys.  No more than 30 days after the public comment period ends, the initiator must prepare a matrix of all comments, including those used to revise the legislation as well as those not used, which must be posted on parliament’s official web site.  After passage of a new law, parliament is responsible for monitoring and evaluating both the implementation and impact of the legislation. Despite these legal requirements, law initiators do not generally follow these rules. Parliament may exempt budget and tax legislation from this law as well.

While General Administrative Law (GAL) Article 6 brings Mongolia’s regulatory drafting process into line with its Transparency Agreement obligations, the Mongolian government is not generally enforcing it.  The GAL requires ministries, agencies, and provincial governments to seek public comment by posting draft regulations on their respective websites for at least 30 days and by holding public hearings, following the rules set out in the 2015 Public Hearing Law.  The drafting entity must record, report, and respond to the public comment. The Ministry of Justice and Home Affairs must certify that each regulatory drafting process complies with the GAL before the regulations enter into force. After approval, the relevant government agency must monitor and evaluate the implementation and impact of the regulations.

Businesses complain about a high regulatory burden at the local, or aimag/soum, level.  They note a lack of knowledge among local inspectors, whom they sometimes accuse of overly frequent inspections intended to raise revenue for local municipalities.  Regional tax, health, and safety inspectors in particular have been cited as problematic.

International Regulatory Considerations

Mongolia is not part of any regional economic bloc but often seeks to adapt or adopt European standards and norms in areas such as construction materials, food, and environmental regulations; looks to U.S. standards for activity in the petroleum sector; and adopts a combination of Australian and Canadian standards and norms in the mining sector.  Mongolia also tends to employ World Organisation for Animal Health standards for its animal health regulations. Finally, Mongolia has a tendency to synchronize its veterinary, customs, and transport standards with China’s, its primary trade partner.

Mongolia, a member of the WTO, asserts that it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations; however, as demonstrated by the failure to notify TBT about changes in the process for using certificates of origin in 2016, Mongolia has not always complied with that commitment.  

Legal System and Judicial Independence

Investors have complained that judges frequently avoid making controversial decisions in business disputes, preferring to delay judgment for as long as possible – sometimes years.  If a decision is made, businesses face similarly long delays in obtaining and executing an enforcement order. In some instances, cases have taken so long that by the time a business had won an enforcement order, the counterparty had already liquidated its assets and closed up.  U.S. businesses complain about similarly long delays with respect to inspection agencies, such as the Tax Dispute Settlement Resolution Council (TDSRC) as well as with other inspection agency panels, especially those related to mineral licenses and health matters.

Mongolia adopted a new regulation in April 2019 that effectively simplifies the president’s ability to remove judges and prosecutors, which the president quickly used to remove judges and prosecutors he and the government alleged were corrupt.  Transparency International wrote of the legislation, “These legal amendments undermine the separation of powers and systems of checks and balances designed to prevent abuse and ensure respect for the rule of law.” Because no major decisions involving international investors have reached the courts since the adoption of these measures, it is difficult to assess their impact on investors.  Investors should focus on whether the government continues to remove judges and prosecutors that show judicial independence as an indicator of whether they can have confidence in an independent judiciary in Mongolia.

Mongolia has adopted a hybrid Civil Law-Common Law system of jurisprudence.  Trial judges may use prior rulings to adjudicate similar cases but have no obligation to respect legal precedent as such.  Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent interpretation and application.  Experienced and dedicated judges do their best to rule in the spirit of the law in routine matters. However, statutory and regulatory vagueness invites corruption within the underfunded and understaffed judiciary, especially in cases where large sums of money are at stake, or where large foreign citizens or corporations are in court against domestic government agencies or well-connected private Mongolian citizens.

Mongolia has a specialized law for contracts but no dedicated law for commercial activities.  Contractual disputes are usually adjudicated in Mongolia’s district court system. Disputants may appeal cases to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia.  Mongolia has in place several specialized administrative courts authorized to adjudicate cases brought by citizens against official administrative acts. Disputants may appeal administrative court decisions to higher trial courts.  Mongolia has a Constitutional Court, dedicated to ruling on constitutional issues. The General Executive Agency for Court Decisions (GEACD) enforces court decisions.

The Mongolian constitution specifies that non-judicial elements of the Mongolian government “shall not interfere with the discharge of judicial duties” by the judicial branch.  The Judicial General Council, composed of respected jurists, is charged with the constitutional duty of ensuring the impartiality of judges and independence of the judiciary. The Judicial General Council consists of five members, with three members respectively nominated by the first instance courts, appellate courts, and the Supreme Court, one member by the Bar Association of Mongolia, and one member by the Ministry of Justice and Home Affairs, subject to appointment by the president of Mongolia.  However, the Council lacks official authority to investigate allegations of judicial misconduct or to impose disciplinary measures on judges or other judicial sector personnel.

Laws and Regulations on Foreign Direct Investment

2018 saw no major changes in the 2013 Investment Law of Mongolia.  The Investment Law frames the general statutory and regulatory environment for all investors in Mongolia.  Under the law, foreign investors can access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors.  Investor residence, not nationality, determines whether an investor is foreign or domestic. The law also provides for a more stable tax environment and provides tax and other incentives for investors.  Accordingly, most investments by private foreign individuals or firms residing in Mongolia need only be registered with the General Authority for Intellectual Property and State Registration (

The Investment Law offers tax incentives in the form of transferable tax stabilization certificates that give qualifying projects favorable tax treatment for up to 27 years.  Affected taxes may include the corporate income tax, customs duties, value-added tax, and mineral resource royalties.

While foreign investors say they appreciate the intent of the Investment Law, they note it does not always deliver the promised national treatment, specifically in two areas.  First, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own real estate. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years, with a limited right of renewal.  Second, foreign investors object to the regulatory requirement that they invest a minimum of $100,000 to establish a venture. Although the Investment Law has no such requirement, Mongolian government regulators have unilaterally imposed it on all foreign investors. In contrast, Mongolian investors are not subject to investment minimums.   

Investors have called on the Mongolian government to revise the law to incorporate their concerns.  

Competition and Anti-Trust Laws

Mongolia’s Agency for Fair Competition and Consumer Protection (AFCCP) reviews domestic transactions for competition-related concerns.  For a description of the AFCCP and its legal and regulatory powers, see the UNCTAD website ( ) and the AFCCP website (  ).

Expropriation and Compensation

Although Mongolia generally respects property rights, the Mongolian government and parliament may exercise eminent domain in the national interest.  Mongolian state entities at all levels are authorized to confiscate or modify land use rights for purposes of economic development, national security, historical preservation, or environmental protection.  However, Mongolia’s constitution recognizes private real property rights and derivative rights, and Mongolian law specifically bars the government from expropriating such assets without payment of adequate, market-based compensation.  Investors express little disagreement with such takings in principle but worry that a lack of clear lines of authority among the central, provincial, and municipal levels of government creates occasions for loss of property rights. For example, the 2006 Minerals Law (amended in 2014) provides no clear division of local, regional, and national jurisdictions for issuances of land use permits and special use rights.  Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors can find themselves unable to fully exercise duly conferred property rights.

Many of the cases alleging expropriation involve court expropriations after criminal trials in which the investors were compelled to appear as “civil defendants” but were not allowed to fully participate in the court proceedings.  In these cases a government official is sometimes convicted of corruption and sentenced to prison, and the trial court judge then orders the foreign civil defendant to surrender a license or pay a tax penalty or fine for having received an alleged favor from the criminal defendant.  In ongoing disputes involving several foreign investors, among them U.S. companies, the courts have taken property or revoked use licenses despite an absence of evidence the property or licenses were illegally obtained.

Investors and the legal community have expressed concerns about an act of parliament they perceive as expropriation.  In June 2016, the Mongolian Copper Company, a privately-held entity, bought 49 percent of Mongolian state-owned Erdenet Mining Corporation from the Russian state-owned company Rostec.  The non-transparent sale of this mining asset generated public controversy. Parliament nullified the transaction in February 2017, and ordered seizure of the Mongolian company’s shares.  In March 2018, Mongolia’s Constitutional Court upheld this taking but ordered the government to compensate the private company. While investors and legal experts do not dispute parliament’s powers under the constitution and statute to nationalize property, they state that parliament has no authority to undo a business transaction between two non-government or foreign parties.  They assert that the court, bending to improper pressure from parliament, delivered a decision inconsistent with Mongolia’s constitution. Consequently, they argue that this taking undermines the sanctity of contracts and may well discourage investment into other projects.

Dispute Settlement

ICSID Convention and New York Convention

Mongolia ratified the Washington Convention and joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991.  It also signed and ratified the New York Convention in 1994. The government of Mongolia has accepted international arbitration in several disputes.

Investor-State Dispute Settlement

The U.S.-Mongolia Bilateral Investment Treaty (BIT) entered into force in 1997 (  Under the BIT, the two countries have agreed to respect international legal standards for state-facilitated property expropriation and compensation matters involving nationals of either country.  The BIT effectively provides an extra measure of protection against financial loss for U.S. nationals doing business in Mongolia. In at least one expropriation case, however, the Mongolian government restored a mining license it had unilaterally modified years previously, but declined to compensate for undisputed financial loss as required by the BIT and independently required by the domestic law specifically cited in rendering the modification.  Under the BIT, such uncompensated expropriation is appealable through arbitration proceedings. However, the cost of arbitration can make it impractical for aggrieved parties.

In disputes involving the Mongolian government, investors report government interference in the dispute resolution process, both administrative and judicial.  Foreign investors describe three general categories of disputes that invite such interference. The first comprises disputes between private parties before a Mongolian government administrative tribunal.  In these cases, investors warn a Mongolian private party may exploit contacts in government, the judiciary, law enforcement, or the prosecutor’s office to coerce a foreign private party to accede to demands.  The second category involves disputes between investors and the Mongolian government directly. In these cases, the Mongolian government may claim a sovereign right to intervene in the business venture, often because the Mongolian government itself is operating a competing state-owned enterprise (SOE) or because officials have undisclosed business interests.  The third category involves Mongolian tax officials or prosecutors levying highly inflated tax assessments against a foreign entity and demanding immediate payment, sometimes in concert with imposition of exit bans on company executives or even the filing of criminal charges.

Investors have reported local courts recognize and enforce arbitral decisions, but that problems exist with enforcement.  The thinly staffed GEACD is charged with implementing the decisions and verdicts of Mongolia’s civil and criminal courts. GEACD employees often live in the jurisdictions in which they work, and are subject to pressure from friends and professional acquaintances.  A complicated chain-of-command and opportunities for conflicts of interest can weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic interests.

International Commercial Arbitration and Foreign Courts

The Mongolian government has consistently declared it will honor arbitral awards.  The Mongolian government and Canadian uranium mining company Khan Resources settled a high-profile expropriation dispute after a Paris arbitration panel awarded USD104 million to the Canadian company.  The parties settled for USD70 million, which the government of Mongolia paid in May 2016.

To improve Mongolia-based international arbitration, parliament passed a new Arbitration Law in January 2017.  Based on the United Nations Commission on International Trade Law (UNCITRAL), the Arbitration Law provides a clearer set of rules and protections for Mongolia-based arbitration.  The law does not, however, designate any particular organization for use by all disputants, and remains unused by a foreign entity, to our knowledge. Any organization that satisfies specific requirements set out in the law can provide arbitral services.  This change breaks the monopoly on domestic arbitration held by the Mongolian National Chamber of Commerce and Industry, which many investors criticized as politicized, unfamiliar with commercial practices, and too self-interested to render fair decisions.  Foreign investors say they prefer international arbitration but might consider domestic arbitration if the newly established domestic arbitration tribunals are seen to be fair and effective.

The new law also limits the role of Mongolia’s courts in the arbitration process.  Previously, disputants could appeal to Mongolia’s civil courts if the results of “binding arbitration” were not to their liking.  The new arbitration law limits parties to a single appeal only to Mongolia’s Court of Civil Appeals. The Court of Civil Appeals can only reject an arbitration judgment for “serious” procedural failings or discrepancies with official public policy initiatives.  

Bankruptcy Regulations

Mongolia’s Bankruptcy Law defines bankruptcy as a civil matter.  Mongolian law mandates the registration of mortgages and other debt instruments backed by real estate, structures, immovable collateral (mining and exploration licenses and other use rights) and, after March 2017, movable property (cars, equipment, livestock, receivables, and other items of value).  Even though the law allows for securitizing movable and immovable assets, however, local law firms hold that the bankruptcy process remains too vague, onerous, and time consuming to make it practical. Mongolia’s constitution and statutes allow contested foreclosure and bankruptcy only through judicial (rather than administrative) proceedings.  Local business and legal advisors report that proceedings usually require no less than 18 months, with 36 months not uncommon. Investors and legal advisors state that a lengthy appeals process, perceived corruption, and government interference can create years of delay. Moreover, while in court, creditors face suspended interest payments and limited access to the asset.

4. Industrial Policies

Investment Incentives

The Mongolian government generally offers the same tax preferences to both foreign and domestic investors.  The government occasionally grants tax exemptions for imports of essential fuel and food products or for imports in certain targeted sectors, such as agriculture or energy.  Such exemptions can apply to Mongolia’s five percent import duty and 10 percent value-added tax (VAT). In addition, the Mongolian government occasionally extends a 10 percent tax credit on a case-by-case basis to investments in key sectors such as mining, agriculture, and infrastructure.  Under the Investment Law, foreign-invested companies properly registered and paying taxes in Mongolia are considered domestic Mongolian entities, thus qualifying for investment incentive packages that, among other benefits, include tax stabilization for a period of years. In 2014 parliament authorized the central bank, the Bank of Mongolia, to waive 7.5 percent of the 10 percent royalty on gold miners pay when selling gold to the Bank of Mongolia and Mongolian commercial banks through 2017.  The Mongolian government has extended this program and continues to underwrite low-interest loans from commercial banks for small- to medium-sized gold mines selling gold to the Bank of Mongolia.

Investors should note the ongoing International Monetary Fund Program has required the Mongolian government to cancel, modify, or suspend some lending schemes and tax incentives.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mongolian government launched a free trade zone (FTZ) program in 2004.  Two FTZ areas are located along the Mongolia spur of the trans-Siberian highway:  the northern Russia-Mongolia border town of Altanbulag and the southern Chinese-Mongolia border town of Zamiin-Uud.  Both FTZs are relatively inactive, still pending development. A third FTZ is located at the port of entry of Tsagaannuur in the far western province of Bayan-Olgii bordering Russia.  Mongolian officials also suggest that the New Ulaanbaatar International Airport (NUBIA), expected to commence operations in 2019, may host an FTZ. Observers have noted that Mongolia’s FTZ program has failed to prosper due to lack of implementing regulations based on international best practices and insufficient resources to develop human capacity and appropriate on-site infrastructure.  

Performance and Data Localization Requirements

Mongolia does not legally require foreign investors to use local goods, services, or equity, or to engage in substitution of imports.  The government applies the same geographical restrictions to both foreign and domestic investors. Existing restrictions involve border security, environmental concerns, and local use rights.  The government does not impose onerous or discriminatory visa, residence, or work permit requirements on U.S. investors – although foreign and domestic firms must meet certain industry-specific local hire requirements.  Neither foreign nor domestic businesses need to purchase from local sources, export a certain percentage of output, or use foreign exchange to cover exports.

The Mongolian government strongly encourages but does not legally compel domestic sourcing of material inputs, especially for firms engaged in natural resource extraction.  The 2014 amendments to the 2006 Minerals Law of Mongolia state that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia.  Although there are no formal enforcement procedures to ensure local sourcing, investors occasionally report that central, provincial, or municipal governments slow down permitting and licensing until domestic and foreign enterprises make some effort to source locally. Hiring Mongolians essentially becomes a legal necessity considering the Mongolian government requirement that employers seeking work visas for foreign employees demonstrate that their workforces comprise the same percentage of domestic hires suggested in Mongolia’s procurement law.  

Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government-imposed targets or requirements.  Mongolia does not require technology transfers. The government generally imposes no offset requirements for major procurements. Investors, not the Mongolian government, make arrangements regarding technology, intellectual property, and similar resources, and generally may finance as they see fit.  Except for a currently unenforced provision of the amended Minerals Law of Mongolia requiring mining companies to list 10 percent of the shares of the Mongolian mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares to Mongolian nationals. Equity stakes are generally at the discretion of investors, Mongolian or foreign.

In cases where investments are determined to have national impact or raise national security concerns, the Mongolian government may restrict the type of financing that foreign investors may use, their choice of partners, or to whom they sell shares or equity stakes.  Investors and local legal experts note that the system by which the Mongolian government regulates these transactions lacks a clear statutory basis and transparent, predictable regulatory procedures.

Investors can locate and hire workers without using hiring agencies as long as hiring practices follow Mongolia’s Law on Labor.  Mongolian law requires companies to employ Mongolian workers in certain labor categories where it has been determined that a Mongolian can perform the task as well as a foreigner.  This law generally applies to unskilled labor categories and not fields in which a high degree of technical expertise not existing in Mongolia is required.

The Mongolian government has no forced localization policy for data storage; no legal requirements for IT providers to turn over source code or to provide access for surveillance; and no rules or mechanisms for maintaining a certain amount of data storage at facilities within the territory of Mongolia.

5. Protection of Property Rights

Real Property

The Mongolian constitution provides that “the State shall recognize any forms of public and private properties.”  The constitution limits real-estate ownership to adult citizens of Mongolia, though that limitation does not apply to “subsoil,” a term not expressly defined in the constitution.  Mongolian civil law allows private Mongolian citizens or government agencies to assume property ownership or use rights if the current owner or holder of use rights does not use the property or the rights.  In the case of use rights, revocation and assumption is almost always written into the formal agreements covering the rights. Squatters may also under certain circumstances claim effective property ownership of unused structures.

Although foreigners and non-resident investors may own permanent physical structures and obtain use rights to land and resources, only Mongolian citizens may own the surface land, and only in municipalities.  Such land ownership does not include ownership of or access to surface or subsurface resource rights, which remain with state. Outside municipalities, the state owns the land and resources. The state may lease access to those resources to public and private entities, according to the relevant statutes.

Ownership of a structure vests the owner with control over the use rights of the land upon which the structure sits.  Use rights are granted from periods of three to sixty years depending on the particular use right. However, foreign nationals or foreign companies can obtain a land use right for no more than 10 years:  a five-year lease term with a single five-year renewal. Although Mongolia has a well-established register for immovable property – structures and real estate – it lacks a central register for use rights; consequently, investors, particularly those seeking to invest in rural Mongolia, have no easy way to learn who might have conflicting rights.  Complicating matters, Mongolia’s civil law system has yet to develop a formal process for apportioning multiple use rights on adjacent lands or adjudicating disputes arising from conflicting use rights.

Mongolian law allows creditors to recover debts by seizing and disposing of property offered as collateral.  Mongolian law mandates that mortgages and other debt instruments backed by real estate, fixed structures, and other immovable collateral be registered with the Immovable Property Office of the State Registration Office (SRO:  ).  Mongolian law began allowing movable property (cars, equipment, livestock, receivables, and other items of value) in March 2017 to be registered with SRO as collateral.  Investors report that the immovable property registration system is generally reliable, but the movable property system continues to experience capacity issues and suffers from non-transparent, arbitrary regulations that limit access.  At this point, the Mongolian government has no accurate figure for land with clear titles.

Intellectual Property Rights

Film, television, and digital content from the United States enjoy strong copyright protection in Mongolia, while the music and publishing industry is slowly making progress in reaching licensing agreements with organizations using its content.  Use of pirated software by Mongolian government ministries, as well as by home-use consumers and business, remains a major problem, however.  Patent protection for pharmaceutical and medical device importers is virtually non-existent, with trademark law their only recourse.  Law enforcement continues to prosecute intellectual property (IP) cases, highlighting a willingness by Mongolian prosecutors and police to attack the problem.

Film content from the United States is strongly protected in Mongolia, with unlicensed viewing of such content rare.  Mongolia’s Internet Service Providers (ISPs) quickly block access to internet addresses of offending sites once they are listed by the Intellectual Property Office of Mongolia (IPOM).  The IPOM has worked with Mongolia’s Communication Regulatory Commission (CRC) to shut down more than 600 offending websites, including 28 in 2018.

Pharmaceuticals and medical devices effectively lack patent protection in Mongolia.  Approval of pharmaceuticals for import requires a certificate from the Ministry of Health (MOH), which Mongolia’s customs agency then verifies.  For pharmaceuticals from “Category A” countries (i.e., developed countries including the United States), the MOH accepts FDA or other regulatory health agency approval as equivalent in Mongolia; for other countries, the drug must be accepted and sold in at least three other countries.  The panel also reviews pricing and checks for a Good Manufacturing Practices certificate, but there is no patent linkage system in place.  Even if there were, there is no separate law in Mongolia regarding pharmaceutical patents, and the current backlog of patents is between 18 and 24 months.

While in the past law enforcement has seized trademark-infringing drugs, simply dropping the trademark infringement still allows the importer to bring the drug in despite it being on patent.  This contributes to a high rate of counterfeit drugs.  Medical devices encounter similar problems.

There are trademark infringing areas in Mongolia, including stores that distribute counterfeit apparel.  However, due to a lack of formal complaints by rights holders, law enforcement has not focused on these areas.  Mongolian law treats IPR violations below $19,000 (50 million MNT) as a misdemeanor subject to civil litigation.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles:  

6. Financial Sector

Capital Markets and Portfolio Investment

The Mongolian government imposes few restrictions on the flow of capital into and out of any of its markets and, despite previous, unsuccessful attempts to require businesses to channel all transactions through Mongolian commercial banks, has respected IMF Article VIII by imposing no restrictions on payments and transfers for international transactions.

Mongolia’s capital markets remain underdeveloped, with little to no ability to trade futures or derivatives.  The state-owned Mongolian Stock Exchange (MSE:  ) is the primary domestic venue for generating capital and portfolio investments.  The government also has limits on the participation of foreign banks in the financial services sector.  

Money and Banking System

Of the 13 commercial banks currently operating in Mongolia, four large banks are majority owned by both Mongolian and foreign investors.  These banks – Golomt, Khan, Khas, and Trade and Development Bank – collectively hold approximately 77 percent of all banking assets or about $9.7 billion as of end of 2018.  The banks operate branches throughout the country and are regularly audited by one of the big four international accounting firms.  Mongolian commercial banks had rates of non-performing loans averaging 10.4 percent in December 2018, an increase from December 2017’s 8.5 percent.  The four major commercial banks generally follow international standards for prudent capital reserve requirements, have conservative lending policies, up-to-date banking technology, seem generally well-managed, and are open to foreigners opening bank accounts under the same terms as Mongolian nationals.  In addition, foreign investors, including the International Finance Corporation (Khas, Khan) and Goldman Sachs (TDB), have equity stakes in several of these four banks.  While there are no legal prohibitions, the Mongolian government generally discourages majority foreign control of any local commercial bank or foreign establishment of local branch operations.  Mongolia’s commercial banks also face the challenge of maintaining correspondent relations with U.S.-based banks.  Local bankers report that correspondent banks are terminating their Mongolian relationships because of the perceived weak financial regulatory oversight in Mongolia and the corresponding high costs of compliance for the limited revenue generated from the small number of Mongolian transactions.

Foreign Exchange and Remittances

The Mongolian government employs a liberal regime for controlling foreign exchange.  Foreign and domestic businesses report no problems converting or transferring funds aside from occasional, market-driven shortages of foreign reserves; however, some banks have warned of difficulties maintaining their U.S. correspondent banking relationships due to high compliance costs related to Mongolia’s ongoing efforts to improve its anti-money laundering enforcement.  Mongolia’s national currency, the tugrik (denoted as MNT), is fully convertible into a wide array of international currencies with its relative value fluctuating freely.

The 2009 Currency Law of Mongolia requires all domestic transactions be conducted in MNT unless expressly excepted by the Bank of Mongolia.  Regulation prohibits the listing in Mongolia of wholesale or retail prices in any fashion (including as an internal accounting practice) that effectively denominates or otherwise indexes those prices to currencies other than the MNT.  Hedging forward mechanisms available elsewhere to mitigate exchange risk for many national currencies are generally unavailable in Mongolia given the small size of the market. Letters of credit in a variety of currencies are available for trade facilitation.  The Mongolian government has in the past resorted to paying for goods and services with promissory notes that cannot be directly exchanged for other currencies.

Remittance Policies

Businesses report no delays in remitting investment returns or receiving inbound funds.  Most transfers are completed within a few days to a week. However, in response to occasional currency shortages, most often of U.S. dollars, commercial banks can temporally limit the amounts they exchange daily, transmit abroad, or allow to be withdrawn.  Remittances sent abroad are subject to a ten percent withholding tax to cover any potential profit, income, or value-added tax liabilities.

Sovereign Wealth Funds

Mongolia’s Ministry of Finance currently manages two sovereign wealth funds (SWF):  the Fiscal Stabilization Fund and the Future Heritage Fund. Both are to be funded through the diversion of mining sector revenues.  The Fiscal Stabilization Fund is intended to divert revenues that might promote boom and bust cycles of spending; however, Mongolia’s recent fiscal crisis all but depleted this fund.  The Future Heritage Fund, a SWF similar to the Norwegian SWF (Pension Fund Global), is designed to accumulate mining revenues for the future and invest the proceeds exclusively outside Mongolia.  The Ministry of Finance and the IMF project the Future Heritage Fund will start accumulating $104-125 million annually in 2022, coinciding with increased revenues from the Oyu Tolgoi copper and gold mega mine.

7. State-Owned Enterprises

The Mongolian government maintains various state owned enterprises (SOEs) in the banking and finance, energy production, mining, and transport sectors.  The Government Agency for Policy Coordination on State Property (PCSP:  ) manages the non-mining and non-financial assets.  The Ministry of Finance manages the State Bank of Mongolia and the Mongolian Stock Exchange, and SOE Erdenes Mongol holds most of the government’s mining assets.  The PCSP does not provide a complete list of its SOEs. Investors can compete with SOEs, although in some cases an opaque regulatory framework limits both competition and investor penetration.  Both foreign and domestic private investors believe the current government approach to regulating SOEs favors Mongolian SOEs over private enterprises and foreign SOEs. Although many private companies have been created or registered in Mongolia in recent years, including foreign private companies, the Mongolian government has also created several dozen SOEs over the same period.  The 2006 Minerals Law of Mongolia (amended in 2014) and the 2009 Nuclear Energy Law grant the government the right to acquire equity stakes ranging from 34 percent up to 100 percent of certain uranium and rare earth deposits deemed strategic for the nation.

Businesses have cautioned against the growing role of state-owned enterprises in the private sector, which they see as having the potential to crowd out business opportunities and limit investment in a free-market economy driven by an open private sector.  Specifically, they worry the Mongolian government’s desire to maximize local procurement, employment, and revenues may compromise the long-term commercial viability of mining projects.  Investors also question the Mongolian government’s capacity to execute its fiduciary responsibilities as both owner and operator of mines. Observers are concerned that the Mongolian government waives legal and regulatory requirements for state-owned mining companies that it imposes on all others.

Generally, approval for relevant environmental and operating permits for private coal mines in Mongolia takes at least two years.  However, there are indications that the Mongolian government has exempted the Erdenes Tavan Tolgoi mining operations from regulatory requirements imposed on other operations.  Preferential treatment for SOEs creates the appearance that the Mongolian government has one standard for its SOEs and another for foreign-invested and private domestic invested companies, and it also provides SOEs with substantial cost advantages via a more lenient interpretation or outright waiver of legal requirements.

Mongolian SOEs will source from foreign firms only when inputs are not available locally or cannot be produced competitively in Mongolia.  SOEs and private enterprises are under political pressure to source locally as much as possible and often resort to creating local Mongolian shell companies to act as domestic storefronts for foreign-sourced goods.  This unofficial requirement adds inefficiency and cost to serving the Mongolian market. Finally, Mongolia is not yet a party to the WTO Procurement Agreement, although it remains an observer.

Mongolian Compliance with OECD Guidelines on Corporate Governance of SOEs

Mongolian SOEs do not adhere to the OECD Corporate Governance Guidelines for SOEs; however, they are technically required to follow to the same international best practices on disclosure, accounting, and reporting as imposed on private companies.  When SOEs seek international investment and financing, they tend to follow these rules. Many international best practices are not institutionalized in Mongolian law, and SOEs tend to follow existing Mongolian rules. At the same time, foreign-invested firms follow the international rules, causing inconsistencies in corporate governance, management, disclosure, and accounting.

The SOE corporate governance structure is clear on paper:  an independent management answers to an independent board of directors, which reports to the Government Agency for Policy Coordination on State Property (PCSP:  ).  In reality, government officials note that management and board of director operations and appointments are subject to political interference.    

Privatization Program

Parliament’s 2016 National Action Plan references privatizing some state-held assets, but the government has yet to identify the specific assets to privatize or the process to implement privatization.  The Mongolian government routinely floats the possibility of privatizing through sales of shares or equity in the Mongolian Stock Exchange, the national air carrier MIAT, the Mongol Post Office, and other properties but so far has sold only 30 percent of the Mongol Post Office to private buyers through an initial public offering on the bourse.  While stating it welcomes foreign participation in privatization efforts, the Mongolian government has not clarified a tendering process for the privatization of state assets not to be sold via the stock exchange. Mongolia has no plans to privatize its power or rail systems. The latter is jointly held with the government of Russia, but the law does allow private firms to build, operate, and transfer new railroads to the state.

8. Responsible Business Conduct

The concept and practice of responsible business conduct in Mongolia is still in its infancy.  Most international companies make good faith efforts to work with local communities. The larger firms tend to follow accepted international responsible business conduct practices and underwrite a range of related activities across Mongolia; however, smaller companies, lacking sufficient resources, often limit responsible business conduct actions to the locales in which they work.  Generally, firms adopting responsible business conduct are perceived favorably, at least within the communities in which they operate. Nationally, responses range from praise from politicians to cynical condemnation by certain civil-society groups that allege responsible business conduct is no more than an attempt to buy public approval. Public awareness of responsible business conduct remains limited, with only a few NGOs involved in responsible business conduct promotion or monitoring, and those concentrated on such large projects as the Oyu Tolgoi mega-mine project.

Given Mongolia’s high social-media penetration, businesses may be unaware that discussions regarding their activities could be ongoing on social media sites such as Facebook.  Investors should take care to monitor social media discussions to ensure information about their activities is being portrayed accurately.

9. Corruption

Observers generally agree that corruption remains widespread in Mongolia.  Although the law provides criminal penalties for corruption by officials, the government does not always implement the law effectively and corruption continues at all levels.  Private enterprises commonly report instances in which government employees pressure them to pay bribes to transfer use rights, settle disputes, clear customs, ease tax obligations, act on applications, obtain permits, and complete registrations.  Although the constitution and law provide for an independent judiciary, NGOs and private businesses report that judicial corruption and third-party influence continue. Factors contributing to corruption include: conflicts of interest, lack of transparency, limited access to information, an inadequate civil service system, low salaries, and weak government control of key institutions.

Mongolia’s new criminal code, effective July 1, 2017, introduced stricter liability for corruption and corruption-related offenses for public servants and government officials.  These laws extend to the immediate families of government officials. The laws also require government officials to disclose their assets to the Independent Authority Against Corruption (IAAC:  ).  In addition, the government in March 2017 developed a three-year action plan to implement the National Program Combatting Corruption adopted in November 2016.  The Anti-Corruption Law has been bolstered by several amendments since its 2006 passage; however, the government has passed no legislation dedicated to protecting NGOs and others investigating and reporting government corruption.  Although Mongolia has a relatively free press that allows NGOs and reporters to publicize findings, recourse to criminal libel and defamation laws may permit officials accused of corruption to use the threat of criminal prosecution to silence critics.  Finally, Mongolia imposes no statutory requirement on companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. U.S. and other foreign businesses have reported that they accept the need for and have adopted internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

The IAAC is the principal agency responsible for investigating corruption, assisted at times by the National Police Agency’s Organized Crime Division.  The IAAC follows a standard operating procedure for ensuring that investigations of corruption allegations are handled correctly. The IAAC has publicly reported on its recent successes, including its reform of the government tender process to permit only electronic tender submissions and the blacklisting of companies violating rules of government procurement.  It airs a weekly awareness program on Mongolian National TV to inform the public of its anti-corruption activities.

In addition, Mongolia has signed and ratified the UN Anticorruption Convention (UNAC:  ) but not the OECD Anti-Bribery Convention.

The U.S. Embassy in Ulaanbaatar would not recommend any particular industry group or non-profit for vetting of potential local investment partners.  Normally, local legal firms provide such services. A partial list of local legal firms is here:  

Resources to Report Corruption

Government agencies responsible for combating corruption:

Independent Agency Against Corruption (IAAC)

District 5, Seoul Street 41
Ulaanbaatar, Mongolia 14250
Telephone:  +976-70110251; 976-11-311919

Local “watchdog” organization:

Transparency International Mongolia
Tur-Od Lkhagvajav, Chairman of the Mongolian National Chapter
Zorig Foundation, 2nd floor
Peace Avenue 17, Sukhbaataar District
Ulaanbaatar, Mongolia
Telephone:  +976 9919 1007; +976 9511 4777; +976 95599714

10. Political and Security Environment

The Mongolian political and security environment is characterized largely by peace and stability.  Crime is low in Ulaanbaatar, although there are cases of petty theft and assault. U.S. investors are generally warmly welcomed in Mongolia and by the Mongolian people.

For larger and potentially politically sensitive projects, investors should note that opposition party members of parliament have justified cancellation of contracts on the basis that parliament should have ratified the original decisions.  Given Mongolia’s vibrant democracy, investors into these types of projects should take care to understand whether they have a deal that can survive a change in government party control.

11. Labor Policies and Practices

The Mongolian labor pool of nearly 1.4 million workers – of whom 811,500 live in urban areas and 519,800 in rural areas – is generally educated, young, and skilled.  Unskilled labor is abundant but shortages exist in most professional categories requiring advanced degrees or vocational training, including all types of engineers and professional tradespeople in the construction, mining, and services sectors.  Foreign-invested companies address these shortages by providing in-country training to their staff, increasing salaries and benefits to retain employees, or hiring expatriate workers with specific skills and expertise unavailable in Mongolia.

Mongolian labor laws are not particularly restrictive.  Investors can locate and hire workers without using hiring agencies, as long as hiring practices follow the 1999 Law on Labor of Mongolia.  The Law on Labor requires companies to employ Mongolian workers in all labor categories wherever the Ministry of Labor and Social Protection determines a Mongolian can perform the task as well as a foreigner.  This provision generally applies to unskilled labor categories. If an employer seeks to hire a non-Mongolian laborer and cannot obtain a waiver from the Ministry of Labor and Social Protection for that employee, the employer can pay a monthly waiver fee.  Depending on a project’s importance, the Ministry of Labor and Social Protection can exempt employers from 50 percent of the waiver fees per worker. However, employers report difficulty in obtaining waivers, due in part to public perceptions that foreign and domestic companies refuse to hire Mongolians in the numbers that they should.

Because Mongolia’s long, cold winters limit outdoor operations in the infrastructure development, commercial and residential construction, and mining exploration sectors, employers tend to use a higher degree of temporary contract labor than companies that can operate year-round.  The law allows employers and employees to use these short-term contracts.

The Law on Labor allows workers to form or join independent unions and professional organizations of their choosing and protects rights to strike and collective bargaining.  However, some provisions restrict these rights for foreign workers, certain public servants, and workers without formal employment contracts, though all groups have the right to organize.  The law protects the right of workers to participate in trade union activities without discrimination, and the government has protected this right in practice. The law provides for reinstatement of workers fired for union activity, but this provision is not always enforced.  Some employees occasionally face obstacles forming or joining unions, and some employers have taken steps to weaken existing unions. For example, some companies use the portion of employees’ salaries deducted for union dues for other purposes rather than forwarding the monies to the unions.  Some employers have prohibited workers from participating in union activities during working hours, contravening the law. There also have been some violations of collective bargaining rights, as some employers refuse to conclude collective bargaining agreements in contracts.

The Law on Labor allows employers to fire or lay off workers for cause.  Depending on the circumstances, however, severance may be required and workers may seek judicial review of their dismissal.  Investors and legal experts report that Mongolia’s courts usually support employee claims, especially when the plaintiff or defendant is a foreign business.  The statutory severance package requires employers to pay laid off workers one month of the contracted salary, but fired workers receive no severance. Laid off or fired workers are entitled to three months of unemployment insurance from the Social Insurance Agency.

The International Labor Organization (ILO) has expressed concern about child labor practices and variations between Mongolian law and international labor standards.  Authorities report that employers often do not follow the law, requiring minors to work in excess of the permitted hours per week and paying them less than the minimum wage.  The General Agency for Specialized Inspections (GASI: enforces all labor regulations; however the agency is understaffed.  GASI inspectors are authorized to compel compliance with labor statutes, but its limited capacity, combined with the growing number of privately owned enterprises (over 170,000), limits enforcement.  Additional information on the ILO conventions ratified by Mongolia is available on the ILO website (  ).

Mongolia and the United States do not have a signed trade agreement that covers their respective labor practices.

12. OPIC and Other Investment Insurance Programs

The United States Overseas Private Investment Corporation (OPIC) offers loans and political risk insurance to U.S. investors active in most sectors of the Mongolian economy, ranging from education to logistic services to finance.  For a list of active OPIC projects in Mongolia, go to:  .  In addition, OPIC and Mongolia have signed an Investment Incentive Agreement that requires the government of Mongolia to extend national treatment to OPIC-financed projects in Mongolia.  The agreement is available online here: .  For example, under this agreement mining licenses of firms receiving an OPIC loan may be pledged as collateral to OPIC, a right not normally bestowed on foreign financial entities.  The U.S. Export-Import Bank (EXIM:  ) offers programs in Mongolia for short-, medium-, and long-term transactions in the public sector and for short- and medium-term transactions in the private sector.  Mongolia is also a member of the Multilateral Investment Guarantee Agency (MIGA:  ).

South Korea, Canada, the Russian Federation, Japan, China, Poland, Hungary, and Austria have provided investment and trade financing for their firms in Mongolia.  In addition, the European Bank for Reconstruction and Development  and the International Finance Corporation   have supplied significant financial support for Mongolian investments.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $11,434 2018 $13,038  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Mongolia ($M USD, stock positions) 2017 $671 2018 $690 From the Bank of Mongolia:  
Mongolia FDI in the United States ($M USD, stock positions) 2017 Amount NA 2018 Amount NA BEA data available at  
Total inbound stock of FDI as % Mongolian GDP ($M USD, stock positions) 2017 158% 2018 153% N/A

Table 3: Sources and Destination of FDI*

Note:  The Government of Mongolia has never tracked where the beneficial ownership of a given investment actually terminates.  The government only records where the company claims its domicile. The U.S. Embassy is aware of numerous cases where foreign entities active in Mongolia do not incorporate in their countries of origin but rather do so in third countries, largely for tax mitigation purposes.  Consequently, although Mongolia’s data and the IMF’s, respectively, suggest that much of Mongolia’s investment originates from such places as the Netherlands or Singapore, much of the investment comes from other jurisdictions, including but not limited to the United States, Australia, Canada, Russia, and China.

Direct Investment from/in Counterpart Economy Data
(From the Bank of Mongolia:  )
From Top Five Sources/To Top Five Destinations
(US Dollars, Millions) for 2018
Inward Direct Investment Outward Direct Investment
Total Inward 19,956 100% Total Outward NA 100%
Canada 6,020 30% Country #1:  NA NA NA
China, P.R. Mainland 4,645 23% Country #2:  NA NA NA
Singapore 1,635 8% Country #3:  NA NA NA
Luxembourg 1,414 7% Country #4:  NA NA NA
Hong Kong, SAR 1,038 5% Country #5:  NA NA NA
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets as of June 2018
(From IMF’s Coordinated Portfolio Investment Survey (CPIS) site:  )
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 279 100% All Countries 263 100% All Countries 17 100%
Hong Kong SAR 111 40% Hong Kong SAR 110 42% Turkey 11 64%
United States 46 17% United States 42 16% United States 4 25%
Singapore 32 12% Singapore 32 12% United Kingdom 1 6%
Luxembourg 18 6% United Kingdom 18 7% Hong Kong SAR 1 4%
United Kingdom 17 6% Australia 16 6% NA NA NA

14. Contact for More Information

The Economic and Commercial Section
U.S. Embassy
P.O. Box 341
Ulaanbaatar 14192, Mongolia
Telephone:  +976-7007-6001


Executive Summary

Since regaining its independence in 2006, Montenegro has adopted a legal framework that encourages privatization, employment, and exports.  Implementation, however, lags well behind the legal structure, and the Montenegrin economy continues to depend on a very narrow tax base and a band of three developing sectors: tourism, energy, and to a lesser extent, agriculture.  Montenegro has one of the highest public debt to GDP ratios in the region, currently at 70.9 percent, with a forecast to increase to 75.4 percent once the repayment to China’s Ex/Im Bank of a USD 1 billion highway loan begins. The World Bank and the International Monetary Fund (IMF) have been assisting the government in implementing measures to control the debt.  The economic growth rate in 2018 was the highest in the region at 4.9 percent, while the unemployment rate at the end of 2018 was 15.2 percent. Despite regulatory improvements, official corruption remains a major concern. Montenegro ranks 67th out of 180 countries surveyed in Transparency International’s (TI) 2018 “Corruption Perception Index.” 

While Montenegro has taken steps to make the country more open for foreign investment, deficiencies still exist.  The absence of fully developed legal institutions has fostered corruption and weak controls over conflicts of interest.  The judiciary is still slow to adjudicate cases, and court decisions are inconsistently reasoned or enforced. Montenegro’s significant grey economy impacts its open market, negatively affecting businesses operating in accordance with the law.  Favorable tax policies established at the national level are often ignored at the municipal level.

As a candidate country on its path to joining the European Union (EU), Montenegro is making steady progress in opening negotiating chapters with the EU.  Out of 33 negotiating chapters, 32 have been opened and three are provisionally closed, and it is expected that the final chapter will be opened in 2019. Montenegro joined NATO in June 2017.

On January 1, 2019, Montenegro implemented its economic citizenship program, designed to attract a maximum of 2,000 investors from 2019 to 2021.  Preliminary estimates suggest the program could bring as much as USD 1 billion in infrastructure investments to the country.  

As noted above, Montenegro’s economy is centered on three sectors, with the government largely focusing its efforts on developing those same sectors.  Due in large part to its 300 km-long coastline and a spectacular mountainous region in the country’s north, the thriving tourism sector accounts for over 25 percent of GDP.  Government sales of formerly state-owned land have spurred a wave of foreign investment in large-scale tourism and hospitality centers. However, bureaucratic gridlock has left some of these projects on hold.  No one country dominates foreign direct investments, and the most significant investments have come from Italy, Hungary, Russia and Serbia with new interest coming from the United Arab Emirates, Azerbaijan, China, Turkey and the United States. 

In the energy sector, the government is building an underwater electric transmission cable to Italy, which will export renewable energy to the continent starting this year.  Additionally, there are several ongoing conventional energy projects around the country, including the restructuring of the existing block of the thermal plant in Pljevlja, as well as the possible development of the second block of the thermal plant in Pljevlja and a number of small-scale hydroelectric projects.  In the oil and gas sector, the Montenegrin government has signed concession agreements with two consortiums: the Italian-Russian consortium Eni/Novatek for four blocks and the Greek-British consortium Energean Oil/Mediterranean Oil and Gas for one block. Exploration will start in 2019, and experts expect several more licensing rounds by 2020 for additional exploration blocks.

Montenegro’s temperate climate supports an agro-production industry; however, the country continues to be dependent on imports of food products from neighboring countries owing to economies of scale.  The exception is the local wine industry, with the government-owned “Plantaze” being a leading regional producer and exporter to Europe, China, and the United States.

The Government considers the further development of the digital economy one of its priorities. Montenegro received a grant from the Western Balkan Investment Framework to conduct a feasibility study for a national digitalization plan, the first of its kind in the Western Balkans.  Montenegro has made mild progress on its digital agenda to date, including the successful investment of 250 million euros in the telecommunication sector.

Table 1

Measure Year Index /Rank Website Address
TI Corruption PerceptionIndex 2018 67 of 180
World Bank’s Doing Business Report 2018 50 of 190
Global Innovation Index 2018 52 of 127
U.S. FDI in partner country (M USD , stock positions) 2017 $5
World Bank GNI per capita 2017 $7,400

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

Montenegro regained its independence in 2006, and, since then, the country has adopted an investment framework that in principle encourages growth, employment, and exports.  Montenegro, however, is still in the process of establishing a liberal business climate that fosters foreign investment and local production. The country remains dependent on imports from neighboring countries despite its significant potential in some areas of agriculture and food production.  Although the continuing political transition has not yet eliminated all structural barriers, the government generally recognizes the need to remove impediments in order to remain competitive, reform the business environment, open the economy to foreign investors, and attract further foreign direct investment (FDI). 

In general, there are no distinctions made between domestic and foreign-owned companies.  Foreign companies can own 100 percent of a domestic company, and profits and dividends can be repatriated without limitations or restrictions.

Foreign investors can participate in local privatization processes and can own land in Montenegro generally on the same terms as locals.  Expropriation of property can only occur for a “compelling public purpose” and compensation must be made at fair market value. There has been no known expropriation of foreign investments in Montenegro.  International arbitration is allowed in commercial disputes involving foreign investors.

Registration procedures have been simplified to such an extent that it is possible to complete all registration processes online.  In addition, bankruptcy laws have been streamlined to make it easier to liquidate a company; accounting standards have been brought up to international norms; and customs regulations have been simplified.  There are no mandated performance requirements.

Montenegro has enacted specific legislation outlining guarantees and safeguards for foreign investors.  Montenegro has also adopted more than 20 other business-related laws, all in accordance with EU standards.  The main laws that regulate foreign investment in Montenegro are: the Foreign Investment Law; the Enterprise Law; the Insolvency Law; the Law on Fiduciary Transfer of Property Rights; the Accounting Law; the Law on Capital and Current Transactions; the Foreign Trade Law; the Customs Law; the Law on Free Zones; the Labor Law (which is currently undergoing amendment to make personnel decisions more efficient); the Securities Law; the Concession Law, and the set of laws regulating tax policy.  Montenegro has taken significant steps in both amending investment-related legislation in accordance with global standards and creating necessary institutions for attracting investments. However, as is the case with other transition countries, implementation and enforcement of existing legislation remains weak and inconsistent. 

To better promote investment and foster economic development, the government established the Montenegrin Investment Promotion Agency (MIPA) in mid-2005.  It seeks to promote Montenegro as a competitive investment destination by actively facilitating investment projects in the country.

Inquiries on investment opportunities in Montenegro can be directed to:

Milos Jovanovic, Director

Montenegrin Investment Promotion Agency (MIPA)

Jovana Tomasevica 2

81000 Podgorica, Montenegro

Tel/fax: (+382 20) 203 140, 203 141, 202 910



Both the Privatization and Capital Project Council and the Secretariat for Development Projects promote investment opportunities in the Montenegrin economy, primarily in the tourism, energy, technology, and agricultural sectors.  These institutions maintain an ongoing dialogue with investors already present in Montenegro in order to support their activities. At the same time, they seek to promote future projects and attract new investors to do business in Montenegro.  

Limits on Foreign Control and Right to Private Ownership and Establishment

Montenegro’s Foreign Investment Law, which was adopted by the Parliament in 2011, establishes the framework for investment in Montenegro.  The law eliminates previous investment restrictions, extends national treatment to foreign investors, allows for the transfer and repatriation of profits and dividends, provides guarantees against expropriation, and allows for customs duty waivers for equipment imported as capital-in-kind.

There are limits on neither foreign control or right to private ownership nor in establishing companies in Montenegro.  There are no institutional barriers against foreign investors, including U.S. businesses, and there is no screening mechanism for inbound foreign investment.  

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment-policy reviews through a multilateral organization.

Business Facilitation

The Central Register of the Commercial Court (CRPS) is responsible for business registration procedures (  ).  The court maintains an electronic database of registered business entities, and contracts on financial leasing and pledges.  The process to register a business in Montenegro takes an average of 4-5 working days. The minimum financial requirement for a Limited Liability Company (LLC) is just EUR 1 (USD 1.2), and three documents are required: a founding decision, bylaws, and a copy of the passport (if an individual is founding a company) or a registration form for the specific type of company.  Samples of all documents are available for download at the CRPS website.

Montenegrin law permits the establishment of six types of companies: entrepreneur, limited liability company, joint stock company, general partnership, limited partnership, and part of a foreign company. Details regarding the definitions and requirements for each type of company are as follows:

Entrepreneur: If an entrepreneur wants to conduct business under a different name it is necessary to register a company in the CRPS and he/she needs to present:

  • Personal identification card
  • Completed registration form
  • Registration fee of EUR 10 (USD 12.30)
  • Administrative fee of EUR 12 (USD 14.80) for announcement in the Official Gazette
  • Note: There is no minimum capital requirement

Limited liability company

  • For companies of 1-30 members
  • Founding Act (The Foundation Agreement)
  • Contract of decision of the company’s foundation (The Charter)
  • Minimum capital requirement of EUR 1 (USD 1.23)
  • Registration fee of EUR 10 (USD 12.30)
  • Administrative fee of EUR 12 (USD 14.80) for announcement in the Official Gazette

Joint stock company

  • Founding Act (The Foundation Agreement)
  • Contract of decision of the company’s foundation (The Charter)
  • List of names of all board members and managers
  • Decision of the Securities Commission approving the prospectus for the public offering of shares
  • Minimum capital requirement of EUR 25,000 (USD 30,840)
  • Completed registration form
  • Registration fee of EUR 50 (USD 61.70)
  • Administrative fee of EUR 12 (USD 14.80) for announcement in the Official Gazette

General partnership

  • For companies with two or more members
  • Completed registration form
  • Registration fee of EUR 10 (USD 12.30)
  • Note: There is no minimum equity requirement

Limited partnership

  • For companies with two or more members
  • Completed registration form
  • Registration fee of EUR 10 (USD 12.30)
  • Note: There is no minimum equity requirement

Part of a foreign company (foreign company branch)

  • An authenticated copy of the charter of the foreign company and a translation of the charter in the Montenegrin language duly certified as a true and correct translation
  • Registration certificate from the home country and relevant financial reports
  • Completed registration form
  • Registration fee of EUR 10 (USD 12.30)
  • Note: There is no minimum equity requirement

After fulfilling all these requirements, it is necessary to open a bank account.  Once a bank account is established, the company reports to the tax authority in order to receive a PIB (taxation identification number) and VAT number (Value Added Tax).

For classification of companies by size, based on number of employees, the government’s definition is as follows: (i) small enterprises (from one to 49 employees), (ii) medium-sized enterprises (from 50 to 249) and (iii) large enterprises (more than 250 employees).

Outward Investment

While the Montenegrin government is very active in attracting and inviting foreign investors to do business in Montenegro, the government is not as dedicated to promoting outward investments.

There are no government restrictions to domestic investors for their investments abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Montenegro signed the Central European Free Trade Agreement (CEFTA) in July 2007, along with Albania, North Macedonia, Moldova, Kosovo, Croatia, Serbia and Bosnia and Herzegovina. Montenegro also signed a free trade agreement (FTA) with Turkey in 2008 that has been in force since March 2010.  Montenegro had a free trade agreement with Russia, although that agreement is currently not in force and is being renegotiated. As part of its negotiations with Russia, Montenegro is working on FTAs with Kazakhstan and Belarus, which formed a customs union together with Russia. Montenegro signed separate FTAs with Ukraine and the European Free Trade Association (EFTA) countries (Switzerland, Norway, Iceland, and Liechtenstein) in November 2011.

Montenegro has not signed a Bilateral Investment Treaty (BIT) with the United States.  The United States restored normal trade relations (most-favored nation status) to Montenegro in December 2003.  This status provides improved access to the U.S. market for goods exported from Montenegro.  The country has also been designated as a beneficiary developing country under the U.S. Generalized System of Preferences (GSP) program, which provides duty-free access to the U.S. market in various eligible categories, including jewelry, ores, stones, and various agricultural products.  The GSP program expired on December 31, 2017, however, on March 23, 2018, President Trump signed the legislation reauthorizing the GSP program through December 31, 2020.   GSP-eligible products may enter the United States duty-free on and after April 22, 2018.  Because the GSP program’s reauthorization is retroactive, importers may seek refunds of duties paid during the lapse of GSP authorization.  

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Bilateral Taxation Treaties

Montenegro does not have a double taxation treaty with the United States.  The country has signed 46 taxation treaties with various countries on income and property, which regulate double taxation.  Presently, 44 of those treaties are in force, specifically with Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Italy, Ireland, India, Korea, Kuwait, Latvia, Macedonia, Malaysia, Moldova, Malta, Holland, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Sri Lanka, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and the United Arab Emirates. Treaties with Spain and Qatar are pending. 

On March 1, 2018, Montenegro’s Parliament approved the Foreign Account Tax Compliance Act (FATCA) agreement between the governments of Montenegro and the United States. Implementation of FATCA will help the countries better track and report tax evasion. 

Investment Treaties

Investment treaties seek to ensure a stable framework for investment and better use of economic resources.  They define the conditions for investments, allowing free transfer of funds, the right of subrogation, compensation in the event of expropriation and settlement of disputes between investors and countries, including the settlement of disputes between the countries themselves.

Montenegro has 23 BITs in force with the following countries: Austria, Czech Republic, Finland, Denmark, Malta, France, Germany, Poland, Greece, Netherlands, Spain, Cyprus, Lithuania, Slovakia, Romania, the Republic of Serbia, Qatar, Macedonia, Azerbaijan, the United Arab Emirates, Moldova, Israel, and Switzerland.  Additional information can be found at  .

3. Legal Regime

Transparency of the Regulatory System

The main law governing foreign investment, the Montenegrin Law on Foreign Investment, is based on the national treatment principle, which is a basic principle of the General Agreement on Tariffs and Trade and World Trade Organization (WTO) that prohibits discrimination between imported and domestically produced goods with respect to internal taxation or other government regulation.

 All proposed laws and regulations put forth by the government are published in draft form and open for public comment, generally for a 30-day period.

Regulations are often applied inconsistently, particularly at the municipal level.  Many regulations are in conflict with other regulations, or are ambiguous, creating confusion for investors.  As noted in the American Chamber of Commerce’s (AmCham) 2018 Business Climate Survey, many municipalities lack adequately detailed urban plans.  While some municipalities have made efforts to simplify procedures in order to improve the business environment for investors, there is a high degree of inconsistency from one municipality to another.  At the national level, there are fewer obstacles for investments and business activities; however, as many larger-scale projects involve both local and national authorities, it is often necessary to work with both administrations in order to complete a project.

AmCham members have expressed dissatisfaction with the duration of commercial court proceedings (76 percent disapproved) and unequal implementation of the laws (61 percent disapproved). Moreover, 73 percent of AmCham member companies believe that conditions for doing business when it comes to the duration of commercial court proceedings and unequal implementation of the laws have not changed over the past two years.  

Foreign investors are subject to the same conditions as domestic investors when it comes to establishing a company and making an investment.  There are no other regulations in place which might deprive a foreign investor of any rights or limit the investor’s ability to do business in Montenegro.  The Law of Foreign Investments is currently fully harmonized with WTO rules.

In 2004, the Parliament established an Energy Regulatory Agency, which maintains authority over the electricity, gas, oil, and heating energy sectors.  Its main tasks include approving pricing, developing a model for determining allowable business costs for energy sector entities, issuing operating licenses for energy companies and for construction in the energy sector, and monitoring public tenders.  The energy law mandates that in the energy sectors, when prices are affected by monopoly positions of some participants, business costs will be set at levels approved by the agency. In those areas deemed to function competitively, the market will determine prices.  The price of gasoline is set nationally every two weeks and is uniform across all petrol stations.

The Agency for Electronic Communication and Postal Services was established by the government in 2001.  It is an independent regulatory body whose primary purpose is to design and implement a regulatory framework and to encourage private investment in the sector.

While there is a full legal and regulatory infrastructure in place to conduct public procurement, U.S. companies have complained in numerous cases about irregularities in the procurement process at the national level, and maintain there is an inability to meaningfully challenge decisions they believe were made erroneously.  In multiple cases, the institution offering the tender adjusted the requested specifications for the tender just days before the submission deadline, putting U.S. companies at a significant disadvantage.

Public procurement is conducted jointly by the Public Procurement Directorate, the Ministry of Finance (as the main line ministry for the procurement area), and the State Commission for Control of Public Procurement Procedures in the protection of rights area.  The Public Procurement Directorate began operations in 2007 while the State Commission for the Control of Public Procurement Procedures Control was established in 2011. The State Commission takes decisions in the form of written orders and conclusions made at its meetings.  The decisions are made by a majority of present members. The State Commission’s Rules of Procedure specify the method for this work. The Law of Public Procurement entered into force in 2011. The Administrative Court oversees cases involving public procurement procedures.

The Montenegro State Audit Institution (SAI) is an independent supreme audit institution for verification of the entire government’s financial statements, including state-owned enterprises.  The audits are made publicly available on the SAI’s website  .  Accounting standards implemented in Montenegro are transparent and consistent with international norms.  In addition, there are various international companies that conduct accounting and auditing procedures are present in the country.

International Regulatory Considerations

Montenegro is a candidate country for membership to the EU, with accession negotiations launched on June 29, 2012.  Out of 35 chapters, three are provisionally closed and it is expected that the final chapter will be opened in 2019.  Montenegro is currently taking steps to harmonize its regulations and accepted best practices with those of the EU, as part of the negotiation process.

The government has not notified the WTO of any measures that are inconsistent with the WTO’s Trade Related Investment Measures (TRIMs), nor have there been any independent allegations that the government maintains any such measures.

Legal System and Judicial Independence

Montenegro’s legal system is of a civil, continental type based on Roman law.  It includes the legal heritage of the former Yugoslavia, and State Union of Serbia and Montenegro.  As of 2006, when the country regained its independence, Montenegrin codes and criminal justice institutions were applicable and operational.  Montenegro’s Law on Courts defines a judicial system consisting of three levels of courts: Basic, High, and the Supreme Court.  Montenegro established the Appellate Court and the Administrative Court in 2005 for the appellate jurisdiction in criminal and commercial matters, and specialized jurisdiction in administrative matters.  The specialized Commercial Courts have first instance jurisdiction in commercial matters. Apart from those, there are also specialized Misdemeanors Courts.

The Basic Courts have first instance jurisdiction in civil cases and criminal cases in which a prison sentence of up to 10 years is possible.  There are 15 Basic Courts for Montenegro’s 23 municipalities.  Two High Courts in Podgorica and Bijelo Polje have appellate review of municipal court decisions.  The High Courts also decide on jurisdictional conflicts between the municipal courts.  They are also first instance courts for serious crimes where prison sentence of more than 10 years is specified.  The Podgorica High Court has specialized judges and departments who deal with organized crime, corruption, war crimes, money laundering, and terrorism cases.

According to the Law on Courts, there is just one Commercial Court based in Podgorica.  The Commercial Court has jurisdiction in the following matters: all civil disputes between legal entities, shipping, navigation, aircraft (except passenger transport), and disputes related to registration of commercial entities, competition law, intellectual property rights (IPR), bankruptcy, and unfair trade practices.  The High Court hears appeals of Basic Court decisions, and High Courts’ first instance decisions may be appealed to the Appellate Court.  The Appellate Court is a second instance court for decisions of the Commercial Courts. The Supreme Court is the third (and final) instance court for all decisions.  The Supreme Court is the court of final judgment for all civil, criminal, commercial, and administrative cases, and it acts only upon irregular (i.e. extraordinary legal remedies).  There is also the Constitutional Court of Montenegro, which checks constitutionality and legality of legal acts and acts upon constitutional complaints in relation to human rights violations. 

The Commercial Court system faces challenges, including weak implementation of legislation and confusion over numerous changes to existing laws; development of a new system of operations, including electronic communication with clients; and limited capacity and expertise among the judges as well as a general backlog in cases. Local businesses often complain about inconsistencies in application of the law as well as long delays in the Montenegrin commercial court system.

Over the last several years, the adoption of 20 new business laws has significantly changed and clarified the legislative environment.  Recently adopted legislative reforms are expected to improve the efficiency and effectiveness of court proceedings, a trend which is already visible through the introduction of the Public Enforcement Agents. 

Laws and Regulations on Foreign Direct Investment

In order to attract foreign investment, the government established the Montenegrin Investment Promotion Agency (MIPA) (  ), the Privatization and Capital Investment Council (  ), and the Secretariat for Development Projects (  ). These organizations aim to promote Montenegro’s investment climate and opportunities in the local economy, with particular regard for the tourism, energy, infrastructure, and agriculture sectors. 

Competition and Anti-Trust Laws

In 2013, the Agency for Protection of Competition was established as a functionally independent entity.   

Expropriation and Compensation

Montenegro provides legal safeguards against expropriation with protections codified in several laws adopted by the government.  There have been no cases of expropriation of foreign investments in Montenegro. However, Montenegro has outstanding claims related to property nationalized under the Socialist Federal Republic of Yugoslavia. A number of unresolved restitution cases involve U.S. citizens. The cases are in various stages of adjudication and have languished for over a decade. Despite Embassy engagement, the Government of Montenegro has not made adequate progress in resolving these cases.

At the end of 2007, Parliament passed the new Law on Restitution, which supersedes the 2004 Act.  In line with the law, three review commissions have been formed: one in Bar (covering the coastal region); one in Podgorica (for the central region of Montenegro); and one in Bijelo Polje (for the northern region of Montenegro).  The basic restitution policy in Montenegro is restitution in kind, when possible, and cash compensation or substitution of other state land when physical return is not possible. 

In addition, Montenegro provides safeguards from expropriation actions through its Foreign Investment Law.  The law states that the government cannot expropriate property from a foreign investor unless there is a “compelling public purpose” established by law or on the basis of the law.  If an expropriation is executed, compensation must be provided at fair market value plus one basis point above the London Interbank Offered Rate (LIBOR) rate for the period between the expropriation and the date of payment of compensation.

Dispute Settlement

ICSID Convention and New York Convention

Montenegro ratified its ICSID Convention membership on April 2013, and the country fully enforces the Convention. 

Investor-State Dispute Settlement

There are a number of individual American investors involved in public procurement and construction cases that are in various stages of dispute resolution with the government.

International Commercial Arbitration and Foreign Courts

Dispute resolution is under the authority of national courts, but it can also fall under the authority of international courts if the contract so designates.  Accordingly, Montenegro allows for the possibility of international arbitration. Various foreign companies have other bilateral and multilateral organizations providing risk insurance against war, expropriation, nationalization, confiscation, inconvertibility of profit and dividends, and inability to transfer currency; these are the Multilateral Investment Guarantee Agency (MIGA of the World Bank), U.S. Overseas Private Investment Corporation (OPIC), UK Exports Credit Guarantee Department (ECGD), Slovenia Export Corporation (SID), Italian Export Credit Agency (SACE), French Export Credit Agency (COFACE), and Austrian Export Financing Group (OEKB).  In 2012, Montenegro became a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). 

Montenegro has taken steps to improve court-system inefficiencies, which frequently result in long and drawn-out trials.  Procedural laws have been amended in the last few years to improve efficiency of the proceedings in line with the standards of the European Convention of Human Rights.  It should be noted that most complaints that go to the European Court of Human Rights against Montenegro concern Article 6 of the Convention – the right to a fair trial in a reasonable time.  Civil appellate procedures have been simplified as part of an effort to eliminate the possibility of long appellate procedures, which was common in the past. (There is now just one possibility for cancelling the first instance court judgment and sending the case for retrial by the second instance court.)  In addition, Montenegro has passed the Law on the Protection of the Right to a Fair Trial in a Reasonable Time, which enables the court to award compensation for an excessively long trial and introduces a series of controlling mechanisms during the trial itself. 

In 2011, Montenegro adopted the Law on Public Bailiffs, which subsequently improved the procedure to enforce civil judgments. 

Bankruptcy Regulations

The Bankruptcy Law, adopted in 2011, mandates that debtors are designated insolvent if they cannot meet financial obligations within 45 days of the date of maturity of any debt obligation. 

However, the law still offers some latitude for restrictive measures and discretionary government interference. Bankruptcy is criminalized in Montenegro and a responsible officer in a business entity who caused bankruptcy and damage to another person by irrational spending of assets or their bargain selling, by excessive borrowing, undertaking disproportional obligations, recklessly concluding contracts with insolvent entities, negligence in collecting claims on time, by destroying or concealing property or by other acts which are not in compliance with  prudent business practices shall be punished by a prison term from six months to five years.

4. Industrial Policies

Investment Incentives

The Montenegrin government offers financial incentives to investors based on the value of their investment.  Both Montenegrin and foreign entities or investors can benefit from these investment incentives.  

As part of its efforts to attract investment, the government adopted the Decree on Direct Investment Incentives, with a goal to improve the business climate in Montenegro and stimulate economic growth through increased inflow of direct investments and job creation.  For investments greater than EUR 500,000 (approximately USD 617,280) that create at least 20 new jobs within three years from the date of signing the incentive agreement, both domestic and foreign investors can apply for cash grants in the amount of EUR 3,000-10,000 (approximately USD 3,700-12,345) per every new job created.  For investments in the North and Central region (except for the capital Podgorica), the minimum investment is EUR 250,000 (approximately USD 380,640) with a threshold of creating 10 new jobs. For capital investments greater than EUR 10 million (approximately USD 12.3 million) that create at least 50 new jobs, incentives can be awarded in the amount of up to 17 percent of the investment value.  The decree also provides for refunds on infrastructure development costs incurred in the process of completing the investment project. The exact amount of the incentives is determined in accordance with the criteria defined in the decree. The decision on the incentive award is approved by the government and the funds are payable in three equal installments.

The incentive program is administered by the Secretariat for Development Projects and additional information regarding the program can be found on the Secretariat’s website  .

The government also offers, in the partnership with local municipalities, some incentives through business zones, which exist in several cities outside the capital.

Foreign Trade Zones/Free Ports/Trade Facilitation

In 2004, Montenegro adopted the Law on Free Zones, which offers businesses benefits and exemptions from custom duties, taxes, and other duties in specified free trade zones.  The Port of Bar is currently the only free trade zone in Montenegro.  All free zone users have many benefits provided by the law and other regulations (import free of customs duties, customs fees and VAT; storage of goods in a duty free regime for an unlimited period of time; low corporate tax, simplified procedures) in addition to the use of infrastructure, port handling services, and telecommunication services.

All regulations relating to free trade zones are in compliance with EU legal standards.  Complete equality has been guaranteed to foreign investors in reference to ownership rights, organizing economic activities in the zone, complete free transfer of profit and deposit, and the security of investments.


AD Luka Bar (Port of Bar Holding)
Obala 13. Jula bb
85000 Bar, Montenegro
+382 30 312 666   

Performance and Data Localization Requirements

The government does not impose any performance requirements as a condition for establishing, maintaining, or expanding an investment.  There is a defined package of incentives offered to foreign investors, including duty exemptions for imported equipment.

AmCham Montenegro and the Montenegrin Foreign Investors’ Council (MFIC) announced that Montenegro has improved and liberalized its business environment due to amendments to the Law on Foreigners.  This law addressed previous requirements placed on hiring practices.  According to revisions to the law, businesses no longer need to prove that there are no local citizens of the required vocational profile that are available for a particular job before the company decides to hire a foreigner.

The government does not use “forced localization,” the policy in which foreign investors must use domestic content in goods or technology.  The only exception is an agreement with a Chinese company that is constructing the country’s first national highway. The agreement for this project, which is currently the largest infrastructure project in Montenegro, requires that 30 percent of the labor contract be engaged locally.

5. Protection of Property Rights

Real Property

In 2002, Montenegro enacted the Law on Secured Transactions and established a collateral registry at the Commercial Court in 2003.  The registry’s operational guidelines have been drafted and approved by the Commercial Court. The main goal of the Law on Secured Transactions is to establish a clear and transparent framework for property transactions.  In 2004, Montenegro adopted a Law on Mortgages by which immovable property may be encumbered by security interest (mortgage) to secure a claim for the benefit of a creditor who is authorized, in the manner prescribed by the law, to demand satisfaction of the claim by foreclosing the mortgaged property with priority over creditors who do not have a mortgage created on that particular property, as well as over any subsequently registered mortgage, regardless of a change in the owner of the encumbered immovable property.  The Real Estate Administration has taken progressive steps over the last few years to improve the quality and service provided in the registry, though additional improvements are needed. The World Bank’s Doing Business Report ranked Montenegro 75th out of 190 on the ease of registering property.

Intellectual Property Rights (IPR)

The acquisition and disposition of IPR are protected by the Law on the Enforcement of Intellectual Property Rights, which entered into force in 2006.  The law provides for fines for legal entities of up to EUR 30,000 (approximately USD 37,000) for selling pirated and/or counterfeited goods. It also provides ex-officio authority for market inspectors in the areas mentioned above.  Additional amendments to the existing Law on the Enforcement of Intellectual Property Rights were adopted over the last several years (beginning in 2006) in line with the EU regulations, and they are expected to bring more efficiency in implementation as well as a multifunctional approach to property-rights protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Border Measures, which provides powers to customs authorities to suspend customs procedures and seize pirated and counterfeit goods. Statistics on seizures of counterfeit goods are published by the Customs Administration and available on their webpage  .

Montenegro’s Penal Code penalizes IPR violations, allows ex-officio prosecution, and provides for stricter criminal penalties; however, copyright violation is a significant problem in the outerwear and apparel market, and unlicensed software can be easily found on the general market.  The Law on Optical Disks was adopted in 2006; it requires the registration of business activity when reproducing optical disks for commercial purposes and provides for surveillance of optical disk imports and exports, as well as imports and exports of polycarbonates.

The Montenegrin Intellectual Property Office is the competent authority within the state administration system for the activities related to industrial property rights, copyrights, and  related rights. The Intellectual Property Office was established under the Regulation on Organization and Manner of Work of the State Administration in 2007 and officially opened in 2008.

A regulation on the recognition of IPR was adopted in 2007.  Under this regulation, any rights registered with the Union Intellectual Property Office or with the Serbian Intellectual Property Office, and any pending applications filed with these offices before May 2008, are enforceable in Montenegro.  Any IPR application submitted after that date in Serbia needed to be re-submitted in Montenegro within six months to retain its acquired priority.

IPR market inspectors, police officers, customs officers, and employees of the Ministry of Economy regularly attend a number of training seminars on intellectual property protection and counterfeiting, including an IPR enforcement workshop hosted by the AmCham and its members.  At the end of 2007, the Customs Administration signed a Letter of Intent for acceptance of Standards to be Employed by Customs for Uniform Rights Enforcement (SECURE), adopted by the World Customs Organization (WCO), to promote the efficient protection of IPR by customs authorities.

Montenegro is not listed on the United States Trade Representative (USTR) Special 301 Report, nor is it on the Notorious Markets List.  However, the sale of pirated optical media (DVDs, CDs, software) as well as counterfeit trademarked goods, particularly sneakers and clothing, is widespread.  According to the 2017 joint survey of Business Software Alliance and the International Data Corporation (IDC), the software piracy rate in Montenegro is among the highest in Europe, constituting 74 percent of the market, two percentage points below the 2015 study.  Enforcement is slowly improving as customs, police, and judicial authorities obtain the necessary tools, but institutional capacity and public awareness is still limited.

To further improve intellectual property protection, AmCham Montenegro established an IPR Committee in April 2009, which currently operates under the Grey Economy Committee.  The main goal of the committee is to work closely with the Montenegrin institutions that deal with IPR, to increase public awareness of the importance of intellectual property protection, and to help the Government of Montenegro strengthen its administrative capacities in this field.  More information about the committee’s activities can be found on AmCham’s website  .

Montenegro became a member of the World Intellectual Property Organization (WIPO) in 2006, and more information is available on the WIPO website  

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:

Kyle Hatcher
Political and Economic Deputy Chief
+382 20 410 500

6. Financial Sector

Real Property

In 2002, Montenegro enacted the Law on Secured Transactions and established a collateral registry at the Commercial Court in 2003.  The registry’s operational guidelines have been drafted and approved by the Commercial Court. The main goal of the Law on Secured Transactions is to establish a clear and transparent framework for property transactions.  In 2004, Montenegro adopted a Law on Mortgages by which immovable property may be encumbered by security interest (mortgage) to secure a claim for the benefit of a creditor who is authorized, in the manner prescribed by the law, to demand satisfaction of the claim by foreclosing the mortgaged property with priority over creditors who do not have a mortgage created on that particular property, as well as over any subsequently registered mortgage, regardless of a change in the owner of the encumbered immovable property.  The Real Estate Administration has taken progressive steps over the last few years to improve the quality and service provided in the registry, though additional improvements are needed. The World Bank’s Doing Business Report ranked Montenegro 75th out of 190 on the ease of registering property.

Intellectual Property Rights (IPR)

The acquisition and disposition of IPR are protected by the Law on the Enforcement of Intellectual Property Rights, which entered into force in 2006.  The law provides for fines for legal entities of up to EUR 30,000 (approximately USD 37,000) for selling pirated and/or counterfeited goods. It also provides ex-officio authority for market inspectors in the areas mentioned above.  Additional amendments to the existing Law on the Enforcement of Intellectual Property Rights were adopted over the last several years (beginning in 2006) in line with the EU regulations, and they are expected to bring more efficiency in implementation as well as a multifunctional approach to property-rights protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Border Measures, which provides powers to customs authorities to suspend customs procedures and seize pirated and counterfeit goods. Statistics on seizures of counterfeit goods are published by the Customs Administration and available on their webpage  .

Montenegro’s Penal Code penalizes IPR violations, allows ex-officio prosecution, and provides for stricter criminal penalties; however, copyright violation is a significant problem in the outerwear and apparel market, and unlicensed software can be easily found on the general market.  The Law on Optical Disks was adopted in 2006; it requires the registration of business activity when reproducing optical disks for commercial purposes and provides for surveillance of optical disk imports and exports, as well as imports and exports of polycarbonates.

The Montenegrin Intellectual Property Office is the competent authority within the state administration system for the activities related to industrial property rights, copyrights, and  related rights. The Intellectual Property Office was established under the Regulation on Organization and Manner of Work of the State Administration in 2007 and officially opened in 2008.

A regulation on the recognition of IPR was adopted in 2007.  Under this regulation, any rights registered with the Union Intellectual Property Office or with the Serbian Intellectual Property Office, and any pending applications filed with these offices before May 2008, are enforceable in Montenegro.  Any IPR application submitted after that date in Serbia needed to be re-submitted in Montenegro within six months to retain its acquired priority.

IPR market inspectors, police officers, customs officers, and employees of the Ministry of Economy regularly attend a number of training seminars on intellectual property protection and counterfeiting, including an IPR enforcement workshop hosted by the AmCham and its members.  At the end of 2007, the Customs Administration signed a Letter of Intent for acceptance of Standards to be Employed by Customs for Uniform Rights Enforcement (SECURE), adopted by the World Customs Organization (WCO), to promote the efficient protection of IPR by customs authorities.

Montenegro is not listed on the United States Trade Representative (USTR) Special 301 Report, nor is it on the Notorious Markets List.  However, the sale of pirated optical media (DVDs, CDs, software) as well as counterfeit trademarked goods, particularly sneakers and clothing, is widespread.  According to the 2017 joint survey of Business Software Alliance and the International Data Corporation (IDC), the software piracy rate in Montenegro is among the highest in Europe, constituting 74 percent of the market, two percentage points below the 2015 study.  Enforcement is slowly improving as customs, police, and judicial authorities obtain the necessary tools, but institutional capacity and public awareness is still limited.

To further improve intellectual property protection, AmCham Montenegro established an IPR Committee in April 2009, which currently operates under the Grey Economy Committee.  The main goal of the committee is to work closely with the Montenegrin institutions that deal with IPR, to increase public awareness of the importance of intellectual property protection, and to help the Government of Montenegro strengthen its administrative capacities in this field.  More information about the committee’s activities can be found on AmCham’s website  .

Montenegro became a member of the World Intellectual Property Organization (WIPO) in 2006, and more information is available on the WIPO website  

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:

Kyle Hatcher
Political and Economic Deputy Chief
+382 20 410 500

7. State-Owned Enterprises

Since the beginning of the privatization process in 1999, nearly 90 percent of formerly state-owned enterprises (SOEs) have been privatized.  The most prominent SOEs still in operation include the Port of Bar, Montenegro Railways, Montenegro Airlines, Airports of Montenegro, Plantaze Vineyards, and several companies in the tourism industry, including Ulcinjska and Budvanska Rivijera.  All of these companies are registered as joint stock companies, with the government appointing one or more representatives to each board based on the ownership structure. All SOEs must provide an annual report to the government and are subject to independent audits.  In addition, SOEs are listed and have publicly available auditing accounts on the Montenegrin Securities Commission’s website  .  Political affiliation has been known to play a role in job placement in SOEs.

Privatization Program

The privatization process in Montenegro is currently in its final phase.  The majority of companies that have not yet been privatized are of strategic importance to the Montenegrin economy and operate in such fields as energy, transport, and tourism.

Further privatization of SOEs should contribute to better economic performance, increase the competitiveness of the country, and enable the government to generate higher revenues (while lowering its outlays), which will enhance capital investments and reduce debts.

The Montenegrin government is the main institution responsible for the privatization process.  The Privatization and Capital Investment Council was established in 1996 to manage, control, and implement the privatization process as well as to propose and coordinate all activities necessary for the non-discriminatory and transparent application process for capital projects in Montenegro.  The prime minister of Montenegro is the president of the Privatization and Capital Investment Council.

More information about the council, the privatization process, and the actual privatization plan is available on the council’s website  

8. Responsible Business Conduct

While there are several good examples of companies undertaking responsible business conduct   (RBC) in Montenegro, practices are still developing and are not adopted evenly across the private sector.  The government, together with various business organizations, non-governmental organizations, and the international community, organizes events in order to promote and encourage RBC.  Since last year, efforts have focused on introducing the RBC concept in the education system. The promotion of RBC through the media has also been used as an effective tool as the media can play a pivotal role in raising awareness about RBC initiatives.

The concept of corporate social responsibility (a term that preceded RBC) features regularly on the agenda of many companies in Montenegro.  The most recent survey showed that large private companies and associations are more engaged in RBC activities, whereas small companies cited the lack of knowledge about RBC and the lack of support and interest from clients as the main reasons for not participating.

9. Corruption

Corruption and the perception of corruption are significant problems in Montenegro’s public and private sectors.  Corruption routinely places high on the list of citizen concerns in opinion polls, in addition to risks cited by foreign investors.  Montenegro placed 74th out of 180 countries in the Transparency International (TI) 2018 Corruption Perception Index list.

An improved legal framework to help combat corruption and organized crime has been in force since the adoption of the Law on Prevention of Corruption in 2014 and the Law on the Special State Prosecution in 2015.  The government has also taken substantial steps to strengthen the Rule of Law, including the establishment of a special police unit focused on corruption and organized crime, the creation of an Agency for the Prevention of Corruption, the creation of a new independent Office of the Special State Prosecutor that handles major cases including organized crime and corruption, and the appointment of the Special State Prosecutor.  In line with these laws, the Special Prosecution, the Special Police Team, the Agency for Prevention of Corruption became operational in 2015 and 2016.  In 2016, Montenegro’s Parliament adopted the Law on the Confiscation of Proceeds from Criminal Activities, which provides for expanded procedures for the freezing, seizure, and confiscation of illicit proceeds.  It also authorizes the creation of multi-disciplinary Financial Investigation Teams. In February 2019, a multi-institutional task force for fighting commercial crime was founded. The task force consists of representatives of the police, Customs Authority, Tax Authority, and Administration for Inspection Affairs. Parliament also adopted the Law on the Center for Training of the Judiciary and State Prosecutor’s Office that created a new independent judicial training institute, with greatly expanded powers and autonomy.  In the past two years, the government has achieved some progress in combating official corruption through adoption of important legislation on public procurement, the treasury and budget system, and the courts.  Also, there have been a few high-profile corruption prosecutions at the local and national government level.  The adoption of the Law on Courts has created one centralized Special Department for Organized Crime, Corruption, War Crimes, Terrorism and Money Laundering in the Podgorica High Court.

The government encourages state institutions and the private sector to establish internal codes of conduct.  They are encouraged to have ethical codes, as well as obliged to have preventive integrity plans.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Montenegro is a signatory to the UN Anti-Corruption Convention.  It also succeeded to the OECD Convention on Combatting Bribery, formally signed by the State Union of Serbia and Montenegro prior to Montenegro’s independence.  To date, no foreign firms have lodged complaints against the government under any of these agreements. A number of U.S. firms have specifically noted corruption as an obstacle to direct investment in Montenegro, and corruption is seen as one of the typical hurdles to be overcome when doing business in the country.

Corruption is most pervasive in Montenegro in the government procurement sector; the purchase and sale of government property takes place in a non-transparent environment with frequent allegations of bribery and cronyism.

Resources to Report Corruption

Contact at government agencies responsible for combating corruption:

Milivoje Katnic
Special Prosecutor for Fighting Organized Crime, Corruption, War Crimes and Terrorism
Office of the Special State Prosecutor
Slobode 20, 81000 Podgorica, Montenegro
+382 20 230 624

Sreten Radonjic
Director, Agency for the Prevention of Corruption
Kralja Nikole 27/V, 81000 Podgorica, Montenegro
+382 20 447 702

MANS (Network for Affirmation of NGO sector) is a non-governmental organization that fights against corruption and organized crime in Montenegro. They are engaged in investigating concrete cases of corruption and organized crime, monitoring the implementation of legislation and government policy, providing free legal aid to citizens, CSOs, media and businesses, developing law and policy proposals and analysis, and conducting advocacy campaigns.

Vanja Calovic
Executive Director
MANS (Network for Affirmation of NGO sector)
Dalmatinska 188, 81000 Podgorica
+382 20 266 326 or  

10. Political and Security Environment

Montenegro has a multi-party political system with a mixed parliamentary and presidential system.  As a candidate country on its path to join the EU, Montenegro is making steady progress in opening negotiating chapters with the EU.  Out of 35 chapters, three are provisionally closed and only one chapter has not yet been opened.

Montenegro joined NATO in June 2017.

In the October 2016 national parliamentary elections, Montenegro’s ruling party won the majority of the votes, and formed a new government in November 2016 in a coalition with four smaller parties.  Former Prime Minister Milo Djukanovic has been elected for the President of Montenegro in April 2018, with Dusko Markovic succeeding him as prime minister.  The government has stressed Euro-Atlantic integration as its top priority as well as fiscal consolidation.

Despite the Organization for Security and Cooperation in Europe and Office for Democratic Institutions and Human Rights (OSEC/ODHIR) international election observation mission’s report declaring that the parliamentary elections were held in a competitive environment and fundamental freedoms were generally respected, the opposition parties initiated a boycott of the Parliament to protest against the elections.  After termination of boycott that lasted for almost year and half opposition supported anti-government protests that started in February 2019.  On March 30, 2019, all 39 opposition MPs signed a document dubbed the “Agreement for the Future” with organizers of the anti-government protests envisaging  the resignation of top government officials and public broadcaster RTCG’s leadership, and  formation of a technical government to create the conditions for free and fair elections.  The ruling Democratic Party of Socialists (DPS) denounced the signing of the Agreement.

Montenegro and the U.S. government share policy goals on investments and cooperate productively in many areas.  There is broad support for the strengthening of ties with the United States, especially in the economic and private sector spheres.

11. Labor Policies and Practices

Montenegro’s total labor force consists of approximately 250,000 people with almost 65,000, or close to 26.8 percent, employed in the public sector.  With an unemployment level at 15.2 percent (according to the State statistical agency, MONSTAT, in 2018) and the average monthly salary, net of taxes and contributions, at EUR 513 (USD 632) in December 2018, the bloated public sector and the lack of a highly skilled labor pool are cited by foreign investors as challenges facing Montenegro.  An AmCham survey of its members found that the lack of skills and qualifications in the Montenegrin labor pool is a significant barrier to investment and operations. According to AmCham, finding skilled middle managers represents a serious challenge for members, and many foreign companies choose to hire foreigners for these positions. To tackle youth unemployment, Montenegro is prioritizing efforts to improve practical job skills, including English language training. However, university students in Montenegro obtain little or no practical work experience while studying for their Bachelor’s degree.  It is widely mentioned in business circles that Montenegrin young adults prefer public sector work to private companies, which offer higher salaries. The past year has been marked by intensive work on the Labor Law, originally scheduled for adoption in Q4 2018 but postponed for vote later in 2019.

Over the past few years, employment in private companies has increased, and total employment in the public sector (including SOEs) has decreased.  Employment in Montenegro is led by three major sectors: tourism, maritime and offshore jobs (including on cruise ships or freighters), and manufacturing.

The government has designated harmonizing the legislative framework of the country’s labor market with the EU standards as one of its primary tasks.  The Labor Law defines a single collective agreement for both public and private sectors, maintains the existing level of severance payments, and retains the current 365 days of maternity leave.  The employers believe that the current Labor Law does not define their obligations and rights, thus creating various business barriers and making it difficult for them to do business in Montenegro.  In order to create a better business environment, employers expect the new Labor Law to clarify ambiguities and better regulate this area. All relevant business associations in Montenegro, led by AmCham, signed the Memorandum of Understanding in 2014 to provide collective input on the draft legislation and agreed that the issue of monetary claims submitted by employees should have a statute of limitations.  Also, the procedure for establishing violations of workplace order should be simplified and stipulated only by the Labor Law.

Substantial amendments to existing legislation and timely adoption of the necessary by-laws are needed to align legislation on workplace health and safety more closely with the EU.  The Ministry of Labor prioritized strengthening its administrative capacity and its inspection department and establishing a workplace safety agency.

The Law on Peaceful Resolution of Labor Disputes was adopted in 2007.  It introduces out-of-court settlements of labor disputes.

The Law on the Employment of Nonresidents took effect in 2009 and mandates the government to set a quota for nonresident workers in the country.  In December 2018, the government adopted a decision on determining the number of work permits for foreigners for 2019, establishing the quota at 20,454 work permits.  Procedures for hiring foreign workers have been simplified, and taxes for nonresident workers have been significantly decreased to help domestic companies that are experiencing problems engaging domestic staff, particularly for temporary and seasonal work.

The Law on Foreigners in Montenegro came into force in 2015.  At the beginning of 2016, amendments suggested by AmCham Montenegro and business organizations (including the Montenegrin Employers’ Federation, Montenegrin Chamber of Economy, Montenegro Business Alliance, Montenegrin Foreign Investors Council) were adopted that improve and liberalize Montenegro’s business environment.  According to changes to the law, businesses are no longer required to provide official records proving that the company was unable to hire Montenegrin nationals with the required skills before hiring foreigners.

Changes were also made to the Law on Pensions and Care of Invalids in 2010, primarily in the area of gradually increasing the age of retirement from 65 to 67 years (both for men and women) by 2042.  These revisions are designed to eliminate anticipated shortfalls in the pension fund. The ratio between pensioners and active employees is very low, putting the whole system at risk.

Until 2008, there was only one trade union confederation at the national level in Montenegro, the Confederation of Trade Unions of Montenegro (SSCG).  SSCG is the successor of the former socialist trade union and also inherited the property, organizational structure, and rights to participation in the tripartite bodies on the national level.  As of 2008, a new confederation, the Union of Free Trade Unions of Montenegro (USSCG), split away from SSCG.

All international labor rights are recognized within domestic law, such as freedom of association, the elimination of forced labor, child labor employment discrimination, minimum wage, occupation safety and health, as well as weekly working hours.

12. OPIC and Other Investment Insurance Programs

Montenegro, through the State Union of Serbia and Montenegro, became eligible for OPIC programs in July 2001.  OPIC activities in Montenegro include: insurance for investors against political risk, expropriation of assets, damages due to political violence and currency convertibility, and insurance coverage for certain contracting, exporting, licensing, and leasing transactions.  OPIC also established the Southeast Europe Equity Investment Fund that is managed by Soros Management. More information on these programs can be found on OPIC’s website   /

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2016 $4,374 2017 $4,845  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD , stock positions) N/A N/A N/A N/A BEA data available at   
Host country’s FDI in the United States (M USD , stock positions) N/A N/A N/A N/A BEA data available at   
Total inbound stock of FDI as % host GDP N/A N/A 2017 116.3% UNCTAD data available at   

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $5,354 100% Total Outward N/A N/A
Italy $796 15%
Russian Federation $579 11%
United Arab Emirates $413 8%
Cyprus $326 6%
Republic of Serbia $282 5%
“0” reflects amounts rounded to +/- USD  500,000.

14. Contact for More Information

Kyle Hatcher
Political and Economic Deputy Chief
U.S. Embassy Montenegro
St. Dzona Dzeksona 2, 81000 Podgorica
+382 20 410 528

North Macedonia

Executive Summary

The Republic of North Macedonia signed the Prespa Agreement on June 17, 2018, resolving a decades-long name dispute with Greece and opening the possibility of fulfilling its aspirations to join the EU and NATO.  The NATO member states’ permanent representatives signed North Macedonia’s NATO Accession Protocol on February 6, and 11 countries have ratified the Protocol as of April 2019. On May 29, 2019, the European Commission recommended the European Council open accession negotiations with North Macedonia based on the progress achieved and sustained momentum on reforms.  EU member states will decide whether to open accession negotiations with North Macedonia in summer or fall 2019. Progress towards EU and NATO membership has resulted in positive economic growth, with a 2018 fourth quarter GDP boost of 3.7 percent, and increases in FDI. Since the establishment of the current government in June 2017, 17 separate investments, worth a combined total of around USD 175 million, now exist at varying stages of development.  On April 2, 2019, Greece and North Macedonia signed a series of bilateral agreements on defense, energy, civil aviation, and technology.

Attracting FDI is one of the government’s main pillars of economic growth and job creation.  No laws or practices exist that discriminate against foreign investors. In 2019, a number of countries and foreign companies announced investments in the country and new operations in the free economic zones knows as Technological Industrial Development Zones (TIDZ).  In the past, North Macedonia’s competitive labor costs, proximity to European car manufacturers, and cooperative government assistance attracted foreign auto parts companies. The government’s attitude towards FDI, as well as policies it has in place, are conducive to U.S. investment, and a number U.S. companies successfully operate in North Macedonia.

The 2019 World Bank’s Doing Business Report ranked North Macedonia the 10th best place in the world for doing business, up one spot from the year before.  Fitch affirmed North Macedonia’s BB credit rating and S&P affirmed its credit rating of the country at BB- with a stable outlook. Transparency International ranked North Macedonia 93rd out of 180 countries in its 2019 Corruption Perception index, up 14 spots from the prior year.

North Macedonia’s legal framework for foreign investors is largely in line with international standards, and foreign investors are generally treated the same as domestic investors in similar circumstances.  North Macedonia has simplified regulations and procedures for large foreign investors operating in its TIDZ. Large foreign companies operating in the zones generally report positive experiences doing business and good relations with government officials.  However, the country’s overall regulatory environment is complex, and frequent regulatory and legislative changes, coupled with inconsistent interpretations of the rules, create an unpredictable business environment that allows for corruption. The government generally implements laws, but there are reports that some officials engaged in corruption, and some NGOs assess the government’s dominant role in the economy created opportunities for corruption.  The current government has pledged to enhance transparency and rule of law.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 93 of 180 
World Bank’s Doing Business Report 2019 10 of 190
Global Innovation Index 2018 84 of 126 
U.S. FDI in partner country ($M USD, stock positions) 2017 $43 
World Bank GNI per capita 2017 $4,880 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward 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” (  ), 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,  , 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,  , 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 in developing their physical facilities.

The government maintains contact with large foreign investors through frequent meetings and formal surveys to solicit feedback.  Large foreign investors also can directly and easily contact government leaders for assistance to resolve issues. The Foreign Investors Council,  , 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 example, investment in the production of weapons and narcotics is subject to government approval. Investors in some 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 review of foreign direct investments in a non-public procedure.  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  .  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 has been no third-party review of the government’s investment policy in the past three years.  The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy, published in 2014, is available at:  .  There is no OECD investment policy review available on North Macedonia.  The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: .  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.

Business Facilitation

All legal entities in the country must register with the 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,  .  All investors may register a company online at  .  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 World Bank’s Doing Business Ranking 2019 put North Macedonia 47th in the world for ease of starting a business, unchanged from 2018.

Outward Investment

The government does not restrict domestic investors from investing abroad, but it also does not promote or provide incentives for outward investments.  Publicly reported total outward investments are small, worth approximately USD 81 million, the majority of which are in the Balkans region and in the Netherlands.

2. Bilateral Investment Agreements and Taxation Treaties

North Macedonia does not have a bilateral investment or double taxation treaty with the United States.

North Macedonia has concluded an Agreement for Promotion and Protection of Foreign Direct Investments with the following countries:  Albania, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, the Czech Republic, Egypt, Finland, France, Germany, Hungary, India, Iran, Italy, Luxembourg, Malaysia, Montenegro, the Netherlands, North Korea, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Turkey, and Ukraine.

North Macedonia is a signatory of three multilateral Free Trade Agreements: the Stabilization and Association Agreement (SAA) with the EU member-states, giving North Macedonia duty-free access to 650 million consumers; the European Free Trade Agreement (EFTA) with Switzerland, Norway, Iceland, and Liechtenstein; and the Central European Free Trade Agreement (CEFTA) with Albania, Bosnia and Herzegovina, Moldova, Montenegro, Serbia, and Kosovo.  Bilateral Free Trade Agreements are in force with Turkey and Ukraine.

There are no recent or upcoming changes to the tax regime that will concern foreign investors.  No U.S. companies operating in North Macedonia have raised tax concerns with U.S. Embassy officials.

3. Legal Regime

Transparency of the Regulatory System

The government has 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 prepared 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 may enable corruption.  The current government has published all incentives for businesses operating in North Macedonia, which are standardized and available to domestic and international companies. Companies worth more than USD 1 billion that want to invest in North Macedonia can also negotiate terms different from the standard incentives.  Moreover, the government can offer customized incentive packages if the investment is of strategic importance. The legal regulatory and accounting systems used by the government are consistent with international norms.

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 for public review and comments.  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, parliament, or signed by the corresponding minister or director.  Public comments are not published or made public as part of the regulation.

North Macedonia accepts International Accounting Standards, which are transparent and 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 the Unique National Electronic Register of Regulations (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 comments, and to allow 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 National Plan for Quality Management of Public Administration, which focus on policy creation and coordination, strengthening of 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.

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 their implementation.

Legal System and Judicial Independence

North Macedonia’s legal system is based on civil law with adversarial-style elements.  The constitution provides for independent courts.  The country has written commercial law and contract law.  There are specialized courts that handle commercial and contractual disputes between businesses.  Contracts are legally enforced by civil and administrative court rulings, and sporadically, with mediation.  Enforcement actions are appealable and adjudicated in the national court system.  Cases involving international elements can be decided in international arbitration.

North Macedonia has obligatory mediation in disputes between companies up to USD16,871 in value as a precondition before going to court.  Some companies complain the measure imposes additional costs and protracts enforcement of contracts.

Numerous international reports have cited North Macedonia’s failure to fully respect the rule of law.  In 2018, the government demonstrated greater respect for judicial independence and impartiality compared to previous years.  However, limited judicial independence, politicization of the judicial oversight body, and inadequate funding of the judiciary continued to be concerns.  Enforcing contracts and resolving commercial disputes in North Macedonia’s court system is time-consuming, costly, and subject to political pressures.

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 .An English language version of the consolidated Law on Technological Industrial Development Zones is available at: ..   No other new major laws, regulations, or judicial decisions related to foreign investment were passed during the past year, however some existing laws received small amendments.

The Trade Companies Law

This is the primary law regulating business activity in North Macedonia ( percent20ENG/LL_CG_TradeCompanies_Dec_2004_E.pdf ).  It defines the types of companies allowed to operate in the country, as well as procedures and regulations for their establishment and operation.  All foreign investors are granted national treatment and are entitled to establish and operate all types of private and joint-stock companies. Foreign investors are not required to obtain special permission from state-authorized institutions other than what is customarily required by law.

Law on Privatization of State-owned Capital

Foreign investors are guaranteed equal rights with domestic investors when bidding on shares of companies owned by the government.  There are no legal impediments to foreign investors participating in the privatization of domestic companies.

Foreign Loan Relations Law

This law regulates the credit relations of domestic entities with those abroad.  Specifically, it regulates the terms by which foreign investors can convert their claims into deposits, shares, or equity investments with the debtor or bank.  The Foreign Loan Relations Law also enables rescheduled debt to be converted into foreign investment in certain sectors or in secondary capital markets.

Law on Investment Funds

The Law on Investment Funds governs the conditions for incorporation of investment funds and investment fund management companies, the manner and supervisory control of their operations, and the process of selecting a depository bank.  The law does not discriminate against foreign investors in establishing open-ended or closed investment funds.

Law on Takeover of Shareholding Companies

This law regulates the conditions and procedures for purchasing more than 25 percent of the voting shares of a company.  The company must be listed on an official stock market, have at least 25 employees, and have initial capital of EUR 2 million.  This law does not apply to shares in state-owned enterprises. .

Law on Foreign Exchange Operations

This law establishes the terms for capital transactions.  It regulates current and capital transactions between residents and non-residents, transfers of funds across borders, as well as all foreign exchange operations.  All current transactions (e.g., all transactions that are eventually registered in the current account of the balance of payments, such as trade and private transfers) of foreign entities are allowed.  There are no specific restrictions for non-residents wishing to invest in North Macedonia. Foreign investors may repatriate both profits and funds acquired by selling shares after paying regular taxes and social contributions.  In case of expropriation, foreign investors have the right to choose their preferred form of reimbursement.

Profit Tax Law

The corporate profit tax rate was raised from 10 percent to 15 percent on January 1, 2019.  Since 2006, a withholding tax of 15 percent was levied on foreign legal entities as well as on income from dividends, interest, management consulting, financial, technical, administrative, research and development services, leasing of assets, awards, insurance premiums, telecommunication services, author fees, sports and entertainment activities, and rent proceeds from lease of real estate.  The withholding tax does not apply to legal entities from countries that have signed an agreement to avoid double taxation with North Macedonia. The United States does not have such an agreement with North Macedonia.

Labor Law

All individual employment contracts and collective agreements signed between unions and employers are regulated by the Labor Law.  ( ) The law also regulates the implementation of rights, obligations, and responsibilities of the employee and employer.  A general collective agreement clarifies and often enhances the basic rights and benefits provided for in the law. In addition, there are collective agreements applicable in some industries or sectors, which further specify relations between employers and employees in those industries.

Law on Financial Discipline

Effective from May 1, 2014, this law regulates timely payment of liabilities between private sector legal entities, and liabilities stemming from business relations between private sector and public sector legal entities ( percent20za percent20finansiska percent20disciplina_precisten_januari_2015.pdf ).  Under the law, private entities must settle payment liabilities within 60 days of the day when the liability occurred.  Failure to comply with the provisions of the law results in high fines both for legal entities and for the responsible person.

Law on Financial Support of Investments

On May 3, 2018 the Parliament adopted the Law on Financial Support of Investments, .  This law regulates the types, amount, conditions, manner, and procedure for providing financial assistance to eligible foreign and domestic investors.  In March 2019, the government proposed amendments to this law, lowering some of the criteria for businesses’ eligibility for financial assistance from the government.

Law on Technological Industrial Development Zones

The Law on Technological Industrial Development Zones ( ) regulates the incentives for investing in technological industrial development zones as well as the conditions, manner and procedure for the establishment, development, and operation of the zones.  It also regulates the business activities performed in the zones, the procedure for acquisition of facilities in the zones, the procedure for issuance of a construction permit in the zones, and the procedure for leasing construction land in the zones.

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, to determine if the aid adversely influences competition and trade under the Law on Control of State Aid (Official Gazette 145/10) and the Law on State Aid (Official Gazette 24/03).  More information on the CPC’s activities is available at  .  There were no significant competition cases during the past year.

Expropriation and Compensation

The Law on Expropriation ( ) provides that seizure and limitation of the right to ownership and property rights of real estate could be applied for the purpose of realization of public interest and for the purpose of building facilities and carrying 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 construction of highways and railways to 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 award from arbitration under this law has the validity of a final judgment and can be enforced without delay.  Any award decision from arbitration 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;  ) are met.  So far, the country has been involved in three reported investor-state disputes brought in front of international arbitration panels.  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 on International Commercial Arbitration.  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 are 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 USD16,871 in value before companies can go to court.

There is no tracking system of cases involving SOEs involved in investment disputes in North Macedonia, and post is not aware of any particular 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 business.  However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of North Macedonia. The World Bank’s Doing Business Report for 2019 (benchmarked to May 2018) ranked North Macedonia 10th out of 190 countries for ease of doing business.

In addition to commercial banks and the National Bank of North Macedonia serving as credit monitoring authorities, the Macedonian Credit Bureau (  ) serves as a credit bureau.

4. Industrial Policies

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 10 percent grant for the cost of construction of a plant 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.

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 (  ) 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: ARC Automotive (Skopje 1), Aptiv (Skopje 1), Kemet (Skopje 1), Gentherm (Prilep), Lear (Tetovo), and Adient (Stip and Strumica).  The Dura Automotive project in TIDZ Skopje 1 is under construction.

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.  U.S. Embassy Skopje 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 preparing amendments to 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 foreign direct investments (FDI).  The government entities include the Agency for Foreign Investments and Export Promotion (InvestNorthMacedonia), the 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 (  )

5. Protection of Property Rights

Real Property

Laws protect ownership of both movable and real property, but implementation of the laws is inconsistent.  Mortgages and liens exist and are regularly used, 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 World Bank’s 2019 Doing Business Report ranked North Macedonia 46th out of 190 for the ease of registering property, two places up from 2018, and 13th 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 the foreign company registers a local company, 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

As an EU candidate country, North Macedonia must harmonize its intellectual property rights (IPR) laws and regulations with EU standards and demonstrate adequate enforcement of those laws.  The European Commission’s 2018 report on North Macedonia confirmed the country’s legislative framework has a sufficient level of alignment with the EU acquis, but its collective management systems needs further improvement.  The report recommended North Macedonia step up efforts to investigate and prosecute infringements of IPR, improve coordination among the law enforcement institutions through establishing an information platform for exchange of data, and raise public awareness on the importance of protecting IPR according to international best practices.

Responsibility for 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 or 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, but it usually focuses on small sellers in open-air markets. Measures taken by the coordination body are rare and mostly target infringement of trademarks.

While North Macedonia has most necessary IPR laws in place, infringements of IPR are frequent, and protection of IPR by the court system should be improved.  Prosecutors and judges in both civil and criminal cases are aware of IPR but lack adequate experience due to the small number of IPR cases and so do not have specialized courts to handle IPR cases.  Many rights holders do not pursue legal action, as IPR infringers usually lack the financial resources to pay damages anyway.  Courts reportedly are reluctant to find accused infringers of IPR guilty due to the criminalization of counterfeiting and 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 EUR 5,000, (USD5,624), 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 listed in the U.S. Trade Representative Special 301 Report or the Notorious Markets List. However, the government currently uses, and has used for the past ten years, unlicensed Microsoft software.  In early 2018, the government initiated talks to resolve the issue.

North Macedonia joined the World Intellectual Property Organization (WIPO) in 1993 and in 1994 became a member of WIPO’s Permanent Committee of Industrial Property Protection Information.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at  

6. Financial Sector

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 2018 was USD3.1 billion, a 19 percent rise from the previous year.  The main index, MBI10, increased by 36.6 percent, reaching 3,469 points at year-end. Foreign portfolio investors accounted for an averaged 13.5 percent of total MSE turnover, 3.9 percentage points less than in 2017.  The authorities do not discriminate against foreign portfolio investments in any way.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members for trading in securities and regulates the market.  In 2018, the total number of listed companies was 105, two less than a year prior, but total turnover increased by 119.8 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 Central Bank 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 2019, the International Monetary Fund assessed that North Macedonia’s banking sector is well-capitalized, liquid, profitable, and banks comfortably meet capital adequacy requirements and maintain sound aggregate liquidity buffers.  Domestic companies secure financing primarily from their own cash flow and from 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.  It is a highly concentrated system, with the three largest banks controlling 57.1 percent of the banking sector’s total assets of about USD9.2 billion, and collecting 69.6 percent of total household deposits.  The largest commercial bank in the country has estimated total assets of about USD 2 billion, and the second largest of about USD 1.7 billion. The nine smallest banks, which have individual market share of less than 5 percent, account for one-fifth of total banking sector assets.  Foreign banks or branches are allowed to establish operations in the country at equal terms as domestic operations, subject to licensing and prudent supervision from the Central Bank. In 2018, foreign capital remained present in 14 of North Macedonia’s 15 banks, and was dominant in 11 banks, controlling 71.1 percent of total banking sector assets, 79.9 percent of total loans, and 70 percent of total deposits.

According to the National Bank of the Republic of North Macedonia (NBRNM – the Central Bank) the banking sector’s non-performing loans at the end of the third quarter of 2018 (latest available data) were 5 percent of total loans, dropping by 1.6 percentage points on an annual basis.  Total profits at the end of the third quarter of 2018 reached USD 144 million, which was 66.2 percent higher than in the same period of the previous year.

Banks’ liquid assets at the end of the third quarter of 2018 were 30.6 percent of total assets, which was 1.1 percentage points higher compared to the same period of 2017, remaining comfortably high.  In 2018 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 of September 2018 was 16.3 percent, 0.5 percent higher compared to the same period of the previous year. Only one individual bank had a ratio below the required minimum.

There are no restrictions on the ability of foreigners to establish bank accounts.  All commercial banks and the Central Bank 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 was in jeopardy.  There is no intention for implementing or allowing 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 a pegged 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 households in North Macedonia.  In 2018, net private transfers amounted to USD 2 billion, accounting for 15.8 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

7. State-Owned Enterprises

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.  The 81 local governments also own local public utility enterprises. In March 2018, the 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 non-market based advantages, such as preferential access to land and raw materials.

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

A 2016 report by Transparency International-Macedonia commented that “policy decisions related to SOEs often comply with the political needs of the ruling political establishment, such as needs for employment…rather than with the actual needs of the SOEs.”  When it took office in June 2017, the new government declared it would change that practice. Following reports in 2018 and 2019 that party members and family were being hired in SOEs, the government announced it would review SOE hiring decisions. As a result of the review, several individuals have already resigned. 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 process is ongoing.

Privatization Program

North Macedonia’s privatization process is almost complete, and private capital is dominant in the market.  The government is trying to sell two remaining state-owned loss-making companies in a non-discriminatory process through international tenders.  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.

8. Responsible Business Conduct

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 of North Macedonia 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 that govern corporate governance.  Together these laws provide a clear distinction between the rights and duties of shareholders and 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 (  ).  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.

9. Corruption

North Macedonia has laws intended to counter bribery, abuse of official position, and conflicts-of-interest; 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 Prevention of Corruption (  ), established in 2002 to prevent corruption and conflicts of interest did not function from March 2018 until 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 has restarted its work. 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.  In the 2018 Corruption Perception Index, Transparency International ranked North Macedonia 93rd out of 180 countries on the, an improvement of 14 places from 2017.

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, preview of tender documentation without registration in the system, e-payment for use of the system, electronic archiving, and the electronic submission of complaints.  

The government does not require private companies to establish internal codes of conduct prohibiting bribery of public officials.  A number of NGOs focus on anti-corruption, transparency in public finances, 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 Prevention of Corruption
Ms. Biljana Ivanovska, President
Dame Gruev 1
1000 Skopje, North Macedonia
+389 2 321 5377

Public Prosecution Office for Fighting Organized Crime and Corruption
Ms. Vilma Ruskovska, Chief
Boulevard Krste Misirkov BB, Sudska Palata
1000 Skopje, North Macedonia
+389 2 321 9884

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

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

10. Political and Security Environment

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

On April 27, 2017 after a majority of parliament members elected Talat Xhaferi as Speaker, an organized attack leveraged ongoing protests to storm the parliament building.  More than 100 people were injured, including the now Prime Minister 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 Department of Public Security Bureau (who had previously served as Minister of Interior), former security officers, and others.  Prosecutors are conducting a separate investigation into the organizers of the parliament attack, and named former Prime Minister Nikola Gruevski, the former Speaker of Parliament, two former ministers, and a former director of the Department of Security and Counterintelligence service as parties of interest in the investigation.

There is no widespread anti-American or 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.

11. Labor Policies and Practices

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 2018 was USD 470 per month, but reportedly about 60 percent of workers receive wages lower than that average. In July 2018, the minimum net wage was raised to MKD 12,165 (USD 183) per month. The government has promised to raise the minimum wage to MKD 16,000 (USD 320) per month by the end of its mandate in 2020.

In 2018, North Macedonia’s labor force consisted of 957,623 people, of which 759,054 (45.1 percent) were officially employed and 198,569 (20.7 percent) were officially unemployed.  North Macedonia’s employed labor force is roughly 60.4 percent male and 39.6 percent female. The largest number of employees are engaged in manufacturing, agriculture, and trade. The total unemployment rate for youth ages 15 to 24 years old is 45 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, switch to outsourcing, 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 2019 (  )  defines programs and services for employment that will stimulate job creation, provide subsidies for companies creating new jobs, and deliver vocational training for unemployed persons.

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: .

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 the National Collective Bargaining Agreements, and there are two on the national level – one for the public and one for private sectors.  Only about 25 percent of the labor force are 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 assistance from the ILO.  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 and severance pay. percent20izmeni percent202018.pdf 

12. OPIC and Other Investment Insurance Programs

Financing and insurance for exports, investment, and development projects are made possible through agencies such as the U.S. Trade and Development Agency (TDA); the U.S. Export-Import Bank (EX-IM); the Overseas Private Investment Corporation (OPIC); 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 in the transportation and energy infrastructure development fields.

OPIC insurance and project financing have been available to investors in North Macedonia since 1996.  OPIC’s three main activities are risk insurance, project finance, and investment funding. 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.  TDA, SEEF, the World Bank, and the EBRD focus more directly on financing agreements.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $12,657 2017 $11,284   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $101 2017 $43 BEA data available at  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $0.1 2017 $0 BEA data available at  
Total inbound stock of FDI as % host GDP 2018 51.7% 2017 53.5% UNCTAD data available at  

* 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.

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $5,634 100% Total Outward $81 100%
Austria $764 13.6% Serbia $62 76.2%
United Kingdom $638 11.3% Netherlands $37 45.3%
Greece $568 10.1% Slovenia $26 31.6%
Netherlands $450 8.0% Bosnia & Herzegovina $15 18.3%
Slovenia $388 6.9% Russia $8 10.5%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $360 100% All Countries $331 100% All Countries $29 100%
United States $257 71.4% United States $250 75.5% Austria $13 44.8%
Germany $52 14.4% Germany $52 15.7% United States $7 24.1%
Austria $13 3.6% France $12 3.6% Russia $3 10.3%
France $12 3.3% International Organizations $6 1.8% Montenegro $2 6.9%
International Organizations $6 1.7% Switzerland $4 1.2% Ireland $1 3.4%

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

14. Contact for More Information

Arben Gega
Commercial Specialist
U.S. Embassy – Skopje
Samoilova 21
1000 Skopje, Republic of North Macedonia
Tel: +389 2 310 2403



Executive Summary

Serbia’s investment climate had been improving modestly in recent years, driven by macroeconomic reforms, greater financial stability, improved fiscal discipline, and a European Union (EU) accession process that provides impetus for legal changes that improve the business environment. The government successfully completed a three-year Stand-by Arrangement with the International Monetary Fund (IMF), with the government exceeding all of its fiscal targets in 2018. The government signed a new Policy Coordination Instrument with the IMF in mid-2018. However, as additional reforms slowed, Serbia fell five places in 2019 on the World Bank’s Doing Business list, and is now ranked 48th globally in terms of the ease of doing business, still up from 59th two years earlier.

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

Despite notable progress in Serbia, challenges remain, e.g. with regard to bureaucratic delays and corruption. Significant risks to the investment climate include unresolved loss-making state-owned enterprises (SOEs), a large informal economy, corruption, and an inefficient judiciary. Political influence on the decisions of nominally independent regulatory agencies is also a concern.

The Serbian government has identified economic growth and job creation as its top economic concerns, and has committed itself to resolving a number of long-standing issues related to the country’s slow transition to market-driven capitalism. On the legislative front, the government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Both companies and officials have noted that the adoption of reforms has sometimes outpaced thorough implementation of these reforms. Digitizing certain functions (e.g. construction permitting, tax administration, and e-signatures) has not yet brought a dramatic improvement in processing times, which may be a longer and more difficult process. The government is slowly making progress on resolving the fate of troubled state-owned enterprises. Where possible, this has been achieved through bankruptcy or privatization actions. For example, bankruptcy protections were removed for 17 state-owned companies in May 2016, and the situation of most of these companies has been resolved. The government is also slowly decreasing Serbia’s bloated public sector workforce, mainly through attrition and hiring freezes, which continued through 2018.

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

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

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

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 87 of 180 
World Bank’s Doing Business Report 2019 48 of 190
Global Innovation Index 2018 55 of 126 
U.S. FDI in partner country ($M USD, stock positions) 2017 $164 
World Bank GNI per capita 2017 $5,180 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own businesses, and to engage in all forms of remunerative activity.

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

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

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

Defense: The Law on Investments adopted in 2015 ended discriminatory practices that prevented foreign companies from establishing companies in the production and trade of arms (for example, the defense industry) or in specific areas of the country. Further liberalization of investment in the defense industry continued via a new Law on the Production and Trade of Arms and Ammunition, adopted in May 2018. The law enables total foreign ownership of up to 49 percent in seven state-owned companies, collectively referred to as the “Defense Industry of Serbia,” as long as no single foreign shareholder exceeds 15 percent ownership. The law also cancels limitations on foreign ownership for arms and ammunition manufacturers.

Other Investment Policy Reviews

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

Business Facilitation

According to the World Bank’s 2019 Doing Business report, it takes five procedures and 5.5 days to establish a foreign-owned limited liability company in Serbia. This is faster than the average for Europe and Central Asia. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Serbia must translate its corporate documents into Serbian.

Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in English at  . All entities applying for incorporation with SBRA can use a single application form and are not required to have signatures on applications notarized.

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

Some U.S. companies that have ownership by investment funds have reported challenges opening a local bank account due to concerns over compliance requirements on reporting ultimate beneficial ownership. This comes as Serbia has increased its efforts to comply with international best practices to combat money laundering, and is working to implement new procedures.

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

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

Serbia’s business facilitation mechanisms provide for equitable treatment of both men and women when a registering company, according to the World Bank’s 2019 Doing Business report. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.

Outward Investment

The Serbian government neither promotes nor restricts outward direct investment. Restrictions on short-term capital transactions—i.e. portfolio investments—were lifted in April 2018 through amendments to the Law on Foreign Exchange Operations. Prior to this, residents of Serbia were not allowed to purchase foreign short-term securities, and foreigners were not allowed to purchase short-term securities in Serbia. Now, Serbian residents are allowed to purchase foreign short-term securities issued in the European Union, or by international financial organizations. Also, foreigners are now allowed to purchase Serbian short-term securities. There are no restrictions on payments related to long-term securities.

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

2. Bilateral Investment Agreements and Taxation Treaties

Serbia does not have a bilateral investment agreement with the United States. Serbia has bilateral investment treaties in force with Albania, Armenia, Algeria, Austria, Azerbaijan, Belarus, Belgium-Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Cuba, the Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guinea, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Kazakhstan, Kuwait, Latvia, Libya, Lithuania, Macedonia, Malta, Montenegro, Morocco, the Netherlands, Nigeria, Poland, Portugal, Romania, Russia, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Zimbabwe. (See percent20Zemalja.pdf .)

Serbia does not have a bilateral taxation treaty with the United States.

Serbia has signed and implemented bilateral taxation treaties with Albania, Armenia, Austria, Azerbaijan, Belgium, Belarus, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia (as of January 1, 2019), Iran, Ireland, Italy, Kazakhstan, Kuwait, Latvia, Lithuania, Libya, Luxembourg, Macedonia, Malta, Moldova, Montenegro, the Netherlands, Norway, Pakistan, Poland, Qatar, the Republic of Korea, Romania, Russia, San Marino (as of January 1, 2019) Slovakia, Slovenia, Spain, Sri Lanka, Switzerland, Sweden, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Vietnam. (See the Serbian Finance Ministry website at  .)

Serbia has signed and ratified bilateral taxation treaties with Ghana, Guinea, Morocco, Palestine, the Philippines and Zimbabwe; however, the foreign legislatures have not yet ratified these agreements.

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

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

Serbia enjoys duty-free treatment of certain exports to the United States under the Generalized System of Preferences (GSP), valid until December 31, 2020, and has Most Favored Nation status on exports of other goods.

3. Legal Regime

Transparency of the Regulatory System

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

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

At this stage in the legislative process, public discussion or debate is generally optional; however, if the proposed law would substantially change the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public, public debate is mandatory. In recent years, many laws have been adopted through “urgent procedure”, which excludes parliamentary debate, and therefore reduces public debate as well. The European Commission’s 2018 Progress Report for Serbia stated that “Public consultations on proposals are often conducted formalistically and too late in the process, not enabling all interested parties to provide timely and qualitative input.” The government’s Rulebook outlines the details and procedures regarding public debate. The government publishes laws and regulations undergoing public hearings at:  .

Concerns regarding public debate on Serbian legislation have been echoed by the Council of Europe’s Group of States against Corruption (GRECO). GRECO observed in a 2015 evaluation report that the transparency of the Serbian legislative process could be improved by ensuring that draft legislation, amendments, and the agendas and outcome of committee sittings are disclosed in a timely manner, that adequate timeframes are in place for submitting amendments and that the urgent procedure is applied as an exception and not as a rule. GRECO also recommended further developing rules on public debates and public hearings, and ensuring their implementation in practice. GRECO reiterated these concerns in a compliance report on Serbia in March 2019, stating that the majority of laws and acts are still adopted under an ‘urgent’ or emergency procedure, which in effect prevents timely information and participation in legislative work. According to the Rules of Procedure of the National Assembly, it is still possible—and it is still the rule to a large extent—to present amendments up to 24 hours before the discussion in the emergency procedure. No additional safeguards have been introduced to either curb the use of this procedure or provide for new deadlines for submitting amendments. Thus, most of GRECO’s concerns regarding this part of the recommendation remain valid.

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

Serbia’s budget information is publicly available; however, there are serious concerns about the legislative process, which severely limited Parliament’s review and debate of the draft 2019 budget when it was passed in December 2018. For example, on the budget and several other significant laws, opposition parties have accused the ruling coalition of obstructing debate in Parliament by filing a large number of insignificant amendments, which are often almost identical in content, to use up the allocated time for debate and prevent legislators from scrutinizing the budget and debating substantive amendments. Just before the vote, the ruling coalition has habitually withdrawn most of these amendments.

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

Several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors Council publishes an annual White Book (  ), NALED publishes a Grey Book (  ), and AmCham publishes similar materials on its website (  ).

Serbia’s National Assembly website (  ) provides a list of adopted laws and those that have been proposed. In addition, individual ministries generally provide access to the relevant legislative framework under which the ministry operates on the ministry’s website.

The Business Entities Register (  ) is a centralized electronic database of business entities in Serbia and contains registration data.

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

International Regulatory Considerations

Serbia is not a member of the World Trade Organization or the EU; however, Serbia is in the process of adopting the EU’s acquis communautaire as part of its EU accession process. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations in January 2014. No accession date has been set.

Legal System and Judicial Independence

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Key tax legislation includes the Law on Value Added Tax, Law on Income Tax, Law on Corporate Profit Tax, Law on Real Estate Tax, and the Law on Mandatory Social Contributions. Laws and regulations related to taxes can be found on the Finance Ministry’s website at  .

Laws and regulations related to business operations can be found on the Economy Ministry’s website at  .

Laws and regulations on portfolio investments are on the Securities Commission’s website at  .

Laws and regulations related to payment operations can be found on the National Bank of Serbia’s website at  

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

Competition and Anti-Trust Laws

The Law on Protection of Competition was enacted in 2009 and amended in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and in principle implements the law as an independent agency reporting directly to the National Assembly. In some cases, companies have reported perceptions that political factors have influenced the Commission’s decision-making. In 2017, the Commission completed 108 proceedings for violations of competition rules, approved 140 mergers (and rejected four), and issued 93 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online at  . Laws and regulations related to market competition are available at  .

Expropriation and Compensation

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

In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law sets forth various criteria for arriving at the amount of compensation applicable to different types of land (e.g. agricultural, vineyards or forests), or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually agreed resolution within two months of the expropriation order.

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

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

Serbia committed itself under its restitution law to allocate EUR 2 billion, plus interest, for financial compensation to citizens in bonds and in cash. The restitution law caps the amount of compensation that any single claimant may receive at EUR 500,000 (approximately USD 565,000). With amendments to the Law on Restitution and Compensation adopted in December 2018, the government postponed for the third time issuance of these bonds until December 2021, pending approval of necessary by-laws that would regulate bond issuance. The bonds will be denominated in euros, carry a two-percent annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution received over 74,000 property claims, and the adjudication process is still ongoing. Information about the Agency for Restitution and the status of cases is available on its website at  .

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:

  • 1923 Geneva Protocol on Arbitration Clauses
  • 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions
  • 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
  • 1961 European Convention on International Business Arbitration
  • 1965 International Centre for the Settlement of Investment Disputes (ICSID)

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

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

Bankruptcy Regulations

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

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

The 2019 World Bank Doing Business Report ranked Serbia 49 out of 190 economies with regard to resolving insolvency, with an average of two years needed to resolve insolvency and a cost of 20 percent of the estate. The recovery rate was estimated at 34.5 cents on the dollar (  ).

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

4. Industrial Policies

Investment Incentives

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

The level of available subsidies for investment projects is determined under the Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments, approved for the current year in January 2019. Investors are obliged to provide 25 percent of eligible costs from their own resources. For investment projects valued at EUR 50-100 million, subsidies are limited to 25 percent of the total investment, falling to 17 percent for projects over EUR 100 million. Under certain conditions, large companies can gain support for up to 50 percent of eligible costs for investment projects, medium-sized companies up to 60 percent, and small companies up to 70 percent.

The Decree makes available funds for investment projects in manufacturing and customer service centers. For manufacturing investments, state subsidies are available for any company that invests the equivalent of EUR 100,000 and employs at least 10 persons in a “devastated area.” For service center investments, subsidies are available for companies investing the equivalent of EUR 150,000 and creating at least 15 new jobs anywhere in the country. The required minimum investment and employment levels for subsidies increase on a sliding scale according to the level of development of the investment location. For each investment project in a devastated area, the state will pay the investor 40 percent of the eligible gross salary costs for newly employed people in the two-year period after reaching employment commitments, up to the equivalent of EUR 7,000 per new job; the subsidy declines to 20 percent of eligible costs up to EUR 3,000 per job in the most developed regions. For labor-intensive projects that create more than 200 new jobs, the government can approve additional incentives. The state will also provide subsidies for the purchase of fixed assets, again on a sliding scale based on the level of development at the investment location. The subsidy reaches 30 percent of eligible asset costs in a devastated area, and declines to 10 percent in the most developed areas of Serbia. The total amount of subsidies granted cannot exceed the amount allowed under Serbia’s EU-compliant state aid regulations. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance. There is a separate Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments in Production of Food Products also approved in January 2019 with almost identical conditions to those mentioned above. The only difference is that state subsidies are available for any company that invests the equivalent of the minimum EUR 2 million and employs at least 30 new employees regardless of the level of the municipality development. For projects investing over EUR 20 million in the fixed assets the government will approve additional incentives. For more details visit:  and   (Serbian only).

Both Decrees on Attracting Direct Investments also establish criteria for granting local incentives to investments of importance for local development.

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

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

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

In February 2018, the government approved a new decree on film incentives that allows both domestic and foreign filmmakers to receive a refund of 25 percent of qualified costs, an increase from an earlier 20 percent incentive. The budget for film incentives in 2019 amounts to USD 8.6 million.

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

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

The Serbian Innovation Fund provides various granting opportunities for young entrepreneurs and start-ups, including mini grants for development of technological innovation, matching grants for commercialization of research and development, and a collaborative grant scheme for joint R&D projects creating new products and services. These grants are mainly available for companies established in Serbia with majority private Serbian ownership. For more details visit:  

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

In 2017, there were a total of 221 companies operating in Serbia’s free economic zones, of which 166 were domestically-owned and 55 foreign-owned. The number of companies dropped by 16 percent compared to 2016. The companies employed a total of 28,366 workers, which represents an increase of 13 percent compared to 2016. Total exports from free zones exceeded USD 2.5 billion in 2017, which is approximately 15 percent of Serbia’s total exports. Total imports into the zones were approximately USD 2.4 billion, or 11 percent of total imports. Total annual turnover in the free zones stands at some USD 5.5 billion. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Tigar Tyres, Ametek, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic. Additional information about Serbia’s free zones is available at:  

Performance and Data Localization Requirements

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

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

With the Data Protection Law passed in November 2018, Serbia has implemented the requirements of the EU’s General Data Protection Regulation (GDPR). The law set a transition period of nine months, with full enforcement scheduled for August 2019. Some experts have criticized the law as unclear, citing provisions transcribed from EU law that included mechanisms that do not yet exist in Serbia’s domestic legal system. This may lead to questions regarding the law’s implementation in Serbia. Other experts have argued that with the law, Serbia has enacted a high personal data protection standard, and that defects will be resolved over time.

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

5. Protection of Property Rights

Real Property

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

During the country’s socialist years, owners of nationalized land became users of the land and acquired rights of use that, until 2003, could not be freely sold or transferred. In July 2015, the government adopted a law that allows for property usage rights to be converted into ownership rights with payment of a market-based fee.

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

Serbia’s real property registration system is based on a municipal cadaster and land books. Serbia has the basis for an organized real estate cadaster and property title system. However, legalizing tens of thousands of structures built over the past twenty years without proper licenses remains an enormous challenge, as two million buildings in Serbia are not registered in the cadaster, of which almost half are residential properties. According to some estimates, every third building in Serbia was not built in accordance with legal requirements. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 183,000 decisions on legalization have been issued. The deadline set by the law for legalization of all buildings constructed without proper permits is November 2023.

The World Bank’s 2019 Doing Business Report ranks Serbia 55 of 190 countries for time required to register real property (21 days).

Intellectual Property Rights

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

For the most part, Serbia’s IPR legislation is modern and compliant with both the EU acquis communautaire and international standards. According to the EU’s 2017 Progress Report, Serbia has done a good job aligning its IP legislation with the acquis. Further alignment with the acquis is needed for the Law on Copyright and Related Rights, the Law on Topographies of Semiconductor Products, and the Laws on Patents and Trademarks; strengthening enforcement capacity and coordination among stakeholders is also needed. Serbia opened Chapter 7 pertaining to Intellectual Property in June 2017. Serbian laws extend legal protections to all major forms of IPR (including patents, trademarks, copyrights, industrial designs, geographic indicators, and semiconductor products). Serbia aims to adopt amendments to the Law on Trademarks (particularly to introduce a procedure for third-party objection), the Law on Patents, the Law on Semiconductor Circuits, and the Law on Copyright and Related Rights. An initial deadline for aligning IP legislation with the acquis by September 2018 has now been extended into 2019 due to changes in the relevant EU legislation, thus allowing Serbian legislators to incorporate new requirements. Amendments to the Law on Patents were adopted in 2018, which introduced changes to provisions on the protection of plant varieties and to the general patent prosecution proceedings before the IP Office and courts. In the first quarter of 2019, the Government adopted proposed amendments to the Law on Copyright and Related Rights and sent it to Parliament for adoption. Amendments to the Law on Special Competence for Efficient Protection of Intellectual Property Rights are also expected, with the goal of restructuring enforcement responsibilities among inspectorates.

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

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

Procedures for registration of industrial property rights and deposit of works of authorship with the Serbian Intellectual Property Office are straightforward and similar to procedures in most European countries. Relevant information is available at  .

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

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

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

Serbia is not listed in the Office of the United States Trade Representative (USTR) Special 301 Report or the USTR Out-of-Cycle Review of Notorious Markets. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at  

6. Financial Sector

Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed restrictions on short-term portfolio investments April 2018. Residents of Serbia are now allowed to purchase foreign short-term securities, and foreigners are allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2018, Serbia recorded net outflows of USD one billion in portfolio investment, according to the National Bank of Serbia (NBS). The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached USD 9.9 billion in January 2019, with 67.3 percent in Serbian dinars, 32.1 percent in euros, and 0.6 percent in U.S. dollars.

Total Serbian government-issued debt instruments on the domestic and international markets stood at USD 13.3 billion in January 2019 (see percent20Mesecni/Mesecni percent20izvestaj percent20Uprave percent20za percent20javni percent20dug percent20- percent20CIR percent20Januar percent202019.pdf ).

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

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE). Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2018 was USD 584 million, which is almost unchanged compared to the volume of 2017. However, trading volumes have declined since 2007, when the total turnover reached USD 2.7 billion.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of March 2019, 21 registered investment funds operate in Serbia (see  ).

Market terms determine credit allocation. In September 2018, the total volume of issued loans in the financial sector stood at USD 21 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 65 percent of all lending is denominated in euros, an additional 3 percent in Swiss francs, and 0.7 percent in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers. Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

Money and Banking System

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

The NBS regulates the banking sector. Foreign banks are allowed to establish operations in Serbia, and foreigners can freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91 percent of the total assets of the financial sector. As of September 2018, consolidation had reduced the sector to 28 banks with total assets of USD 35 billion (about 80 percent of GDP), with 76 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets are Banca Intesa (Italy, USD 5.6 billion); UniCredit (Italy, USD 4.0 billion); Komercijalna Banka (Serbian government, USD 3.8 billion); Société Générale (France, USD 2.9 billion); Raiffeisen (Austria, USD 2.7 billion); AIK Banka Nis (Serbia, USD 1.9 billion); Erste Bank (Austria, USD 1.9 billion); Eurobank EFG (Greece, USD 1.6 billion); Postanska Stedionica (Serbian government, USD 1.6 billion); and Vojvodjanska Banka (Hungary, USD 1.2 billion). See .

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly USD 1 billion. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2018, savings deposits in the banking sector reached USD 11.6 billion, exceeding pre-crisis levels.

In December 2017, the IMF assessed that Serbia’s banking sector remains robust, with large liquidity and capital buffers. Profitability of the sector is on the rise. Deposit growth has continued, and results of lending surveys point to more relaxed lending standards for SMEs amid greater competition, cheaper sources of funding, and higher risk tolerance. The IMF said it supports NBS efforts to enhance prudential policies in the context of implementing the Basel III framework on capital adequacy. In a recent review, the IMF pointed to the continued resilience of the banking sector, with an average capital adequacy ratio exceeding 22.8 percent in September 2018 and a gradual improvement in asset quality.

The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. NPLs have declined to 5.7 percent as of December 2018, their lowest level since January 2009. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 22.2 to 5.7 percent of the total loan portfolio. NPLs remain fully provisioned. In addition, there are significant foreign exchanges risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro). As of April 2019, the government was considering action to protect consumers who had taken mortgage loans denominated in Swiss francs. These measures would reportedly include mandatory conversion to euros, with banks and the state sharing losses from a reduction of outstanding principal and interest balances. However, no measures had yet been finalized.

The NBS, as chief regulator of the financial system, has announced that cryptocurrencies are not regulated by law in Serbia. NBS is not currently preparing such regulations, as the volume of cryptocurrency use is still very low. NBS said it therefore does not have the authority to issue licenses for trading in cryptocurrencies or for setting up cryptocurrency ATMs. Nor are cryptocurrency traders or internet platforms subject to NBS oversight. NBS stressed that those engaging in cryptocurrency transactions or activities are the sole carriers of risk.

Despite the lack of regulation, trading in cryptocurrencies in Serbia does occur. The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, and Ethereum ETH) at  . The company claims to have over 1,000 registered users of the platform. ECD Group has also installed three ATMs for cryptocurrencies in Serbia, two of which are only for buying bitcoins and litecoins, while one supports two-way transactions – i.e. both buying and selling. Trading in crypto-currencies dropped by 90 percent in 2018 in Serbia compared to 2017, EDC Serbia said. Previously, some users would buy up to four to five bitcoins per day, but in 2018 Serbians were mostly selling bitcoin. Bitcoin “mining” also dropped in Serbia, and many are selling their equipment used for this purpose, according to EDC’s CEO, who is also the founder of the BitCoin Association of Serbia. (  )

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

Foreign Exchange and Remittances

Foreign Exchange

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

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign exchange market to that end. In 2018, the NBS sold the equivalent of USD 280 million on the interbank currency market, and bought USD two billion, to prevent sharp fluctuations of the dinar. In the one-year period ending March 2019, the dinar appreciated 3.2 percent against the euro and depreciated 8.6 percent against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2018, total remittances from abroad reached USD 3.1 billion, or approximately 7.2 percent of GDP.

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

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.

7. State-Owned Enterprises

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

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

State-owned enterprises (SOEs) dominate many sectors of the economy, including energy, transportation, utilities, telecommunications, infrastructure, mining, and natural resource extraction. According to the Ministry of Economy, Serbia has 727 SOEs, which employ more than 250,000 people, or approximately 15 percent of the formal workforce. A list of all public enterprises is available at the Ministry of Economy’s website (  ). In addition to these companies, at the end of 2018 some 90 companies with nearly 30,000 employees had not been resolved through privatization or bankruptcy, down from 150 companies with 52,000 employees at the end of 2017. The Ministry of Economy is preparing these companies for divestiture (see Privatization Program, below).

A quasi-governmental watchdog agency, the Fiscal Council, assessed in September 2017 that unreformed and un-privatized state-owned companies represent the most significant threat to Serbia’s state budget. In December 2016, the Serbian government committed to the IMF to significantly reduce the fiscal cost of SOEs by curtailing direct and indirect subsidies, strictly limiting the issuance of new guarantees, and enhancing the accountability, transparency, and monitoring of SOEs. According to the World Bank, the Serbian government currently spends approximately EUR 300 million (USD 340 million), or nearly one percent of GDP, on direct support for SOEs. The Fiscal Council said in January 2019 that even when they do not require immediate budget support, as a rule, SOEs operate inefficiently and do not invest enough to keep their businesses healthy. For example, by far the largest SOE in Serbia, the power company EPS, has invested less per year than the value of the depreciation of its assets, the Fiscal Council warned.

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

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

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

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

Privatization Program

In 2001-2015, the Serbian government privatized 3,047 SOEs. The government cancelled 646 of these privatizations, alleging that investors did not meet contractual obligations related to employment and investment. According to the Privatization Law, the deadline for the privatization of the 646 companies in the Privatization Agency’s portfolio was December 31, 2015. However, 90 companies were still unresolved at the end as of December 2018. Among others, these companies include 11 spas, which all have unresolved property issues; 19 companies in Kosovo; 15 veterinary stations which were transferred to local municipalities; and 19 companies that employ disabled persons.

Most significantly, the Ministry of Economy must still resolve several large, strategically important SOEs. These include the Resavica coal mine, MSK Kikinda, Petrohemija, and others; however, there was progress in privatization in 2018. Copper mining complex RTB Bor was sold to China’s Zijin Mining, and agricultural corporation PKB to Al Dahra of the United Arab Emirates. In addition, fertilizer producer Azotara was sent to bankruptcy. In many cases, closing these companies would mean leaving whole regions of Serbia destitute, since these companies are drivers of local economies. The Serbian government continues to engage foreign investors in the privatization process, inviting them to submit bids, participate in auctions, and purchase company shares. Invitations for privatization and bidding are published on the Ministry of Economy website at  .

In December 2018, the French Vinci Airports took over operations of Belgrade’s Nikola Tesla Airport under a 25-year concession agreement. According to official statements, Vinci had offered EUR 501 million to manage the airport and EUR 732 million in investment, as well as an annual fee of up to EUR 16 million. The state telecommunications company Telekom Srbija has garnered investor interest, but the Serbian government has twice canceled its privatization, most recently in December 2015. The government has also committed to privatizing the second largest bank in the country, Komercijalna Banka, although this process has moved slowly.

8. Responsible Business Conduct

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

The Serbian government has no formal mechanism in place to encourage companies to follow RBC principles; however, a new Council for Philanthropy held its first session in September 2018. Founded with grant support from USAID, the Council aims to use public policy to create a more encouraging environment for giving in Serbia. Chaired by the Prime Minister, other members of the Council include ten government ministers, the Belgrade Mayor, the Director of the Tax Administration, and several NGOs. Donors have pointed to issues that have a negative impact on philanthropy, including a lack of tax incentives for donors, no available exemptions from value-added tax for donations in kind, the lack of a system for monitoring donations from companies, and the absence of official data on charities. According to the 2018 World Giving Index, published by the Charities Aid Foundation, Serbia was ranked 129 out of a total of 144 countries listed. 

The Law on Public Procurement allows the government to ask bidders to fulfill additional conditions, especially those related to social and environmental issues, and allows the government to consider criteria such as environmental protection and social impact when evaluating bids.

The United Nations Development Program’s Global Compact initiative has 50 participants in Serbia, and has organized a number of educational events intended to strengthen RBC capacity in Serbia.

Several local organizations, such as the American Chamber of Commerce, Foreign Investors’ Council, and the Serbian Chamber of Commerce (PKS) promote the concept of RBC among the Serbian business community and the public. PKS presents a national award to Socially Responsible Businesses. The Trag Foundation supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia. The NGO Smart Kolektiv is providing consulting services in RBC and establishing an RBC Index, which is the first national platform for assessing responsible business conduct in Serbia. Responsible Business Conduct Forum and Smart Kolektiv launched the index with USAID support in 2016. The Responsible Business Forum Serbia is a network of socially responsible companies that contribute to the development of the community, stimulating the development of corporate social responsibility and the establishment of firm and lasting socially responsible practices in the business sector. It was established in 2008 at the initiative of 14 leading companies in Serbia. More info available at:  .

According to a 2016 OECD study on small and medium enterprises, Serbia has no national strategy that targets environmental policy toward SMEs (see  ). The study found no evidence of any financial or regulatory incentives to promote the greening of SMEs. Serbia’s 2011 Corporate Law introduced contemporary corporate standards, but business associations indicate that implementation is inconsistent.

The government does not maintain a national contact point for OECD guidelines, including OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.

9. Corruption

Resources to Report Corruption

Surveys show that corruption in Serbia is believed to be pervasive, but is difficult to quantify. In Transparency International’s 2018 Corruption Perception Index (CPI), Serbia ranked 87 of 180 compared countries, worse than its ranking of 77 in 2017. In its 2018 progress report on Serbia, the EU said corruption remained a serious problem, and anti-corruption efforts had yet to yield meaningful results.

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

Serbia is a signatory to the Council of Europe’s Civil Law Convention on Corruption and has ratified the Council’s Criminal Law Convention on Corruption, the United Nations Convention against Transnational Organized Crime, and the United Nations Convention against Corruption. Serbia also is a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members’ anti-corruption efforts on a continuing basis.

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

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

During the first 10 months of implementation of the new Law on Organization of State Bodies in Combating Organized Crime, Terrorism and Corruption (March 1 through Dec 31, 2018), three out of four of Serbia’s new specialized Anti-Corruption Prosecutorial Departments reported filing 444 indictments and obtaining 315 final criminal convictions for corruption and economic offenses, resulting in prison sentences for more than 60 individuals (the specialized anti-corruption department in Belgrade was unable to update statistics as of the date of this report). While Serbia has begun to establish a track record in low-level corruption convictions, the EU noted in its 2018 progress report that there are still very few convictions for high-level corruption, and those that exist are mostly against former Government officials. There have also been allegations that, in some cases, criminal law was being applied in a discriminatory manner. In one prominent example, a report by Serbia’s Administration for the Prevention of Money Laundering indicated a large number of bank accounts and a number of potentially suspicious transactions by a high-level official, but the Higher Prosecutor’s Office decided not to launch an investigation. In another, the ACA filed a criminal report with OPCO regarding an earlier purchase of real estate with unexplained funds by Serbia’s current Minister of Defense; OCPO dismissed the case, saying no evidence of a crime had been found.

In 2015-2018, there were a series of large-scale arrests of former and current officials on allegations of corruption and abuse of position. In total, these actions resulted in the arrest of over 200 people. To date the arrests have resulted in a number of criminal cases, but none has concluded in either a conviction or an acquittal.

The law requires income and asset disclosure by appointed or elected officials, and regulates conflict of interest for all public officials. The disclosures cover assets of the officials, spouses, and dependent children. Declarations are publicly available on the ACA website and failures to file or to fully disclose income and assets are subject to administrative and/or criminal sanctions. Significant changes to assets or income must be reported annually, upon departure from office, and for a period of two years after separation. In a report covering 2018, the ACA said that 10 criminal charges were dismissed against public office holders in the period. The report noted that there were three first-instance convictions in a basic court, all resulting in six-month terms of imprisonment. Of these, two were with suspended sentences of six months imprisonment plus two years of supervision.

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

Serbian law does not provide protection for non-governmental organizations involved in investigating corruption. However, the criminal procedure code provides witness protection measures, and Serbia enacted a Whistleblower Protection Law in June 2015, under which individuals can report corruption in companies and government agencies and receive court protection from retaliation by their employers. In 2017, the Higher Court in Novi Sad ruled in favor of a whistleblower who reported malfeasance in the local government. The court ruled that the whistleblower should be compensated financially for damages, and that defendant (city government) had to enable the whistleblower to perform her work duties. In addition, the defendant was obliged to publish the court judgment in daily newspapers. In 2018, 122 cases were filed under the Law.

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

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

Resources to Report Corruption

Serbian Anti-Corruption Agency

  • Carice Milice 1, 11000 Belgrade, Serbia
  • +381 (0) 11 4149 100

Transparency International Serbia

10. Political and Security Environment

Since October 2000, Serbia has had democratically-elected governments that have committed publicly to supporting regional stability and security. Governments, however, frequently call early elections on the local and national level, which often leave politicians and elected officials focused on the next campaign. Elections in Serbia are generally free, without incidents of violence. The government has made EU membership a primary goal, but progress toward that goal is slow, with only 16 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn-out and subject to a lengthy appeal process.

Protests are not uncommon, particularly in urban areas. Beginning in December 2018, weekly anti-government demonstrations have been held across the country, attracting large crowds in major cities. The protests have been broadly peaceful. There were large protests following the presidential election in April 2017, and in 2016 after the illegal demolition of residential buildings in Belgrade. Immediately following Kosovo’s February 2008 declaration of independence from Serbia, groups attacked embassies of countries that recognized Kosovo, including the torching of the U.S. Embassy in Belgrade.

Organized groups of counter protesters assaulted participants at the 2010 LGBTI Pride Parade in Belgrade. The Serbian government cancelled the three subsequent Pride Parades at the last minute, ostensibly because of threats of violence by the same nationalist and extremist groups that attempted to disrupt the 2010 parade. Since 2014, the government has allowed Pride Parades to take place in central Belgrade, under heavy police protection, but without incident. The 2018 Pride Parade was believed to be the first time participants outnumbered security forces since 2010. Nevertheless, Serbia is not permissive to LGBTI persons, most of whom experience low personal security and are not comfortable disclosing their sexual orientation, according to polling conducted by independent organizations.

Since 2017, there has been an increase in criminal activity linked to organized crime groups. Sports hooliganism in Serbia is often associated to organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia.

A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, and media outlets considered to be pro-Western, but these incidents are infrequent. Additionally, their calls for action against selected targets have not resulted in any violent incidents thus far. In the 2016 parliamentary elections, three far-right political parties were elected to the National Assembly: the Serbian Radical Party, the Democratic Party of Serbia, and Dveri.

11. Labor Policies and Practices

According to the Statistical Office, Serbia has a total active labor force of approximately 3.2 million people, of which 2.8 million are employed (55.6 percent men and 44.4 percent women) and some 412,000 are unemployed. In 2018, the formal employment rate was 47.3 percent and the informal employment rate was 19.5 percent, with two-thirds of the total informally employed in the agriculture sector. Unemployment in 2018 was 12.7 percent, compared to 13.5 percent a year earlier. Youth unemployment remains relatively high at 29.7 percent, and the share of youth in the total population drops from year to year. The leading sector for employment is the government and public administration, followed by trade, services, transport, agriculture, forestry and fishery, manufacturing, and construction.

Demand for IT experts (web developers, programmers, designers) is significantly higher than supply. The National Employment Service (NES) administers various employment support schemes, including new employment, apprenticeship, and re-training programs. For more details see   and  .

Labor costs are relatively low in Serbia, especially compared to European averages. In January 2019, the average net take-home salary was approximately USD 528 per month. The minimum wage is approximately USD 262 per month. Investors routinely cite favorable labor costs, as well as a highly-educated, multi-lingual workforce, as advantages to doing business in Serbia. Almost 58 percent of the workforce has completed secondary education, while 25 percent have completed higher education.

Amendments to the Labor Law in 2014 simplified procedures for hiring and dismissing workers, and changed rules for collective bargaining and the extension of collective agreements to non-negotiating parties. The law also changed severance payment requirements, so that the employer pays severance based on the years of service with that specific employer, rather than on the employee’s total years of employment, as was the case previously. Employees may be hired for up to 24 months on a provisional basis before it is required to engage them on an indefinite basis.

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

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

The Department of Labor’s report on the World Forms of Child Labor in Serbia can be found online at  . The Human Rights Report on Serbia is available at 

12. OPIC and Other Investment Insurance Programs

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2018 $47,100 2017 $41,500  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD , stock positions) 2018 $79.4 2017 $164 BEA data available at  
Host country’s FDI in the United States (M USD , stock positions) 2018 $2.6 2017 $4 BEA data available at  
Total inbound stock of FDI as % host GDP 2018 0.2% 2017 0.4% N/A

*Source of GDP data: Ministry of Finance of the Republic of Serbia at   

*Source of FDI data: National Bank of Serbia (NBS) at   

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

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions) 2017
Inward Direct Investment Outward Direct Investment
Total Inward $37,605 100% Total Outward $3,615 100%
Netherlands $7,346 20% Bosnia and Herzegovina $995 27%
Austria $4,356 12% Montenegro $793 22%
Cyprus $2,890 8% Slovenia $453 13%
Germany $2,366 6% Russian Federation $187 5%
Slovenia $2,019 5% Bulgaria $110 3%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Sarah Gjorgjievski
Economic Section
Bulevar kneza Aleksandra Karadjordjevica 92
11040 Belgrade, Serbia


Executive Summary

Several factors make Slovenia an attractive location for foreign direct investment (FDI): modern infrastructure with access to important EU transportation corridors, a major port on the Adriatic Sea with access to the Mediterranean, a highly-educated and professional workforce, proximity to Central European and Balkan markets, and membership in the Schengen Area, EU, and Eurozone.

Although GDP growth has slowed from its 2017 peak, Slovenia remains one of the fastest growing economies in the EU.  Growth was 4.5 percent in 2018, and the government’s Institute of Macroeconomic Analysis and Development (IMAD) projects 3.4 percent growth in 2019, slowing to 3.1 percent in 2020 and 2.8 percent in 2021.  At least 50 percent of Slovenia’s economy remains state-owned or state-controlled, however, and there is continued resistance to privatization and foreign direct investment (FDI), despite general awareness of FDI’s importance to economic growth, job creation, and developing new technologies.  Potential investors in Slovenia still face significant challenges, including a lack of transparency in economic and commercial decision-making, time-consuming bureaucratic procedures, opaque public tender processes, regulatory red tape, and a heavy tax burden for high earners.

According to Bank of Slovenia statistics, inward FDI in Slovenia totaled EUR 13.7 billion (31.6 percent of GDP) in 2017, an increase of 5.4 percent over the previous year, with EU member states accounting for 84.3 percent of all inward FDI.  FDI was concentrated primarily in manufacturing (32.9 percent), financial and insurance activities (22.3 percent), wholesale and retail trade, and repair of motor vehicles and motorcycles (17.6 percent). Slovenia’s most important sources for direct foreign investment were Austria (25.6 percent of all inward FDI), Luxembourg (11.4 percent), Switzerland (10.4 percent), Germany (8.4 percent), and Italy (8.3 percent).

Taking into account both direct and indirect investment, however, Bank of Slovenia data indicated U.S. companies accounted for 13.9 percent of foreign investment in 2017, with EUR 19.3 million invested directly and an additional EUR 1.793 billion invested indirectly through subsidiaries in Luxembourg, Sweden, Germany, and Switzerland.  This investment totaled EUR 1.812 billion and was Slovenia’s third largest source of foreign investment, behind Austria (2.036 billion) and Germany (EUR 1.989 billion) in direct and indirect investment.

According to the Bank of Slovenia, although foreign companies in Slovenia represented only 1.5 percent of all companies in Slovenia in 2017, they accounted for nearly 23.9 percent of capital, more than 24 percent of assets, and 23.6 percent of corporate sector employees.  Their capital and workforce generated more than 30 percent of total net sales revenue and 26.8 percent of total operating profit. Foreign companies accounted for 40.3 percent of corporate sector exports and 44.2 percent of corporate sector imports. Wages in foreign firms were 10.1 percent higher than the average Slovenian salary, and net profit per employee was 13.1 percent higher, while value-added was 11.1 percent higher on average than for domestically-owned companies.  Returns on equity (ROE) for foreign companies in Slovenia were 8.1 percent in 2017, compared to eight percent for all firms.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 36 of 180 
World Bank’s Doing Business Report 2019 40 of 190
Global Innovation Index 2018 30 of 126 
U.S. FDI in partner country ($M USD, stock positions) 2017 USD 369 
World Bank GNI per capita 2018 USD 22,000 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Although Slovenia has no formal business roundtable or foreign investment ombudsman, the Slovenian Public Agency for the Promotion of Entrepreneurship, Innovation, Development, Investment and Tourism (SPIRIT) promotes FDI and advocates for foreign investors in Slovenia.  Its mission is to enhance Slovenia’s economic competitiveness through technical and financial assistance to entrepreneurs, businesses, and investors.

Foreign companies conducting business in Slovenia have the same rights, obligations, and responsibilities as domestic companies.  The principles of commercial enterprise, which include free operation and national treatment, apply to the operations of foreign companies as well.  The Law on Commercial Companies and the Law on Foreign Transactions guarantee their basic rights.

According to SPIRIT’s annual survey on foreign investors’ perceptions of Slovenia’s business environment, investors cite the high quality of Slovenia’s labor force as the deciding factor in choosing the country as an investment destination, followed by widespread knowledge of foreign languages, employees’ technical expertise, innovation potential, and strategic geographic position offering easy access to EU and Balkan markets.

While generally welcoming greenfield investments, Slovenia presents a number of informal barriers that challenge foreign investors.  According to SPIRIT’s survey, the most significant disincentives to FDI are high taxes, high labor costs, lack of payment discipline, an inefficient judicial system, difficulties in firing employees, and excessive bureaucracy.

Foreign companies doing business in Slovenia and the local American Chamber of Commerce have also cited additional factors that adversely affect the local investment climate, including the lack of a high-level FDI promotion strategy, a sizable judicial backlog, difficulties in obtaining building permits, labor market rigidity, and disproportionately high social contributions and personal income taxes coupled with excessive administrative tax burdens.  Businesses have also reported a lack of transparency in public procurement, unnecessarily complex and time-consuming bureaucracy, frequent changes in regulation, relatively high real estate prices, and confusion over lead responsibility or jurisdiction regarding foreign investment among government agencies.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have the right to establish and own business enterprises and engage in different forms of remunerative activity.  Slovenia has relatively few formal limits on foreign ownership or control.

Sector-specific restrictions:

  • Professional services:  There are limits on banking and investment services, private pensions, insurance services, asset management services, and settlement, clearing, custodial, and depository services provided in Slovenia by companies headquartered in non-EU countries.  Companies from non-EU countries can operate freely only through an affiliate with a license granted by an appropriate Slovenian or EU institution.
  • Gaming:  There is a 20 percent cap on private ownership of individual companies.
  • Air transport:  Aircraft registration is only possible for aircraft owned by Slovenian or EU nationals or companies controlled by such entities.  Companies controlled by Slovenian nationals or carriers complying with EU regulations on ownership and control are the only entities eligible for Air Operator’s Certificates (AOC) for performing airline services.
  • Maritime transport:  The law forbids majority ownership by non-EU residents of a Slovenian-flagged maritime vessel unless the operator is a Slovenian or other EU national.

Slovenia has an open economy, and no screening or review process is necessary for FDI.

Other Investment Policy Reviews

Slovenia underwent an OECD Investment Policy Review   and a WTO Trade Policy Review   in 2002.  The Economist Intelligence Unit and World Bank’s “Doing Business 2019” provide current economic profiles of Slovenia.

Business Facilitation

Individuals or businesses may adopt a variety of different legal and organizational forms to conduct economic activities.  Businesses most commonly incorporate legally as limited liability companies (LLC or d.o.o.) and public limited companies (PLC or d.d.).

Non-residents of the Republic of Slovenia must obtain a Slovenian tax number   before beginning the process of establishing a business.  Slovenia’s Companies Act, which is fully harmonized with EU legislation, regulates the establishment, management, and organization of companies.

Generally, bureaucratic procedures and practices for foreign investors wishing to start a business in Slovenia are sufficiently streamlined and transparent.  Start-up costs for businesses are among the lowest in the EU. In order to establish a business in Slovenia, a foreign investor must produce capital of at least EUR 7,500 (USD 8,444) for a limited liability company and EUR 25,000 (USD 28,147) for a stock company.  The investor must also establish a business address and file appropriate documentation with the courts. The entire process usually takes three weeks to one month, but may take longer in Ljubljana due to court backlogs.

Individuals or legal entities may establish businesses through a notary, one of several VEM (Vse na Enem Mestu or “all in one place”) point offices designated by the Slovenian government, or online.  A list of VEM points is available at  .

More information on how to invest and register a business in Slovenia is available at   and  .

Outward Investment

Slovenia does not restrict domestic investors from investing abroad, nor are there any incentives for outward investments.  The majority of Slovenia’s outward investments are in the Western Balkans. Croatia is the most popular destination for Slovenian outward investment, constituting 30.7 percent of Slovenia’s investments abroad, followed by Serbia (16 percent), Bosnia and Herzegovina (eight percent), and North Macedonia (6.1 percent).

2. Bilateral Investment Agreements and Taxation Treaties

Slovenia does not have a Bilateral Investment Treaty (BIT) with the United States.

Slovenia has signed BITs with Albania, Austria, the Belgium – Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, China, Croatia, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Israel, Kuwait, Lithuania, North Macedonia, Malta, Moldova, Montenegro, the Netherlands, Poland, Portugal, Romania, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, the United Kingdom, Uzbekistan, and Serbia.

Slovenia has a bilateral taxation treaty and Social Security Totalization Agreement with the United States.

Slovenia has signed bilateral taxation treaties with Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Iran, Ireland, the Isle of Man, Israel, Italy, Japan, Kazakhstan, Kosovo, Kuwait, Latvia, Lithuania, Luxembourg, North Macedonia, Malta, Moldova, Montenegro, the Netherlands, Norway, Poland, Portugal, Qatar, the Republic of Korea, Romania, the Russian Federation, Serbia, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, the United States, and Uzbekistan.

3. Legal Regime

Transparency of the Regulatory System

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.

Financial statements should be prepared by the Slovenian Institute of Auditors in accordance with the Slovenian Accounting Standards and International Financial Reporting Standards (IFRS), as adopted by the EU.  Annual reports of for-profit business entities are publicly available on the website of AJPES (  ), the Slovenian Business Database.

There are three levels of regulatory authority: supra-national (Slovenia is a member of the EU), national, and sub-national (municipalities have limited regulatory power over local affairs, and regulations must comply with state regulations).  Laws may be proposed by the government, member(s) of parliament, or through signatures of at least 5,000 voters.

Slovenia adopted a comprehensive regulatory policy in 2013, focusing on measures aimed at raising the quality of the regulatory environment to improve the business environment and increase competitiveness.

Slovenia’s Ministry of Public Administration is required by several legal and policy documents to solicit and include public stakeholder engagement in decision-making processes.  Public authorities must solicit stakeholder engagement and inform the public about their work to the greatest extent possible.

Government entities that propose regulations must invite experts and the general public to participate by publishing a general invitation, together with a draft regulation, on their websites.  The experts and general public must respond by the deadline, ranging from 30 to 60 days from the day of its publication. In addition to the relevant ministry, the proposals are also published on government websites and on the Ministry of Public Administration’s eDemocracy   portal.

Through the eDemocracy web portal, citizens may actively cooperate in the decision-making process by expressing opinions and submitting proposals and comments on draft regulations.  When possible, government entities take into consideration proposals and opinions on proposed regulations submitted by experts and the general public. If such opinions and proposals are not taken into consideration, those proposing the regulation must inform stakeholders in writing and explain the reasons.

The public, however, is not invited to comment on proposed regulations when the nature of the issue precludes such consideration, such as in emergency situations and in matters relating to the national budget, the annual financial statement, the rules of procedure of the government, ordinances, resolutions, development and planning documents, development policies, declarations, acts ratifying international treaties, and official decisions.

A regulatory impact assessment (RIA) is obligatory for all primary legislation; however, the quality of such assessments varies and analyses are often only qualitative or incomplete due to the lack of an external body to conduct quality control.  The quality of such assessments has improved, however, since the Ministry of Public Administration introduced its SME test in 2012 to measure regulatory impacts on small and medium-sized businesses.

The General Secretariat of the Republic of Slovenia is responsible for administrative oversight to ensure the government follows administrative procedures.  There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

Slovenia’s executive branch initiates approximately 92 percent of primary laws, with regulations often developed rapidly.  The government’s frequent use of urgent procedures (normally reserved for national emergencies) to pass legislation often limits the stakeholder engagement process.

After the adoption of new legislation, the text is published in the Official Gazette of the Republic of Slovenia and online at  .  Slovenia lacks a systematic process to evaluate regulations after their implementation.

To measure regulatory burdens on businesses, Slovenia adopted the Standard Cost Model, which has led to a significant reduction of such burdens.  The United Nations awarded its Public Service Award to Slovenia in 2009 for its system of one-stop shops (the so-called “VEM points”) to incorporate and establish businesses.  The introduction of e-government processes has simplified administrative procedures. The World Bank assigned Slovenia a score of 4.75 out of 5 on its Global Indicators of Regulatory Governance   measure, while the International Budget Partnership gave Slovenia 69 points out of 100 on its Open Budget Survey 2017  , assessing Slovenia’s budget transparency as sufficient with substantial information available.

Slovenia meets the Department of State’s minimum requirements for fiscal transparency.  In 2018, Slovenia’s budget and information on debt obligations were widely and easily accessible to the general public, including online.  The budget was substantially complete and considered generally reliable. Slovenia’s supreme audit institution reviewed the government’s accounts and made its reports publicly available.  The criteria and procedures by which the national government awards contracts or licenses for natural resource extraction were outlined in law and appeared to be followed in practice. Basic information on natural resource extraction awards was public.

International Regulatory Considerations

Slovenia joined the World Trade Organization (WTO) in 1995, and to date there have been no cases of Slovenia violating WTO rules.  The law treats domestic and foreign investors equally. The government does not impose performance requirements or any condition for establishing, maintaining, or expanding an investment.  As a WTO member country, Slovenia is required by the Agreement on Technical Barriers to Trade (TBT Agreement) to report to the WTO all proposed technical regulations that could affect trade with other member countriesSlovenia is a signatory to the Trade Facilitation Agreement (TFA) and has implemented all TFA requirements.

As an EU member state, Slovenia applies two principles in its regulatory system: the supremacy of EU laws and the principle of direct effect.  In areas subject to EU responsibility, EU laws override any conflicting member state laws. Direct effect enables Slovenians and other EU citizens to use EU laws in national courts against the government or private parties.

Legal System and Judicial Independence

Slovenia is a civil law jurisdiction with a codified system of law.  It has a well-developed, independent legal system based on a five-tier (district, regional, appeals, supreme, and administrative) court system.  These courts deal with a wide array of legal cases, including criminal, probate, domestic relations, land disputes, contracts, and other business-related issues.  A separate social and labor court system, comprised of regional, appeals, and supreme courts, deals strictly with labor disputes, pensions, and other social welfare claims.  As with most other European countries, Slovenia has a Constitutional Court which hears complaints alleging violations of human rights and personal freedoms. The Constitutional Court also issues opinions on the constitutionality of international agreements and state statutes and deals with other high-profile political issues.  In 1997, Slovenia’s National Assembly established an administrative court to handle legal disputes among local authorities, between state and local authorities, and between local authorities and executors of public authority.

In 1999, the National Assembly passed legislation to streamline legal proceedings and speed up administrative judicial processes.  The law established a stricter and more efficient procedure for serving court documents and providing evidence. In commercial cases, defendants are required to file their defense within 15 days of receiving a notice of a claim.

Laws and Regulations on Foreign Direct Investment

In 2018, the National Assembly passed Slovenia’s Investment Promotion Act, defining the types of incentives, criteria, and procedures to promote long-term investment in Slovenia.  The act establishes that domestic and foreign investors are equal and mandates priority treatment of strategic investments, defined as investments totaling EUR 40 million or more and creating 400 new jobs in manufacturing and services, while R&D strategic investments are defined as totaling at least EUR 200 million and creating 200 new jobs.  Under the law, a working group headed by the Ministry of Economic Development and Technology will assist strategic investors in obtaining necessary permits. The Invest Slovenia website (  ) serves as a resource for investors to obtain relevant information on investment regulations and incentives.

Competition and Anti-Trust Laws

Slovenia’s Prevention of Restriction of Competition Act regulates restrictive practices, concentrations, unfair competition, regulatory restrictions of competition, and measures to prevent restrictive practices and concentrations that significantly impede effective competition. The law applies to corporate bodies and natural persons engaged in economic activities regardless of their legal form, organization, or ownership.  The law also applies to the actions of public companies and complies with EU legislation.

Slovenia’s competition and anti-trust laws prohibit restrictive agreements; direct or indirect price fixing; sharing markets or supply sources; limiting or controlling production, sales, technical progress, or investment; applying dissimilar conditions to different trading parties; or subjecting the conclusion of contracts to acceptance of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of their contracts.

Companies and entities whose domestic market share exceeds 40 percent for a single undertaking and 60 percent for two or more undertakings (joint dominance) are prohibited from abusing dominant market positions.  Slovenian law defines a non-exhaustive list of dominant position abuses describing the most common practices.

The government may, however, prescribe market restrictions by means of regulatory instruments and actions in cases of natural disasters, epidemics or states of emergency; significant market disturbances due to a shortage of goods or disturbances in other fields that represent a risk to the safety and health of the population; or when necessary to satisfy product requirements, raw materials, and semi-finished goods of special or strategic importance to the defense of the nation.

The fines for restrictive agreements and abuses of dominant positions may total as much as 10 percent of an undertaking’s annual turnover in the preceding business year.  Those legally responsible for a legal entity or sole proprietorship may be subject to a fine of EUR 5,000-10,000, or EUR 15,000-30,000 for more serious violations.

Slovenia’s Competition Protection Agency (CPA) supervises the implementation of the Restriction of Competition Act.  The agency monitors market conditions to ensure effective competition, conducts procedures and issues decisions, and submits opinions to the National Assembly and the government.  The CPA is also responsible for the enforcement of Slovenia’s antitrust and merger control rules. An independent administrative authority, the CPA was established in 2013 through a reorganization of the former Slovenian Competition Protection Office, which was part of the Ministry of the Economy.  Some private sector representatives expressed concern about the CPA’s susceptibility to outside influence and ability to reach timely decisions on complex cases.

Expropriation and Compensation

According to Article 69 of Slovenia’s Constitution, the government may take real property or limit rights to possess real property for public purposes in the public interest, in exchange for in-kind compensation or financial compensation under conditions determined by law.  Article 7 of Slovenia’s Investment Promotion Act stipulates that, if the government deems an investment strategic, it may expropriate private property for construction in exchange for compensation, under conditions determined by law. In such cases, a special government task force monitors the investment and coordinates the acquisition of environmental and building permits.

The current government is not involved in any expropriation-related investment disputes.  National law offers adequate protection to all investments. However, legal disputes continue over private property expropriated by the former Yugoslav government for state purposes.  Following its secession from Yugoslavia, Slovenia’s 1991 Denationalization Act established a process to “denationalize” these properties, return them to their rightful owners or their heirs, or pay just compensation if returning the property was not feasible.  In some of these cases, the rightful owners and heirs are U.S. citizens.

Since the 1993 deadline for filing claims, over 99 percent of denationalization cases have been closed, although only 88 percent of cases involving American owners and heirs have been resolved.  Cases involving U.S. citizens have taken longer in part because the claimants generally do not live in Slovenia. In such cases, the Ministry of Justice must determine the nationality of the property’s former owners at the time the property was seized – a generally simple question for Slovenians who never acquired another citizenship, but more complicated in cases involving naturalized American citizens.  In addition, some claims may involve property currently controlled by prominent and influential Slovenians, thereby creating additional informal obstacles to restitution.

Dispute Settlement

ICSID Convention and New York Convention

Slovenia is a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and a signatory to the New York Convention on Recognition of Foreign Arbitral Awards, which requires local courts to enforce international arbitration awards that meet certain criteria.

Investor-State Dispute Settlement

The government accepts binding international arbitration of disputes between foreign investors and the state.  There have been no investment disputes involving a U.S. person within the past 10 years. Local courts are expected to enforce foreign arbitral awards issued against the government.  To date, there has been no evidence of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Slovenia is a signatory to the 1961 European Convention on International Commercial Arbitration.  The Slovenian Arbitration Act is modeled after the United Nations Commission on International Trade Law’s model law.

Slovenia’s regional court specializing in economic issues has jurisdiction over business disputes.  However, parties may agree in writing to settle disputes in another court or jurisdiction. Parties may also agree to court-annexed mediation.  Local courts recognize and enforce foreign arbitral awards and foreign court judgments.

Parties may also exclude the court as the adjudicator of a dispute if they agree in writing to arbitration, whether ad hoc or institutional.  In the former, applicable procedures and laws must be determined. In the case of institutional arbitration, Slovenian law requires a clear definition of the type of arbitration to be implemented.

The Slovenian Chamber of Commerce’s Ljubljana Arbitration Center is an independent institution that resolves domestic and international disputes arising out of business transactions among companies.  Arbitration rulings are final, and decisions are binding.

Bankruptcy Regulations

Competition is lively in Slovenia, and bankruptcies are an established and reliable means of working out firms’ financial difficulties.  By law, there are three procedural methods for dealing with bankrupt debtors. The first procedure, compulsory settlement, allows the insolvent debtor to submit a plan to the court for financial reorganization.  Creditors whose claims represent more than 60 percent of the total amount owed may vote on the proposed compulsory settlement plan. If the settlement is accepted, the debtor is not obligated to pay the creditor any amount exceeding the payment agreed to in the confirmed settlement.  The procedure calls for new terms, extended in accordance with the conditions of forced liquidation settlement (see below). Confirmed compulsory settlement agreements affect creditors who have voted against the compulsory settlement as well as creditors who have not reported their claims in the settlement procedure.

Creditors or debtors may also initiate bankruptcy proceedings.  In such instances, the court names a bankruptcy administrator who sells the debtor’s property according to a bankruptcy senate, the senate president’s instructions, and court-sponsored supervision.  Generally, the debtor’s property is sold at public auction. Otherwise, the creditors’ committee may prescribe a different mode of sale such as collecting offers or placing conditions on potential buyers.  The legal effect of the completed bankruptcy is the termination of the debtor’s legal status to conduct business, and distribution of funds from the sale of assets to creditors according to their share of total debt.

In accordance with the Law on Commercial Companies, the state can impose forced liquidation on a debtor subject to liquidation procedures and legal conditions for ending its existence as a business entity.  This would occur, for example, in cases in which an entity’s management has ceased operations for more than 12 months, if the court finds the registration void, or by court order.

In 2013, the National Assembly adopted an amendment to the Financial Operations, Insolvency Procedures, and Compulsory Dissolution Act to simplify and speed up bankruptcy procedures and deleveraging.

Slovenia ranks as 9th out of 190 economies for ease of “resolving insolvency” in the World’s Bank Doing Business Report.

4. Industrial Policies

Investment Incentives

Slovenia offers special tax incentives for high-tech sector investments that create jobs and are linked to research and development activities.  In some economically depressed and underdeveloped regions (such as the Prekmurje region near the Hungarian border), Slovenia offers special facilities, services, and financial incentives to foreign investors.

As defined in Slovenia’s Investment Promotion Act, the government offers the following investment incentives: subsidies, loans, guarantees, subsidized interest rates and purchase of land owned by municipalities at below-market prices.

All companies registered in Slovenia can participate in government-financed or subsidized research and development programs, regardless of the origin of capital.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Port of Koper is Slovenia’s only free trade zone (FTZ).  Under Slovenia’s Customs Act, subjects operating in FTZs are not liable for payment of customs duties, nor are they subject to other trade policy measures until goods are released into free circulation.

Duties and rights of users include the following:

  1. Separate books must be kept for activities undertaken in FTZs;
  2. Users may undertake business activities in a FCZ on the basis of contracts with the founders of FTZs;
  3. Users are free to import goods (customs goods, domestic goods for export) into FTZs;
  4. Goods imported into FTZs may remain for an indefinite period, except agricultural produce, for which the government sets a time limit;
  5. Entry to and exit from FTZs is to be controlled;
  6. Founders and users must allow customs or other responsible authorities, to execute customs or other supervision; and
  7. For the purposes of customs control, users must keep records of all goods imported into, exported from, consumed, or altered in FTZs.

The Customs Act also allows the establishment of open FTZs to allow for more flexible organization and supervision of customs authorities.

In such FTZs, users may undertake the following activities:

  1. Production and service activities, including handicrafts, defined in the founding act or contract, and banking and other financial business transactions, property and personal insurance and reinsurance connected with the activities undertaken;
  2. Wholesale transactions;
  3. Retail sales, but only for other users of the zone or for use within the FTZ.

Slovenia has set aside land for greenfield investments.  Most of the newly-developed industrial zones have direct access to well-developed infrastructure, including highways and rail service.  Land prices vary greatly. For example, in the eastern Slovenia community of Lendava, one square meter of land costs roughly five euros (USD 5.63), while prices in the vicinity of Ljubljana can run to 50 euros (USD 56.29) or more.  Municipalities and the state often subsidize infrastructure and land costs as incentives to increase employment opportunities, reducing prices for fully-equipped land in industrial zones.

Potential investors may access a full range of free services and concessions provided by local development agencies for start-ups.  Such assistance may also include assistance in completing all necessary paperwork, securing permits, and in some cases organizing and financing construction in line with investor requirements.  Interested investors may contact the U.S. Embassy in Ljubljana for further information.

Performance and Data Localization Requirements

Rigid procedures necessary to acquire work permits can be an impediment for foreign investors.  It may take as long as two to three months to obtain a single work and residence permit, which is required for local employment.  Applicants must submit their single permit application at an administrative unit or at the diplomatic or consular office in their home country.  The Ministry of Labor has established a fast-track procedure for foreigners registered as authorized persons or representatives of companies, managers of branch offices, and foreigners who are temporarily sent to work in organizational units for foreign legal persons (corporate entities) registered in Slovenia.  More information on single work and residence permits and employment services is available at  .

The government does not oblige foreign investors to use domestic content in goods and technology, or to use local data storage.

5. Protection of Property Rights

Real Property

According to the World Bank’s Doing Business 2019 index, registering property in Slovenia requires an average of seven procedures, takes 50.5 days, and costs 2.2 percent of the property’s value.  Globally, the World Bank ranks Slovenia 56th out of 190 economies on the ease of registering property.

Administrative reforms implemented in 2011 and 2012 simplified property registration, while increased automation in Slovenia’s land registry reduced property registration delays by 75 percent.  Slovenia has also made transferring property easier by introducing online procedures and reducing fees. Virtually all land has a clear title.

The land registry court (local court) initiates the registration process for the entry of a title in the land registry.  Amendments to the Land Registry Act adopted in 2009 and implemented in 2011 require submission to the court of proposals with appendices in electronic form.  Submissions are tendered via a notary public or attorneys and real estate agencies acting on the applicant’s behalf. In some cases, applicants may submit registrations directly.  Other amendments to the Land Registry Act have transferred responsibility from the courts to the notary for depositing original documents (e.g. contracts) attached to submissions, whereby the notary’s confirmation of authenticity renders the evidence value of the electronic version equal to that of the original.  The amendments also enable free access via a web portal to the land registry records, including pending notations and land register extracts, neither of which were free prior to the reform.

Land registry proposals are automatically assigned to the least-burdened local court.  Once the proposal is filed with the land registry court, the registration process is initiated ex officio and the priority of entry is ensured with a land registry seal.  The priority order takes effect the day the proposal has been filed. The buyer may theoretically dispose of the property as soon as the purchase agreement is signed and the buyer obtains (direct or indirect) possession of the property.  Buyers whose title is not yet entered into the land registry but who have already taken possession of the property are recognized as proprietary possessor in good faith – the presumed owner. The presumed owner has the right to claim the return of a property in the event of its dispossession from a proprietary possessor in good faith who has the property with a weaker legal title.  The buyer may claim the return of the purchase price, but has no claims under the law of property until the title is entered into the land registry. Since May 2011, the law requires submission of proposals in electronic format.

Intellectual Property Rights

Slovenia has enacted advanced and comprehensive legislation for the protection of intellectual property rights (IPR) that fully reflects the most recent developments in the TRIPS (Trade-Related Aspects of Intellectual Property) Agreement and various EU directives.  Slovenia negotiated its TRIPS commitments as a developing country and implemented the policy as of January 1, 1996. Slovenia is a full member of the TRIPS Council of the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO). Slovenia has ratified the WIPO Copyright Treaty and the Cyber Crime Convention.

Slovenia’s Intellectual Protection Office actively participates in the Council of Europe’s Intellectual Property Working Group, the Trademark Committee, and other EU bodies engaged in the formulation of new EU intellectual property legislation.  The Copyright and Related Rights Act, as amended in 2015 and 2016, deals with all aspects of modern copyright and related laws, including traditional works and their authors, computer programs, audiovisual works, and rental and lending rights. The act also takes into account new technologies such as storage and electronic memory, original databases, satellite broadcasting, and cable re-transmission.  Slovenia’s 2004 harmonization with EU legislation introduced a new system of collective management of IPR that is compliant with the latest directives.

The 1994 Law on Courts gives the District Court of Ljubljana exclusive subject matter jurisdiction over IPR disputes.  The aim of the law is to ensure specialization of judges and efficiency of relevant proceedings. For enforcement of TRIPS provisions, the law provides a number of civil legal options, including injunctive relief and the removal of the infringement, seizure and destruction of illegal copies and devices, publication of the judgment in the media, compensatory and punitive damages, border and customs measures, and the securing of evidence and other provisional measures without the prior notification and hearing of the other party.  These infringements also constitute a misdemeanor charge, with fines ranging from EUR 400 (USD 450) to EUR 45,000 (USD 50,664) for legal persons and from EUR 40 (USD 45) to EUR 2,000 (USD 2,252) for supervisors of individual offenders, provided that the reported offenses are not criminal in nature. In criminal cases, Slovenia’s Criminal Code applies, which may result in fines or imprisonment. While laws regarding IPR are clearly defined, foreign investors have complained that the court system is too slow.

Since the enactment of the Law on Copyright and Related Rights Act, there have been relatively few reported prosecutions for copyright infringements and violations.  The most notable cases usually involve computer software piracy. In 2004, a long-running software piracy court case ended with a prison sentence and monetary fine. Slovenia has dedicated resources to training prosecutors and public authorities.  Slovenia also continues to address the preservation of evidence in infringement procedures and border measures through amendments to existing legislation. The Ministry of Culture has established the Intellectual Property Fund, the Slovenian Copyright Agency, and the Anti-Piracy Association of Software Dealers to combat the problem of piracy in a collective manner.  Slovenia is not listed in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.

The Law on Industrial Property grants and protects patents, model and design rights, trademark and service marks, and appellations of origin.  The holder of a patent, model, or design right is entitled to exclusively profit from the protected invention, shape, picture, or drawing; exclusively market any products manufactured in accordance with the protected invention, shape, picture, or drawing; dispose of the patent, model, or design right; and prohibit the use of a protected invention, model, or design by any person without consent.

The holder of a trademark has the exclusive right to use the trademark to designate products or services in the course of trade. The authorized user of a protected appellation of origin has the right to use the appellation in the course of trade for labeling products to which the appellation refers.

The patent and trademark rights granted by the Law on Industrial Property take effect from the date of filing the appropriate applications.  Patents are granted for 20 years from the date of filing, and model and design rights are granted for 10 years. Trademarks are granted for 10 years but may be renewed an unlimited number of times.  The term of an appellation of origin is unlimited. All patents and trademarks are registered through the Intellectual Property Office, and all registers are open to the public. Patent and trademark applications filed in member countries of the International Union for the Protection of Industrial Property are afforded priority rights in Slovenia.  The priority period is 12 months for patents and six months for model and design rights.

Any person who infringes upon a patent or trademark right may be held liable for damages and prohibited from carrying on the infringing acts.

The Ministry of Finance, through the Customs Authority, tracks and reports on seizures of counterfeit goods in accordance with the European Parliament decree 608/2013.  All data on seized goods are stored on a central database at the European Commission. The Commission publishes an annual report on seized goods from all countries, available at  .

The Law on Industrial Property also provides for the contractual licensing of patents, model and design rights, and marks.  All license agreements must be in writing and specify the duration of the license, the scope of the license, whether the license is exclusive or non-exclusive, and the amount of remuneration for use of the patent, model and design rights, and marks.

Compulsory licenses may be granted to another person when the invention is in the public interest or the patentee misuses rights granted under the patent.  A misuse of a patent occurs when the patentee does not use or insufficiently uses a patented invention and refuses to license other persons to develop or make use of the protected invention, or imposes unjustified conditions on the licensee.  If a compulsory license is granted, the patentee is entitled to compensation. Slovenian industrial property legislation fully complies with EU standards.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at   .

6. Financial Sector

Capital Markets and Portfolio Investment

Capital markets remain relatively underdeveloped given Slovenia’s level of prosperity.  Enterprises rarely raise capital through the stock market and tend to rely on the traditional banking system and private lenders to meet their capital needs.

Established in 1990, the Ljubljana Stock Exchange (LSE) is a member of the International Association of Stock Exchanges (FIBV).  In 2015, the Zagreb Stock Exchange acquired the LSE. However, the number of companies listed on the exchange is limited and trading volume is very light, with annual turnover similar to a single day’s trading on the NYSE.  Low liquidity remains an issue when entering or exiting sizable positions.

In 1995, the Central Securities Clearing Corporation (KDD) was established to provide central securities custody services, clear and settle securities transactions, and maintain the central securities registry on the LSE electronic trading system.  Slovenia’s Securities Market Agency (SMA), established in 1994, has powers similar to those of the U.S. Securities and Exchange Commission. The SMA supervises investment firms, the LSE, the KDD, investment funds, and management companies. It also shares responsibility with the Bank of Slovenia for supervision of banking and investment services.

Slovenia adheres to Article VIII of the International Monetary Fund’s Article of Agreement and is committed to full current account convertibility and full repatriation of dividends.

The LSE uses different dissemination systems, including real-time online trading information via Reuters and the Business Data Solutions System.  The LSE also publishes information on the Internet at  .

Foreign investors in Slovenia have the same rights as domestic investors, including the ability to obtain credit on the local market.

Money and Banking System

There is a relatively high degree of concentration in Slovenia’s banking sector, with 12 commercial banks, three savings banks, and three foreign bank branches in Slovenia serving two million people.  In 2008, the combined effects of the global financial crisis, the collapse of the construction sector, and diminished demand for exports led to significant capital shortfalls. Bank assets declined steadily after 2009 but rebounded in 2016 and have remained steady since then.  Since the crisis, most banks have refocused their business activities towards SMEs and individuals/households, prompting larger companies to search for alternative financing sources. According to European Banking Federation data, Slovenia’s banking sector assets totaled EUR 37.9 billion (USD 42.6 billion) at the end of 2017, equaling approximately 88 percent of GDP.

Slovenia’s banking sector was devastated by the 2009 economic crisis.  Nova Ljubljanska Banka (NLB) and Nova Kreditna Banka Maribor (NKBM) faced successive downgrades by credit rating agencies due to the large numbers of nonperforming loans in their portfolios.  In 2013, the government established a Bank Asset Management Company (BAMC) with a management board comprised of financial experts to promote stability and restore trust in the financial system.  In exchange for bonds, BAMC agreed to manage the nonperforming assets of three major state banks, conducting three such operations from December 2013 through March 2014. The government also injected EUR 3.5 billion (USD 3.94 billion) into Slovenia’s three largest banks, NLB, NKBM, and Abanka.  These measures helped recapitalize and revitalize the country’s largest commercial banks.

According to World Bank data, just 12 percent of NLB’s total assets and an estimated 3.2 percent of all Slovenian banking assets were still nonperforming as of the end of 2017.  According to European Bank Authority statistics, just 2.7 percent of all loans in Slovenia were past due in August 2018, a marked turnaround from the post-crisis period.

NLB, the country’s largest bank, finally saw partial privatization in November 2018, although the government remains a major shareholder with a 35 percent stake. Of the remaining shares, 56 percent are spread among several international investors on fiduciary account at Bank of New York, while a number of Slovenian institutional and private investors purchased the remaining eight percent. The government has committed to the European Commission that it will sell an additional 10 percent of its NLB shares by 2020.  The country’s second largest bank, Nova Kreditna Banka Maribor (NKBM), was sold to an American fund and the European Bank of Reconstruction and Development (EBRD) in 2016. NLB accounts for approximately 26 percent of the country’s market share, while NKBM and other foreign-owned banks account for more than 40 percent.

Several foreign banks announced takeovers or merged with Slovenian banks prior to the 2008 financial crisis.  In 2001, the French bank Société Générale acquired Slovenia’s largest private bank, SKB Banka. That same year, the Italian banking group San Paolo IMI purchased 82 percent of the Bank of Koper, Slovenia’s fifth largest bank.  In 2002, the government sold 34 percent of NLB to Belgium’s KBC Group and another five percent to the EBRD. In the aftermath of the 2008 financial crisis, the government purchased KBC’s NLB shares back in December 2012 and recapitalized the bank.

Banking legislation authorizes commercial banks, savings banks, and stock brokerage firms to purchase securities abroad.  Investment funds may also purchase securities abroad, provided they meet specified diversification requirements.

Despite Slovenia’s vibrant blockchain technology ecosystem and several global blockchain companies headquartered in the country, Slovenian banks have been slow to adopt blockchain technologies to process banking transactions.

The Bank of Slovenia, established on June 25, 1991, is the Republic of Slovenia’s central bank.  The Bank of Slovenia has been a member of the European System of Central Banks (ESCB) since Slovenia joined the European Union in 2004.  The Bank of Slovenia gave up responsibility for monetary policy to the Eurosystem when Slovenia adopted the euro as its currency in 2007.  As a member of the Eurosystem, the Bank of Slovenia coordinates with other EU central banks to implement the common monetary policy, manage foreign exchange reserves, ensure the smooth functioning of payment systems, and issue euro banknotes.

Slovenian law allows non-residents to open bank accounts in Slovenia on presentation of a passport, a Slovenian tax number, and a foreign tax number.  Company owners must be present to open a business bank account.

Slovenia’s takeover legislation is fully harmonized with EU regulations.  In 2006, Slovenia implemented EU Directive 2004/25/ES by adopting a new takeover law.  The law was amended in 2008 to reflect Slovenia’s adoption of the euro as its currency.  The law defines a takeover as a party’s acquisition of 25 percent of a company’s voting rights and requires the public announcement of a potential takeover offer for all current shareholders.  The acquiring party must publicly issue a takeover offer for each additional acquisition of 10 percent of voting rights until it has acquired 75 percent of voting rights. The law also stipulates that the acquiring party must inform the share issuer whenever its stake in the target company reaches, surpasses, or drops below five, 10, 20, 25, 33, 50, or 75 percent.  The law applies to all potential takeovers.

It is common for acquisitions to be blocked or delayed, and drawn out negotiations and stalled takeovers have hurt Slovenia’s reputation in global financial markets.  In 2015, the privatization of Slovenia’s state-owned telecommunications company, Telekom Slovenije, failed in large part due to political attempts to discourage the sale of a state-owned company.  Slovenia’s biggest retailer, Mercator, faced similar challenges in 2014 when a lengthy and arduous process and strong domestic opposition preceded its eventual sale to a Croatian buyer. The U.S.-owned Central European Media Enterprises dropped its politically controversial sale of Slovenian media house Pro Plus to then-U.S. owned United Group in January 2019 after the Competition Protection Agency failed to issue a ruling on the proposed acquisition despite reviewing the case for more than 18 months.  The government has also struggled to meet its commitment to open Slovenia’s economy to international capital markets.

Fourteen insurance companies, two re-insurance companies, three retirement companies, and seven branches of foreign firms operate in Slovenia.  The four largest insurance companies in Slovenia account for 84 percent of the market, with the largest, state-owned Triglav d.d., controlling 36 percent, while foreign insurance companies constitute less than 10 percent.  In 2016, two Slovenian and two Croatian insurance companies merged into a new company, SAVA. Insurance companies primarily invest their assets in non-financial companies, state bonds, and bank-issued bonds.

Since 2000, there have been significant changes in legislation regulating the insurance sector. The Ownership Transformation of Insurance Companies Act, which seeks to privatize insurance companies, has stalled on several occasions due to ambiguity over the estimated share of state-controlled capital.  Although plans for insurance sector privatization have been under discussion since 2005, there has been no implementation.

Slovenia currently has three registered health insurance companies and a variety of companies offering other kinds of insurance.  Under EU regulations, any insurance company registered in the EU can market its services in Slovenia, provided the insurance supervision agency of the country where the company is headquartered has notified the Slovenian Supervision Agency of the company’s intentions.

Foreign Exchange and Remittances

Foreign Exchange

Slovenia adheres to Article VIII of the IMF Article of Agreement and is committed to full current account convertibility and full repatriation of dividends.  To repatriate profits, joint stock companies must provide evidence of the settlement of tax liabilities, notarized evidence of distribution of profits to shareholders, and proof of joint stock company membership (Article of Association).  All other companies must provide evidence of the settlement of tax liabilities and the company’s act of establishment.

For the repatriation of shares in a domestic company, the party must submit its act of establishment, a contract on share withdrawal, and evidence of the settlement of tax liabilities to the authorized bank.

Slovenia replaced its previous currency, the Slovenian tolar, with the euro in January 2007.  The Eurozone has a freely floating exchange rate.

Remittance Policies

Not applicable/information not available.

Sovereign Wealth Funds

Slovenia does not have a sovereign wealth fund.

7. State-Owned Enterprises

Private enterprises compete on the same terms and conditions as public enterprises with respect to access to markets, credit, and other business operations.

State-owned and partially state-owned enterprises (SOE) are present across most industries in Slovenia.  The state has never undergone a wholesale privatization program and has retained significant ownership shares in many large companies since independence.  According to a 2013 European Commission report, the government owned stakes, directly or indirectly, in at least 80 companies in 2013, generating one-sixth of value added in Slovenia’s economy and employing eleven percent of the population.  The total book value of the government’s directly-owned portfolio was just over 24 percent of GDP in 2011. SOEs are particularly predominant in sectors of strategic national interest, such as energy, transport, public utilities, banking, telecommunications, and insurance.  Other economic sectors, including retail, entertainment, construction, tourism, and manufacturing, include important firms that are either wholly state-owned or in which the state maintains a controlling interest by virtue of holding the largest single block of shares.

In general, SOEs do not receive a greater share of contracts or business than private sector competitors in sectors that are open to private and foreign competition.  SOEs acquire goods and services from private and foreign firms. SOEs must follow strict government procurement agreements which require transparent procedures available to all firms.  Private firms compete under the same terms and conditions with respect to market share, products, and incentives. All firms have the same access to financing.

SOEs are subject to the same laws as private companies and must fully comply with all legal obligations.  They must submit to independent audits and publish annual reports if required (for example, if the SOE is listed on the stock exchange or the size of the company meets a certain threshold).  Reporting standards are comparable to international financial reporting standards.

Slovenia is an active participant in the Organization for Economic Cooperation and Development (OECD) Working Party on State Ownership and Privatization Practices and adheres to the OECD Guidelines on Corporate Governance for SOEs.

Following OECD recommendations, the government established the Capital Asset Management Agency (AUKN) in 2010 to increase transparency and promote more efficient management of SOEs.  In 2013, authorities transformed the AUKN into the Slovenian Sovereign Holding (SSH), which is charged with simplifying and shortening the administrative process of privatizing state assets.  SSH took over all AUKN portfolios as well as the portfolios of two other smaller state-owned funds. More than 95 percent of SSH funds are invested domestically. SSH is an independent state authority that reports to the National Assembly.  It provides the National Assembly with annual reports regarding the previous year’s implementation of the Annual Plan of the Corporate Governance of Capital Investments. The government then adopts the Annual Plan of the Corporate Governance of Capital Investments based on SSH’s proposal.

A list of SSH’s SOEs is available at  .

Privatization Program

In 2013, the National Assembly approved a list of 15 state-owned companies it planned to sell.  To date, the state has sold 11 of these companies, and one is in the final phase of privatization.  The government sold its majority stake in NLB in 2018 while retaining 35 percent of outstanding shares but pledged to sell an additional 10 percent of its NLB shares by 2020.  Foreign investors may participate in the public-bidding processes on an equal basis. However, interested parties often describe the bidding process as opaque, with unclear or unenforced deadlines.

In 2015, the government prepared an asset management strategy that classified state-owned assets as strategic, important, and portfolio assets.  In companies classified as strategic, the state will maintain or obtain at least a 50 percent plus one share.  In companies classified as important, the state will maintain a controlling share (25 percent plus one share).  In companies classified as portfolio, it is not mandatory for the state to maintain a controlling share.  The government reclassified the list of companies in 2017.

SSH publishes online the latest list of state stakes for sale.  It is available in Slovenian at  .

8. Responsible Business Conduct

The concept of Responsible Business Conduct (RBC) has become increasingly popular among Slovenia’s business community, but the due-diligence approach is not yet commonly recognized.  However, to raise their public profiles and improve their images among the public, larger international companies have increasingly undertaken activities such as sponsoring sports teams and community events in the name of corporate social responsibility.  Larger Slovenian companies have also focused on developing environmentally-friendly images by implementing green technologies and adhering to high environmental standards.

As an OECD member, Slovenia adheres to the OECD Guidelines for Multinational Enterprises and encourages foreign and local enterprises to follow generally accepted RBC principles, including the United Nations Guiding Principles on Business and Human Rights.  Slovenia’s National Contact Point for the OECD Guidelines is located in the Ministry of Economic Development and Technology:  .

Slovenia effectively and fairly enforces domestic laws pertaining to human rights, labor rights, consumer protection, environmental protections, and other laws and regulations to protect individuals from adverse business impacts.  Independent NGOs, labor unions, and business associations promote and monitor RBC and are able to conduct their work freely. The government adopted a National Action Plan on Business and Human Rights in November 2018 to strengthen activities to ensure that human rights are respected in business activities throughout the value chain and encourage cooperation between government, businesses, unions, NGOs, and other stakeholders.  Slovenia is not a signatory to the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights, but adheres to the OECD Due Diligence Guidance for Responsible Mineral Supply Chains.

9. Corruption

Slovenia has no bribery statute comparable to the U.S. Foreign Corrupt Practices Act.  However, Chapter 24 of the Slovenian Criminal Code (SCC) provides statutory provisions for criminal offenses in the economic sector.  Corruption in the economy may take many forms, including collusion among private firms or public officials using influence to appoint patrons to the boards of SOEs.

The SCC calls for criminal sanctions against officials of private firms for forgery or destruction of business documents, unauthorized use or disclosure of business secrets, insider trading, embezzlement, acceptance of gifts under certain circumstances, money laundering, and tax evasion.

Articles 241 and 242 of the SCC make it illegal for a person performing a commercial activity to demand or accept undue rewards, gifts, or other material benefits that will ultimately result in harm or neglect to a business organization.

Under Article 261 of the SCC, public officials cannot request or accept a gift to perform or omit an official act within the scope of their official duties.  The acceptance of a bribe by a public official may result in a fine or imprisonment of no less than one year, with a maximum sentence of five years. The law also stipulates the seizure of the accepted gift or bribe.

Article 262 holds the gift’s donor accountable, making it illegal for natural persons or legal entities to bribe public officials with gifts.  Violation of this article carries a sentence of up to three years. In cases in which the gift giver discloses the attempted bribery before it is detected or discovered, punishment may be reduced.

The State Prosecutor’s Office is responsible for the enforcement of anti-bribery laws.  The number of cases of actual bribery is small and generally limited to instances involving inspection and tax collection.  The Prosecutor’s Office has reported that obtaining evidence is difficult in bribery cases, making it equally difficult to prosecute.  In 2010, the government established the Commission for the Prevention of Corruption (CPC), an independent state body with a broad mandate to investigate corruption, prevent breaches of ethics, and ensure the integrity of public officials.  The CPC is not part of Slovenia’s law enforcement or prosecution system, and its employees do not have traditional police powers. However, the CPC has broad legal powers to access and subpoena financial and other documents, question public servants and officials, conduct administrative investigations, and direct law enforcement bodies to gather additional information and evidence within the limits of their authority.  The CPC may also issue fines for violations.

In 2011, to combat Slovenia’s ongoing problems with corruption and non-transparent procedures in public procurement, authorities established a new government-wide Public Procurement Agency under the Ministry of Justice to carry out all public procurements over established EU thresholds, including goods and services above EUR 40,000 (USD 45,272) and projects above EUR 80,000 (USD 90,544).  By law, the National Review Commission provides non-judicial review of all public procurements.

Corruption remains an ongoing problem, although its prevalence is relatively limited and there is no evidence that corruption has been an obstacle to FDI.  The small size of Slovenia’s political and economic elite contributes to a lack of transparency in government procurement and widespread cronyism in the business sector.  Several prominent national and local political figures have been charged or tried for corruption in public procurements. Slovenia convicted its first senior public official for accepting a bribe in 2001 and its first member of parliament in 2010.  In 2008, investigators accused several public officials, including the prime minister, of accepting bribes from the Finnish defense contractor Patria related to an armored personnel carrier procurement. Although three defendants, including the former prime minister, were convicted in 2013, the convictions were annulled on appeal.

The CPC has instituted a new system for tracking corruption in public procurement at the municipal level and has discovered numerous violations since implementation.  The CPC also operates with a broad mandate to prevent and investigate breaches of ethics and integrity involving holders of public office. The president of Slovenia appoints the leadership of CPC, which reports to the National Assembly.

Slovenia ratified the UN Anticorruption Convention in 2008.

Slovenia is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

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

Boris Stefanec
President, Commission for the Prevention of Corruption
56 Dunajska cesta
1000 Ljubljana, Slovenia
Telephone: +386 1 400 5710
Fax: +386 1 400 8472

Contact at “watchdog” organization:

Alma Sedlar, Ph.D.
Acting President
Transparency International Slovenia
Vožarski pot 12, 1000 Ljubljana
Telephone: +386 1 3207325

Assistance for U.S. Businesses:  The U.S. Department of Commerce offers several services to U.S. businesses seeking to address business-related corruption issues.  For example, it may assist U.S. companies in conducting due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas.  The U.S. Foreign Commercial Service may be reached through its offices in major U.S. and foreign cities, or through its website at  .

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs.  U.S. companies may report problems encountered in seeking such foreign business opportunities, including alleged corruption by foreign governments or competitors, to appropriate U.S. officials at the U.S. Embassy and the Department of Commerce Trade Compliance Center’s “Report a Trade Barrier” website at  .

Guidance on the U.S. FCPA:  The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement on the Justice Department’s present enforcement intentions under the FCPA’s anti-bribery provisions regarding any proposed business conduct.  The details of the opinion procedure are available on DOJ’s Fraud Section Website at  .  Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and international developments concerning the FCPA.  For further information, see the website of the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, at  .

Exporters and investors should be aware that virtually all countries prohibit the bribery of public officials and prohibit officials from soliciting bribes under domestic laws.  As party to various international conventions, most countries are required to criminalize such bribery and other acts of corruption.

10. Political and Security Environment

Except for its brief, 10-day war of independence from Yugoslavia in 1991, there have been no significant incidents of political violence in Slovenia since independence.

11. Labor Policies and Practices

Slovenia’s unemployment rate has fallen steadily since 2014 and reached a ten-year low of 4.4 percent at the end of 2018.  Although inflation remains low at about two percent, private sector contacts report it is increasingly difficult to find qualified staff, which might be expected to put upward pressure on wages and salaries.

Although significantly lower than its 2013 high of 25 percent, Slovenia’s youth unemployment rate remains relatively high at 15 percent.  To address this problem, authorities implemented “Youth Guarantee 2014-2015,” whereby every young person aged 15 to 29 years is eligible for an employment offer (including apprenticeship), on-the-job training, formal education, or a short form of institutional or work-based training, within four months of registering with a government-sponsored employment service.  Based on its initial success, the government budgeted 300 million euros for the 2016-2020 Youth Guarantee program.

Slovenia fully harmonized its labor legislation with the EU in 2004.  In line with this legislation, Slovenia maintains strict rules on issuing work permits to non-EU applicants.  The 2001 Employment of Aliens Act introduced a quota system for work permits and simplified the procedure for obtaining such permits for foreigners who have worked and lived in Slovenia for an extended period.

Slovenia’s wage-setting practice follows the “social partners” model, designed to contain upward pressure by centralizing wage decisions.  In practice, however, high wage expectations have pushed Slovenia’s wage levels above those of its neighbors in the Western Balkans. Despite these pressures, Slovenia’s well-educated labor force and position as a productive transition economy allows it to remain competitive in niche markets.

In 2003, Slovenia adopted an Employment Relationship Act that defines a full-time workweek as 36 to 40 hours (made up of six to eight-hour days, including a 30-minute lunch break).  The act increases protections for critical working groups (including women and children) and eases the conditions under which an employer may terminate employees. Amendments to the act adopted in 2013 further ease the conditions for termination of employment.  Slovenia’s labor force performs well in higher value-added activities that utilize its skilled technicians and engineers at a competitive cost. Despite the introduction of policies offering greater labor market flexibility, however, labor market rules and regulations remain quite rigid, and investors find that laying off workers is more difficult than in the United States.

Low unemployment and demands from public sector unions have placed upward pressure on wages.  In November 2015, the National Assembly endorsed a motion sponsored by trade unions to exempt bonuses for night, weekend, and holiday work from the minimum wage and force employers to pay these wages separately.  The National Assembly approved legislation in December 2018 to phase in a ten percent minimum wage increase over two years, from its previous after-tax level of EUR 638 per month (USD 722) to EUR 667 (USD 755) in 2019 and EUR 700 (USD 792) in 2020.  In addition, the National Assembly agreed to exempt some salary bonuses from taxation. Given such rapid increases in the minimum wage, Slovenia has lost its cost competitiveness in many sectors.

In December 2018, the government initialed an agreement with public sector unions to increase salaries, pensions, and bonuses for most public employees, averting fears of public sector strikes while increasing public expenditures by EUR 308 million in 2019-20.  Several public sector unions rejected the agreement as insufficient however, including those representing judicial workers, accountants, municipal traffic wardens, soldiers, and some healthcare workers.

12. OPIC and Other Investment Insurance Programs

Slovenia signed a bilateral agreement with the U.S. Overseas Private Investment Corporation (OPIC) in 1994.  OPIC currently offers several investment finance and insurance programs in Slovenia, including loan guarantees, direct loans, and political violence and expropriation insurance.  However, American businesses trading or investing in the country typically do not turn to OPIC for political risk insurance or loans at competitive rates given that Slovenia is a politically stable EU member with a relatively high GDP.

The U.S. Export-Import Bank offers short-, medium-, and long-term private sector, as well as short-term public sector, programs in Slovenia.  In 1999, the Slovenian Export Corporation (SEC) and the U.S. Export-Import Bank signed a memorandum on cooperation in financing, insuring, and reinsuring exports to Southeast European countries.  In 2007, the SEC restructured to become the Slovenian Export and Development Bank. More information is available on its website  .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $48,547 2017 $48,769  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $22 2017 $369 BEA data available at  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $56 2017 $10 BEA data available at  
Total inbound stock of FDI as % host GDP 2017 32% 2017 37% UNCTAD data available at    

*Statistical Office of the Republic of Slovenia; published in October 2018

N.B.: The Bank of Slovenia (BoS), in its official data, lists U.S. FDI at approximately EUR 19.3 million in 2018, or 0.1 percent of total inward FDI. However, this amount does not reflect significant investments by U.S. firms not listed as U.S. in origin by the BoS, as U.S. funds are often routed through third-country subsidiaries. In 2017, the BoS began reporting FDI according to the ultimate investing country or originating country of capital. It estimated that USD 2.05 billion (EUR 1.812 billion euros) or 13.25 percent of Slovenia’s total FDI originated in the United States in 2017, putting the United States behind only Austria and Germany as a source of foreign investment in Slovenia.

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $16,383 100% Total Outward $7,087 100%
Austria $4,203 26% Croatia $2,176 31%
Luxembourg $1,870 11% Serbia $1,137 16%
Switzerland $1,709 10% Bosnia-Herzegovina $568 8%
Germany $1,381 8% Russian Federation $465 7%
Italy $1,355 8% North Macedonia $429 6%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF’s Coordinated Direct Investment Survey  

Comment: IMF data are consistent with Slovenia’s data.

Note: The Bank of Slovenia has made an additional breakdown of inward FDI according to the ultimate source of capital. It shows that Germany, the United States, Japan, the Russian Federation, and Mexico are all much more important investor countries in Slovenia than is suggested by the breakdown by the immediate partner country. The U.S. ranks third with 1.812 billion euros (USD 2.05 billion) in 2017.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $23,580 100% All Countries $4,901 100% All Countries $18,679 100%
United States $2,369 10% United States $1,294 26% France $1,888 10%
France $2,216 9% Ireland $599 12% Netherlands $1,548 8%
Germany $1,869 8% Luxembourg $576 12% Italy $1,543 8%
Netherlands $1,646 7% Germany $416 9% Germany $1,454 8%
Italy $1,576 7% Austria $405 8% Spain $1,288 7%

Source: IMF’s Coordinated Direct Investment Survey

14. Contact for More Information

William D. Baker
Economic & Commercial Officer
31 Presernova Street, Ljubljana, Slovenia
Telephone: +386 1 200 5668
Email: or


Executive Summary

Sweden is generally considered a highly-favorable investment destination.  Sweden offers an extremely competitive, open economy with access to new products, technologies, skills, and innovations.  Sweden also has a well-educated labor force, outstanding communication infrastructure, and a stable political environment, which makes it a choice destination for U.S. and foreign companies.  Low levels of corporate tax, the absence of withholding tax on dividends, and a favorable holding company regime are additional incentives for doing business in Sweden.

Sweden’s attractiveness as an investment destination is tempered by a few structural, business challenges.  These include high personal and VAT tax regimes. In addition, the high cost of labor, rigid labor laws and regulations, a persistent housing shortage, and the general high cost of living in Sweden can present challenges to attracting, hiring, and maintaining talent for new firms entering Sweden.  Historically, the telecommunications, information technology, healthcare, energy, and public transport sectors have attracted the most foreign investment. However, manufacturing, wholesale, and retail trade have also recently attracted increased foreign funds.

Overall, investment conditions remain largely favorable.  Forbes Magazine ranked Sweden second in “The Best Countries for Business for 2019,” a ranking that takes into account factors such as property rights, innovation, taxes, technology, corruption, freedom, red tape, and investor protection.  In the World Economic Forum’s 2017-2018 Competitiveness Report Sweden was ranked twelfth out of 138 countries in overall competiveness and productivity.  Also in 2018, Transparency International ranked Sweden as one of the most corruption-free countries in the world –third out of 180.

In addition, Sweden is well equipped to embrace the Fourth Industrial Revolution, with a superior IT infrastructure.  Bloomberg’s 2019 Innovation Index ranked Sweden in seventh place among the most innovative nations on earth. Sweden is a global leader in adopting new technologies and setting new consumer trends.  U.S. and other exporters can take advantage of a test market full of demanding, highly sophisticated customers.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 3 of 180
World Bank’s Doing Business Report 2019 12 of 190
Global Innovation Index 2018 3 of 126
U.S. FDI in partner country (Millions USD, stock positions) 2018 $54,150
World Bank GNI per capita 2018 $52,590

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

There are no laws or practices that discriminate or are alleged to discriminate against foreign investors, including and especially U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy [either at the pre-establishment (market access) or post-establishment phase of investment].  Until the mid-1980s, Sweden’s approach to direct investment from abroad was quite restrictive and governed by a complex system of laws and regulations. Sweden’s entry into the European Union (EU) in 1995 largely eliminated all restrictions. National security restrictions to investment remain in the defense and other sensitive sectors, as addressed in the next section “Limits on Foreign Control and Right to Private Ownership and Establishment.”

The Swedish Government recognizes the need to further improve the business climate for entrepreneurs, education, and the flow of research from lab to market.  Swedish authorities have implemented a number of reforms to improve the business regulatory environment and to attract more foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are very few restrictions on where and how foreign enterprises can invest, and there are no equity caps, mandatory joint-venture requirements, or other measures designed to limit foreign ownership or market access.  However, Sweden does maintain some limitations in a select number of situations:

  • Accountancy:  Investment in the accountancy sector by non-EU-residents cannot exceed 25 percent.
  • Legal services:  Investment in a corporation or partnership carrying out the activities of an “advokat,” or lawyer, cannot be done by non-EU residents.
  • Air transport:  Foreign enterprises may be restricted from access to international air routes unless bilateral intergovernmental agreements provide otherwise.
  • Air transport:  Cabotage is reserved to national airlines.
  • Maritime transport:  Cabotage is reserved to vessels flying the national flag.
  • Defense:  Restrictions apply to foreign ownership of companies involved in the defense industry and other sensitive areas.

Swedish company law provides various ways a business can be organized.  The main difference between these forms is whether the founder must own capital and to what extent the founder is personally liable for the company’s debt.  The Swedish Act (1992:160) on Foreign Branches applies to foreign companies operating through a branch and also to people residing abroad who run a business in Sweden.  A branch must have a president who resides within the European Economic Area (EEA). All business enterprises in Sweden (including branches) are required to register at the Swedish Companies Registration Office, Bolagsverket.  An invention or trademark must be registered in Sweden in order to obtain legal protection. A bank from a non-EEA country needs special permission from the Financial Supervision Authority (Finansinspektionen) to establish a branch in Sweden.

Sweden does not maintain a national security screening mechanism for inbound foreign investment.  However, the government is currently considering how to implement the EU Commission’s recently approved investment screening framework, as well as tightening national investment policies.  Suggested regulations would not likely be in place until 2021 at the earliest. U.S. investors are treated equally relative to other foreign investors in terms of ownership and scrutiny of investments.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) published an economic snapshot for Sweden in March 2019: 

Business Facilitation

Business Sweden’s Swedish Trade and Investment Council is the investment promotion agency tasked with facilitating business.  The services of the agency are available to all investors.

At , a collaboration of several Swedish government agencies have posted relevant guides and services pertaining to registering, starting, running, expanding and/or closing a business.  Sweden defines a micro enterprise as one with less than 10 employees, a small enterprise with less than 50 employees, and a medium enterprise with less than 250 employees.  All forms of business enterprise, except for sole traders, must register with the Swedish Companies Registration Office, Bolagsverket, before starting operations. Sole traders may apply for registration in order to be given exclusive rights to the name in the county where they will be operating. Online applications to register an enterprise can be made at .  The process of registering an enterprise can take a few days or up to a few weeks, depending on the complexity and form of the business enterprise.  All business enterprises, including sole traders, must also register with the Swedish Tax Agency, Skatteverket, before starting operations. Relevant information and guides can be found at .  Depending on the nature of business, companies may also need to register with the Environmental Protection Agency, Naturvårdsverket, or, if real estate is involved, the county authorities.  Non EU/EEA citizens need a residence permit, obtained from the Swedish Board of Migration, Migrationsverket, in order to start up and/or run a business.

Outward Investment

The Government of Sweden has commissioned the Swedish Exports Credit Guarantee Board (EKN) to promote Swedish exports and the internationalization of Swedish companies.  EKN insures exporting companies and banks against non-payment in export transactions, thereby reducing risk and encouraging expanding operations. As part of its export strategy presented in 2015, the Swedish Government has also launched Team Sweden to promote Swedish exports and investment.  Team Sweden is tasked with making export market entry clear and simple for Swedish companies and consists of a common network for all public initiatives to support exports and internationalization.

The Government does not generally restrict domestic investors from investing abroad.  The only exceptions are related to matters of national security and national defense; the Inspectorate of Strategic Products (ISP) is tasked with control and compliance regarding the sale and exports of defense equipment and dual-use products. ISP is also the National Authority for the Chemical Weapons Convention and handles cases concerning targeted sanctions.

2. Bilateral Investment Agreements and Taxation Treaties

Sweden has concluded bilateral investment treaties (BITs) with the following countries:

Albania, Algeria, Argentina, Armenia, Belarus, Bulgaria, Chile, China, Cote d’Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, India, Indonesia, Iran, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lithuania, Macedonia, Madagascar, Malaysia, Malta, Mauritius, Mexico, Mongolia, Morocco, Mozambique, Nicaragua (signed but not in force), Nigeria, Oman, Pakistan, Panama, Peru, Philippines, Poland, Republic of Korea, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia, Slovakia, South Africa, Sri Lanka, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe (signed but not in force). Sweden does not have a BIT with the United States.  Since the Lisbon Treaty took effect in December 2009, the EU has managed investment negotiations with third countries on behalf of its member states. The EU is conducting the following ongoing negotiations:

  • MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) – part of a new Association Agreement
  • Mexico – modernization of the existing Global Agreement
  • Chile – an update to the current Association Agreement
  • Australia and New Zealand – negotiations for Free Trade Agreements with both countries.

A full list of investment agreements for Sweden is available at the following link: 

Sweden and the United States signed a bilateral taxation treaty in 1994, which was amended in 2005.  More information is available at 

Sweden has concluded treaties of double taxation avoidance with the following countries:  Albania, Argentina, Australia, Austria, Bangladesh, Barbados, Belgium, Belarus, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Faeroe Islands, Finland, France, Gambia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Montenegro, Namibia, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Taiwan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, United States, Venezuela, Vietnam, Zambia, and Zimbabwe.   

3. Legal Regime

Transparency of the Regulatory System

As an EU member, Sweden has altered its legislation to comply with the EU’s competition rules.  The country has made extensive changes to its laws and regulations to harmonize with EU practices, all to avoid distortions in, or impediments to the efficient mobilization and allocation of investment.  EU institutions are publicly committed to transparent regulatory processes. The European Commission has the sole right of initiative for EU regulations and publishes extensive, descriptive information on many of its activities.  More information can be found at: ; .

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.  Nongovernmental organizations and private sector associations may submit comments to government draft bills. The submitted comments are made public in the public consultation process.

Rule-making and regulatory authority on a national level exists formally in the legislative branch, the Riksdag.  As a member of the EU, a growing proportion of legislation and regulation stem from the EU. These laws apply in some case directly as national law, or are put before the Riksdag to be enacted as national law.  The executive branch, the Government of Sweden, and its various agencies draft laws and regulations that are put before the Riksdag and are adopted on a national level when they enter into force. Municipalities may draft regulations that are within their spheres of competence.  These regulations apply at the respective municipality only and may vary between municipalities.

Draft bills and regulations, which include investment laws, are made available for public comment through a public consultation process, along the lines of U.S. federal notice and comment procedures.  Current and newly adopted legislation can be found at the Swedish Parliament’s homepage and in the various government agencies dealing with the relevant regulation: .  Key regulatory actions are published at Lagrummet: .  Lagrummet serves as the official site for information on Swedish legislation and provides information on legislation in the public domain, all statutes currently in force, and information on impending legislation.  “Post och Inrikes Tidningar” serves in certain aspects a similar role as the Federal Register in the U.S., through which public notifications are published. The proclamations of “Post och Inrikes Tidningar” can be found at the Swedish Companies Registration Office (Bolagsverket): .

The judicial branch and various agencies are tasked with regulation oversight and/or regulation enforcement.  The Swedish Parliamentary Ombudsmen, known as the Justitieombuds-männen (JO), are tasked to make sure that public authority complies with the law and follows administrative processes.  They also investigate complaints from the general public.

Regulations are reviewed on the basis of scientific and/or data-driven assessments.  The principle of public access to official documents, offentlighetsprincipen, governs the availability of the results of studies that are conducted by government entities and furthermore to comments made by government entities.  The principle provides the Swedish public with the right to study public documents as specified in the Freedom of the Press Act.

The status of Sweden’s public finances is available at Statistics Sweden, Sweden official statistics agency: .

The status of Sweden’s national debt is available at the Swedish National Debt Office: .

International Regulatory Considerations

As an EU-member, Sweden complies with EU legislation in shaping its national regulations.

If a national law, norm, or standard is found to be in conflict with EU-law, then the national law is altered to be in compliance with EU-law.  Sweden adheres to the practices of WTO and coordinates its actions in regards to WTO with other EU-member countries as the EU-countries have a common trade policy.

Legal System and Judicial Independence

Sweden’s legal system is based on the civil law tradition, common to Europe, and founded on classical Roman law, but has been further influenced by the German interpretation of this tradition.  Swedish legislation and Swedish agencies provide guidance on if regulations or enforcement actions are appealable and adjudicated in the national court system.  Swedish courts are independent and free of influence from other branches of government, including the executive. Sweden has a written commercial law and contractual law and there are specialized courts, such as commercial and civil courts.  The Swedish courts are divided into:

  • Courts of general jurisdiction (the District Courts, the Courts of Appeal, and the Supreme Court) which has jurisdiction with respect to civil and criminal cases;
  • Administrative courts (County Administrative Courts, Administrative Courts of Appeal, and the Supreme Administrative Court) with jurisdiction with respect to issues of public law, including taxation;
  • Specialist courts for disputes within certain legal areas such as labor law, environmental law and market regulation.

Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law; foreign awards may be enforced in Sweden regardless of which foreign country the arbitral proceedings took place.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations. Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU; Sweden is also bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts. However, arbitral awards may be challenged for reasons set out in the Arbitration Act. An award may, for example, be set aside after a challenge because of procedural errors, which are likely to have had an effect on the outcome.

Laws and Regulations on Foreign Direct Investment

During the 1990s, Sweden undertook significant deregulation of its markets.  In a number of areas, including the electricity and telecommunication markets, Sweden has been on the leading edge of reform, resulting in more efficient sectors and lower prices.  Nevertheless, a number of practical impediments to direct investments remain. These include a fairly extensive, though non-discriminatory, system of permits and authorizations needed to engage in many activities and the dominance of a few very large players in certain sectors, such as construction and food wholesaling.  Foreign banks, insurance companies, brokerage firms, and cooperative mortgage institutions are permitted to establish branches in Sweden on equal terms with domestic firms, although a permit is required. Swedes and foreigners alike may acquire shares in any company listed on NASDAQ OMX.

Sweden’s taxation structure is straightforward and corporate tax levels are low.  In 2013, Sweden lowered its corporate tax from 26.3 percent to 22 percent in nominal terms.  The effective rate can be even lower as companies have the option of making deductible annual appropriations to a tax allocation reserve of up to 25 percent of their pretax profit for the year.  Companies can make pre-tax allocations to untaxed reserves, which are subject to tax only when utilized. Certain amounts of untaxed reserves may be used to cover losses. Due to tax exemptions on capital gains and dividends, as well as other competitive tax rules such as low effective corporate tax rates, deductible interest costs for tax purposes, no withholding tax on interest, no stamp duty or capital duties on share capital, and an extensive double tax treaty network, Sweden is among Europe’s most favorable jurisdictions for holding companies.  Unlisted shares are always tax-exempt, meaning there is no qualification time or minimum holding of votes or capital. Listed shares are exempt if the holding represents at least 10 percent of the voting rights (or is contingent on the holder’s business) and the shares are held for at least one year.

Personal income taxes are among the highest in the world.  Since public finances have improved due to extensive consolidation packages to reduce deficits, the government has been able to reduce the tax pressure as a percentage of GDP: currently it is below 50 percent, for the first time in decades.  One particular focus has been tax reductions to encourage employers to hire the long-term unemployed.

Dividends paid by foreign subsidiaries in Sweden to their parent company are not subject to Swedish taxation.  Dividends distributed to other foreign shareholders are subject to a 30 percent withholding tax under domestic law, unless dividends are exempt or taxed at a lower rate under a tax treaty.  Tax liability may also be eliminated under the EU Parent Subsidiary Directive. Profits of a Swedish branch of a foreign company may be remitted abroad without being subject to any other tax than the regular corporate income tax.  There is no exit taxation and no specific rules regarding taxation of stock options received before a move to Sweden. Instead, cases of double taxation are solved by applying tax treaties and cover not only moves within the EU but all countries, including the United States.

For detailed tax guidance, see the Swedish Tax Administration’s website. 

Competition and Anti-Trust Laws

As an EU member, Sweden has altered its legislation to comply with the EU’s competition rules.  The competition rules are contained in the Swedish Competition Act (2008:579), which entered into force in November 2008.  The fundamental antitrust provisions have been the same since 1993. The Swedish Competition Authority (SCA) is the main enforcement authority of the Swedish Competition Act.

Expropriation and Compensation

Private property is only expropriated for public purposes, in a non-discriminatory manner, with fair compensation, and in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Sweden is a member of the World Bank-based International Center for the Settlement of Investment Disputes (ICSID) and includes ICSID arbitration of investment disputes in many of its bilateral investment treaties (BITs).  Sweden is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Law.

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) is one of the world’s leading centers for adjudicating investor-State dispute claims.   The SCC has administered arbitrations under the UNCITRAL Arbitration Rules for many years, usually acting as the Appointing Authority.  Parties to a dispute may adopt the Procedures by agreement before or after the dispute has arisen. The SCC maintains different versions of the Procedures depending on which version of the UNCITRAL Arbitration Rules applies to the arbitration agreement in question (1976 or 2010 versions).

Investor-State Dispute Settlement

There have been no publicly disclosed investment disputes in Sweden in recent memory.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Swedish arbitration law is advanced and in line with current best practice of international arbitration.  The main source of arbitration law in Sweden is the Swedish Arbitration Act, which contains both procedural and substantive regulations.

Sweden is a party to the Lugano and the Brussels Conventions and by its membership of the EU Sweden is bound by the Brussels Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.  An arbitral award is considered final and is not subject to substantive review by Swedish courts. However, arbitral awards may be challenged for reasons set out in the Arbitration Act. An award may, for example, be set aside after challenge because of procedural errors, which are likely to have had an effect on the outcome.

Bankruptcy Regulations

The Swedish legislation on bankruptcy is found in a number of laws that came into force in different periods of time and to serve different purposes.  The main laws on insolvency are the Bankruptcy Act (1987:672) and the Company Reorganization Act (1996:764), but the Preferential Rights of Creditors Act (1970:979), the Salary Guarantee Act (1992:497), and the Companies Act (1975:1385) are equally important.  In 2010, Sweden strengthened its secured transactions system through changes to the Rights of Priority Act that give secured creditors’ claims priority in cases of debtor default outside bankruptcy. According to data collected by the World Bank’s 2019 Doing Business Report, resolving insolvency takes two years on average and costs nine percent of the debtor’s estate, with the most likely outcome being that the company will be sold as a going concern.  The average recovery rate is 78 cents on the dollar. Globally, Sweden ranked 17 of 190 economies on the ease of resolving insolvency in the Doing Business 2019 report.

4. Industrial Policies

Investment Incentives

The Swedish government offers certain incentives to set up a business in targeted depressed areas.  Loans are available on favorable terms from the Swedish Agency for Economic and Regional Growth (Tillväxtverket) and from regional development funds.  A range of regional support programs, including location and employment grants, low rent industrial parks, and economic free zones are available. Regional development support is concentrated in the lightly populated northern two-thirds of the country.  In addition, EU grant and subsidy programs are generally available only for nationals and companies registered in the EU, usually on a national treatment basis. For more information, see Chapter 7 “Trade and Project Financing” in Country Commercial Guide for Sweden.  The Swedish government does not have a practice of issuing guarantees or jointly financing direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Sweden has foreign trade zones with bonded warehouses in the ports of Stockholm, Gothenburg, Malmö, and Jönköping.  Goods may be stored indefinitely in these zones without customs clearance, but they may not be consumed or sold on a retail basis.  Permission may be granted to use these goods as materials for industrial operations within a free trade zone. The same tax and labor laws apply to foreign trade zones as to other workplaces in Sweden.

Performance and Data Localization Requirements

As an EU Member State, Sweden adheres to the EU’s General Data Protection Directive (GDPR) (95/46/EC) which spells out strict rules concerning the processing of personal data.  Businesses must tell consumers that they are collecting data, what they intend to use it for, and to whom it will be disclosed. Data subjects must be given the opportunity to object to the processing of their personal details and to opt-out of having them used for direct marketing purposes.  This opt-out should be available at the time of collection and at any point thereafter. While the EU institutions are considering new legislation, the 1995 Directive remains in force.

The EU-U.S. Privacy Shield Frameworks were designed by the U.S. Department of Commerce and the European Commission to provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union to the United States in support of transatlantic commerce.  On July 12, 2016, the European Commission deemed the EU-U.S. Privacy Shield Framework adequate to enable data transfers under EU law. For further information and guidance on the Privacy Shield Framework, please see: .

The Swedish Data Protection Authority, Datainspektionen, works to prevent encroachment upon privacy through information and by issuing directives and codes of statutes.  Datainspektionen also handles complaints and carries out inspections. By examining government bills, the DPA ensures that new laws and ordinances protect personal data in an adequate manner.  Further guidance and information is available in English on their website at .

There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside Sweden’s territory.  Sweden imposes no performance requirements on presumptive foreign investors.

In general, there is no government policy that requires the hiring of nationals.  There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees.  Sweden does not follow “forced localization,” the policy in which foreign investors must use domestic content in goods or technology and there are no requirements for foreign IT providers to turn over source code and/or provide access to encryption.

5. Protection of Property Rights

Real Property

Swedish law generally provides for adequate protection of real property.  Mortgages and liens exist and the recording system is reliable. Almost all land has clear title and unoccupied property ownership cannot revert to other owners.  Financial mechanisms are available in Sweden for securitization of properties for lending purposes and have been in use since the early 1990s. Nordic banks account for the vast majority of secured lending transactions.  The Swedish Financial Supervisory Authority, Finansinpektionen, can provide further information regarding the regulations involved with securitization of properties at .

Intellectual Property Rights

Swedish law generally provides adequate protection of all property rights, including intellectual property and real property.  As an EU member, Sweden adheres to a series of multilateral conventions on industrial, intellectual, and commercial property.

Patents:  Protection in all areas of technology last for 20 years.  Sweden is a party to the Patent Cooperation Treaty and the European Patent Convention of 1973; both entered into force in 1978.

Copyrights:  Sweden is a signatory to various multilateral conventions on the protection of copyrights, including the Berne Convention of 1971, the Rome Convention of 1961, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Swedish copyright law protects computer programs and databases. More recently, Sweden gained notoriety as a safe haven for internet piracy, due to rapid internet connection speeds, a lag in implementing EU Directives, and weak enforcement efforts. In 2009, however, Sweden implemented the EU’s Intellectual Property Rights Enforcement Directive (IPRED) 2004/48/EC, and continued to step up its enforcement against internet piracy.  The last few years also saw the conviction of the operators behind the Pirate, a notorious BitTorrent tracker for illegal file sharing, and an increase in legal file sharing. Legislative measures, combined with added resources on the enforcement side and the emergence of successful legal alternatives all contributed to a substantial increase for music and film distribution using legal means since 2010. Sweden has a Specialist Court for IPR-related cases, which will further increase efficiency by pooling specialist competence.  The IP Court, the so-called Patent and Market Court, started operations on September 1, 2016. Stream-ripping, the unauthorized converting of a file from a licensed streaming site into an unauthorized copy, is now a dominant method of music piracy, and is reportedly popular in Sweden.

Trademarks:  Sweden protects trademarks under a specific trademark act (1960:644) and is a signatory to the 1989 Madrid Protocol.

Trade secrets:  Sweden’s patent and copyright laws protect proprietary information unless said information is acquired by a government ministry or authority, in which case it may be made available to the public on demand.

Designs:  Sweden is a party to the Paris Convention and the Locarno Agreement. Designs are also protected by the Swedish Design Protection Act and the Council Regulation on Registered and Unregistered Designs.  Protection under the act lasts for renewable terms of one- or five-year periods with a maximum protection of 25 years.

Sweden is not listed in the United States Trade Representative (USTR) Special 301 Report.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at 

6. Financial Sector

Capital Markets and Portfolio Investment

Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory fashion.  The private sector has access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.  NASDAQ-OMX is a modern, open, and active forum for domestic and foreign portfolio investment. It is Sweden’s official stock exchange and operates under specific legislation.  Furthermore, the Swedish government is neutral toward portfolio investment and Sweden has a fully capable regulatory system that encourages and facilitates portfolio investments.

Money and Banking System

Several foreign banks, including Citibank, have established branch offices in Sweden, and several niche banks have started to compete in the retail bank market.  The three largest Swedish banks are Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken, and Swedbank. Nordea is the largest foreign bank and largest bank in Sweden, while Danske Bank is the second largest foreign bank and the fifth largest bank in Sweden.  A deposit insurance system was introduced in 1996, whereby individuals received protection of up to SEK 250,000 (USD 38,285) of their deposits in case of bank insolvency. On December 31, 2010, the maximum compensation was raised to the SEK equivalent of 100,000 euro.

The banks’ activities are supervised by the Swedish Financial Supervisory Authority, Finansinspektionen,, to ensure that standards are met.  Swedish banks’ financial statements meet international standards and are audited by internationally-recognized auditors only.  The Swedish Bankers’ Association, , represents banks and financial institutions in Sweden.  The association works closely with regulators and policy makers in Sweden and Europe.  Sweden is not part of the Eurozone; however, Swedish commercial banks offer euro-denominated accounts and payment services.

In 2014 Sweden signed the Foreign Account Tax Compliance Act (FATCA) agreement with the United States to counter tax evasion and fraud.  Financial institutions in Sweden are now obligated to submit information on American citizen account holders to the Swedish Tax Agency, which relays this to the U.S. Internal Revenue Service (IRS).  In 2015 the Swedish Parliament passed new laws and regulations associated with FATCA implemention:

  • a new law on the identification of reportable accounts with respect to FATCA;
  • changes to tax procedure act;
  • new legislation on the exchange of information with respect to the agreement; and
  • consequential amendments to the Income Tax Act and other laws.

For full text of Bill 2014/15:41, please see> .

Foreign banks or branches offering financial services must have an authorization from the Swedish Financial Supervisory Authority, Finansinpektionen, to conduct operations.  As part of the authorization application process, FI reviews the firm’s capital situation, business plan, owners, and management.  Parts of the firm’s daily operations may also require authorization from FI. The applicable regulatory code can be found at .

There are no reported losses of correspondent banking relationships in the past three years and there are no current correspondent banking relationships that are in jeopardy. Foreigners have the right to open an account in a bank in Sweden provided he/she can identify him/herself and the bank conducts an identity check.  The bank cannot require the person to have a Swedish personal identity number or an address in Sweden.

Foreign Exchange and Remittances

Foreign Exchange

Sweden adheres to a floating exchange rate regime and the national currency (Swedish Krona) rate fluctuates.

Remittance Policies

Sweden does not impose any restrictions on remittances of profits, proceeds from the liquidation of an investment, or royalty and license fee payments.  A subsidiary or branch may transfer fees to a parent company outside of Sweden for management services, research expenditures, etc. Funds associated with any form of investment can be freely converted into any world currency.  In general, yields on invested funds, such as dividends and interest receipts, may be freely transferred. A foreign-owned firm may also raise foreign currency loans both from its parent corporation and credit institutions abroad.  There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances.

Sovereign Wealth Funds

There is no sovereign wealth fund in Sweden.

7. State-Owned Enterprises

The Swedish state is Sweden’s largest corporate owner and employer.  Forty-seven companies are entirely or partially state-owned and have government representatives on their boards.  Approximately 135,000 people are employed by these companies, including associated companies. Specific sectors which feature State-Owned Enterprises (SOEs), include energy/power generation, forestry, mining, finance, telecom, postal services, gambling, and retail liquor sales.  These companies operate under the same laws as private companies, although the government appoints board members, reflecting government ownership. Like private companies, SOEs have appointed boards of directors, and the government is constitutionally prevented from direct involvement in the company’s operations.  Like private companies, SOEs publish their annual reports, which are subject to independent audit. Private enterprises compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations. Moreover, Sweden is party to the General Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).  Swedish SOEs adhere to the OECD Guidelines on Corporate Governance for SOEs.

Further information regarding the Swedish SOEs can be found here: .

Privatization Program

The Swedish center-left Government, voted into office in September 2014, has the mandate to divest or liquidate its holdings in Bilprovningen (Swedish Motor-Vehicle Inspection Company), Bostadsgaranti, Lernia, Orio (formerly Saab Automobile Parts), SAS, and Svensk Exportkredit (SEK).  Although there are no indications that the current Government has immediate plans to execute this mandate, it nonetheless decided in 2016 to let Vattenfall divest its German lignite operations to the Czech energy group EPH and their funding partners PPF Investments. The sale was made to adapt Vattenfall’s portfolio and to complete the transition to a carbon neutral operation.  If the Government of Sweden decides to divest or liquidate holdings, it does so through a public bidding process.

8. Responsible Business Conduct

There is widespread awareness of responsible business conduct (RBC) among both producers and consumers in Sweden.  All businesses are expected to comply with local laws and regulations, and to observe the international norms and principles for human rights, labor protection, sustainable development, and anti-corruption.  Firms that pursue RBC are viewed favorably, often publicizing their adherence to generally accepted RBC principles such as those contained in OECD Guidelines for Multinational Enterprises. Volvo Trucks, for example, has collaborated with USAID in pursuing RBC efforts outside of Sweden.  The Swedish National Contact Point for the OECD Guidelines can be found at: .

Sweden effectively and fairly enforces domestic laws in relation to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts.  Sweden has put in place corporate governance, accounting, and executive compensation standards to protect shareholders. Sweden is a member of the Extractive Industries Transparency Initiative (EITI). The former prime minister of Sweden, Fredrik Reinfeldt, is the current Chair of EITI.

9. Corruption

Investors have an extremely low likelihood of encountering corruption in Sweden.  While there have been cases of domestic corruption at the municipal level, most companies have high anti-corruption standards and an investor would not typically be put in the position of having to pay a bribe to conduct business.

There are cases of Swedish companies operating overseas that have been charged with bribing foreign officials; however, these cases are relatively rare.  Although Sweden has comprehensive laws against corruption, and ratified the 1997 OECD Anti-bribery Convention, in 2012, the OECD Anti-Bribery Working Group has given an unfavorable review of Swedish compliance with that Convention.  The group faulted Sweden for not having a single conviction of a Swedish company for bribery in the last eight years, for having unreasonably low fines, and for not re-framing their legal system so that a corporation could be charged with a crime.  Swedish officials object to the review, claiming that lack of convictions is no proof of prosecutorial indifference, but rather indicative of high standards of ethics in Swedish companies. Over the last four years, a high-profile case involving telecom giant Telia Company’s operations in Uzbekistan has received considerable public attention and cost the CEO and other senior officials their jobs.  Telia Company was in the process of divesting its operations in Uzbekistan following a probe by the U.S. Department of Justice pertaining to illegal payments. In September 2017, Telia Company reached an agreement to pay USD 965.8 million to settle U.S. and European criminal and civil charges that the company had paid bribes to win business in Uzbekistan.

Sweden does not have a specific agency devoted exclusively to anti-corruption but a number of agencies cooperate together.  A list of Sweden’s Public and Private Anti-Corruption Initiatives can be found at .

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Sweden has signed and ratified the UN Anticorruption Convention (see list of signatories at ).

Sweden is party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see list of signatories and their implementation reports at ).

Resources to Report Corruption

The National Corruption Group at the Swedish Police, Nationella Korruptionsgruppen, handles the investigation of corruption offences and is engaged in preventive efforts.  Corruption claims can be reported to the Group by calling +46 114 14.

Watchdog organization:

Transparency International Sweden
Telephone: + 46 (0)8 791 40 40
E-mail address: 

10. Political and Security Environment

Sweden is politically stable and no changes are expected.

11. Labor Policies and Practices

Sweden’s labor force of 5.1 million is disciplined, well educated, and highly skilled.  Approximately 68 percent of the Swedish labor force is unionized, although membership is declining.  Swedish unions have helped to implement business restructuring to remain competitive, and strongly favor employee education and technical advancements.  Management labor cooperation is generally excellent and non-confrontational. The National Mediation Office, which mediates in labor disputes in Sweden, reported in its summary for 2018 that not a single working day was lost through strikes or lockouts in the course of central negotiations.

Foreign/migrant workers are covered by Swedish and EU labor laws.  Labor laws are not waived in order to attract or retain investment.  In general, there is no government policy that requires the hiring of nationals.

Sweden has a Co-determination at Work Act, which provides for labor representation on the boards of corporate directors once a company has reached more than 25 employees.  This law also requires management to negotiate with the appropriate union, or unions prior to implementing certain major changes in company activities. It calls for a company to furnish information on many aspects of its economic status to labor representatives.  Labor and management usually find this system works to their mutual benefit. The Co-determination at Work Act and Employment Protection Act sets the rules for the adjustment employment to respond to fluctuating market conditions. Severances and layoffs are based on seniority and are conducted in consultation with unions.  Unemployment insurance and other social safety net programs are available for workers laid off for economic reasons. Government-sponsored training programs to facilitate the transition for unemployed persons into areas reporting labor shortages are available, but their scope is targeted.

The cost of doing business in Sweden is generally comparable to most OECD countries, though some country-specific cost advantages are present.  Overall salary costs have become increasingly competitive due to relatively modest wage increases over the last decade and a favorable exchange rate.  This development is even more pronounced for highly qualified personnel and researchers.

There is no fixed minimum wage by legislation.  Instead, wages are set by collective bargaining by sector.  The traditionally low-wage differential has increased in recent years as a result of increased wage setting flexibility at the company level.  Still, Swedish unskilled employees are relatively well paid, while well-educated Swedish employees are low-paid compared to those in competitor countries.  The average increases in real wages in recent years have been high by historical standards, in large due to price stability. Even so, nominal wages in recent years have been slightly above those in competitor countries, about 3 percent annually.  Employers must pay social security fees of about 31.5 percent. The fee consists of statutory contributions for pensions, health insurance, and other social benefits.

Sweden has ratified most International Labor Organization (ILO) conventions dealing with worker’s rights, freedom of association, collective bargaining, and the major working conditions and occupational safety and health conventions.  More information on Sweden’s labor agreements and legislation in English can be found on the Swedish Trade Union Confederation’s website at .  There are no new labor related laws or regulations enacted during the last year, as well as any pending draft bills.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation, OPIC, does not operate in Sweden.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $538,000 2017 $538,040  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $24,183 2017 $34,622 BEA data available at  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $59,338 2017 $54,150 BEA data available at  
Total inbound stock of FDI as % host GDP 2017 9.9% 2017 10.3% UNCTAD data available at