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Albania

Executive Summary

Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,286 (2020 IMF estimate) and a population of approximately 2.9 million people. The IMF estimates that Albania’s economy contracted by 3.5% in 2020, due to the combined effect of the COVID-19 pandemic and the November 2019 earthquake. The contraction is smaller than initial forecasts due in large part to the positive net growth in construction, real estate, and agriculture sectors fueled by large government spending and private investments in real estate. Albania’s economy maintained its macroeconomic and fiscal stability during 2020, thanks to prudent macro and fiscal policies. Budgetary and COVID-19 related support provided by the international financial institutions and the EU helped the country meet urgent payment needs, and respond efficiently to two consecutive shocks, the earthquake and pandemic. During 2020, the IMF disbursed USD190 million under the Rapid Financing Instrument, the World Bank approved USD 80 million under its Fiscal Sustainability and Growth Development Policy Financing (DPF) program, and the EU approved around USD 205 million for Albania under its 3-Billion-Euro Macro-Financial Assistance (MFA) package for ten enlargement and neighborhood partners.

The IMF projects the economy will grow by 5 percent in 2021. The rebound is expected to be fueled mostly by increased consumption, better performance of tourism sector, and continued post-earthquake reconstruction program financed by the government and close to USD 330 million in grants raised from the post-earthquake International Donors Conference in February 2020.

However, uncertainties related to the pandemic, elevated fiscal deficits and public debt, and a relatively high level of non-performing loans (NPLs) present challenges for the projected recovery. In 2020, the fiscal deficit expanded from 1.9% to 6.7% year-on-year and public debt increased from 66.6% to almost 80% of GDP.

Albania received EU candidate status in June 2014, and in March 2020, the European Council endorsed the recommendation of the European Commission to open accession talks with Albania.  Albania awaits its first Intergovernmental Conference, which would mark the start of accession negotiations.

The Albanian legal system ostensibly does not discriminate against foreign investors.  The U.S.-Albanian Bilateral Investment Treaty, which entered into force in 1998, ensures that U.S. investors receive national treatment and most-favored-nation treatment.  The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. Albania has been able to attract increasing levels of foreign direct investment (FDI) in the last decade.

According to the UNCTAD data, during 2016-2019, the flow of FDI has averaged USD 1.2 billion and stock FDI reached USD 8.8 billion at the end of 2019. Despite the pandemic, according to preliminary data of the Bank of Albania the FDI flow in 2020 was relatively stable at USD 1 billion. Investments are concentrated in extractive industries, the energy sector, banking and insurance, information and communication technology, and real estate. Switzerland, The Netherlands, Canada, Italy, Turkey, Austria, Bulgaria, and Greece are the largest sources of FDI.

To attract FDI and promote domestic investment, Albania approved a Law on Strategic Investments in 2015.  The law outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors through December 31, 2021 depending on the size of the investment and number of jobs created. In 2015, to promote FDI, the government also passed legislation creating Technical Economic Development Areas (TEDAs) similar to free trade zones. The development of the first TEDA has yet to begin but the Government of Albania (GoA) announced a new tender on March 2021 for the development of the first TEDA after previous unsuccessful attempts.

As of March 2021, 95 percent of all public services to citizens and businesses were available online through the  E-Albania Portal . The platform offered more than 1,200 types of services to citizens and businesses. Increased digitalization of services is expected to curb corruption by limiting direct contacts with public administration officials.

Despite a sound legal framework and progress on e-reform, foreign investors perceive Albania as a difficult place to do business. They cite corruption, particularly in the judiciary, a lack of transparency in public procurement, unfair competition, informal economy, frequent changes of the fiscal legislation, and poor enforcement of contracts as continuing problems in Albania. Reports of corruption in government procurement are commonplace. The increasing use of public private partnership (PPP) contracts has reduced opportunities for competition, including by foreign investors, in infrastructure and other sectors.  Poor cost-benefit analyses and a lack of technical expertise in drafting and monitoring PPP contracts are ongoing concerns. U.S. investors are challenged by corruption and the perpetuation of informal business practices. Several U.S. investors have faced contentious commercial disputes with both public and private entities, including some that went to international arbitration. In 2019 and 2020, a U.S. company’s attempted investment was allegedly thwarted by several judicial decisions and questionable actions of stakeholders involved in a dispute over the investment. The case is now in international arbitration.

Property rights continue to be a challenge in Albania because clear title is difficult to obtain.  There have been instances of individuals allegedly manipulating the court system to obtain illegal land titles.  Overlapping property titles is a serious and common issue. The compensation process for land confiscated by the former communist regime continues to be cumbersome, inefficient, and inadequate. Nevertheless, parliament passed a law on registering property claims on April 16, 2020 which will provide some relief for title holders.

Transparency International’s 2020 Corruption Perceptions Index ranked Albania 104th out of 180 countries, an improvement by two places from 2019. Albania fell 19 spots in the World Bank’s 2020 Doing Business survey, ranking 82nd falling from 63rd in 2019. Although this change can be partially attributed to the implementation of a new methodology, the country continues to score poorly in the areas of granting construction permits, paying taxes, enforcing contracts, registering property, obtaining electricity, and protecting minority investors.

To address endemic corruption, the GoA passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law in 2016. The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth.  More than half the judges and prosecutors who have undergone vetting have been dismissed for unexplained wealth or ties to organized crime. The EU expects Albania to show progress on prosecuting judges and prosecutors whose vetting revealed possible criminal conduct. The implementation of judicial reform is ongoing, and its completion is expected to improve the investment climate in the country.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 104 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 82 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 83 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $35 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $5,200 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The GoA understands that private sector development and increased levels of foreign investment are critical to supporting sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.

The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2021.

The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors ( http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop-shop for foreign investors, from filing the application form to granting the status of strategic investment/investor. Despite supporting legislation, only a few foreign investors have benefited from the “Strategic Investor” status.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” There are only a few exemptions regarding ownership restrictions:

  • Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
  • Audio and audio-visual broadcasting: An entity, foreign or domestic, that has a national audio or audio-visual broadcasting license cannot hold more than 20 percent of shares in another audio or audio-visual broadcasting company. Additional restrictions apply to the regional or local audio and audio-visual licenses.
  • Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years.

Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 Law on Entrepreneurs and Commercial Companies and Law Establishing the National Registration Center (NRC) allow for the following legal types of business entities to be established through the NRC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a Trade Policy Review of Albania in May 2016 ( https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm  ). In November 2017, the United Nations Conference on Trade and Development (UNCTAD) completed the first Investment Policy Review of South-East European (SEE) countries, including Albania ( http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884  ).

Business Facilitation

The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online ( http://www.qkb.gov.al/information-on-procedure/business-registration/ ). Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.

Outward Investment

Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

The United States and Albania signed a bilateral investment treaty ( https://www.state.gov/investment-affairs/bilateral-investment-treaties-and-related-agreements/united-states-bilateral-investment-treaties/) in 1995, which entered into force in January 1998. The treaty ensures that U.S. investors receive national and most-favored-nation treatment and provides for dispute settlement. There is no free trade agreement or bilateral taxation treaty between the two countries.

Albania has concluded bilateral investment treaties with 44 countries. See a full list here:  https://investmentpolicy.unctad.org/international-investment-agreements/countries/2/albania .  Out of 45 agreements, six are not yet in force.

Albania has also signed free trade agreements with the EU, CEFTA countries (North Macedonia, Montenegro, Serbia, Bosnia and Herzegovina, Kosovo, and Moldova), EFTA countries (Switzerland, Liechtenstein, Norway, and Iceland), and Turkey.

In addition, in 1992, Albania ratified the Agreement on Promotion, Protection and Guarantee of Investments among member states of the Organization of the Islamic Conference.

Albania does not have a bilateral taxation treaty with United States. As of April 2020, Albania had signed treaties for the avoidance of double taxation with 41 countries. See a full list here:  https://www.tatime.gov.al/c/6/125/marreveshje-nderkombetare.  

In July 2020, Albania ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which amends all the double taxation treaties in compliance with the convention.

Albania and the United States signed a Memorandum of Economic Cooperation in October 2020 with an aim of increasing trade and investment between the countries. Since the signing two U.S. energy groups have signed agreements form major energy projects in the country.

3. Legal Regime

Transparency of the Regulatory System

Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, distortion of competition, and a lack of transparency all hinder the business community.

Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority ( http://caa.gov.al  ) is an independent agency tasked with ensuring fair and efficient competition in the market. However, business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.

The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.

The rulemaking process in Albania meets the minimum requirements of transparency.

In August 2020, Albania approved the law for the establishment of the register of the Ultimate Beneficiary Owners. The law aims to ensure transparency on the ultimate beneficiary owners, who directly and indirectly own more than 25% of shares, voting rights, or ownership interests in all entities registered to do business in Albania, and was adopted following the recommendations of MONEYVAL.

Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and sets clear timeframes for these processes. Such draft laws and regulations are published at the following page:  http://www.konsultimipublik.gov.al/  . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are frequently not respected.

All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site:  https://qbz.gov.al/.  

Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.

International Regulatory Considerations

Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.

Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006. The EU agreed to open accession talks on March 25, 2020 and the country is awaiting to hold the first Inter-Governmental Conference (IGC), which would mark the official opening of accession talks. Albania has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.

Legal System and Judicial Independence

The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court). The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.

The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, reviews cases related to the constitutionality of legislation and, in limited instances, protects and enforces the constitutional rights of citizens and legal entities.

Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.

Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, and Value-Added Law.

Laws and Regulations on Foreign Direct Investment

There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage ( www.aida.gov.al  ), which offers broad information for foreign investors.

Major laws pertaining to foreign investments include:

  • Law on Foreign Investments
  • Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania
  • Law on Foreigners
  • Law on Concessions and Public Private Partnerships: Establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects
  • Law on Entrepreneurs and Commercial Companies: Outlines general guidelines on the activities of companies and the legal structure under which they may operate
  • Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
  • Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
  • Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.

The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:

  • No prior government authorization is needed for an initial investment.
  • Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law.
  • Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments.
  • Foreign investors receive most favored nation treatment according to international agreements and Albanian law.

There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies have been designated as strategic investments, mostly in the tourism sector.

Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority (ACA:  http://www.caa.gov.al/laws/list/category/1/page/1  ), which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority (FSA:  http://www.amf.gov.al/ligje.asp  ), which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.

Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.

Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The government amended the Law on Foreigners in February 2020. The amendments remove restrictions on foreign employees and streamline the visa and work permit processes for foreigners and foreign workers by introducing online visa application process, simplifying and accelerating the working permit process, and providing the same access to the labor market for citizens of Western Balkan countries as the United States, EU, and Schengen-country citizens have.

The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.

The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.

Competition and Antitrust Laws

The Albanian Competition Authority ( http://www.caa.gov.al/?lng=en  ) is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance, banking and non-banking financial industries, the Financial Supervisory Authority ( http://amf.gov.al/  ) and the Bank of Albania ( https://www.bankofalbania.org/  ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market. Parties can appeal the decision of the CA to the Tirana First Instance Court within 30 days of receiving the notification. The appeal does not suspend the enforcement of the decision that authorize concentrations and the temporary measures.

Expropriation and Compensation

The constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is slow, and unfair. Civil courts are responsible for resolving such complaints.

Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked, or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.

There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged in long-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.

To address the situation, the GoA approved new property compensation legislation in 2018 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.

The GoA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.

The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.

Dispute Settlement

ICSID Convention and New York Convention

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

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. The country has no specific domestic legislation providing for enforcement of foreign arbitral awards.  Recognition and enforcement of foreign arbitral awards are regulated by provisions stipulated in the Code of Civil Procedure.

For an international arbitration award to be recognized locally, the claimant must bring the award before the Court of Appeals. The Appeals Court will not adjudicate the merits of the case and can strike down the award only for the reasons listed in Article V of the New York Convention.

The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining its merits. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal. There is no legal precedent to date, of local courts refusing to recognize or enforce binding international arbitral awards.

The Albanian Code of Civil Procedure requires the courts to reach a judgment in a reasonable amount of time but does not provide a specific timeline for adjudicating commercial disputes. Reaching a final judgment in commercial litigation can take several years.

Investor-State Dispute Settlement

Albania signed a Bilateral Investment Treaty with United States in 1995, and it entered into force in 1998. Foreign investors opt to include international arbitration clauses in their contracts with Albanian parties because the court system is not responsive, and the judiciary is marked by endemic corruption.

Over the past ten years, there have been three investment disputes between the GoA and U.S. companies, two of which resulted in international arbitration. Despite the GoA’s stated desire to attract and support foreign investors, U.S. investors in disputes with the GoA reported a lack of productive dialogue with government officials, who frequently displayed a reluctance to settle the disputes before they were escalated to the level of international arbitration, or before the international community exerted pressure on the government to resolve the issue. U.S. investors in Albania should strongly consider including binding arbitration clauses in any agreements with Albanian counterparts.

International Commercial Arbitration and Foreign Courts

An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by agreement at any time when a dispute arises.

Albania does not have a separate law on domestic arbitration. In 2017, Albania repealed all domestic arbitration provisions of the Civil Procedure Code, leaving the country without provisions to govern domestic arbitration. In 2020, the GoA drafted a new law on arbitration that aims to regulate domestic and international arbitration. The draft is going through consultation process.

Parties may currently engage in domestic arbitration because the Code of Civil Procedure guarantees the enforcement of domestic arbitral awards. Mediation is also available for resolving all civil, commercial, and family disputes and is regulated by the law On Dispute Resolution through Mediation. Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.

The provisions for international arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on international arbitration. The country is signatory to the 1958 New York Convention and therefore recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.

Bankruptcy Regulations

Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.

A 2017 law on bankruptcy aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.

Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.

According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.

Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.

If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.

According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally. The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.

The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not required the approval of the creditor. According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.

The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.

According to the World Bank’s 2020 Doing Business Report, Albania ranked 39th out of 190 countries in the insolvency index. A referenced analysis of resolving insolvency can be found at the following link:   http://documents.worldbank.org/curated/en/255991574747242507/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Albania  

4. Industrial Policies

Investment Incentives

The Albanian Investment Development Agency (AIDA; www.aida.gov.al) is the best source to find incentives offered across a variety of sectors. Aside from the incentives listed below, individual parties may negotiate additional incentives directly with AIDA, the Ministry of Finance and Economy, or other ministries, depending on the sector.

To boost investments in strategic sectors, the GoA approved a Law on Strategic Investments in May 2015 that outlines the criteria, rules, and procedures that state authorities employ when approving a strategic investment. The GoA has extended the deadline to apply to qualify as a strategic investment to December 2021. A strategic investment is defined as an investment of public interest based on several criteria, including the size of the investment, implementation time, productivity and value added, creation of jobs, sectoral economic priorities, and regional and local economic development. The law does not discriminate between foreign and domestic investors.

The following sectors are defined as strategic sectors: mining and energy, transport, electronic communication infrastructure, urban waste industry, tourism, agriculture (large farms) and fishing, economic zones, and development priority areas. Investments in strategic sectors may obtain assisted procedure and special procedure, based on the level of investment, which varies from EUR one million to EUR 100 million, depending on the sector and other criteria stipulated in the law.

In the assisted procedure, public administration agencies coordinate, assist, and supervise the entire administrative process for investment approval and makes state-owned property needed for the investment available to the investor. Under the special procedure, the investor also enjoys state support for the expropriation of private property and the ratification of the contract by parliament.

The law and bylaws that entered into force on January 1, 2016, established the Strategic Investments Committee (SIC), a commission in charge of approving strategic investments. The Committee is headed by the prime minister and members include ministers covering the respective strategic sectors, the state advocate, and relevant ministers whose portfolios are affected by the strategic investment. AIDA serves as the Secretariat of SIC and oversees providing administrative support to investors. The SIC grants the status of assisted procedure and special procedure for strategic investments and investors based on the size of investments and other criteria defined in the law.

Major Incentives Albania Offers:

Energy and Mining, Transport, Electronic Communication Infrastructure, and Urban Waste Industry:  Investments greater than EUR 30 million enjoy the status of assisted procedure, while investments of EUR 50 million or more enjoy special procedure status.

The government offers power purchasing agreements (PPA) for 15 years for electricity produced from hydroelectric plants with an installed capacity of less than 15 megawatts. The government also offers feed-in-premium tariff for solar installations with installed capacity of less than two megawatts and for wind installation of less than three megawatts. Exemption from custom duties and VAT is available for the manufacturing or the mounting of solar panel systems for hot water production.

Certain machinery and equipment imported for the construction of hydropower plants are VAT exempt. The government supports the construction of small wind and photovoltaic parks with an installed capacity of less than three megawatts and two megawatts, respectively, by offering feed-in-premium tariffs for 15 years. The Energy Regulatory Authority (ERE; http://www.ere.gov.al/ ) conducts an annual review of the feed-in-premium tariffs for wind and photovoltaic parks. The ERE also conducts an annual review of the feed-in-tariffs for small hydroelectric plants with an installed capacity of less than 15 megawatts. Imports of machinery and equipment for investments of greater than EUR 400,000 for small wind and solar parks with an installed capacity of less than three megawatts and two megawatts, respectively, enjoy a VAT exemption. Imports of hot water solar panels for household and industrial use are also VAT exempt.

Tourism and Agritourism:  Investments of EUR five million or more enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure. In 2018, the GoA introduced new incentives to promote the tourism sector. International hotel brands that invest at least USD eight million for a four-star hotel and USD 15 million for a five-star hotel are exempt from property taxes for 10 years, pay no profit taxes, and pay a VAT of 6 percent for any service on their hotels or resorts. For all other hotels and resorts, the GoA reduced the VAT on accommodation from 20 percent to 6 percent. Profit taxes for agritourism ventures were reduced to 5 percent from 15 percent previously, while VAT for accommodation is now 6 percent, down from 20 percent.

Agritourism facilities are exempt from the infrastructure impact tax.

Agriculture (Large Agricultural Farms) and Fishing:  Investments greater than EUR three million that create at least 50 new jobs enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure. In addition, the GoA offers a wide range of incentives and subsidies for investments in the agriculture sector. The funds are a direct contribution from the state budget and the EU Instrument of Pre-Accession for Rural Development Fund (IPARD.) IPARD funds allocated for the period 2018-2020 total EUR 71 million. The program is managed by the Agricultural and Rural Development Agency ( http://azhbr.gov.al/ ). Agricultural inputs, agricultural machinery, and veterinary services are exempt from VAT. The government offers other subsidies to agricultural farms and wholesale trade companies that export agricultural products.

Development Priority Areas:  Investments greater than EUR one million that create at least 150 new jobs enjoy the status of assisted procedure. Investments greater than EUR 10 million that create at least 600 new jobs enjoy the status of special procedure.

Foreign Tax Credit: Albania applies foreign tax credit rights even in cases where no double taxation treaty exists with the country in which the tax is paid. If a double taxation treaty is in force, double taxation is avoided either through an exemption or by granting tax credits up to the amount of the applicable Albanian corporate income tax rate (currently 15 percent).

In 2019, the GoA reduced the dividend tax from 15 percent to 8 percent.

Corporate Income Tax Exemption:  Film studios and cinematographic productions, licensed and funded by the National Cinematographic Center, are exempt from corporate income tax.

Loss Carry Forward for Corporate Income Tax Purposes:  Fiscal losses can be carried forward for three consecutive years (the first losses are used first). However, the losses may not be carried forward if more than 50 percent of direct or indirect ownership of the share capital or voting rights of the taxpayer is transferred (changed) during the tax year.

Lease of Public Property:  The GoA can lease public property of more than 500 square meters or grant a concession for the symbolic price of one euro if the properties will be used for manufacturing activities with an investment exceeding EUR 10 million, or for inward processing activities. The GoA can also lease public property or grant a concession for the symbolic price of one euro for investments of more than EUR two million for activities that address certain social and economic issues, as well as activities related to sports, culture, tourism, and cultural heritage. Criteria and terms are decided on an individual basis by the Council of Ministers.

Incentives for the Manufacturing Sector:  The GoA reduced the profit tax from 15 percent to 5 percent for software development companies and the automotive industry. Manufacturing activities are exempt from 20 percent VAT on imports of machinery and equipment. The government offers a one-euro symbolic rent for government-owned property (land and buildings) for investments exceeding USD 2.7 million that create a minimum of 50 jobs. No VAT is charged for products processed for re-exports. Employers are exempt from paying social security tax for one year for all new employees. The GOA pays the first four months of salaries for new employees and offers various financing incentives for job training.

The manufacturing sector obtains VAT refunds immediately in the case of zero risk exporters, within 30 days if the taxpayer is an exporter, and within 60 days in the case of other taxpayers.

Apparel and footwear producers are exempt from 20 percent VAT on raw materials if the finished product is exported. In 2011, the GoA also removed customs tariffs for imported apparel and raw materials in the textile and shoe industries (e.g., leather used for clothes, cotton, viscose, velvet, sewing accessories, and similar items).

Technological and Development Areas (TEDA):  The Law on Economic Development Areas provides fiscal and administrative incentives for companies that invest in this sector and for firms that establish a presence in these areas. Major incentives include: Developers and users benefit from a 50 percent deduction of profit tax for five years, exemption from the infrastructure impact tax, and exemption from real estate tax for five years. A full list of incentives can be found at:  TEDA (aida.gov.al) 

Foreign Trade Zones/Free Ports/Trade Facilitation

Albania has no functional duty-free import zones or free trade zones, although legislation exists for their creation. The May 2015 amendments to the Law on the Establishment and Operation of Technological and Development Areas (TEDAs) created the legal framework to establish TEDAs, defining the incentives for developers investing in the development of these zones and companies operating within the zones.

The Albanian government has granted the status of the Technological and Development Areas to TEDA Spitalle (49.1 ha) and Koplik (61 ha) but neither has been developed to date. The Ministry of Finance and Economy announced in March 2021 the tender for the development and operation of Spitalle TEDA. Tirana Municipality has applied to get the status of TEDA for a third zone near the capital, with a surface of 35 ha.

Performance and Data Localization Requirements

There are no performance requirements for foreign investors or minimum requirements for domestic content in goods or technology. Investment incentives are equally available to foreign and domestic investors. Investments in certain sectors require a license or authorization and procedures are similar for foreign and domestic investors.

Visa, residence, and work permit requirements are straightforward and do not pose an undue burden on potential investors. The February 2020 amendments to the Law on Foreigners abolished the requirement for foreign investors to prove that foreign employees constituted less than 10 percent of the investor’s total workforce before a work permit was granted. U.S. citizens do not need a visa to enter and can stay in the country for up to one year without a residency permit. For longer stays they must apply for a residency permit, which can be valid for up to five years. To work in Albania, foreigners must apply for a work permit or work registration certificate, except for U.S. citizens and citizens from EU member countries, the Schengen area, and the Western Balkans, who are exempted from such requirement and enjoy the same employment rights and benefits as Albanian citizens. The February 2020 amendments exempt from work permit requirements foreign workers needed in jobs necessary to address the damages caused by natural disasters, partly to facilitate recovery from the November 2019 earthquake. The Council of Ministers approves the annual quota of foreign workers following a needs assessment by sector and profession. However, work permits for staff that occupy key positions, among other categories, can be issued outside the annual quota.

Albanian legislation regulating the functioning of the National Agency of Information (AKSHI) requires that every company contracted by the government to develop a computer system provide the source code and all related technical documents of the system. In addition, every government system and its data must be hosted at the government datacenter maintained by AKSHI.

There are no legal restrictions to transferring business-related data abroad, except for a few cases that need prior consent. There are more stringent requirements for personal data. Albania has comprehensive legislation for the protection of personal data: the Law On the Protection of Personal Data, including by-laws, as well as the 1981 Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, and the Additional Protocol to the Convention regarding Supervisory Authorities and Trans-border Flows of Personal Data, ratified by Albania in 2004. The authority in charge of the protection of personal data is the Information and Data Protection Commissioner ( https://www.idp.al/?lang=en  .)

Based on Albanian legislation, international transfers of personal data in countries deemed to have an adequate level of protection are not restricted. However, companies must notify the Commissioner in advance of any processing of personal data and any intention to transfer data to third countries. This applies to companies in foreign jurisdictions that operate in Albania using any means located within the country. To transfer data to third countries that do not have an adequate protection level, companies need prior authorization from the Commissioner. There are exemptions to this policy for certain data categories defined by the Commissioner as well as when certain conditions are met. Countries with an adequate protection level include EU member states, European Economic Area countries, members of the 1981 Convention and related protocol, and all countries approved by the European Commission.

Many foreign companies operating in Albania that process sensitive data opt to keep their data in Albania.

5. Protection of Property Rights

Real Property

Individuals and investors face significant challenges with protection and enforcement of property rights. Despite recent improvements, procedures remain cumbersome, and registrants have complained of corruption during the process.  Over the last three decades, the GoA has drafted and passed much, though not all, of its property legislation in a piecemeal and uncoordinated way. According to the EU’s 2020 Report, Albania must consolidate the entrenchment of property rights, especially by finalizing first registration, advancing the registration of property deeds, and implementing the compensation scheme. Reform of the sector has yet to incorporate consolidation of property rights and the elimination of legal uncertainties. The Law on the Finalization of Transitional Ownership Processes adopted in March 2020 aims to consolidate property rights by finalizing land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.

The property registration system has improved thanks to international donor assistance, but the process has moved forward very slowly as Albania has yet to complete the initial registration of property titles in the country. By the end of 2019, approximately one third of the properties were registered in digital form, focused almost entirely in Tirana and in other areas that experienced significant development. In total 3.5 million properties were registered as part of the initial registration process which represents slightly above 80% of total properties in Albania. However, plot records for many of these properties are still only in paper form and often in poor and outdated condition. Approximately 1 million properties have still not been registered for the first time, which includes the southern coastal area. In 2020, the government launched a process to register properties in the southern coastal area, and area that holds significant potential for the tourism industry. However, the poor state of the data is a risk for title security and a constraint to investment.

Albania has registered an estimated 440,000 illegal structures, built without permits, and illicit construction continues to be a major impediment to securing property titles. A process that aims to legalize or eliminate such structures started in 2006 but is not complete. Around 178,000 legalization permits were issued through the end of 2019.

The fluid situation has led to clashes between squatters, owners of allegedly illegal buildings, and the Albanian State Police including during the demolition of these structures to make way for public infrastructure projects.

To streamline the property management process, the GoA established in April 2019 the State Cadaster Agency (ASHK), which merged different agencies responsible for property registration, compensation, and legalization, including the Immovable Property Registration Office (IPRO), the Agency of Inventory and Transfer of Public Properties (AITPP), and the Agency for the Legalization and Urbanization of Informal Areas (ALUIZNI).

According to the 2020 World Bank’s “Doing Business Report,” Albania performed poorly in the property registration category, ranking 98th out of 190 countries.  It took an average of 19 days and five procedures to register property, and the associated costs could reach 8.9 percent of the total property value. The civil court system manages property rights disputes, but verdicts can take years, authorities often fail to enforce court decisions, and corruption concerns persist within the judiciary.

Intellectual Property Rights

Albania is not included on the U.S. Trade Representative’s (USTR’s) Special 301 Report or Notorious Markets List.  That said, intellectual property rights (IPR) infringement and theft are common due to weak legal structures and poor enforcement.  Counterfeit goods, while decreasing, are present in some local markets and shopping malls, including software, garments, machines, and cigarettes. Albanian law protects copyrights, patents, trademarks, industrial designs, and geographical indications, but enforcement of these laws is weak.  Regulators are ineffective at collecting fines and prosecutors rarely press charges for IPR theft. U.S. companies should consult an experienced IPR attorney and avoid potential risks by establishing solid commercial relationships and drafting strong contracts. According to the 2020 International Property Right Index   published by Property Right Alliance, Albania ranks 112th out of 129 countries evaluated, and bottom in the region. It ranked 78th in the subcategory of copyright piracy.

A revised 2016 IPR law aimed to strengthen enforcement and address shortcomings so as to harmonize domestic legislation with that of the EU.  In 2019, the Criminal Code was amended to include harsher punishments of up to three years in prison for IPR infringement.

In the areas of copyright, patent, and trademarks, the two main bodies responsible are the Copyright Directorate and the General Directorate of Industrial Property (GDIP), which is in charge of registering, administering, and promoting IPR. Other institutions responsible for IPR enforcement include the Copyright Division of the State Inspectorate for Market Surveillance (SIMS), the Audiovisual Media Authority (AMA), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, the State Police, and the courts.  In 2018, the National Council of Copyrights was established as a specialized body responsible for monitoring the implementation of the law and certifying the methodology for establishing the tariffs. Two other important bodies in the protection and administration of IPR are the agencies for the Collective Administration (AAK) and the Copyrights Department within the Ministry of Culture. Four different AAKs have merged in 2017 to provide service into a sole window for the administration of IPR.

The SIMS, established in 2016, is responsible for inspecting, controlling, and enforcing copyright and other related rights.  Despite some improvements, actual law enforcement on copyrights continues to be problematic and copyright violations are persistent.  The number of copyright violation cases brought to court remains low. While official figures are not available this year, Customs does usually report the quantity of counterfeit goods destroyed annually.  In cases of seizures, the rights holder has the burden of proof and so must first inspect the goods to determine if they are infringing.  The rights holder is also responsible for the storage and destruction of the counterfeit goods.

Cigarettes are traditionally the most common counterfeited product seized by Customs. According to the EU 2020 report on Albania, the high number of counterfeit products in the country remains a cause for concerns

The GDIP is responsible for registering and administering patents, commercial trademarks and service marks, industrial designs, and geographical indications.  The 2008 law on industrial property was amended in 2014 to more closely align with that of the EU.  In 2020, the number of applications to register industrial property continued to rise with 2,654 new applications (including 1,475 trademarks and 1158 for patents).  GDIP has prepared draft legislation on trade secrets in order to align the with the EU acquis which was deposited in the Parliament in December 2020.

Albania is party to the World Intellectual Property Organization (WIPO) Patent Law Treaty, the Patent Cooperation Treaty, the Berne Convention, the Paris Convention, and is a member of the European Patent Organization.  The government became party to the London Agreement on the Implementation of Article 65 of the European Convention for Patents in 2013. In 2018, Parliament approved the Law 34/2018 on Albania’s adherence to the Vienna Agreement for the International Classification of the Figurative Elements of Marks. In June 2019, Albania joined the Geneva Act of WIPO’s Lisbon Agreement on Appellations of Origin and Geographical Indications.

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

Resources for Rights Holders

Contact at Embassy Tirana on IPR issues:
Alex MacFarlane
Economic Officer
Phone: + 355 (0) 4229 3115
E-mail:  USALBusiness@state.gov 

Country resources:

American Chamber of Commerce
Address: Rr. Deshmoret e shkurtit, Sky Tower, kati 11 Ap 3 Tirana, Albania
Email:  info@amcham.com.al 
Phone: +355 (0) 4225 9779
Fax: +355 (0) 4223 5350
http://www.amcham.com.al/  

List of local lawyers:  http://tirana.usembassy.gov/list_of_attorneys.html

6. Financial Sector

Capital Markets and Portfolio Investment

The government has adopted policies to promote the free flow of financial resources and foreign investment in Albania. The Law on “Strategic Investments” is based on the principles of equal treatment, non-discrimination, and protection of foreign investments. Foreign investors have the right to expatriate all funds and contributions of their investment.  In accordance with IMF Article VIII, the government and Central Bank do not impose any restrictions on payments and transfers for international transactions. Despite Albania’s shallow foreign exchange market, banks enjoy enough liquidity to support sizeable positions.  Portfolio investments continue to be a challenge because they remain limited mostly to company shares, government bonds, and real estate.

In recent years, the high percentage of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards.  However, following a continuing decrease in non-performing loans (NPL) which at the end of 2020 reached 8.1 percent, lending increased by 6.5 percent year-over-year in 2020.  The credit market is competitive, but interest rates in domestic currency can be high, ranging from 5 percent to 6.5 percent. Most mortgage and commercial loans are denominated in euros because rate differentials between local and foreign currency average 1.5 percent. Commercial banks operating in Albania have improved the quality and quantity of services they provide, including a large variety of credit instruments, traditional lines of credit, and bank drafts, etc.

Money and Banking System

In the absence of an effective stock market, the country’s banking sector is the main channel for business financing.  The sector is sound, profitable, and well capitalized. The Bank of Albania, the country’s Central Bank, is responsible for the licensing and supervision of the banking sector in Albania. The banking sector is 100 percent privately owned and its total assets have steadily increased over the years reaching $15 billion mostly based on customers deposits.   The banking sector has consolidated recently as the number of banks decreased from 16 in 2018 to 12 in 2020. As of December 2020, the Turkish owned National Commercial Bank (BKT) was the largest bank in the market with 26.4 percent market share, followed by Albanian Credins Bank with 15.5 percent, and Austrian Raiffeisen Bank third with 14.9 percent.  The American Investment Bank is the only bank with U.S. shareholders and ranks sixth with 5.5% percent of the banking sector’s total assets.

The number of bank outlets has also decreased over the recent years also due to the consolidation. In December 2020, Albania had 416 bank outlets, down from 446 from 2019 and the peak of 552 in 2016. Capital adequacy, at 18.23 percent, remains above Basel requirements and indicates sufficient assets.  At the end of 2020, the return on assets was just 1.2 percent. The share of NPLs continued to fall, reaching 8.1 percent at the end of the 2020, down from 11.1 percent in 2018, and significantly below the 2014 level when NPLs peaked at 25 percent. As part of its strategy to stimulate business activity, the Bank of Albania has adopted a plan to ease monetary policy by continuing to persistently keep low interest rates. The most recent reduction was in March 2020, when the interest rate was reduced to the historic low of 0.5 percent, down from a rate of 1 percent in place since June 2018.

Many of the banks operating in Albania are subsidiaries of foreign banks. Only three banks have an ownership structure whose majority shareholders are Albanian. However, the share of total assets of the banks with majority Albanian shareholders has increased because of the sector’s ongoing consolidation. There are no restrictions for foreigners who wish to establish a bank account. They are not required to prove residency status. However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.

Foreign Exchange and Remittances

Foreign Exchange

Bank of Albania (BoA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662.  Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).

BoA maintains a free float exchange rate regime for the domestic currency, the Lek. Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage.  BoA does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate of inflation targeting.

Foreign exchange is readily available at banks and exchange bureaus. Preliminary notification is necessary if the currency exchange is several million dollars or more – the law does not specify an amount but provides factors for determining the threshold for large exchanges – as the exchange market in Albania is shallow.  A 2018 campaign launched by the BoA to reduce the domestic use of the euro to improve the effectiveness of domestic economic policies has produced tangible results. The share of foreign currency loans in total loans fell from 60 percent in 2015 to 47 percent in 2020. Foreign currency deposits, which to some extent reflect relatively high remittances, reached to 53.4 percent of total deposits.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange.  However, local law authorizes the BoA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves.  In practice, BoA rarely employs such measures. Faced with the unprecedented economic disruption following the COVID-19 pandemic, on July 1, 2020 Bank of Albania ordered banks to halt distribution of dividends and use dividends to cover potential losses and increase loans to the economy. The decision, initially in force till the end of 2020, was extended till the end of 2021.

The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate.  Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items.  Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.

Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements.  Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred.  In January 2015, the FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.

Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body.  In February 2020, Albania was included in the category of jurisdictions under increased monitoring, also referred to as the Grey List. Albania had previously been on this list and was taken off in 2015. The 2021 International Narcotics Control Strategy Report (INCSR) keeps Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.  Albania and the United States do not have a bilateral MLAT, but cooperation is possible through multilateral conventions.

Sovereign Wealth Funds

Parliament approved a law in October 2019 to establish the Albanian Investment Corporation (AIC). The law entered in force in January 2020. The AIC would develop, manage, and administer state-owned property and assets, invest across all sectors by mobilizing state owned and private domestic and foreign capital, and promote economic and social development by investing in line with government-approved development policies.

The GoA plans to transfer state-owned assets, including state-owned land, to the AIC and provide initial capital to launch the corporation. The IMF  Staff Concluding Statement   of November 26, 2019, warned that the law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes. There were no activities by the AIC in 2020.

7. State-Owned Enterprises

State-owned enterprises (SOEs) are defined as legal entities that are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.

The law does not discriminate between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures and the same domestic accounting and international financial reporting standards as other commercial companies. The High State Audit audits SOE activities. SOEs are also subject to public procurement law.

Albania is yet to become party to the Government Procurement Agreement (GPA) of the WTO but has obtained observer status and is negotiating full accession (see https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm ).  Private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.

SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies. The Ministry of Economy and Finance and other relevant ministries, depending on the sector, represent the state as the owner of the SOEs. SOEs are not obligated by law to adhere to Organization for Economic Cooperation and Development (OECD) guidelines explicitly. However, basic principles of corporate governance are stipulated in the relevant laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board comprises three to nine members, who are not employed by the SOE. Two-thirds of board members are appointed by the representative of the Ministry of Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports. The Supervisory Board is the highest decision-making authority and appoints and dismisses the administrator of the SOE through a two-thirds vote.

Privatization Program

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining. Entities to be privatized include OSHEE, the state-run electricity distributor; 16 percent of ALBtelecom, the fixed-line telephone company; and state-owned oil company Albpetrol. O ther sectors might provide opportunities for privatization in the future.

The bidding process for privatizations is public, and relevant information is published by the Public Procurement Agency at  www.app.gov.al . Foreign investors may participate in the privatization program. The Agency has not published timelines for future privatizations.

8. Responsible Business Conduct

Public awareness of corporate social responsibility (CSR) and Responsible Business Conduct (RBC) in Albania is low, and CSR and RBC remains new concepts for much of the business community. The small level of CSR and RBC engagement in Albania comes primarily from the energy, telecommunications, heavy industry, and banking sectors, and tends to focus on philanthropy and environmental issues. International organizations have recently improved efforts to promote CSR. Thanks to efforts by the international community and large international companies, the first Albanian CSR network was founded in March 2013 as a business-led, non-profit organization. The American Chamber of Commerce in Albania also formed a subcommittee in 2015 to promote CSR among its members.

Legislation governing CSR, labor, and employment rights, consumer protection, and environmental protection is robust, but enforcement and implementation are inconsistent. The Law on Commercial Companies and Entrepreneurs outlines generic corporate governance and accounting standards. According to that law and the Law on the National Business Registration Center, companies must disclose publicly when they change administrators and shareholders and to disclose financial statements. The Corporate Governance Code for unlisted joint stock companies incorporates the OECD definitions and principles on corporate governance but is not legally binding. The code provides guidance for Albanian companies and aims to provide best-practices while assisting Albanian companies to develop a governance framework.

Albania has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.

Additional Resources

Department of State

Department of Labor

9. Corruption

Endemic corruption continues to undermine the rule of law and jeopardize economic development. Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, informal economy, and poor enforcement of contracts as some of the biggest problems in Albania. Despite some improvement in Albania’s score from 2013 to 2016, progress in tackling corruption has been slow and unsteady. In 2020, Albania’s Corruption Perceptions Index (CPI) score and ranking improved respectively from 35 to 36 and from 106 to 104 but still far from the 2016 score and rank of respectively 39 and 83. Albania is still one of the most corrupt countries in Europe, according to the CPI and other observers.

The country has a sound legal framework to prevent conflict of interest and to fight corruption of public officials and politicians, including their family members. However, law enforcement is jeopardized by a heavily corrupt judicial system.

The passage of constitutional amendments in July 2016 to reform the judicial system was a major step forward, and reform, once fully implemented, is expected to position the country as a more attractive destination for international investors. Judicial reform has been described as the most significant development in Albania since the end of communism, and nearly one-third of the constitution was rewritten as part of the effort. The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s vetting process will ensure that prosecutors and judges with unexplained wealth or insufficient training, or those who have issued questionable verdicts, are removed from the system. As of publication, more than half of the judges and prosecutors who have faced vetting have either failed or resigned. The establishment of the Special Prosecution Office Against Corruption (SPAK) and Organized Crime and of the National Investigation Bureau, two new judicial bodies, will step up the fight against corruption and organized crime. Once fully implemented, judicial reform will discourage corruption, promote foreign and domestic investment, and allow Albania to compete more successfully in the global economy.

The government has ratified several corruption-related international treaties and conventions and is a member of major international organizations and programs dealing with corruption and organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention against Corruption (UNCAC). Albania has also ratified several key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001) and the Convention on Cybercrime (2002). Albania has been a member of the Group of States against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption in 2001 and is a member of the Stability Pact Anti-Corruption Initiative (SPAI). Albania is not a member of the OECD Anti-Bribery Convention. Albania has adopted legislation for the protection of whistleblowers.

To curb corruption, the government announced a new platform in 2017, “ Shqiperia qe Duam ” (“The Albania We Want”), which invites citizens to submit complaints and allegations of corruption and misuse of office by government officials. The platform has a dedicated link for businesses. The Integrated Services Delivery Agency (ADISA), a government entity, provides a second online portal to report corruption. Effectiveness of the portal is minimal.

Resources to Report Corruption

Contact at the government agency or agencies that are responsible for combating corruption:

In February 2020, GOA approved the establishment of the Special Anticorruption and Anti-Evasion Unit which operates under the Council of Ministers. The mission of the unit is the coordination between the main public institutions, agencies and state owned companies in order to discover, investigate and punish corruption and abusive practices. The Unit is not fully operational yet.

Arlind Gjokutaj
Director
Special Anti-Corruption and Anti-Evasion Unit
Tel: 0035568 111 114
Email: Arlind.Gjokutaj@Kryeministria.al

10. Political and Security Environment

Political violence is rare, the most recent being political protests in 2019 that included instances of civil disobedience, low-level violence and damage to property, and the use of tear gas by police. Albania’s June 2017 elections and transition to a new government were peaceful, as were its June 2019 local elections. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration. In its external relations, Albania has usually encouraged stability in the region and maintains generally friendly relations with neighboring countries.

11. Labor Policies and Practices

Albania’s labor force numbers around 1.22 million people, according to official data. After peaking at 18.2 percent in the first quarter of 2014, the official estimated unemployment rate has decreased in recent years. In December 2020, unemployment reached 11.8 percent compared to 11.2 percent at the end of 2019.   Unemployment among people aged 15-29 remains high, at 21.7 percent. Around 40 percent of the population is self-employed in the agriculture sector. According to the International Labor Organization (ILO), share of informal employment in the employed population was almost 57% in 2019, the highest in the region.

The institutions that oversee the labor market include the Ministry of Finance, Economy and Labor, the Ministry of Health and Social Protection, the National Employment Service, the State Labor Inspectorate, and private entities such as employment agencies and vocational training centers.  Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement is weak.

Outward labor migration remains an ongoing problem affecting the Albanian labor market. There is a growing concern about labor shortage for both skilled and unskilled workforces.  Over the last several years, media outlets have reported that a significant number of doctors and nurses have emigrated to the European Union. According to WHO, Albania has the lowest number of doctors per capita in the region with just 16.7 doctors per 10,000 inhabitants in 2019. In December 2020, the average public administration salary was approximately 66,479 lek (approximately $630) per month.  In January 2021 the GoA increased the minimum wage by 13 percent to 30,000 lek per month (approximately $280), which still remains the lowest in the region.

In March 2019, parliament approved a new law on employment promotion, which defined public policies on employment and support programs. Albania has a tradition of a strong secondary educational system, while vocational schools are viewed as less prestigious and attract fewer students.  However, the government has more recently focused attention on vocational education. In the 2020-2021 academic year, about 19,000, or 18.5 percent, of high school pupils were enrolled in vocational schools, compared with 18 percent in the previous year.

The Law on Foreigners and various decisions of the Council of Ministers regulate the employment regime in Albania.  Employment can also be regulated through special laws in the case of specific projects, or to attract foreign investment.  The Law on TEDA’s provides financial and tax incentives for investments in the zone. In February 2020, parliament approved amendments to the Law on Foreigners, extending the same employment and self-employment rights of Albanian citizens to citizens of five Western Balkan countries. The new law extends to these citizens the same benefits that the original law provided to the citizens of EU and Schengen countries. The recent amendments also allow for hiring of foreign citizens in the framework of work in the reconstruction process surrounding the November 2019 earthquake.

The Labor Code includes rules regarding contract termination procedures that distinguish layoffs from terminations.  Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract. Employees can collect up to 12 months of salary in the event of an unexpected interruption of the contract. Unemployment compensation is approximately 50 percent of the minimum wage.

Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management.  While there are no official data recording the number of collective bargaining agreements used throughout the economy, they are widely used in the public sector, including by SOEs. Albania has a labor dispute resolution mechanism as specified in the Labor Code, article 170, but the mechanism is considered inefficient. Strikes are rare in Albania, mostly due to the limited power of the trade unions and they have not posed a significant risk to investments.

Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the eight Fundamental Conventions, the four Governance Conventions, and 42 Technical Conventions. The implementation of labor relations and standards continues to be a challenge, according to the ILO. Furthermore, labor dialogue has suffered from the 2017 division of the Ministry of Labor and Social Protection into two different institutions.

See the U.S. Department of State Human Rights Report:  https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/; and the U.S. Department of Labor Child Labor Report:  http://www.dol.gov/ilab/reports/child-labor  .

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) 2019 $15,279 2019 $15.279 www.worldbank.org/en/country

https://www.imf.org/en/Publications/WEO/weo-database/2021/April

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 $82 2018 $35 BEA data available at
https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 N/A 2019 $0 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 59.5% 2019 57.6% UNCTAD data available at
https://unctad.org/topic/investment/
world-investment-report
 

*Source for Host Country Data: Bank of Albania (http://www.bankofalbania.org/)

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 8,364 100% Total Outward 680 100%
Switzerland 1,672 20% Kosovo 358 52.6%
The Netherlands 1,358 16.2% Italy 185 27.2%
Canada 1,243 14.9% United States 34 5%
Italy 728 8.7% North Macedonia 34 5%
Bulgaria 599 7.2% Greece 17 2.5%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $1,388 100% All Countries $43 100% All Countries $1,345 100%
Turkey $243 17% Turkey $18 41.5% Turkey $225 17%
Germany $145 10% Canada $17 40.5% Germany $145 11%
Greece $130 9% Netherlands $8 18% Greece $130 10%
Italy $101 7% N/A France $101 8%
France $83 6% N/A Italy $83 6%

14. Contact for More Information

Alex MacFarlane
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
Tirana, Albania
+355 4 224 7285
USALBusiness@state.gov 

Bosnia and Herzegovina

Executive Summary

Bosnia and Herzegovina (BiH) is open to foreign investment, but to succeed, investors must overcome endemic corruption, complex legal/regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system.  Economic reforms to complete the transition from a socialist past to a market-oriented future have proceeded slowly and the country has a  low level of foreign direct investment (FDI).  According to the BiH Central Bank preliminary data, 2020 FDI in BiH was USD 299 million, a 34% decrease from 2019.  According to the World Bank’s 2020 Ease of Doing Business Report, BiH is among the least attractive business environments in Southeast Europe, with a ranking of 90 out of 190 global economies.  The World Bank report ranks BiH particularly low for its lengthy and arduous processes to start a new business and obtain construction permits.  Before the COVID-19 pandemic, BiH’s economic growth was expected to reach 4 percent in 2021, backed mainly by consumption and to some extent public investment.  BiH’s economy grew by an estimated 3.0 percent in 2019, with domestic consumption remaining the dominant growth driver. BiH is tied  closely to global value chains as it primarily exports goods rather than services. Preliminary estimates of the 2020 economic downturn for BiH vary.  For instance, the IMF predicts an economic contraction of 5% in 2020 and growth of 3.5% in 2021. The EBRD predicts a contraction of 4.5% in 2020 and a recovery of 5% in 2021.

U.S. investment in BiH is low due to the small market size, relatively low income levels, distance from the United States, challenging business climate, and the lack of investment opportunities.  Most U.S. companies in BiH are represented by small sales offices that are concentrated on selling U.S. goods and services, with minimal longer-term investments. U.S. companies with offices in BiH include major multinational companies and market leaders in their respective sectors, such as Coca-Cola, Microsoft, Cisco, Oracle, Pfizer, McDonalds, Marriott, Caterpillar, Johnson & Johnson, FedEx, UPS, Philip Morris, KPMG, PwC and others.  Nonetheless, BiH offers business opportunities to well-prepared and persistent exporters and investors.  Companies that overcome the challenges of establishing a presence in BiH often make a return on their investment over time.  A major U.S. investment fund was able to enter the market with a regional investment in 2014 and exit its majority position in 2019 with a good return.  There is an active international community and many reform efforts to improve the business climate as BiH pursues eventual European Union membership.  The country is open to foreign investment and offers a liberal trade regime and its simplified tax structure is one of the lowest in the region (17 percent VAT and 10 percent flat income tax).

BiH is actively pursuing World Trade Organization membership and hopes to join in the near future.  It is also richly endowed with natural resources, providing potential opportunities in energy (hydro, wind, solar, along with traditional thermal), agriculture, timber, and tourism.  The best business opportunities for U.S. exporters to BiH include energy generation and transmission equipment, telecommunication and IT equipment and services, transport infrastructure and equipment, engineering and construction services, medical equipment, and raw materials and chemicals for industrial processing.  In 2020, U.S. exports to BiH totaled USD 235 million, a 40 percent decrease from 2019, and held a 2.3 percent share of total BiH imports.  BiH exports to the United States in 2019 totaled $39.7 million. U.S. exports to BiH are primarily in the areas of raw materials for industrial processing, food and agricultural products, machinery and transport equipment, and mineral fuels.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website
TI Corruption Perceptions Index 2020 111 of 180 www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 90 of 190 www.doingbusiness.org/rankings 
Global Innovation Index 2020 74 of 131 https://www.globalinnovationindex.org/home
U.S. FDI in partner country 2019  $9 million https://apps.bea.gov/international/factsheet/factsheet.cfm
World Bank GNI per capita 2019      $6,170 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Bosnia and Herzegovina struggles to attract foreign investment.  Complex labor and pension laws, the lack of a single economic space, and inadequate judicial and regulatory protections deter investment.  Under the BiH constitution, established through the Dayton Accords that ended the 1990s war, Bosnia and Herzegovina (henceforth “the state”) is divided into two “entities,” the Federation of BiH (the Federation) and the Republika Srpska (RS).  A third, smaller area, the Brčko District, operates under a separate administration.  The Federation is further divided into ten cantons, each with its own government and responsibilities.  There are also 143 municipalities in BiH: 63 in the RS and 80 in the Federation.  As a result, BiH has a multi-tiered legal and regulatory framework that can be duplicative and contradictory, and is not conducive to attracting foreign investors.

Employers bear a heavy burden toward governments.  They must contribute 69 percent on top of wages in the Federation and 52 percent in the RS to the health and pension systems.  The labor and pension laws are also deterrents to investment, though both are being reformed to decrease burdens on employers.  While corporate income taxes in the two entities and Brčko District are now harmonized at 10 percent, entity business registration requirements are not harmonized.  The RS has its own registration requirements, which apply to the entire entity.  Each of the Federation’s ten cantons has different business regulations and administrative procedures affecting companies.  Simplifying and streamlining this framework is essential to improving the investment climate.  The EU Reform Agenda targets changes that should improve the investment climate by clarifying and simplifying regulation and procedures while decreasing fees faced by businesses at the entity, canton, and municipal levels.

Generally, BiH’s legal framework does not discriminate against foreign investors.  However, given the high level of corruption, foreign investors can be at a significant disadvantage in relation to entrenched local companies, especially those with formal or informal backing by BiH’s various levels of government.

The Foreign Investment Promotion Agency (FIPA) is a state-level organization mandated by the Council of Ministers to facilitate and support FDI (www.fipa.gov.ba).  FIPA provides data, analysis, and advice on the business and investment climate to foreign investors.  All FIPA services are free of charge.

BiH does not maintain an ongoing, formal dialogue with foreign investors.  Sporadically, high-ranking government officials give media statements inviting foreign investments in the energy, transportation, and agriculture industries; however, the announcements are rarely supported by tangible, commercially-viable investment opportunities.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to the Law on the Policy of FDI, foreign investors are entitled to invest in any sector of the economy in the same form and under the same conditions as those defined for local residents.  Exceptions include the defense industry and some areas of publishing and media where foreign ownership is restricted to 49 percent; and electric power transmission, which is closed to foreign investment.  In practice, additional sectors are dominated by government monopolies (such as airport operation), or characterized by oligopolistic market structures (such as telecommunications and electricity generation), making it difficult for foreign investors to engage.  There have been no significant privatizations of government-owned enterprises in the past few years.

Other Investment Policy Reviews

In the past three years, the BiH government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD); the World Trade Organization (WTO); or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Establishing a business in BiH can be an extremely burdensome and time-consuming process for investors.  The World Bank estimates there are an average of 13 procedures (actual number depends on the type of business), taking a total of 81 days, to register a new business in the capital city of Sarajevo.  Registration in BiH can sometimes be expedited if companies retain a local lawyer to follow up at each step of the process.  The RS established a one-stop shop for business registration in the entity.  On paper, this dramatically reduced the time required to register a business in the RS, bringing the government-reported time to register a company down to an average of 7 to 14 days.  Some businesses, however, report that in practice it can take significantly longer.

The entity, cantonal, and municipal levels of government each establish their own laws and regulations on business operations, creating redundant and inconsistent procedures that enable corruption.  It is often difficult to understand all the laws and rules that might apply to certain business activities, given overlapping jurisdictions and the lack of a central information source.  It is therefore critical that foreign investors obtain local assistance and advice.  Investors in the Federation may register their business as a branch in the RS and vice versa.

The most common U.S. business presence found in BiH are representative offices.  A representative office is not considered to be a legal entity and its activities are limited to market research, contract or investment preparations, technical cooperation, and similar business facilitation activities.  The BiH Law on Foreign Trade Policy governs the establishment of a representative office.  To open a representative office, a company must register with the Registry of Representative Offices, maintained by the BiH Ministry of Foreign Trade and Economic Affairs (MoFTER) and the appropriate entity’s ministry of trade.

Additional English-language information on the business registration process can be found at:

BiH Ministry of Foreign Trade & Economic Relations (MoFTER):
Ph: +387-33-220-093
www.mvteo.gov.ba

BiH Foreign Investment Promotion Agency (FIPA):
Ph: + 387 33 278 080
www.fipa.gov.ba

Republika Srpska Company Registration Website: http://www.investsrpska.net

Outward Investment

The government does not restrict domestic investors from investing abroad.  There are no programs to promote or incentivize outward investment.

2. Bilateral Investment Agreements and Taxation Treaties

BiH has signed or ratified 42 investment agreements with the following countries: Albania, Austria, Belgium, Belarus, China, Croatia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Netherlands, Hungary, India, Iran, Italy, Jordan, Kuwait, Lithuania, Luxembourg, Macedonia, Malaysia, Moldova, Montenegro, Netherlands, Pakistan, Portugal, Qatar, Romania, Serbia, Libya, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, UAE, Ukraine, and the United Kingdom.

BiH has neither a bilateral investment treaty nor a bilateral income tax treaty with the United States.

BiH was designated as a beneficiary country under the United States GeneraliNote zed System of Preferences (GSP) program through December 31, 2020.  Between 2013 and 2020, BiH exported to the U.S. over USD 50 million worth of goods eligible for the GSP program.  The Generalized System of Preferences (GSP) program expired on December 31, 2020. As a result, imports entering the United States from 122 eligible countries that were previously eligible for duty-free treatment under GSP are now subject to regular, Normal Trade Relations (MFN) rates of duty.

The Interim Agreement on Trade and Trade-related matters (IA) between the European Union (EU) and Bosnia and Herzegovina is in force.  According to the IA, all goods of BiH origin that fulfill EU technical standards and conditions can be imported to all EU countries without any quantitative restrictions and without paying customs or other similar duties.  Only sugar, wine, fish, and baby beef are subject to specific quotas, beyond which duties are to be paid by Bosnia and Herzegovina for export to the EU.  Since 2009, import tariffs have been eliminated for more than 11,000 products that BiH imports from the EU.

In December 2016, BiH and the EU signed the Protocol on Trade to the Stabilization and Association Agreement (SAA), which adapted the previously signed SAA to reflect Croatia’s 2013 accession to the EU.  The adapted SAA provided for unlimited, duty-free access for BiH fruits and vegetables under the Autonomous Trade Measures for Western Balkan countries, and opened higher quotas for fish, wine, sugar, and baby beef exports from BiH to the EU market.  On the other side, BiH established duty-free quotas for sugar, cigarettes, beef, pork, milk, poultry products, and potatoes imported from the EU.  BiH is a “potential candidate” for EU membership.

3. Legal Regime

Transparency of the Regulatory System

The government has adequate laws to foster competition; however, due to corruption, laws are often not implemented transparently or efficiently.  The multitude of state, entity, cantonal (in the Federation only), and municipal administrations – each with the power to establish laws and regulations affecting business – creates a heavily bureaucratic, non-transparent system.  Ministries and/or regulatory agencies are not typically obligated to publish the text of proposed regulations before they are enacted.  Some local and international companies have expressed frustration with generally limited opportunities to provide input and influence/improve draft legislation that impacts the business community.

Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency.  Dispute resolution is also challenging as the judicial system moves slowly, often does not adhere to existing deadlines, and provides no recourse if the company in question re-registers under a different name.

In an effort to promote the growth of business in its entity, the Republika Srpska government passed a series of amendments in 2013 to create an RS one-stop-shop for business registration.  This institution centralizes the process of registering a business, ostensibly making it easier, faster, and cheaper for new business owners to register their companies in the RS.  The Federation’s announced plans to establish a one-stop-shop have long been delayed.

Businesses are subject to inspections from a number of entity and cantonal/municipal agencies, including the financial police, labor inspectorate, market inspectorate, sanitary inspectorate, health inspectorate, fire-fighting inspectorate, environmental inspectorate, institution for the protection of cultural monuments, tourism and food inspectorate, construction inspectorate, communal inspectorate, and veterinary inspectorate.  Some investors have complained about non-transparent fees levied during inspections, changing rules and regulations, and an ineffective appeals process to protest these fines.

International Regulatory Considerations

BiH is not a part of the EU, the WTO, or a signatory to the Trade Facilitation Agreement (TFA).

Legal System and Judicial Independence

BiH has an overloaded court system and it often takes several years for a case to be brought to trial.  Moreover, commercial cases with subject matter that judges do not have experience adjudicating, such as intellectual property rights, are often left unresolved for lengthy periods of time.  Most judges have little to no in-depth knowledge of adjudicating international commercial disputes and require training on applicable international treaties and laws.  Regulations or enforcement actions can be appealed, and appeals are adjudicated in the national court system.

The U.S. government has provided training to judges, trustees, attorneys, and other stakeholders at the state and entity levels to assist in the development of bankruptcy and intellectual property laws.  Those laws are now in effect at both the entity and state levels, but have not been fully implemented.

Laws and Regulations on Foreign Direct Investment

The state-level Law on the Policy of Foreign Direct Investment accords foreign investors the same rights as domestic investors and guarantees foreign investors national treatment, protection against nationalization/expropriation, and the right to dispose of profits and transfer funds.  In practice, most business sectors in Bosnia and Herzegovina are fully open to foreign equity ownership.  Notable exceptions to this general rule are select strategic sectors, such as defense; electric power transmission, which is closed to foreign investment; and some areas of publishing and media, where foreign ownership is restricted to 49 percent (see below).  However, one of the sub-national governments (Federation of BiH, Republika Srpska) may decide that companies normally subject to this limitation are not subject to restrictions.

According to legal amendments adopted in March 2015, foreign investors can now own more than 49 percent of capital business entities dealing with media activities, such as publishing newspapers, magazines and other journals, publishing of periodical publications, production and distribution of television programs, privately owned broadcasting of radio and TV programs, and other forms of daily or periodic publications.  The new law maintains the restriction that foreign investors cannot own more than 49 percent of public television and radio services.  The March 2015 amendments also set conditions to enhance legal security and clarity for foreign direct investment flows.  The Foreign Investment Promotion Agency maintains a list of laws relevant to investors on its website:

http://www.fipa.gov.ba/publikacije_materijali/zakoni/default.aspx?id=317&langTag=en-US

The complex legal environment in BiH underlines the utility of local legal representation for foreign investors.  Bosnian attorneys’ experience base is still limited with respect to legal questions and the issues that arise in a market-oriented economy.  However, local lawyers are quickly gaining experience in working with international organizations and companies operating in BiH.  Companies’ in-house legal counsel should be prepared to oversee their in-country counsel, with explicit explanations and directions regarding objectives.  The U.S. Embassy maintains a list of local lawyers willing to represent U.S. citizens and companies in BiH.  The list can be accessed at https://ba.usembassy.gov/u-s-citizen-services/attorneys/

Competition and Antitrust Laws

BiH has a Competition Council, designed to be an independent public institution to enforce anti-trust laws, prevent monopolies, and enhance private sector competition.  The Council reviews and approves foreign investments in cases of mergers and acquisitions of local companies by foreign companies.  The Competition Council consists of six members appointed for six-year terms of office with the possibility of one reappointment.  The BiH Council of Ministers appoints three Competition Council members, the Federation Government appoints two members, and the RS Government appoints one member.  From the six-member Competition Council, the BiH Council of Ministers affirms a president of the Council for a one-year term without the possibility of reappointment.

Expropriation and Compensation

BiH investment law forbids expropriation of investments, except in the public interest.  According to Article 16, “Foreign investment shall not be subject to any act of nationalization, expropriation, requisition, or measures that have similar effects, except where the public interest may require otherwise.”  In such cases of public interest, expropriation of investments would be executed in accordance with applicable laws and regulations, be free from discrimination, and include payment of appropriate compensation.  Neither the entity governments nor the state government have expropriated any foreign investments to date.

Dispute Settlement

ICSID Convention and New York Convention

Bosnia and Herzegovina is a signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).  Bosnia and Herzegovina is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), also known as the Washington Convention.

Investor-State Dispute Settlement

Over the last decade, there have been two cases of legal disputes involving U.S. investors and the local government.  While efforts are being made to improve BiH’s commercial court system, its current capacity and practical inefficiencies limit timely resolution of commercial disputes.

International Commercial Arbitration and Foreign Courts

BiH has been a member of the International Center for the Settlement of Investment Disputes since 1997.  BiH does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United StatesIt accepts international arbitration to settle private investment disputes if the parties outline this option in a contract.

The only domestic arbitration body in BiH, the Arbitration Court of the BiH Foreign Trade Chamber, is an inexperienced institution.  It needs updated and modernized laws and regulations to comply with international norms and standards.  The Arbitration Court would benefit from licensed and trained arbitrators.  Domestic arbitration legislation is encompassed within the Civil Procedure Code and is not currently modeled on internationally-accepted regulations.  As for the legislation, arbitration is generally poorly addressed.  There are few provisions in the entities’ laws that regulate litigation procedures, which are the legal basis for parties in dispute to entrust the dispute to arbitration.  There is no legislation that is modelled on internationally accepted regulations, such as the model law of the United Nations Commission on International Trade Law (UNICITRAL).

Bankruptcy Regulations

Both the Federation and Republika Srpska entities have Laws on Bankruptcy.  However, bankruptcy proceedings are not resolved in a timely manner, and there is insufficient emphasis placed on companies’ rehabilitation and/or reorganization.  The entities’ laws define the rights of creditors, equity shareholders, and holders of other financial contracts.  Foreign contract holders enjoy the same rights as local contract holders.  Bankruptcy is not criminalized.  The U.S. government provided recent training to judges on international bankruptcy principles.

4. Industrial Policies

Investment Incentives

There are some incentives for foreign direct investment, including exemptions from payment of customs duties and customs fees.  Bosnia and Herzegovina is divided into three jurisdictions for direct tax purposes: the Federation, the RS, and the Brčko District.

In the Federation, RS, and Brčko District, the corporate income tax allows offsetting of losses against profits over a five-year period.  The corporate tax rate is 10 percent across the state.  Foreign investors can open bank accounts in all jurisdictions and transfer their profits abroad without any restrictions.  The rights and benefits of foreign investors granted and obligations imposed by the Law on the Policy of Foreign Direct Investment cannot be terminated or overruled by subsequent laws and regulations.  Should a subsequent law or regulation be more favorable to foreign investors, the investor has the right to choose the most beneficial regulations.

In addition to the BiH-wide incentives listed above, the two entities and the Brčko District have specific incentives.  In the Brčko District, investments in fixed assets are subject to tax relief.

In the Federation:

A taxpayer who invests KM 20 million (approx. USD 12 million) over a period of five years is exempted from paying corporate income tax for the period of five years beginning from the first investment year. A taxpayer that does not make the prescribed investment in the period of five years loses the right of tax exemption.  In that case, unpaid corporate income tax is determined in accordance with the provisions of the Law on Corporate Income Tax augmented with a penalty interest payable for untimely paid public revenues.

Qualifying investments include fixed assets such as real estate, plants, and equipment for carrying out production activity.  A taxpayer loses the right to tax exemption if the corporation makes a dividend payment during first three years of investment.  A taxpayer whose workforce is more than 50 percent disabled persons and persons with special needs in any given year are exempted from paying corporate income tax.  The exemption applies to the applicable year in which disabled persons and persons with special needs met the required threshold.  Employees must have been with the company for longer than one year to be considered.

In the Republika Srpska:

In its Amendments to the Law on Profit Tax, the RS reduced taxes on investments in equipment intended for company production and investment in plants and immovable property used for manufacturing and processing.

For employers with at least 30 workers during a calendar year, there is a tax base reduction in personal income tax and mandatory employer contribution of the employer.  Employees must be officially listed with the RS Employment Office.

The 2012 RS Decree on Conditions and Implementation of the Investment and Employment Support Program (Official Gazette of RS No. 70/12) also established incentives meant to encourage and support direct investments, employment growth, and transfer of new knowledge and technologies.  To qualify for the incentives, participants must have existing investment projects in the RS manufacturing sector, a minimum investment value of KM 2 million (USD 1.2 million), and new employment for at least 20 workers.  The total funding awarded is proportional to the investment value, the number of newly employed, and the development level of the investment location.

In early 2015, the RS government passed the Law on Property Tax, which imposes a flat rate for property taxes in all municipalities; the Law on Income Tax, which exempts dividends and profit shares from taxation; the Law on Corporate Income Tax, which broadens the scope of deductible expenses and harmonizes taxes for foreign investors; and the Law on Contributions, which decreases tax contributions employers pay on salaries by 1.4 percent.

Foreign Trade Zones/Free Ports/Trade Facilitation

The BiH Law on Free Trade Zones allows the establishment of free trade zones (FTZs) as part of the customs territory of BiH.  Currently there are four free trade zones in BiH: Vogošća, Visoko, Herzegovina-Mostar, and Holc Lukavac.  One or more domestic or foreign legal entities registered in BiH may create a FTZ.

FTZ users do not pay taxes and contributions, with the exception of those related to salaries and wages.  Investors are free to invest capital in the FTZ, transfer their profits, and retransfer capital.  Customs and tariffs are not paid on imports into FTZs. FTZ is considered economically justified if the submitted feasibility study and other evidence can prove that the value of goods exported from a free zone will exceed at least 50 percent of the total value of goods imported to the free zone within the period of 12 months.

Performance and Data Localization Requirements

The BiH government does not have a “forced localization” policy in which foreign investors must use domestic content or sourcing in goods, human capital, or technology.  Also, there are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance.  There are no mechanisms in place used to enforce rules on maintaining a certain amount of data storage within the country.

5. Protection of Property Rights

Real Property

The 2020 World Bank Doing Business Report ranked BiH at number 96 out of 190 in the ease of registering property, which takes 7 procedures and an average of 35 days.  Registration of real property titles is generally acknowledged as a significant barrier to the real property and mortgage market development.  The present system consists of separate geodetic administrations for the Federation and the RS, which are responsible for real property cadasters.  Real property cadasters describe and certify the legal object, e.g. land, house, etc.  Separately, the land registry establishes legal ownership and rights for the specific object and is maintained by the municipal courts.  A significant portion of land and real estate property does not have a clear title due to restitution issues.  Foreigners must register a local company to purchase property; the company then makes the purchase and is recorded as the land owner.  The exception to this rule is if the foreigners’ country of citizenship has a reciprocal land ownership agreement with BiH.  In that case, the foreigner may directly own land.

Intellectual Property Rights

Companies should have a comprehensive intellectual property rights (IPR) strategy in BiH since rights must be registered and enforced according to local law.  BiH’s IPR framework consists of seven laws adopted and put into force by the Parliament in 2010.  This legislation is compliant with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and EU legislation.  BiH is a member of the World Intellectual Property Organization (WIPO) and party to a number of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performance and Phonograms Treaty.  Registration of patents and trademarks is on a first-in-time, first-in-right basis, so businesses should consider applying for trademark and patent protection prior to introducing their products or services in the BiH market.  Companies may wish to seek advice from local attorneys who are experts in IPR law.  Although existing legislation provides a basic level of protection, BiH’s civil and criminal enforcement remains weak.

Jurisdiction over IPR investigations is split between customs officials, entity inspectorates, and state and entity law enforcement agencies, none of which have specialized IPR investigation teams.  IPR crimes are prosecuted primarily at the state level.  Cases in which companies are indicted often involve fairly low-level violators.  More significant cases have sometimes languished for years with little action from prosecutors or judges.

Some BiH government entities have been using licensed software for a number of years, such as the state-level government which came into compliance in 2009, a significant step forward in the government’s commitment to IPR protection.  However, some of the Cantonal governments continue using unlicensed software as some officials still do not understand the implications for IPR infringement.

In BiH’s private sector, awareness of IPR, particularly the importance of copyright protection, remains low, though the emergence of a local software development industry is helping to raise awareness.  Curbing business software piracy could significantly improve the local economy by creating new jobs and generating tax revenue.  The failure to recognize the importance of preventing copyright infringement makes software producers and official distributors less competitive and the establishment of a legitimate market more difficult.  Businesses in BiH lose an estimated USD 15 million annually from the sale of counterfeit and pirated software, CDs, and DVDs.  According to the Business Software Alliance (BSA), the rate of illegal software installed on personal computers in BiH currently remains at 66 percent, which is the regional average.

Collective copyright protection and enforcement also remains a challenge in BiH.  There is currently no established local representative to collect and distribute royalties for visual artists, filmmakers, and literary authors.  The Association of Composers and Musical Authors is the only licensed collective management organization for music authors in BiH, and it faces enforcement challenges since both musical artists and consumers remain skeptical and unfamiliar with collective management protection.

The U.S. Government, in conjunction with local partners, has made IPR awareness within the BiH enforcement community a priority through judicial engagement and public awareness programs.

Bosnia and Herzegovina is not included in the U.S. Trade Representative’s (USTR’s) 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 www.wipo.int/directory/en/.

6. Financial Sector

Capital Markets and Portfolio Investment

Capital markets remain underdeveloped in BiH.  Both entities have created their own modern stock market infrastructure with separate stock exchanges in Sarajevo (SASE) and Banja Luka (BLSE), both of which started trading in 2002.  The small size of the markets, lack of privatization, weak shareholder protection, and public mistrust of previous privatization programs has impeded the development of the capital market.

Both the RS and Federation issued government securities for the first time during 2011, as part of their plans to raise capital in support of their budget deficits during this period of economic stress.  Both entity governments continue to issue government securities in order to fill budget gaps.  These securities are also available for secondary market trading on the stock exchanges.

In August 2020,  the international rating agency Standard and Poor’s (S&P) affirmed the credit rating of Bosnia and Herzegovina as “B” with a stable outlook.  The agency stated that the stable outlook reflects the anticipation that the risks coming from the economic impact of the coronavirus pandemic will be balanced over the next 12 months by the potential implementation of structural reforms and S&P’s expectations for stronger economic growth beyond 2020.Prior to the COVID-19 pandemic, the Agency forecasts real GDP growth of 2.7 percent over the next four years. The ratings on BiH continue to be supported by the favorable structure of state debt. Even taking into account the impact of the pandemic, net general government debt should remain about 30% of GDP over the next four years. Almost all external debt (which accounts for more than 70% of gross general government debt) is due to official bilateral or multilateral lenders, and is characterized by long maturities and favorable interest rates. The quality of banking regulations was also positively evaluated.  Positive reforms, according to analysts’ expectations, could include reducing the labor cost burden on business and enhancing governance of the country’s state-owned enterprise sector.

Money and Banking System

The banking and financial system has been stable with the most significant investments coming from Austria.  As of March 2020, there are 23 commercial banks operating in BiH: 15 with headquarters in the Federation and eight in the Republika Srpska.  Twenty-two commercial banks are members of a deposit insurance program, which provides for deposit insurance of KM 50,000 (USD 28,000).  The banking sector is divided between the two entities, with entity banking agencies responsible for banking supervision.  The BiH Central Bank maintains monetary stability through its currency board arrangement, and supports and maintains payment and settlement systems.  It also coordinates the activities of the entity Banking Agencies, which are in charge of bank licensing and supervision. Reforms of the banking sector, mandated by the IMF and performed in conjunction with the IMF and World Bank, are in progress.

BiH passed a state-level framework law in 2010 mandating the use of international accounting standards, and both entities passed legislation that eliminated differences in standards between the entities and Brčko District.  All governments have implemented accounting practices that are fully in line with international norms.

Foreign Exchange and Remittances

Foreign Exchange

The Law on Foreign Direct Investment guarantees the immediate right to transfer and repatriate profits and remittances.  Local and foreign companies may hold accounts in one or more banks authorized to initiate or receive payments in foreign currency.  The implementing laws in both entities include transfer and repatriation rights.  The Central Bank’s adoption of a currency board in 1997 guarantees the local currency, the convertible mark or KM (aka BAM), is fully convertible to the euro with a fixed exchange rate of KM 1.95583 = €1.00.

Remittance Policies

BiH has no remittance policy, although remittances are generally high due to a large diaspora.  Remittances are estimated to range up to 15 percent of total GDP.  Based on the two entities’ Laws on Foreign Currency Exchange, all payments in the country must be in national currency.

Sovereign Wealth Funds

BiH does not have a government-affiliated Sovereign Wealth Fund.

7. State-Owned Enterprises

In BiH, subnational governments own the vast majority of government-owned companies: the two entities and ten cantons.  Private enterprises can compete with state-owned enterprises (SOEs) under the same terms and conditions with respect to market share, products/services, and incentives.  In practice, however, SOEs have the advantage over private enterprises, especially in sectors such as telecommunications and electricity, where government-owned enterprises have traditionally held near-monopolies and are able to influence regulators and courts in their favor.  Generally, government-owned companies are controlled by political parties, increasing the possibilities for corruption and inefficient company management.  With the exception of SOEs in the telecom, electricity, and defense sectors, many of the remaining public companies are bankrupt or on the verge of insolvency, and represent a growing liability to the government.

The country is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

There have been no significant privatizations in the past few years.  Privatization offerings are scarce and often require unfavorable terms.  Some formerly successful state-owned enterprises have accrued significant debts from unpaid health and pension contributions, and potential investors are required to assume these debts and maintain the existing workforce.  Under the state-level FDI Law, foreign investors may bid on privatization tenders.  International financial organizations, such as the European Bank for Reconstruction and Development (EBRD) are seeking to be engaged on privatization and restructuring efforts across the remaining portfolio of state owned enterprises.  Historically, the privatization process in BiH has resulted in economic loss due to corruption.  From 1999 to 2015, more than 1,000 companies were fully privatized, while around 100 were partially privatized.  Some privatizations led to the loss of value of state property and many of the privatized companies were weakened or ruined in the privatization process.  The history of corrupt privatizations has raised concerns that further privatization would only lead to additional unemployment and the enrichment of a few politically-connected individuals.  Successful privatizations and restructurings that improve service delivery, business productivity, and employment would be very beneficial for the BiH economy, could help the image of privatization, and would build support for a long overdue shift away from a government-led economy.

The Federation government is focused on privatizing or restructuring some SOEs based on the Federation Agency for Privatization’s 2019 privatization plan.  The privatization plan includes the fuel retailer Energopetrol dd. Sarajevo, the engineering company Energoinvest, and the insurer Sarajevo-Osiguranje.  The remaining companies listed in the privatization plan have posted losses and suffered significant declines in their value, while others have only a small amount of government ownership.  The Federation government rejected media speculation that it plans to privatize the two majority government-owned telecom companies, BH Telecom (90 percent stake) and HT Mostar (50.1 percent stake).  At the same time, it has completed due diligence on the two telecom companies as part of its arrangement with the IMF.

The privatization process in the RS is carried out by the RS Investment Development Bank (IRBRS).  Many prospective companies have been already privatized, and out of 163 not yet privatized companies, many are being liquidated or undergoing bankruptcy.  In 2016, the RS government announced plans to sell its capital in 22 companies but the plan has not been implemented yet.  The plan envisions the privatizations to take place via the sale of government shares on the stock exchange.  Although the RS National Assembly passed a decision that the entity has no plans to privatize the energy sector, the RS government maintains the possibility of joint ventures in the energy sector.

8. Responsible Business Conduct

Foreign and local companies conduct some corporate social responsibility activities and there is a general awareness of standards for responsible business conduct.  More could be done in this area to respond to BiH’s various social and economic needs.  In general, consumers tend to view favorably companies that initiate and carry out charitable activities in the local market.  Corporate governance is not part of the broader economic mindset, and shareholder protection is not a priority.  The financial system is not yet developed enough to understand and apply principles of corporate governance and shareholder protection.  The BiH Consumer Ombudsman leads efforts to ensure that consumers are aware of their rights and takes action against organizations that have been accused of violating consumer rights.  The local American Chamber of Commerce (AmCham) has an Ethics and Compliance Committee to raise awareness about responsible business conduct and make it a more routine part of doing business in BiH.

Additional Resources

Department of State

Department of Labor

9. Corruption

Corruption remains prevalent in many political and economic institutions in Bosnia and Herzegovina and raises the costs and risks of doing business.  BiH’s overly complex business registration and licensing process is particularly vulnerable to corruption.  The multitude of state, entity, cantonal, and municipal administrations, each with the power to establish laws and regulations affecting business, creates a system that lacks transparency and opens opportunities for corruption via parafiscal fees.  Paying bribes to obtain necessary business licenses and construction permits, or simply to expedite the approval process, occurs regularly.  Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency.

Transparency International’s (TI) 2020 Corruption Perception Index ranked BiH 111 out of 180 countries.  According to TI, relevant institutions lack the will to actively fight corruption; law enforcement agencies and the judiciary are not effective in the prosecution of corruption cases and are visibly exposed to political pressures; and prosecutors complain that citizens generally do not report instances of corruption and do not want to testify in these cases.  In 2011, BiH established a state level agency to coordinate efforts to combat corruption; while officially active, the agency has shown limited results.

Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate.  It deters foreign investment, stifles economic growth and development, distorts prices, and undermines the rule of law.  U.S. companies must carefully assess the business climate and develop an effective compliance program and measures to prevent and detect corruption, including foreign bribery.  U.S. individuals and firms should take the time to become familiar with the relevant anticorruption laws of both BiH and the United States in order to properly comply, and where appropriate, seek the advice of legal counsel.

The U.S. government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, and uphold obligations under relevant international conventions.  A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies.

U.S. firms should become familiar with local anticorruption laws, and, where appropriate, seek legal counsel.  While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

The U.S. Department of Commerce offers a number of services to aid U.S. businesses.  For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting due diligence when choosing business partners or agents overseas and provide support for qualified U.S. companies bidding on foreign government contracts.  For a list of U.S. Foreign and Commercial Service offices, please visit the Commercial Service website:  www.trade.gov/cs

Alleged corruption by foreign governments or competitors can be brought to the attention of appropriate U.S. government officials, including U.S. Embassy personnel or through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” Website at:

https://tcc.export.gov/Report_a_Barrier/index.asp

Contact at government agency or agencies responsible for combating corruption:

BiH Agency for the Prevention of Corruption and Coordination of the Fight against Corruption
Phone: +387 57 322 540
email: kontakt@apik.ba
www.apik.ba

Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption):

Transparency International BiH
Phone: +387 51 216928
Fax: +387 51 216369
email: info@ti-bih.org
www.ti-bih.org

BiH signed and ratified the UN Anticorruption Convention in October 2006.  BiH is also party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

10. Political and Security Environment

The war in Bosnia and Herzegovina ended with the Dayton Peace Accords in November 1995.  There have been no attacks targeting foreign investments.  However, there are still risks from occasional, localized political and criminal violence.  In mid-June 2013 and early 2014, large groups of citizens protested the country’s economic stagnation and the government’s apparent inability to improve the situation.  The vast majority of protests were peaceful with relatively small numbers of participants, but some protests in Sarajevo, Mostar, and Tuzla resulted in attacks on government buildings, destruction of government property, and injuries.  There were no reports of foreign investors being directly targeted in the protests.

11. Labor Policies and Practices

BiH has a workforce with low labor costs by Western standards, and university enrollments have been increasing for a number of years.  However, several sectors such as construction, information technology, and health care have experienced a significant loss of skills over the past decade due to a lack of education and job training opportunities, as well as emigration.  Mandatory contributions on labor are high, discouraging employment of new workers and increasing incentives for unregistered employment.

Each entity has its own pension and health care systems, and the systems are not harmonized.  Companies working in both entities have two sets of rules to follow related to employment, wages, and contributions.  Employees and employers share the costs of health care, pension, and unemployment insurance in the Federation while in the Republika Srpska employers cover all of these costs, as well as child care and unemployment contributions.  Many employers underreport their labor force to avoid paying taxes and benefits, creating a significant gray market.  In December 2020 the number of registered unemployed in BiH amounted to 413,627. The official rate of registered unemployment according to the BiH Statistical Agency was approximately 34.4 percent in January 2021, while the BiH Statistics Agency’s Labor Force Survey suggests the total unemployment rate was 17.5 percent in 2020.  However, unemployment based on the International Labor Organization (ILO) definition, which factors in unregistered workers in the “gray economy,” was approximately 20.5 percent, and estimates the share of informal employment in total employment was 30 percent in 2019.  The youth unemployment rate stands at  57.5 percent, placing Bosnia an Herzegovina’s youth unemployment rate among the highest in the world, driven by widespread corruption, nepotism and economic stagnation.  The majority of unemployed persons are skilled workers.

Both entities passed updated labor laws in 2016. The new labor laws are critical to modernizing the BiH labor code, a system inherited from former Yugoslavia that is rigid, outdated, and unfriendly to businesses.  Concrete implementation has yet to be seen, but should reduce the cost of employment and ease of hiring and firing for private companies and the public sector.  The laws should also decrease or eliminate costly benefits that are out of line with European standards and streamline hiring and firing. Reforming the labor laws in BiH has been a long and challenging process that the governments avoided for years.  The passage of the new labor laws represents an important first step toward economic reform that will modernize the BiH labor market and bring it closer to EU standards.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

Overseas Private Investment Corporation (OPIC), now the U.S. International Development Finance Corporation (DFC), concluded an investment incentive agreement with BiH in 1996.  The DFC has limited  activities in BiH at the moment, such as a loan guarantee program with USAID, but is open to providing insurance for investors against political risk; coverage of losses due to expropriation of assets, political violence, and currency inconvertibility; and insurance coverage for contracting, exporting, licensing and leasing transactions.

U.S. EXIM provides trade financing solutions – including export credit insurance, working capital guarantees, and guarantees of commercial loans to foreign buyers – to empower exporters of U.S. goods and services. Political risk insurance is also available from the EU Investment Guarantee Trust for BiH, administered by the Multilateral Investment Guarantee Agency, a World Bank affiliate.

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) (USD) 2019 $20.2 billion* 2019 $20.2 billion www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI ($M USD, stock positions)     2020 $250 million (Post estimate) N/A N/A N/A
FDI in the United States ($M USD, stock positions)         N/A N/A N/A N/A N/A
Total inbound stock of FDI as %  GDP ($M USD, stock positions)       N/A N/A N/A N/A N/A

*Source: BiH Statistics Agency

Table 3: Sources 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 $8,594 100% Total Outward 524 100%
Austria $1,558 18.1% Croatia 130 24.8%
Croatia $1,393 16.2% Germany 97 18.5%
Serbia $1,143 13.3% Montenegro 87 16.6%
Slovenia $620 7.2% Serbia 74 14.1%
Netherlands $469 5.4% Romania 37 7.0%
“0” reflects amounts rounded to +/- USD 500,000.

According to the BiH Central Bank preliminary data for 2020, FDI inflow in Bosnia and Herzegovina decreased by 34% comparing to the same period of 2019 and amounted to USD 299 million. The all-time high for FDI was USD 2.1 billion in 2007.  Most investments in 2014-2020 came from Croatia, Austria, Russia, Serbia, The Netherlands, UAE, and the United Kingdom.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

United States Embassy Sarajevo
Economic/Commercial Section
Robert C. Frasure 1
71000 Sarajevo
Bosnia and Herzegovina
tel.  +387-33-704-000
fax. +387-33-659-722
email: sarajevocommercialservice@state.gov
website: https://ba.usembassy.gov/business/

Bulgaria

Executive Summary

Bulgaria continues to be seen by many investors as an attractive low-cost investment destination, with government incentives for new investment. The country offers some of the least expensive labor in the European Union (EU) and low and flat corporate and income taxes. However, Bulgaria has the lowest labor productivity rate in EU, and in the medium term, productivity is further at risk due to a rapidly shrinking population.

The government expects to adopt the Euro in early 2024, following its joining the European Exchange Rate Mechanism (ERM II) in July 2020 and the EU’s Banking Union in October 2020. The adoption of the euro will eliminate currency risk and help reduce transaction costs with some of the country’s key European trading partners.

In 2020 Bulgaria suffered from the COVID-19 pandemic and related shutdowns, although the impact on the economy was less severe than in many other European countries. Deficit spending in 2020 was three percent of GDP, the lowest in the EU. Tourism, logistics, the service industries, and the automotive sector were particularly hard hit by the pandemic. The Bulgarian economy declined 4.2 percent in 2020, and is expected to rebound in 2021, with estimates ranging between 2.5 and 4.1 percent growth. This recovery is expected to be driven by higher wages, EU-funded post-COVID public investment funds, and export increases.

Bulgaria will receive EUR 6.2 billion over a six-year period (2021-2026) from the EU’s post-COVID recovery grant funds to improve its economy in areas including green energy, digitalization, and private sector development.

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

Foreign investors remain concerned about rule of law in Bulgaria.   Along with endemic corruption, investors cite other problems impeding investment including difficulty obtaining needed permits, unpredictability due to frequent regulatory and legislative changes, sporadic attempts to negate long-term government contracts, and an inefficient judicial system.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 69 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 61 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 37 of 129 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 756 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 USD 9,750 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted.

The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg contains general information for foreign investors. IBA serves as a one-stop shop for foreign investors and certifies proposed investments for eligibility for administrative services.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits to foreign and domestic private entities establishing and owning businesses in Bulgaria.  The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) banned for business by companies registered in offshore jurisdictions with more than 10 percent foreign participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a bilateral tax treaty for the avoidance of double taxation (including the United States).

Bulgaria has no specific law or coordinated mechanism in place for screening individual foreign investments.  A potential foreign investment can be scrutinized on the grounds of its potential national security risk or through the Law on the Measures against Money Laundering. As each ministry is responsible for screening investments within its purview, interagency coordination is lacking, and there are no common standards. Since the full adoption of the EU investment screening regulation in October 2020, Bulgaria has fulfilled the preliminary requirements of the EU mechanism for cooperation in prescreening new FDI.

Other Investment Policy Reviews

There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations.  In 2019, Organization for Economic Cooperation and Development (OECD) published reviews of Bulgaria’s healthcare sector and state-owned enterprises.  As part of Bulgaria’s Action Plan for deeper cooperation, in January 2021 OECD published an Economic Assessment of Bulgaria in which it acknowledged the successful integration of Bulgarian manufacturing firms into global production chains and sound macroeconomic policies prior to the pandemic. At the same time the report highlighted as key policy challenges Bulgaria’s high income inequality, relative poverty, and an aging and rapidly shrinking population. In February 2021 OECD published a study of Bulgarian municipalities that acknowledged solid progress in local governance standards but also noted insufficient progress in bridging regional disparities.

Business Facilitation

Bulgaria typically supports small- and medium-sized business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export capacity.  The state-owned Bulgarian Development Bank has committed to supporting small- and medium-sized businesses in Bulgaria, including through the post-COVID-19 recovery period.  Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well. Electronic company registration is available at: https://portal.registryagency.bg/commercial-register. Women receive equitable treatment to men, and the Bulgarian law does not discriminate against minorities doing business.

Bulgaria dropped two places to 61st (out of 190 surveyed economies worldwide) in the World Bank’s 2020 Doing Business (DB) report, scoring lowest in the Getting Electricity category, in 151st place, and in the Starting a New Business category, in 113th place.  The relatively large number of administrative procedures for a business to complete either of these actions, along with the associated delays, contributed to the low scores in both categories.  It took an average of 23 days to start a limited liability company in Bulgaria in 2020, compared to the OECD (high income) average of 9.2 days and peer average of 11.9 days.

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

Bulgaria has a Bilateral Investment Treaty (BIT) with the United States, which obligates the parties to uphold national treatment and includes provisions for investor-state dispute settlement through international arbitral bodies. The BIT also includes an annex side letter on protections for intellectual property rights. With Bulgaria’s accession to the EU, Bulgaria and the United States exchanged notes in 2003 to make Bulgaria’s obligations under the BIT compatible with its EU obligations and finalized the process in January 2007.

As of 2019, Bulgaria also has bilateral investment treaties signed with the following countries: Albania, Algeria, Argentina, Armenia, Austria, Azerbaijan (not in force), Bahrain (not in force), Belarus, Belgium, China, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Georgia, Germany, Ghana (not in force), Greece, Hungary, India (terminated), Indonesia (terminated), Iran, Israel, Italy (terminated), Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Northern Macedonia, Malta, Moldova, Mongolia (not in force), Montenegro, Morocco, Nigeria (not in force), North Korea (not in force), Oman, Pakistan (not in force), Poland, Portugal, Qatar (not in force), Romania, Russia, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sudan (not in force), Sweden, Switzerland, Syria, Thailand, The Netherlands, Tunisia, Turkey, Ukraine, United Kingdom and Northern Ireland, Uzbekistan, Vietnam, and Yemen.

Bulgaria has a bilateral tax treaty with the United States.  As of 2019, Bulgaria has signed bilateral double taxation treaties with the United States and the following countries: Albania, Algeria, Armenia, Austria, Azerbaijan, Bahrain Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Northern Macedonia, Malta, Moldova, Mongolia, Montenegro, Morocco, North Korea, Norway, Poland, Portugal, Qatar, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Syria, Thailand, The Netherlands Turkey, Ukraine, United Arab Emirates, United Kingdom and Northern Ireland, Uzbekistan, Vietnam, and Zimbabwe.

3. Legal Regime

Transparency of the Regulatory System

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

In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities and provides for silent consent (default judgement in favor of the requestor) when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. The Bulgarian government licenses the export of dual-use goods and bans the export of all goods under international trade sanctions lists.  The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles.  Central government debt and debt guarantees are published monthly, and debt obligations by individual state-owned enterprises (SOEs) are published every three months on the website of the Ministry of Finance.

International Regulatory Considerations

Bulgaria became a member of the World Trade Organization (WTO) in December 1996. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the responsibility of the EU and the European Commission, which coordinates them with the 27 member states.

Legal System and Judicial Independence

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

There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime and High Level Corruption) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000 (USD 15,375), excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000 (USD 30,750). Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria’s legislation has been largely aligned with EU directives to provide adequate means of enforcing property and contractual rights. In practice, however, investors regularly complain about regulatory impediments, prosecutorial intervention in administrative cases, and inconsistent jurisprudence.  Overall, the government’s handling of investment disputes has been slow, interagency coordination is poor, and intervention at the highest political level is often required.

Laws and Regulations on Foreign Direct Investment

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, knowledge intensive services, education, and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local governments. The most common form of PPPs are concessions, which include the lease of government property for private use for up to 35 years for a construction and service concession and up to 25 years for other types of concession. The term of the concession may be extended by a maximum of one third of the original term.

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

The Invest Bulgaria Agency (IBA) is the government’s investment attraction body and serves as a one-stop-shop for foreign investors. It provides information, administrative services, and incentive assessments to prospective foreign investors.

Competition and Antitrust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

Bankruptcy Regulations

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

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

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

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

The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative, and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms.  The license of a bank may be withdrawn under the conditions set out in Article 36, par. 1 of the Law on Credit Institutions.

Bulgaria ranks 61 out of 190 economies in the Resolving Insolvency category of the World Bank’s Doing Business 2020 Report.

4. Industrial Policies

Investment Incentives

The 2004 Investment Promotion Act (revised in 2018) stipulates equal treatment of foreign and domestic investors.  The law encourages investment in manufacturing, services, high technology, education, and human resource development via a range of incentives, which include: helping investors purchase municipal or state-owned land without tender, providing state financing for basic infrastructure and for training new staff, and reimbursing the employer’s portion of social security payments.  The law also provides tax incentives and fast-track administrative procedures for public-private partnerships.  Priority investors may receive incentives such as below-market prices when acquiring property rights (full or limited) from the central or municipal government, government grants for research and development (R&D) and education projects, and institutional support for establishing PPPs.  The government policy for investment promotion excludes a number of sectors classified as strategic.

Additional investment incentives include a two-year valued-added tax (VAT) exemption on equipment imports for investment projects over EUR 2.5 million, provided the project will be implemented within a two-year period and create at least 20 new jobs. Corporate income tax exemption can also be granted for manufacturing projects, with no minimum investment requirement, that are implemented in high unemployment areas (25 percent higher than average nationwide unemployment) and create at least 10 jobs, of which at least fifty percent are created in productive sector.

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

Foreign Trade Zones/Free Ports/Trade Facilitation

The role of Free Trade Zones vastly diminished following Bulgaria’s full integration into the EU single market in 2007.  At the same time, EU integration encouraged local authorities to seek partnerships with the private sector and provide resources (i.e., land, infrastructure, etc.) for the development of industrial zones and technological parks.  Industrial zones or technology parks with the necessary technical infrastructure to attract new investment can be designated as nationally significant projects by a Council of Ministers decision on a proposal made by the Minister of Economy.  A 2021 Industrial Parks Act defines an ‘industrial park’ as an area located in one or more municipalities with favorable conditions. The government’s industrial park policy is conducted by the Council of Ministers, the Minister of Economy, and local municipalities. The Ministry of Economy keeps an electronic registry of all industrial parks.

The Trakia Economic Zone in south-central Bulgaria is one of the largest industrial area in Southeast Europe, attracting over EUR 2 billion in investment and sustaining over 30,000 jobs.  In addition, the state-owned National Industrial Zones Company (NIZC) currently operates fully functioning industrial zones in Sofia, Burgas, Vidin, Ruse, Svilengrad, Stara Zagora and Varna.  Under construction are future industrial zones in Suvorovo (Varna), Telish (Pleven), Kardzhali and Karlovo. Investors in these economic zones benefit from established infrastructure, location, and transport logistics. The common thread among all these economic zones is that they are either located in regions with sufficient available labor, in poor regions where the government provides special investment incentives, or at important cross-border junctures. Sofia Tech Park has partnered with the Bulgarian Academy of Sciences, several local universities, and several local groups in what is expected to become the largest R&D center and high-tech incubator in Bulgaria.

Performance and Data Localization Requirements

Bulgaria does not impose export performance or local content requirements as a condition for establishing, maintaining, or expanding an investment. Employment visas and work permits are required for most expatriate personnel from non-EU countries. Many U.S. companies have experienced difficulties obtaining work permits for their non-Bulgarian, non-EU employees.  Recently adopted changes in the Law on Labor Migration and Labor Mobility no longer mandate Bulgarian employers to have canvassed the local labor market before hiring non-EU labor. Non-EU workers with long-term residence permits cannot exceed 35 percent of the total workforce in Bulgarian small- and medium-sized companies, or 20 percent in large firms.  In 2017 the government simplified procedures and reduced issuance time for work visas for non-EU workers.  Furthermore, it is possible for non-EU students who have completed their education in Bulgaria to continue working in the country without having to reenter the country.

Some government ministries have mandated that for the purchase of new software that the winning bidder should submit the source code as well. U.S. companies have found this requirement to be unreasonable and discriminatory.

5. Protection of Property Rights

Real Property

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

Mortgages are recorded centrally with the Bulgarian Registry Agency, at registryagency.bg .

In the World Bank’s 2020 Doing Business report, Bulgaria climbed one place to 66th, out of 190 countries, in the category of registering property.

Intellectual Property Rights

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

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

Bulgaria is a member of the Convention on Granting of European Patents (European Patent Convention) and a contracting state of the European Patent Office (EPO). Bulgaria has also signed the London agreement for facilitating the validation process, but has yet to amend its own law accordingly. Bulgaria is also part of the Patent Cooperation Treaty (PCT). Bulgaria grants the right to exclusive use of inventions for 20 years from the date of patent application, subject to payment of annual fees. Patent holders can also file for a supplementary protection certificate (SPC) to extend the protection duration. Innovations can also be protected as utility models (small inventions), which are registered without verification of novelty or industrial applicability. Validity of a utility model registration is four years, which can be extended for two more three-year periods.

Under Bulgarian law, new and original industrial designs can be granted certificates from the Patent Office and entered into the state register, with no required verification by the Patent office for novelty or originality.  The term of protection is 10 years, renewable for up to 25 years. Bulgaria is a contracting state of the Hague Agreement Concerning the International Deposit of Industrial Designs.

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

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

Bulgaria is a member of the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.  Bulgaria enforces EU legislation for protecting geographical indications (GIs) and Traditional Specialties Guaranteed (TSG).

A new Law on Marks and Geographical Indications took effect in December 2019, updating procedures for trademark registration.  Trademarks and service marks are protected via registration with the Bulgarian Patent Office, or registration as a European Union Trademark, or an international registration under the Madrid Agreement and the Madrid Protocol that designates Bulgaria. A trademark is normally granted within ten months of application filing.  Pending applications are published to allow for objections.  Rejections can be appealed to the Patent Office’s Disputes Department. Decisions of this department can be appealed to the Sofia Administrative Court within three months. The right of exclusive use of a trademark is granted for ten years from the date of submitting the application. Extension requests must be filed during the final year of validity and can be renewed up to six months after expiration. Protection may be terminated at third-party request if a trademark is not used for a five-year period.

Trademark infringement is a significant problem in Bulgaria for U.S. cigarette and apparel producers, and smaller-scale infringement affects other U.S. products. Bulgarian legislation provides for criminal, civil, and administrative remedies against trademark violation. Bulgaria has implemented simplified border control procedure for the destruction of seized fake goods without civil or criminal trial.  In addition to civil penalties prescribed by the Trademarks and Geographical Indications Act (TGIA), the Criminal Code prohibits use of a third person’s trademark without the proprietor’s consent.  In practice, criminal convictions for trademark and copyright infringement are rare and sentencing tends to be lenient.  Legal entities cannot be held liable under the Criminal Code.

In April 2019 a new law on trade secret protection was adopted.  The law allows for civil action for trade secret infringement. There is no special court for cases related to trade secrets.

Bulgarian customs maintain a section on its official web site customs.bg instructing rightsholders of the procedure for filing IPR infringement cases. In 2020, customs received a total of 1,442 rightsholder complaints of suspected copyright infringement, acting on 1,020 of these, a 57 percent increase over 2019. Customs reported seized counterfeit goods mainly originated from Turkey, China, Hong Kong, and the United Arab Emirates.

In 2018, Bulgaria was removed from USTR’s Special 301 Watch List after demonstrating improvement in its enforcement of IPR law.  Online and broadcast piracy, however, remain a copyright enforcement issue in Bulgaria. While cyber police are generally responsive to reports of online copyright infringements, investigation of computer-based IPR crimes is slow, and very few have resulted in criminal convictions.

The 2020 Notorious Markets Report lists an online provider of pirated content which is reportedly hosted in Bulgaria.

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

6. Financial Sector

Capital Markets and Portfolio Investment

The Bulgarian Stock Exchange (BSE), the only securities-trading venue in Bulgaria, operates under a license from the Financial Supervision Commission and is majority-owned by the Ministry of Finance. The 1999 Law on Public Offering of Securities regulates the issuance of securities, securities transactions, stock exchanges, and investment intermediaries.   The law is aimed at providing investor protection and at developing a transparent local capital market. In 2004 BSE performed its first IPO transaction. In 2018 BSE acquired 100 percent of the Independent Bulgarian Energy Exchange (IBEX), Bulgaria’s first independent electricity platform trader.

Since its 2007 entry in the EU, Bulgaria has aligned its regulation of securities markets with EU standards under the Markets in Financial Instruments Directive (MiFID).  The BSE is a full member of the Federation of European Stock Exchanges (FESE) and operates under the Deutsche Boerse’s trading platform Xetra.  The BSE’s total market capitalization comprised 25 percent of Bulgaria’s GDP in 2020, up slightly from 2019.

Bulgarian companies strongly prefer to obtain financing from local banks instead of drawing from the local financial markets. At the end of 2018, the Financial Supervision Commission approved the ‘SME beam market,’ a special market that provides small and medium-sized businesses the opportunity to more easily raise new capital.

Foreign investors can access credit on the local market.

Money and Banking System

The Bulgarian bank system is well capitalized and liquid. As of the end of September 2020, the total capital adequacy ratio was 22.9 percent, above the EU average and adequately shielding domestic banks against potential macroeconomic risks. In 2020 the Bulgarian National Bank imposed a temporary payment deferral of existing loans as an anti-COVID-19 measure. As of September 2020, there were 24 banks (including 6 branches), with total assets of BGN 119.2 billion (USD 73.9 billion), equivalent to 100.4 percent of GDP. The market share of EU-owned banks amounted to 74.9 percent, the share of local banks was 22.1 percent, and the share of non-EU banks was 3.1 percent. The top five banks’ weight in the banking system was 66.2 percent in September 2020. Non-performing loans were equal to 8.6 percent of the total loan portfolio of the banking system.

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

Foreign Exchange and Remittances

Foreign Exchange

Bulgaria operates a Currency Board Arrangement (CBA) whereby the lev (BGN) is fixed to Euro, exchanging EUR 1 for BGN 1.95583. This CBA prohibits the central bank from bailing out insolvent domestic banks or paying for the government’s deficit spending. Foreign exchange is freely accessible. The Foreign Currency Act stipulates that anyone may import or export up to EUR 10,000 or its foreign exchange equivalent without filling out a customs declaration. The import or export of over EUR 10,000 or its equivalent in Bulgarian leva or another currency across the border to or from a non-EU country must be declared to the customs authorities; in the case of an EU country, it must be declared if requested by the customs authorities. Exporting over BGN 30,000 (USD 18,750) in cash requires a declaration about the source of the funds, supported by documents certifying that the exporter does not owe taxes (unless the funds were earlier imported and declared).  When there is evidence for existing debt obligations of over BGN 5,000 (USD 3,125), customs authorities will prevent the transfer of funds.

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

Bulgaria joined the Eurozone’s precursor mechanism ERM II in July 2020 and the EU Banking Union in October 2020.

Remittance Policies

There is no official policy regarding remittances. Remittances are an increasingly important source of funding for Bulgarian families with relatives overseas. Over the last several years, remittances have exceeded the new flow of FDI in the country. In 2020, due to COVID-19, that trend reversed, with Bulgarians working in other countries remitting only EUR 340 million, compared with EUR 2.1 billion in new FDI. According to Bulgarian National Bank data, this remittances sum marked a 72 percent decline compared to EUR 880 million in 2019.

Sovereign Wealth Funds

Bulgaria does not have a sovereign wealth fund.  The government maintains a multiannual fiscal savings reserve, a farmer subsidy fund, and an electricity price premium fund. Their annual budgeting is compliant with the government’s budget plans.

7. State-Owned Enterprises

Upon EU accession, Bulgaria was recognized as a market economy, in which the majority of the companies are private.  Significant state-owned enterprises (SOEs) remain, however, such as railways and the postal service.  SOEs also predominate in the healthcare, infrastructure, and energy sectors; many of these are collectively managed by the same holding company (also an SOE).  Some of the SOEs receive annual government subsidies for current and capital expenditures, regardless of their actual performance.  SOEs’ budgets and audit reports are posted on the Ministry of Finance website. The list of all SOEs can be found on:  http://www.minfin.bg/bg/page/948 .  According to the Bulgarian National Statistical Institute (NSI), there is a sizeable state-owned sector consisting of approximately 350 SOEs held by the central government and 580 by subnational governments.  In 2019, the government participation in the overall economy equalled 9.3 percent.

In 2019 Parliament approved the State Enterprise Act, introducing updated corporate standards and management practices.  The law lists timeline and criteria for SOE senior management approval.  SOEs are typically run by government elected boards.

Public and private sector companies are equally treated vis-à-vis bidding on concessions, taxation, or other government-controlled processes.  Bulgaria became party to the WTO’s Government Procurement Agreement (GPA) upon its entry into the EU in 2007.

Privatization Program

No major privatizations are currently planned in Bulgaria. Parliament must approve government proposals to privatize any company with over 50 percent government ownership.  All majority or minority state-owned properties are eligible for privatization, with the exception of those included in a specific list, including water management companies, state hospitals, and state sports facilities. The sale of specific parts of such companies follows a Council of Ministers decision or a decision of the Agency for Public Enterprises and Control, after a proposal made by the government-owned majority holder of the company. State-owned military manufacturers can be privatized with Parliamentary approval.

Municipally owned property can be privatized upon decision by a municipal council or authorized body, and upon publication of the municipal privatization list in the national gazette.

The 2010 Privatization and Post-Privatization Act created a single Privatization and Post-Privatization Agency responsible for privatization oversight.  The new State Enterprise Act in 2019 reshuffled and renamed the agency into the Agency for Public Enterprises and Control (www.appk.government.bg/bg/17).

Foreign investors can participate in privatization programs.

8. Responsible Business Conduct

In 2007, the government adopted a National Corporate Governance Code to encourage companies to adhere to the principles of responsible business conduct (RBC).   In 2019, the government approved a Corporate Social Responsibility Strategy for the period until 2023. The non-governmental Bulgarian Network for Social and Corporate Responsibility (CSR) (https://csr.bg/) promotes CSR among Bulgarian companies and reports good business practices.

There is a growing awareness of RBC standards and business’ obligation to proactively conduct due diligence to ensure they are doing no harm, with larger international firms generally further along than smaller domestic companies. Bulgarian companies are more frequently building RBC awareness through events organized in partnership with employer associations.

Bulgarian NGOs continued to report the exploitation of children in certain industries, particularly small family-owned shops, textile production, restaurants, construction businesses, and periodical sales. Children living in vulnerable situations, particularly Roma children, were exposed to harmful and exploitative work in the informal economy, mainly in agriculture, construction, and the service sector.

Bulgaria is not a member of either OECD or the Extractive Industries Transparency Initiative.

Additional Resources 

Department of State

Department of Labor

9. Corruption

Conflict of interest is legally defined in the Law on Combatting Corruption and Illegal Asset Forfeiture, Article 52: “Conflict of interest exists when the contracting authority, its employees or employees outside its structure who are involved in the preparation or award of the contract or who may influence the outcome of the contract have an interest, which may lead to a benefit and which could be considered to affect their impartiality and independence in connection with the award of the public contract.” Article 81 also defines conflict of interest as “receiving a material benefit” by senior public officials and related persons. In practice conflict of interest allegations are rarely prosecuted and sanctioned by law.

Bulgaria has laws, regulations, and specialized institutions to combat corruption, including an Anti-Corruption Commission with a broad mandate to investigate conflict of interest and seek asset recovery. Bribery is a criminal act under Bulgarian law both for the giver and for the receiver. Individuals who mediate and facilitate a bribe are also held accountable.  With the gradual introduction of technologies in public administration, including e-filing and electronic issuance of certificates, some progress has been made in addressing petty corruption.  

However, high-level corruption, particularly in public procurement and use of EU funds, remains a serious concern.  Political will and investigative capacity remain limited, and Bulgaria has yet to secure a final conviction of a senior official for corruption.  The high-profile prosecutions that do take place are often seen as selective or politically motivated and typically end in acquittals after a lengthy judicial process.  Bulgaria ranks 69th out of 180 countries in Transparency International’s Corruption Perception Index for 2020, the worst showing in the EU.   Human trafficking, narcotics, and contraband smuggling all contribute to corruption.

In 2018, the government established the Commission on Corruption Prevention and Illegal Assets Forfeiture, commonly referred to as the Anti-Corruption Commission, incorporating previously independent bodies combating corruption.   The Anti-Corruption Fund (acf.bg) , a civic organization created in 2017, conducts its own investigation of cases suspected either of corruption or conflict of interest among Bulgarian senior politicians and policy makers.

Bulgaria has ratified the Anti-Bribery Convention and is a participating member of the OECD Working Group on Bribery. Bulgaria has also ratified the Council of Europe’s Convention on Laundering, Search, Seizure, and Confiscation of Proceeds of Crime (1994) and Civil Convention on Corruption (1999). Bulgaria has signed and ratified the UN Convention against Corruption (2003); the Additional Protocol to the Council of Europe’s Criminal Law Convention on Corruption; and the UN Convention against Transnational Organized Crime.  In 2018, the Bulgarian Parliament adopted the Anti-Money Laundering Act, which transposes the 2015 EU Directive on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.  The new law required registered business groups to declare by May 2019 their beneficial owners. Some companies continue to avoid ownership publication by registering shell entities in tax heavens and offshore zones.

Resources to Report Corruption

Mr. Sotir Tsatsarov, Chairman
Commission on Corruption Prevention and Illegal Assets Forfeiture
6, Sveta Nedelya Sq. Sofia, 1000  ca
ciaf@caciaf.bg

Mr. Boyko Stankushev
Director and Member of the Managing Board
Mr. Philip Gunev
Chairman of the Managing Board
Anticorruption Fund
71, Knyaz Boris Str., Office 2
acf@acf.bg

Mr. Ognyan Minchev, Board President
Transparency International Bulgaria
PO Box 72, Sofia
mbox@transparency.bg 

10. Political and Security Environment

Daily anti-government protests that took place throughout the summer in Sofia generated sporadic reports of excessive force by protestors and police, but there has been no significant political violence in recent years.

11. Labor Policies and Practices

Bulgarians average 11.4 years of schooling, and have strong backgrounds in engineering, medicine, economics, and the sciences, but there is a shortage of professionals with management skills as well as of skilled workers. Foreign and local investors have also complained of a mismatch between the educational system and the labor market’s demands.  Employers have also been slow to offer training. Emigration, particularly among young skilled professionals, has exacerbated the shortages.  Bulgaria slipped two places to 56th in the UN Human Development Index for 2020, the lowest score among EU countries.

The Bulgarian labor market continues to be rigid in classifying different forms of employment (part-time, per-hour, etc.). Driven by business disruption due to the COVID-19 pandemic, in 2020 the Bulgarian Labor Code was amended to allow businesses to reclassify full-time workers as part-time while the state of emergency is in force.  The Bulgarian Labor Code limits overtime work to 300 hours per calendar year. Undeclared work is the most common informal labor market practice. The share of the informal economy has decreased from 36.7 percent in 2010 to 21.5 percent in 2020.

The Roma community makes up an estimated 10 percent of the total population and a higher percentage of the labor force. These numbers are increasing as a result of demographic trends.  The Roma community is subject to discrimination and is socially marginalized, with lower levels of educational attainment.  Consequently, Roma are overrepresented among unskilled workers and in the grey economy. Large numbers of Roma also seek unskilled, seasonal employment in other EU member states.

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

There are very few restrictions on trade union activity, but employees in smaller private firms are often not represented.  Unionized labor is most commonly seen in the highly subsidized railway and postal sectors.  Under the Bulgarian Labor Code, employer-employee relations are regulated by employment contracts. Collective labor contracts can be concluded at the sectoral level, enterprise level, regional, and municipal levels. The Labor Code addresses worker occupational safety and health issues and mandates a minimum wage (set by the Council of Ministers).  The minimum wage in 2021 is BGN 650 (USD 406) per month.   The Bulgarian Labor Code provides for benefits for departing employees depending on the reason for termination of the employment contract and on whose initiative the termination was enacted.   In cases of forcible termination, the employee is normally entitled to compensation from the employer, generally up to one month of gross salary.

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

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) 2020 $68,830 N/A N/A www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $861.5 2019 $756 BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2019 $9.1 2016 $5 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2019 75.6 2019 75.3 UNCTAD data available at https://stats.unctad.org/
handbook/EconomicTrends/Fdi.html  

* Source for Host Country Data:  Bulgarian National Bank

Bulgaria’s FDI flows for 2020 were USD 2.6 billion (EUR 2.1 billion), or 3.5 percent of 2020 GDP, compared to USD 1.4 billion, or 1.9 percent of GDP, in 2019.

Note: For inward investment, the Netherlands holds the top place largely because various companies, most notably Russia’s Lukoil, channel investments to Bulgaria through Dutch subsidiaries.  While official data routinely lists the United States as the 13th largest source of FDI into Bulgaria, a 2018 study by AmCham and the Institute for Market Economics, which accounted for investment flows via European subsidiaries of U.S. companies, put the United States in sixth place.  Marshall Islands is popular tax haven for Bulgarian oligarchs.

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 52,026 100% Total Outward 2,966 100%
The Netherlands 9,658 18.6% Romania 316 10.7%
Austria 4,752 9.1% Marshall Islands 303 10.2%
Germany 3,549 6.8% Greece 247 8.3%
Italy 3,005 5.8% Serbia 235 7.9%
UK 2,893 5.6% Germany 234 7.9%
“0” reflects amounts rounded to +/- USD 500,000.

Bulgarian owners often use Luxembourg to incorporate companies.   An independent international media investigation in February 2021 revealed some BGN 1 billion (USD 617 million) in assets by Bulgarian-owned companies in Luxembourg.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 11,067 100% All Countries 2,272 100% All Countries 8,796 100%
Romania 1,309 11.8% United States 642 28.3% Romania 1,299 14.8%
United States 1,275 10.9% Luxembourg 639 28.1% United States 632 7.2%
Luxembourg 711 6.4% Ireland 230 10.1% Poland 630 7.2%
Germany 684 6.2% Germany 176 7.7% Spain 581 6.6%
Poland 638 5.8% Austria 125 5.5% Germany 508 5.8%

14. Contact for More Information

Liam Sullivan
Deputy Political/Economic Section Chief
Embassy Sofia
sullivanll@state.gov

Croatia

Executive Summary

Croatia’s EU membership has enhanced its economic stability and provided new opportunities for trade and investment.  Despite having access to a substantial amount of EU funds, the Croatian economy has yet to gain the full benefits of membership in terms of growth and sustainability. Croatia will receive more than $30 billion in EU funding through 2030, which has the potential to provide a significant boost to the economy, if the government directs the funds to productive activities that stimulate job creation and growth. Croatia joined the European Exchange Rate Mechanism (ERM II) in July 2020, and the government is committed to eurozone accession by mid-2024.

The Croatian economy had experienced a five-year period of growth and stability, but the COVID-19 pandemic coupled with three devastating earthquakes that caused more than $20.3 billion worth of damage to Zagreb and central Croatia led the economy to contract by 8.4 percent in 2020.  The budget deficit reached approximately 7.4 percent in 2020. 8.4 percent in 2020. The tourism sector, which directly accounts for 12 percent of Croatia’s GDP and indirectly as much as 20 percent, achieved only 50 percent of the prior year’s revenues. The government doled out more than $1.5 billion in job-retention and economic stabilization measures. Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019. The European Commission estimates that the Croatian economy will grow 5.3 percent in 2021 and 4.6 percent in 2022.

The economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contribute to poor performance and relatively low levels of foreign investment. The Croatian government has taken some positive steps to reduce para-fiscal fees and taxes and to simplify procedures for opening a business. However, it has been slow to implement additional steps to reduce barriers to investment, streamline bureaucracy and public administration, and reform the judiciary. The government continues to implement economic reforms designed to create sustainable economic growth and development, to connect education to the labor market, and to sustain public finances.

The government is willing to meet at senior levels with interested investors and to assist in resolving problems.  Prime Minister Andrej Plenkovic, elected to a second consecutive term in July 2020, is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions. His government is working with the World Bank and other international institutions to improve the business climate and to attract investment.  Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure.

Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, healthcare, and banking. Investment opportunities are growing in Croatia’s robust IT sector, and the coming years will offer new opportunities related to energy transition. Starting in 2020, Croatia offers visas for so-called “digital nomads” to work in Croatia without having to pay local taxes in order to attract individuals with bigger spending capabilities and connections to strong IT sectors abroad.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 63 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 51 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 41 of 128 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $184 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita (USD) 2019 $28,388 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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

Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors.  For more information, see:  http://investcroatia.gov.hr/ .  The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf.  Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status.  However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors:  inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare.  Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at  http://psc.hr/en/sectoral-requirements/ .  Over 90 percent of the banking sector is foreign owned.

Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) last published an investment climate review for Croatia in June 2019: https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm .

The latest available World Bank Group “Doing Business” Economic Profile of Croatia was published in 2020: https://www.doingbusiness.org/content/dam/doingBusiness/country/c/croatia/HRV.pdf .

The European Commission’s Country Report Croatia 2020 assesses the country’s economic situation and outlook: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1584545612721&uri=CELEX%3A52020SC0510 .

Business Facilitation

The Croatian government offers two e-government options for on-line business registration,  www.hitro.hr   and  start.gov.hr  , both of which provide 24-hour access.  Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office.  The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered.  The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent.  Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.

In 2020, the Global Enterprise Registration website ( www.GER.co ) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category.  The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes.   Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

The United Nations Conference on Trade and Development (UNCTAD) provides an outline of investment facilitation proposals at  https://investmentpolicy.unctad.org/country-navigator/53/croatia .

Outward Investment

Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures.  The government does not promote or incentivize outward investment.  Croatia has no restrictions on domestic investors who wish to invest abroad.

3. Legal Regime

Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations. The complete text of all legislation is published both on-line and in the National Gazette, available at:  www.nn.hr  .  There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation.  Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament.  New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at https://esavjetovanja.gov.hr/ECon/Dashboard .  The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.

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

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

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020.  The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances.  Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.

More information can be found at  www.fina.hr  . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.  Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at:  http://www.mfin.hr/en  .

Public finances and debt obligations are transparent and available on the Ministry of Finance website, in Croatian only, at  https://mfin.gov.hr/proracun-86/86  .

International Regulatory Considerations

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

Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.

Legal System and Judicial Independence

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

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

On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, which will be responsible for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.

The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting ICT infrastructure upgrades, court process improvements, and other reforms that will improve justice sector services to improve the business climate.  This effort will be led by the Ministry of Justice and Public Administration, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024.

Reforms are underway, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures.  Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  Croatian courts have decreased the number of civil, criminal. and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog.  The 2020 European Commission Country Report for Croatia assessed that the length of court proceedings continues to be a burden for business.

Laws and Regulations on Foreign Direct Investment

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

The Ministry of Economy and Sustainable Development Internationalization Directorate ( https://investcroatia.gov.hr/en/ ) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

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  www.fina.hr .

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

Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases, pending for years, regarding U.S. investor claims before Croatian courts. Both investors have also announced plans to file claims at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action.

International Commercial Arbitration and Foreign Courts

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

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965.  Arbitration is voluntary and conforms to UNCITRAL model procedures.  The Chamber of Economy’s Mediation Center has been operating since 2002 – see  http://www.hok-cba.hr/hr/center-za-mirenje-hoka  .

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

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 last available World Bank Ease of Doing Business 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries.  Bankruptcy is not considered a criminal act.

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

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

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

4. Industrial Policies

Investment Incentives

The Investment Promotion Act (IPA), amended in 2021, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services.  The incentives are either tax refunds or cash grants.  After they are approved for implementation, they are not distributed immediately.  Those who receive cash grants are required to provide documentation proving they have fulfilled the criteria per which the request was granted for every year they have received approval for the incentive.  Tax refunds are provided to companies on an annual basis, based on information provided in tax returns.  Incentive measures can be combined or used individually.

The IPA provides the following incentive measures: tax refunds for microenterprises; tax advantages for small, medium and large enterprises; cash grants for eligible costs of new jobs linked to the investment project; cash grants for eligible training costs linked to the investment project; additional aid for development and innovation activities, business support and high value-added services; cash grants for capital costs of investment projects; cash grants for labor intensive investment projects; incentives for investments which utilize inactive government-owned property; and incentives to modernize business processes through automation and digitalization of production and manufacturing processes.

All incentive measures can be used by entrepreneurs.  Entrepreneurs are defined as individuals subject to Croatian corporate income tax or companies registered in Croatia investing the minimum amount of USD 59,000 in fixed assets, and creating at least three new jobs for microenterprises or 10 new jobs for companies investing in information computer technology (ICT) systems and software development centers, or USD 177,000 in fixed assets and creating at least five new jobs for small or medium enterprises, and large companies, and USD 590,000 in fixed assets for modernizing and increasing business process productivity.

Substantial tax cuts on profits are available depending on the size of the investment and the number of new jobs created.  A 50 percent reduction applies for up to ten years for companies that invest up to USD 1.18 million and create at least five new jobs (three jobs for microenterprises or 10 jobs for companies investing in ICT system and software development centers).  This reduction increases to 75 percent for companies investing USD 1.18-USD 3.54 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over USD 3.54 million and create at least 15 new jobs.

Profit tax reductions are also available for investments modernizing the manufacturing industry.  These projects must include a minimum fixed asset investment of USD 590,000, all employees must be retained for the project duration, and the per-employee productivity after three3 years must increase at least 10 percent compared to the one-year period prior to the project.  A 50 percent profit tax rate reduction applies for companies that invest up to USD 1.18 million,75 percent for companies investing USD 1.18 to -USD 3.54 million, and up to 100 percent for companies that invest over USD 3.54 million.

Cash grants for new jobs created can be up to USD 10,600 per new position, depending on the location of the investment and category of the person employed.  Financial support of 10 percent of expenses, which is not subject to reimbursement, or up to USD 3,500per new position can be used to create jobs in counties with unemployment levels up to 10 percent.  This support increases to 20 percent or up to USD 7,000 per position in counties with unemployment levels from 10 to 20 percent, and up to 30 percent or USD 10,600 per new position in counties with unemployment levels above 30 percent.

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

Additional incentives for job creation are available for development and innovation activities that affect the development of new products or significantly improve existing products, production series, manufacturing processes, and/or production technologies. There are also incentives for business support activities such as customer support, outsourced business activities centers, or logistics and distribution centers, as well as ICT systems and software development centers. Finally, the government offers support for activities such as hospitality and tourism accommodation facilities categorized as at least four stars. Support services for the above-listed types of accommodations with high value are added in a range of categories; nautical tourism projects; and amusement and theme park projects; as well as for creative services, and industrial engineering services.

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

Cash grants for the capital costs of investment projects are approved for investments over USD 5.9 million which generate 50 new positions within 3 years of the start of the investment. They cover 10 percent of the cost of new factory construction, production facility construction, or the purchase of new equipment (up to USD 590,000) in counties where the unemployment rate is from 10-20 percent.  This incentive increases to 20 percent of the investment cost (up to USD 1.18 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is in machines or equipment and that at least 50 percent of those machines or equipment are of high-value technology.  There are also grants for buying equipment or machinery for research and development activities up to 20 percent of the cost of the equipment, or up to USD 590,000.

There are incentives for investment projects which revitalize inactive state-owned property and provide free land leases for investors investing USD 3.2 million and creating at least 15 new jobs. Additional information regarding the types of incentives offered by the Ministry of Economy and Sustainable Development can be found at https://investcroatia.gov.hr/ .

The Act on Strategic Investment Projects went into effect in November 2013 and was amended in 2018. This Act facilitates and accelerates administrative procedures for projects deemed to be of strategic interest for Croatia based on a number of conditions listed in the Act.  Strategic projects can include private, public-private, or public investments in economy, mining, energy, tourism, transport, infrastructure, electronic communication, postal services, environmental protection, public utilities, agriculture, forestry, water management, fishery, health care, culture, audio-visual activities, science, defense, judiciary, technology, construction, and education.

The minimum amount for an investment to be considered strategic is approximately USD 11.8 million, which is significantly less than the previous minimum of USD 23.6 million.  All investments over this amount may be considered strategic and will be entitled to accelerated permitting and registration procedures.  Investments may also be treated as strategic if they are valued at USD 1.4 million or more, and are implemented in assisted areas, or if they are implemented on the islands or are in the agriculture, fisheries, and forestry sector.  A guide and application materials for private investors interested in applying for status under the Act on Strategic Investment Projects can be found at:  https://investcroatia.gov.hr/en/ .

The Construction Act allows investors to secure permits through an e-licensing system. The investor may obtain a license valid for three years, which allows for a three percent change in the dimensions of the project from start to finish. The e-licensing system can be accessed at  https://dozvola.mgipu.hr/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are 10 operational duty-free zones (called “free zones” in the EU) in Croatia.  Contact information for each of the zones can be found at:  https://www.croatianfreezones.org/primjer-stranice . Both domestic and foreign investors are afforded equal treatment in the zones.  After Croatia entered the European Union in 2013, many of the zones that operated throughout Croatia were slowly transitioned to industrial/business zones. Investment incentives are available in these zones.  For more information regarding these zones go to  http://investcroatia.gov.hr/lokacije-za-investiranje/ .

Performance and Data Localization Requirements

Croatian law does not impose performance requirements on or mandate employment requirements for foreign or domestic investors, nor are senior management or board of directors’ positions mandated in private companies.  In regard to U.S. investors, Article VII of the U.S.-Croatia BIT prohibits mandating or enforcing specified performance requirements as a condition for a covered investment.

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  https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/entry-residence-requirements/.

The amended Law on Foreigners also allows for digital nomads, defined as “a third country national who is employed or performs work through communication technology for a company or their own company that is not registered in the Republic of Croatia and does not work or provide services to employers in the Republic of Croatia.” Temporary stay for this purpose is granted for up to one year and cannot be extended.

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

5. Protection of Property Rights

Real Property

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

However, real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes more generally.  For all of these reasons, investors should seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys ( https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/). The Ministry of Economy Directorate for Investment, Industry and Innovation helps those seeking information about property status in Croatia.

For more information, see:  http://investcroatia.gov.hr/ .

While the cadaster offices reliably maintain records, there is a portion of property in Croatia which has changed hands without appropriate documentation for various reasons, including avoidance of paying the title transfer fees or hiding wealth.  Historically, individuals and companies spent years in court attempting to resolve improper real estate documentation.  For this reason, potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately).

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

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

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

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

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

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

When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land.  The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes.  The Agricultural Land Agency works with local governments to review potential agricultural land purchases.  The sale of privately owned farmland is treated solely as the subject of a sales agreement between the parties.  Buyers of this type of land should still proceed with caution and be aware of potentially unresolved legacy issues with land ownership.  Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.

The Ministry of Justice and Public Administration and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues.  This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data.  For more information see  http://www.uredjenazemlja.hr/default.aspx?id=17   where information is available in English.

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

Note that Croatia’s land records are also available online (see www.pravosudje.hr  and https://www.katastar.hr/en/#/ ). Katastar.hr includes information on over 14 million pieces of land throughout the country and provides information in English.

The last published World Bank Ease of Doing Business 2020 report ranked Croatia as 38th out of 190 countries on ease of registering property, up 13 spots from the 2019 ranking of 51st.

There is no property tax in Croatia.

Intellectual Property Rights

Croatian intellectual property rights (IPR) legislation includes the Patent Act amended in January 2020, the Trademark Act, the Industrial Design Act, the Act on the Geographical Indications of Products and Services, the Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights, which was entirely rewritten in 2020.  The Law on Protecting Unpublished Information with Market Value went into force in 2018.  These acts define the process for protecting and enforcing IPR in Croatia.  Texts of these laws are available on the website of the State Intellectual Property Office at https://www.dziv.hr/en/ip-legislation/national-legislation/ ).  All of the laws are harmonized with EU legislation.  The Law on Protecting Unpublished Information with Market Value went into force in 2018.

Croatian law enforcement officials keep public records of seized counterfeit goods.  According to a 2020 report from the Customs Office, officials stopped 581 international imports related to IPR violations, that resulted in a total of 805 procedures for temporary detainment of goods for a total of 427,873 items.  Customs also issued 169 domestic violations and seized 95,933 counterfeit goods.  They initiated seven criminal proceedings against individuals involved in violation of trademark rights.  Croatian customs officials and the Ministry of Interior work together to locate and seize infringing goods.

Although some areas of IPR protection and enforcement remain problematic, Croatia is currently not included in the U.S. Trade Representative’s Special 301 Report or the Notorious Markets List.  Problem areas are piracy of digital media and counterfeiting.  Due to its geographic location, Croatia is also a transit route for various illegal products bound for other countries in the region.  There have been no problems reported with regard to registration of IPR in Croatia by American companies.  The American Chamber of Commerce maintains dialogue with the Croatian government on IPR issues.

As a WTO member, Croatia is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Croatia is also a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at  http://www.dziv.hr/hr/zakonodavstvo/medjunarodni-ugovori/ .

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

6. Financial Sector

Capital Markets and Portfolio Investment

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

Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991.  Regulations that govern activity and participation in the ZSE can be found (in English) at:  https://zse.hr/en/legal-regulations/234 .  There are three tiers of securities traded on the ZSE.  The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020.  The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities.  These amendments also give HANFA more authority over corporate management of those companies listed on the capital market.  All legislation associated with the Capital Market act can be found (in English) at:  http://www.hanfa.hr/regulations/capital-market/ .

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

Money and Banking System

The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers.  French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia.  The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.”   As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.

The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share.  The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share.  According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at  https://www.hnb.hr/en/ . Non-residents are able to open bank accounts without restrictions or delays.  The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory.  Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement ( http://www.imf.org/External/Pubs/FT/AA/index.htm#art7  ).

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

The exchange rate is determined by the Croatian National Bank through “managed floating.”  The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy.  On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.

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

Croatia does not own any sovereign wealth funds.

7. State-Owned Enterprises

There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP).  The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership.  CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.

These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities.  The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.

CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies.  By statute, CERP must divest the state from these companies.  Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at  https://imovina.gov.hr/  and on CERP’s website at  http://www.cerp.hr/ .

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available.  The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious.  The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en . The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.”  The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”

The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”

The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780 .   Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.

Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP.  There are no restrictions against foreigners participating in privatization tenders.  When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects.  There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output.  The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html ).

Tenders are in Croatian and can be found at  https://imovina.gov.hr/vijesti/8 .

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, drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE, was updated in a project between the European Bank for Reconstruction and Development, ZSE, and HANFA, which created significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities.

No high profile or controversial instances of private sector labor rights violations have occurred in Croatia.  Forced labor, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders are not permitted by law. The government effectively implements and enforces domestic laws in order to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations even exceed European Union standards.  Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct.  Labor unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on labor, environmental, or consumer rights in the business sector. In terms of security, the government employs private security companies for security of buildings, however security for defense purposes is handled by official Croatian state authorities, such as the army or police forces.

Croatia became a signatory of the Montreaux Document on Private Military and Security Companies in May 2013. Croatia is not currently a supporter of the International Code of Conduct for Private Security Service Providers, nor a member of the International Code of Conduct for Private Security Service Providers Association.

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

Additional Resources 

Department of State

Department of Labor

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.  Financial gain in such cases is also confiscated if it is in possession of a third party (e.g., spouse, relatives, or family members) and was not acquired in good faith.  Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members, and political parties.  The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment, and obstruction of justice.  The Act on the Office for the Suppression of Corruption and Organized crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.

The Law on Public Procurement is entirely harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities.  Government officials use public speeches to encourage ethical business.  The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found at: https://www.hgk.hr/documents/kodeksposlovneetikehrweb581354cae65c8.pdf .

Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; the Act on Public Services; the Code of Conduct for Public Officials; and the Code of Conduct for Judges. Whistleblowers are protected by the Law on Whistleblower Protections, as well as by provisions in the Labor Law and Law on Civil Servants.

Croatia has requested to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Croatia is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis.  Croatia has been a member of INTERPOL since 1992.  Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI).  Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.

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

The business community continues to identify corruption in the healthcare and construction sectors, as well as the public procurement process as obstacles to FDI.  During the years ahead of EU accession, Croatia invested considerable efforts in establishing a wide-ranging legal and institutional anti-corruption framework.  The government is currently implementing the Strategy for Combatting Corruption from 2015-2020. The Ministry of Justice and Public Administration will submit for Parliamentary approval by mid-2021 a new Strategy for Combating Corruption that will cover a ten-year period.  Croatian prosecutors have secured corruption convictions against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.

Resources to Report Corruption

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

Contact information below:

Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855
tajnistvo.dorh@dorh.hr

Office for the Suppression of Corruption and Organized Crime
Vlaska 116, 10000 Zagreb, Republic of Croatia
+385 1 2375 654
tajnistvo@uskok.dorh.hr

GONG
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444
gong@gong.hr

10. Political and Security Environment

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

11. Labor Policies and Practices

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

There are no recent reliable reports on the size of the grey economy, but estimates range from 10 percent to 35 percent of GDP.  Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019, due to the government’s financial support packages for job retention throughout the COVID-19 pandemic.

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

There are currently labor shortages reported in the construction, food production, and tourism sectors.  The Law on Foreigners was amended in November 2020 to abolish employment quotas for foreign workers. Foreign or migrant workers do not play a significant role in any sector yet, but there are growing numbers of foreign workers in the construction sector.  Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually.  The government has indicated, however, that a significant number of Croatians returned to Croatia during the COVID-19 pandemic as jobs became scarce in other EU countries. The Government maintains the  www.mjere.hr  website with information regarding measures to keep workers in Croatia.  These measures are divided into nine categories and include financial support for employers and the self-employed, as well as for training and seasonal work programs.  A large portion of the funding is intended to support active employment, while a portion will fund specialized programs for groups that have a hard time entering the labor market.

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

Labor laws are strictly implemented and not waived to retain or attract investment.  Collective bargaining is a common tool, mostly implemented by unions, which overwhelmingly represent workers associated with government spending and state-owned enterprises.  The http://baza.kolektivni-ugovori.info/ website provides an updated database of collective agreements signed in 1995 to date. The Labor Law provides a mechanism for resolving collective and individual labor disputes by arbitration. No appeal is permitted against an arbitration award.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

Development projects in Croatia may be eligible for International Development Finance Corporation (DFC) political risk insurance.  Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see  www.miga.org .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $58,789 2019 $64,690 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $120.6 2019 $184 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 $30.12 2018 $19 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 67% 2020 55% UNCTAD data available at
https://unctad.org/webflyer/
world-investment-report-2021

* GDP for 2019  and FDI at www.hnb.hr. Note:  U.S. Bureau of Economic Analysis (BEA) does not have GDP or FDI data available for 2020 at time of publishing. 2018 is the last available date for Host Country FDI in the U.S.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $39,375 100% Total Outward $$5,546 100%
Austria $5,562 14.12% Bosnia Herzegovina  $1,545 27.8%
The Netherlands  $5,192 13.2% Slovenia $1,232 22.2%
Luxembourg $4,476 11.4% Serbia $1,052 18.9%
Germany $4,159 10.6% Montenegro $315 5.7%
Italy 3,416 10.3% Poland $236 4.2%
“0” reflects amounts rounded to +/- USD 500,000.

*FDI at www.hnb.hr

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:

Political-Economic Section
U.S. Embassy Zagreb
Ulica Thomasa Jeffersona 2, 10010 Zagreb
Tel (+385 1) 661-2200
E-mail:  InvestmentClimateCroatia@state.gov 

Montenegro

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 flounder 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 above 80 percent. One of the government’s priorities is to continue to develop infrastructure, including the second section of the country’s first highway that will better connect the developed southern part of the country with the relatively underdeveloped north. Although Montenegro’s economic growth rate in 2019 was one of the highest in Europe at 3.5 percent, the pandemic negatively affected Montenegro more than any other country in the region, causing GDP to decline approximately 15 percent. The unemployment rate increased from 15.3 in 2019 to 20 percent.  In August 2020, Montenegrins took to the polls and elected an opposition coalition, unseating the ruling Democratic Party of Socialists for the first time in 29 years.  In December 2020, the Ministry of Finance issued a EUR 750 million bond on international markets to service maturing debt. At the end of 2020, the new government exercised its legal option to continue government operations under a temporary budget and postpone the budget proposal until March 2021.

As a candidate country on its path to joining the European Union (EU), Montenegro is making steady progress.  All 33 chapters have been opened and three chapters have been provisionally closed.  Despite regulatory improvements, corruption remains a significant concern. Montenegro joined NATO in June 2017.

Montenegro’s economy is centered on three sectors, with the government largely focusing its efforts on developing tourism, energy, and agriculture. 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 almost 25 percent of GDP.  No one source country dominates foreign direct investments to Montenegro, although the most significant investments have come from Italy, Hungary, China, Russia, and Serbia, with investments also coming from the United Arab Emirates, Azerbaijan, Turkey and the U.S.  Economic statistics from the Central Bank of Montenegro (CBCG) show that direct foreign investments during 2020 amounted to €663 million, with the highest level of foreign investments coming from NATO member countries (€230 million), while Russia and China together invested €170 million. In the energy sector, the government began operation of its underwater electric transmission cable to Italy in December 2019. Additionally, there are several ongoing conventional energy projects around the country, including the controversial ecological reconstruction of the existing block of the coal-fired thermal plant in Pljevlja in partnership with China’s Dongfang Electric Corporation. 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/Mediterranean oil and gas for one block. Offshore exploratory drilling started in March 2021.

The Government sees as one of its priorities further development of the digital economy, although it has made only moderate progress to date.

Table 1: Key Metrics and Rankings 
Measure Year Index /Rank Website Address
TI Corruption Perceptions Index 2020 67 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 50 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2020 49 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD , stock positions) 2020 NA https://www.bea.gov/data/economic-accounts/international
World Bank GNI per capita 2019 USD 9,060 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

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 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, however long-standing property restitution cases dating back to WWII remain unresolved. 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 custom 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; 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.

While Montenegro has taken steps to make the country more open for foreign investment, some 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 not always consistently 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 cancelled out with taxes introduced by different municipalities on the local level.

To better promote investment and foster economic development, the government adopted in December 2019 a new Law on Public Private Partnerships and established the Montenegrin Investment Agency (MIA), merging the Montenegrin Investment Promotion Agency (MIPA) and the Secretariat for Development Projects.  The MIA seeks to promote Montenegro as a competitive investment destination by facilitating investment projects in the country. Together with the Privatization and Capital Investment Council, MIA promotes investment opportunities in various sectors of the Montenegrin economy, primarily focusing on the tourism, energy, technology, and agricultural sectors.  These two institutions will maintain an ongoing dialogue with investors already present in Montenegro and, at the same time, seek to promote future projects and attract new investors to do business in Montenegro.  More information available at http://www.mia.gov.me.

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 no limits on foreign control and right to private ownership or on establishing companies in Montenegro.  There are no institutional barriers to foreign investors, including U.S. businesses, and there is no screening mechanism for inbound foreign investment.

Other Investment Policy Reviews

The WTO secretariat conducted its first review of Montenegrin trade policies and practices in April 2018 (https://www.wto.org/english/tratop_e/tpr_e/tp469_e.htm).

Business Facilitation

The Central Register of the Commercial Court (CRPS) is responsible for business registration procedures (www.crps.me).  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. All included in the business activities need 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 has signed the Central European Free Trade Agreement (CEFTA) in July 2007. The agreement has been signed by seven countries (Albania, North Macedonia, Moldova, Montenegro, UNMIK/Kosovo, Serbia, and Bosnia and Herzegovina). A free trade agreement was signed with Turkey in 2008 and has been in force since March 2010. Montenegro had a free trade agreement with Russia, but the agreement is not currently in force. Free trade agreements with Kazakhstan and Belarus, which formed a customs union together with Russia, are also currently not in force. A free trade agreement between Montenegro and Ukraine was signed in November 2011.

A Free Trade Agreement (FTA) with the European Free Trade Association (EFTA) countries (Switzerland, Norway, Iceland, and Liechtenstein) was signed in November 2011.  Although the four EFTA countries are small, they are the world leaders in several sectors vital to the global economy.  Liechtenstein and Switzerland are internationally renowned financial centers and hosts to major companies and multinationals, while Iceland and Norway have highly developed fish production, metal production, and maritime transport sectors. More information available at http://www.mek.gov.me/en/WTO/LIBRARY/free_trade?alphabet=lat.

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.  Montenegro has also been designated as a beneficiary developing country under the U.S. Generalized System of Preferences (GSP) program which expired on January 1, 2021. As a result Montenegrin imports entering the United States that were eligible for duty free treatment under GSP up to December 31, 2020 (jewelry, ores, stones and various agricultural products) are now subject to regular duties.

Bilateral Taxation Treaties

Montenegro does not have a double taxation treaty with the United States. 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.

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, Netherlands, 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.

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, North Macedonia, Azerbaijan, the United Arab Emirates, Moldova, Israel, and Switzerland.  Additional information can be found at http://www.mek.gov.me/sto/biblioteka/ts_ostali/sporazumi_o_zastiti.

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 GATT/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) biannual Business Climate Survey conducted in 2020, many municipalities lack adequate detailed urban plans, complicating investment plans.  Some municipalities have made efforts to speed up procedures in order to improve the business environment for investors.  While at the national level there are fewer obstacles for investments and other activities, many larger-scale projects involve both local and national authorities, and it is often necessary to work with both administrations in order to complete a project. AmCham members surveyed are dissatisfied with the duration of the court proceedings (79,5%) and unequal implementation of the law (63,6%). At the same time, over 70% of AmCham member companies surveyed believe that conditions for doing business when it comes to the duration of the court proceedings, and unequal implementation of the laws have not changed in 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 World Trade Organization (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 erroneously taken through the procurement apparatus.  In other cases, the system delivers appropriate outcomes, though in a complex and time-consuming way. 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 revised Law of Public Procurement entered into force in December 2019.  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, 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.  All 33 negotiating chapters have been opened, while three are provisionally closed.  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 the 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 Court has 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 basic 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 decision may be appealed to the Appellate Court which is also a second instance court for decisions of the Commercial Court. 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. The Commercial Law Development Program (CLDP), a technical assistance arm of the U.S. Department of Commerce is active in providing technical assistance in the area of commercial law.

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

Laws and Regulations on Foreign Direct Investment

In order to attract foreign investment, the government established the Montenegrin Investment Agency (MIA) (www.mia.gov.me) and the Privatization and Capital Investment Council Dead link, not available elsewhere.. 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 after the Law on Protection of Competition entered into force and the Central Register of Economic Entities registered the law. The area of free market competition, regulated by the law, represents the area that has direct and significant impact on economic development and investment activity, by raising the level of the quality of goods and services, thus creating the conditions for lower prices and creation of a modern, open market economy.  This, in turn, provides Montenegro with the possibility to participate in the single market of the EU and in other international markets.

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 been ongoing for over a decade. 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 in April 2013, and the country fully enforces the Convention.

Investor-State Dispute Settlement

Montenegro does not have a bilateral investment treaty with the United States. 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. Development Finance Corporation (USDFC), U.K. 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).

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. 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, omitting to collect claims in 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 was administered by the Secretariat for Development Projects and after establishment of MIA they took over and continued with the incentive program implementation. More information is available on the Agency’s website (www.mia.gov.me).  The government also offers, in the partnership with local municipalities, some incentives through business zones, which exist in several cities outside the capital.

On January 1, 2019 Montenegro started with the implementation of the Economic citizenship program. The Program is designed to last for a limited period of three years and it will be available for up to 2,000 applicants. The new Government will, during this year, reconsider the possible extension of the program.

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. More info is available here.. Dead link, not available elsewhere. Linked to WTO website with Law on Free Zones in English

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 Foreign Investors’ Council 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 new 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 83rd 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 it is expected to bring more efficiency in implementation as well as a multifunctional approach to IPR protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights  Border Measures that 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: www.upravacarina.gov.me.

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 has been operational since 2008.

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) Standards, adopted by the World Customs Organization (WCO), to promote the efficient protection of IPR by customs authorities.

Montenegro is not included on the U.S. Trade Representative’s Special 301 Watch List or 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 a 2017 joint survey of the 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.

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 IPR 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: http://www.amcham.me/.

Montenegro became a member of the World Intellectual Property Organization (WIPO) in 2006, with more information available on the WIPO’s website: http://www.wipo.int/members/en/details.jsp?country_id=193

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:
PodgoricaPolEco@state.gov

6. Financial Sector

Capital Markets and Portfolio Investment

The banking sector in Montenegro is fully privatized with 12 privately owned banks operating in the country. The banking sector operates under market terms.  Foreign investors are able to get credit on the local market, and they have access to a variety of credit instruments since the majority of the banks in Montenegro belong to international banking chains.

The largest foreign investor-banks are OTP (Hungary) operating as CKB in Montenegro, Erste Bank (Austria) and NLB (Slovenia). The remaining, smaller foreign banks do not belong to large international groups.  A new set of banking laws have been adopted and some of the existing laws have been amended to improve regulation of the banking sector, provide a higher level of depositor safety, and increase trust in the banking sector itself.  The Law on the Protection of Deposits has been adopted to bring local legislation on protecting deposits up to European standards.  In accordance with the law, a fund for protecting deposits has been established and deposits are guaranteed up to the amount of EUR 50,000 (approximately USD 55,556).

Until 2010, Montenegro had two stock exchanges.  After a successful merger (in 2010), only one stock exchange operates on the capital market under the name of Montenegro Stock Exchange (MSE).  In December 2013, the Istanbul Stock Exchange purchased 24.38 percent of the MSE (www.montenegroberza.com).  Three types of securities are traded: shares of companies, shares of investment funds, and bonds (old currency savings bonds, pension fund bonds, and bonds from restitution.)  The MSE is organized on the principle of member firms, which trade in their own names and for their own account (dealers) in the name and for the account of their clients (brokers).  Members of the MSE can be a legal entity registered as a broker under the Law on Securities provided they meet conditions laid down by the Statute of the Stock Exchange.  In addition, members may include banks and insurance companies, once approved by the Commission for Securities to perform stock exchange trade.  MSE currently has 11 stock brokers.

Money and Banking System

According to Central Bank of Montenegro, the banking sector remained solvent and liquid, with a share of 5.5 percent of non-performing loans.  In 2020, lending activity grew by 3.2 percent in relation to the end of 2019 while the interest rate dropped to 5.84 percent as a result of increased competition.

Montenegro is one of a few countries that does not belong to the Euro zone but uses the Euro as its official currency (without any formal agreement).  Since its authority is limited in monetary policies, the Central Bank, in its role as the state’s fiscal agent, has focused on control of the banking system and maintenance of the payment system. The Central Bank also regulates the process for establishing a bank.  A bank can be founded as a joint-stock company and acquire the status of a legal entity by registering in the court register.  An application for registration in the court register must be submitted 60 days from when the bank is first licensed.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Foreign Investment Law guarantees the right to transfer and repatriate profits in Montenegro.  Montenegro uses the Euro as its domestic currency. There are no other limitations placed on the transfer of foreign currency.

Remittance Policies

There are no difficulties in the free transfer of funds exercised on the basis of profit, repayment of resources, or residual assets. The Central Bank of Montenegro publishes statistics on remittances as a proportion of GDP, with the latest data available indicating that in 2018 remittances accounted for approximately 10 percent of GDP.

Sovereign Wealth Funds

There are no sovereign wealth funds in Montenegro.

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, Airports of Montenegro, Plantaze Vineyards, Electric Power Industry of Montenegro (EPCG), and several companies in the tourism industry, including Ulcinjska and Budvanska Rivijera. In December 2020, the new Government decided to shut heavily-indebted national carrier Montenegro Airlines and to create a new state company ToMontenegro which should start operating by the middle of 2021. 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 www.scmn.me.  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. Dead link; could not find new council 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, indeed, 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.

Additional Resources 

Department of State

Department of Labor

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 67 out of 180 countries in the Transparency International (TI) 2020 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 Chief Special State Prosecutor.  In line with these laws, the Special Prosecution, the Special Police Team, and the Agency for Prevention of Corruption became operational in 2015 and 2016.  In 2015, 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 operational team for fight against commercial crime was founded. The Head of Crime Police presides over the team, and it consists of representatives of the police, Customs Authority, Tax Authority, and Administration for Inspection Affairs. A focus of the team’s work will be on the prevention, investigation and fight against misuse in commercial activity.  The Parliament also adopted the Law on the Center for Training of the Judiciary and State Prosecution which created a new independent judicial training institute, with greatly expanded powers and autonomy.  In the past two years, the government has achieved some progress on 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, including at the levels of local and national governments.  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.

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.

In December 2020, the government established the High-Level National Anti-Corruption Council. The members of the council are the Deputy Prime Minister and Minister of Finance and Social Welfare, as well as representatives of the NGOs MANS and Institute Alternativa. The Council will check and collect documentation related to all suspicious government work.  It will submit any questionable findings to the competent authorities, including the Prosecutor’s Office in all cases where there is a suspicion of corrupt activities and damage to the budget of Montenegro.

Resources to Report Corruption

Contact at government agencies responsible for combating corruption:
Milivoje Katnic
Chief Special Prosecutor for Fighting Organized Crime, Corruption, War Crimes and Terrorism and Money Laundering
Office of the Special State Prosecutor
Email: specijalno@tuzilastvo.me

Jelena Perovic
Director, Agency for the Prevention of Corruption
Email: kabinet@antikorupcija.me

MANS (Network for Affirmation of NGO sector) is a non-governmental organization that fights against corruption and organized crime in Montenegro. MANS is 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)
Email: mans@t-com.me; Website: www.mans.co.me

10. Political and Security Environment

Montenegro has a multi-party political system with a mixed parliamentary and presidential system. The August 30, 2020 national parliamentary elections resulted in three opposition coalitions – For the Future of Montenegro, Peace is Our Nation, and In Black and White – toppling the former ruling Democratic Party of Socialists (DPS) that had been in power since the introduction of the multi-party system in 1990.  The new ruling parliamentary majority is a mix of radical pro-Russian/pro-Serb parties, moderate pro-Serb parties, and civic parties, while the cabinet is composed of apolitical technocrats in what they term an expert government.  The leader of the For the Future of Montenegro coalition, Zdravko Krivokapic, was elected Prime Minister, while the leader of the In Black and White coalition, Dritan Abazovic, was elected Deputy Prime Minister and the leader of Peace is our Nation, Aleksa Becic, was elected Speaker of Parliament.  The three leaders signed an agreement to maintain Montenegro’s pro-Western, Euro-Atlantic trajectory, promising to fulfill all NATO membership obligations and accelerate EU accession efforts.  However, due to the radical, pro-Russian bent of a significant number of ruling coalition MPs, concerns of foreign malign influence persist.

Former Prime Minister Milo Djukanovic was elected President of Montenegro in April 2018 for a five year term.

11. Labor Policies and Practices

Montenegro’s total labor force consists of approximately 250,000 people with almost 50,000 workers(close to 20 percent of the labor pool) employed in the public sector.  With an unemployment rate of 20 percent (according to the State statistical agency, MONSTAT, in 2020) and the average monthly salary, net of taxes and contributions, of EUR 527 (USD 634) in December 2020, the bloated public sector and the lack of a highly skilled labor pool are cited by foreign investors as challenges facing Montenegro.  According to AmCham, finding skilled middle managers represents a serious challenge for its member companies, and many foreign companies choose to hire foreigners for skilled positions.  To tackle youth unemployment, Montenegro is prioritizing efforts to improve practical job skills, including English language training and digital literacy.  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. 2019 was marked by the intensive work on the Labor Law in a form of a dialogue among social partners regarding disputable legal solutions and the new Labor Law has been adopted in December 2019.

Over the past few years, private sector employment 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 new Montenegrin Labor Act introduced important employment regulations. The maximum duration of a fixed-term contract has been extended from 24 months to 36 months. Employers that employ more than 10 employees have to adopt an internal general policy which lists positions and sets out job descriptions. Part-time positions cannot be for fewer than 10 hours per week, except for the GM/CEO. Full-time positions are 40 hours per week. Minimum statutory annual leave is 20 working days for regular jobs and 30 working days for jobs with severe conditions where full-time work hours are reduced from 40 to 36 hours per week. Employees who have a six-day long work week are entitled to a minimum of 24 working days of annual leave. As of October 2019, the amended Law on Internal Trade stipulates non-working Sunday in shopping facilities.

The new Labor Law contains an explicit provision stating that an employer may only pay salaries to the employee’s bank account. Employment may not be terminated during pregnancy or maternity/ parental leave, except in case of a serious breach of work duties. Maternity leave may be taken for 365 days, beginning 28 days prior to childbirth. In cases in which employees claim unlawful termination, the employee must initiate proceedings before the Agency for Peaceful Resolution of Labor Disputes or before the Centre for Alternative Dispute Resolution. After doing so, the employee may initiate court proceedings against the employer. Court proceedings must be initiated within 15 days from the end of the mandatory mediation. The statute of limitations for monetary claims arising out of employment is four years from the date on which the obligation became due. Claims for payment of pension and disability insurance contributions are not subject to any statute of limitations.

The procedure for  determining  a breach of work duties has been adjusted, now allowing for dismissal for breach without having to first conduct disciplinary proceedings in the following cases: (i) if the employee’s behavior is such that he/she cannot continue to work for the employer (e.g. coming to work intoxicated; drinking or using narcotics during work; refusing to undergo a medical examination to determine intoxication; abusive, offensive, or inappropriate behavior towards customers or employees, etc.); (ii) if the employee knowingly provided inaccurate data during the hiring process; (iii) abuse of sick leave; (iv) failure to return to work after the end of unpaid leave.

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 2020, the government adopted a decision on determining the number of work permits for foreigners for 2021, establishing the quota at 20,450 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, and 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 made to the Law on Pensions and Care of Invalids in 2017, 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 amended Law on Pensions and Care of Invalids which improves the conditions for retirement and harmonization of pensions, and increases the minimum pension was adopted in July 2020. The new Law improves the conditions for retirement, because one quarter of the period of service that was the most unfavorable for future retirees is excluded from the accounting period.

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.

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 USD 5,504 2019 USD 5,543 www.worldbank.org/en/country
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 $ 5 million 2019 $5 million BEA data available at
https://apps.bea.gov/
international/factsheet
Host country’s FDI in the United States (M USD, stock positions) 2018 N/A 2019 N/A BEA data available at
http://bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2018 6.1 2019 8.3 UNCTAD data available at
https://stats.unctad.org/
handbook/Economic
Trends/Fdi.html 
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 5,443 100% Total Outward N/A N/A
Russian Federation 639 11.7%
Italy 324 5.9%
Republic of Serbia 316 5.6
Cyprus 286 5.2%
United Arab Emirates 278 5.1%
“0” reflects amounts rounded to +/- USD  500,000.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for more information

Until August 2021 From August 2021

Kyle Hatcher Walter Andonov
Political and Economic Deputy Chief Political and Economic Deputy Chief
U.S. Embassy Montenegro  U.S. Embassy Montenegro
St. Dzona Dzeksona 2, 81000 Podgorica
+382 20 410 528
Email: hatcherbk@state.gov
Email: andonovwb@state.gov

North Macedonia

Executive Summary

The Republic of North Macedonia, an EU aspirant country and a NATO member since March 2020, continues to be receptive to U.S. commercial investments. The COVID-19 pandemic has deeply impacted North Macedonia’s economy and ability to absorb foreign investment. Though the government’s efforts to divert manufacturing toward necessities and control prices at the outset of the pandemic are largely over, restrictions over people’s movement and a significant increase in unemployment have limited consumption and slowed the services required to open a business. The pandemic sharply reversed the country’s GDP growth, going from an increase of 3.2 percent in 2019 to a decrease of 4.5 percent in 2020, though in March the government forecasted the economy would grow 4.1 percent in 2021. The virus will likely have extensive, albeit currently unclear, impacts on the economy through 2021 and beyond.

While doing business is generally easy in North Macedonia and the legal framework is largely in line with international standards, corruption is a consistent issue. The 2020 World Bank Doing Business Report ranked North Macedonia the 17th best place in the world for doing business, down seven spots from the previous year. Fitch Ratings downgraded North Macedonia’s previous credit rating from BB+ with a stable outlook to BB+ with a negative outlook, and Standard & Poor’s affirmed its credit rating at BB- with a stable outlook. Large foreign companies operating in the Technological Industrial Development Zones (TIDZ) generally report positive investment experiences and maintain good relations with government officials. However, the country’s overall regulatory environment remains complex, and frequent regulatory and legislative changes, coupled with inconsistent interpretation of the rules, create an unpredictable business environment conducive to corruption. The government generally enforces laws, but there are numerous reports that some officials remain engaged in corrupt activities. Transparency International ranked North Macedonia 111th out of 180 countries in its Corruption Perceptions Index in 2020, down 5 spots from the prior year and 13 from the year before that, with a score of 35/100 in absolute terms.

The new government, ratified by parliament on August 30, 2020, has taken steps to improve the investment environment. Ministers without Portfolio, who previously shared the responsibility to attract FDI, were removed, and the Office of the Deputy Prime Minister for Economic Affairs now coordinates government activities related to foreign investments, simplifying the process. Additionally, in an effort to tackle corruption, the State Commission for the Prevention of Corruption has opened a number of corruption-related inquiries, including those involving high-level officials.

There are several areas to watch in 2021. In 2020, Embassy Skopje identified ICT as an emerging sector ripe for U.S. investment as the government has recently focused on providing a better environment for technology development. North Macedonia’s location is an advantage as companies consider “near-shoring” their production to be closer to consumption centers in Europe following the pandemic-induced production shortfall in 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 111 of 180 http://www.transparency.org/
research/cpi/overview 
World Bank’s Doing Business Report 2020 17 of 190 http://www.doingbusiness.org/
en/rankings 
Global Innovation Index 2020 57 of 131 https://www.globalinnovationindex.org/
analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 15 https://apps.bea.gov/international/
factsheet/ 
World Bank GNI per capita 2019 USD 11.571 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Attracting FDI remains one of the government’s main pillars of economic growth and job creation, although the COVID-19 pandemic prevented government officials from engaging with potential investors in person in 2020. There are no laws or practices that discriminate against foreign investors. In March 2018, the government passed its “Plan for Economic Growth” (https://vicepremier-ekonomija.gov.mk/?q=node/275), which provides substantial incentives to foreign companies operating in the 15 free economic zones. The incentives include a variety of measures such as 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.

The new government, ratified by parliament on August 30, 2020, removed ministerial positions specifically responsible for attracting foreign investments. Instead, the office of the Deputy Prime Minister for Economic Affairs (https://vicepremier-ekonomija.gov.mk) coordinates the government’s activities related to foreign investments. Invest North Macedonia – the Agency for Foreign Investments and Export Promotion, http://www.investinmacedonia.com, is the primary government institution in charge of facilitating foreign investments. It works directly with potential foreign investors, provides detailed explanations and guidance for registering a business in North Macedonia, produces analysis on potential industries and sectors for investing, shares information on business regulations, and publishes reports about the domestic market. The North Macedonia Free Zones Authority, http://fez.gov.mk/, a governmental managing body responsible for developing free economic zones throughout the country, also assists foreign investors interested in operating in the zones. It manages all administrative affairs of the free economic zones and assists foreign investors to identify appropriate investment locations and facilities. North Macedonia does not maintain a “one-stop-shop” for FDI, requiring investors to navigate through several bureaucratic institutions to implement their investments.

The government maintains contact with large foreign investors through frequent meetings and formal surveys to solicit feedback. Large foreign investors have direct and easy access to government leaders, whom they can contact for assistance to resolve issues. The Foreign Investors Council, https://www.fic.mk/Default.aspx?mId=1, advocates for foreign investors and suggests ways to improve the business environment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest directly in all industry and business sectors except those limited by law. For instance, investment in the production of weapons and narcotics remains subject to government approval, while investors in sectors such as banking, financial services, insurance, and energy must meet certain licensing requirements that apply equally to domestic and foreign investors. Foreign investment may be in the form of money, equipment, or raw materials. Under the law, if assets are nationalized, foreign investors have the right to receive the full value of their investment. This provision does not apply to national investors. Invest North Macedonia conducts screening and due diligence reviews of foreign direct investments in a non-standard, non-public procedure and on an ad-hoc basis. The main purpose of the screening is to ensure economic benefit for the country and to protect national security. The process does not disadvantage foreign investors. More information about the screening process is available directly from Invest North Macedonia, at http://www.investinmacedonia.com. U.S. investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy published in 2019 is available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/TPR/S390R1.pdf&Open=True. The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2011d3_en.pdf. A 2017 regional investment policy review of South-East Europe covering seven economies including North Macedonia is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf. The Organization for Economic Cooperation and Development (OECD) has not done an investment policy review on North Macedonia to date. The International Monetary Fund (IMF) and the World Bank have mentioned aspects of the government’s policies for attracting foreign investment in their regular country reports but have not provided specific policy recommendations.

Business Facilitation

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

Outward Investment

The government does not restrict domestic investors from investing abroad, but it does not promote or provide incentives for outward investments. The publicly reported total stock of outward investments is small, worth approximately $68 million, the majority of which is in the Balkan region, the Netherlands, Germany, and Russia, and in production facilities, pharmaceuticals, metal processing, and wholesale and retail trade.

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 drafted based on data-driven evidence or assessments and, at times, move through parliament using shortened legislative procedures. While laws are in place, enforcement and universal implementation of laws and regulations are generally lacking and can be a problem for businesses and citizens.

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

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

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

North Macedonia accepts International Accounting Standards, and the legal, regulatory, and accounting systems used by the government are consistent with international norms. North Macedonia has aligned its national law with EU directives on corporate accounting and auditing.

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

In 2018, the government adopted a new Strategy for Public Administration Reform and Action Plan (2018-2022), and the National Plan for Quality Management of Public Administration, which focus on policy creation and coordination, strengthening public service capacities, and increasing accountability and transparency. The government also adopted its Open Data Strategy (2018-2020), which puts forth measures to encourage the release and use of public data as an effective tool for innovation, growth, and transparent governance. With the introduction of the Transparency Strategy (2019-2021), which closely ties to the Open Data Strategy, the government intends to contribute to greater transparency of government central bodies, both at the central and local levels.

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

International Regulatory Considerations

As a candidate country for accession to the EU, North Macedonia is gradually harmonizing its legal and regulatory systems 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 which need harmonization with the TFA and is working toward implementation.

Legal System and Judicial Independence

North Macedonia’s legal system is based on the civil law tradition, with increasing adversarial-style elements, and includes an established legal framework for both commercial and contract law. The Constitution established independent courts which rule on commercial and contractual disputes between business entities, and court rulings are legally executed by private enforcement agents. Enforcement actions may be appealed before the court. The enforcement procedure fees were lowered and simplified in 2019. Disputes up to €15,000 ($17,715 per 03/25/2021 exchange rate) require mediation as a precondition to initiating legal action within the courts. Cases involving international elements may be decided using international arbiters. Ratified international instruments prevail over national laws.

Businesses complained that lengthy and costly commercial disputes adjudicated through the court system created legal uncertainty. Businesses, however, are not inclined to use mediation as a swifter and often less costly way to resolve disputes. In December 2020, the government announced a new and improved Mediation Law would address noted deficiencies and was in the final drafting stage. Numerous international reports note rule of law remains a key challenge in North Macedonia, pointing to undue executive, business, and/or political interference in the judiciary, and poor funding for and management of administrative courts as major obstacles. The government continued major reforms, throughout 2020, to improve judicial independence and impartiality, but contract enforcement and perceived non-transparent public procurement practices remain a challenge for businesses.

Laws and Regulations on Foreign Direct Investment

There is no single law regulating foreign investments, nor a “one-stop-shop” website which provides all relevant laws, rules, procedures, and reporting requirements for investors. Rather, the legal framework is comprised of several laws including: the Trade Companies Law; the Securities Law; the Profit Tax Law; the Customs Law; the Value Added Tax (VAT) Law; the Law on Trade; the Law on Acquiring Shareholding Companies; the Foreign Exchange Operations Law; the Payment Operations Law; the Law on Foreign Loan Relations; the Law on Privatization of State-owned Capital; the Law on Investment Funds; the Banking Law; the Labor Law; the Law on Financial Discipline; the Law on Financial Support of Investments; and the Law on Technological Industrial Development Zones (free economic zones). An English language version of the consolidated Law on Technological Industrial Development Zones (free economic zones) is available at: https://fez.gov.mk/wp-content/uploads/2018/01/law-in-tidz-eng.pdf , and additional information at https://www.worldfzo.org/Portals/0/OpenContent/Files/487/Macedonia_FreeZones.pdf . No other new major laws, regulations, or judicial decisions related to foreign investments were passed during the past year; however, some existing laws were amended slightly.

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

Expropriation and Compensation

The Law on Expropriation (http://www.mioa.gov.mk/sites/default/files/pbl_files/documents/legislation/zakon_za_eksproprijacija_konsolidiran_032018.pdf) states the government can seize or limit ownership and real estate property rights to protect the public interest and to build facilities and carry out other activities of public interest. According to the Constitution and the Law on Expropriation, property under foreign ownership is exempt from expropriation except during instances of war or natural disaster, or for reasons of public interest. Under the Law on Expropriation, the state is obliged to pay market value for any expropriated property. If the payment is not made within 15 days of the expropriation, interest will accrue. The government has conducted a number of expropriations, primarily to enable capital projects of public interest, such as highway and railway construction for which the government offered 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, or has inherited by means of succession from the former Yugoslavia, a number of bilateral and multilateral conventions on arbitration, including the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA); the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; the Geneva Protocol on Arbitration Clauses from 1923; and the Geneva Convention on Enforcement of Foreign Arbitration Decisions.

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

Investor-State Dispute Settlement

North Macedonia accepts binding international arbitration in disputes with foreign investors. Foreign arbitration awards are generally recognized and enforceable in the country provided the conditions of enforcement set out in the Convention and the Law on International Private Law (Official Gazette of the Republic of North Macedonia, No. 87/07 and No. 156/2010: https://www.slvesnik.com.mk/besplate-pristap-do-izdanija.nspx ) are met. So far, the country has been involved in six reported investor-state disputes resolved before 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. Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but seldom utilized. A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. North Macedonia requires mediation in disputes between companies up to €15,000 ($17,715 per 03/25/2021 exchange rate) in value before companies can go to court.

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

Bankruptcy Regulations

North Macedonia’s bankruptcy law governs the settlement of creditors’ claims against insolvent debtors. Bankruptcy proceedings may be initiated over the property of a debtor, be it a legal entity, an individual, a deceased person, joint property of spouses, or a business. However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of North Macedonia. The Government of North Macedonia announced March 31, 2020 bankruptcy proceedings would be forbidden during the COVID-19 crisis as well as for six months thereafter. The 2020 World Bank Doing Business Report ranked North Macedonia 30th out of 190 countries for resolving insolvency. (As noted in the World Bank’s December 16, 2020 Statement on Doing Business Data Corrections and Findings of Internal Audit, arrangements for publication of the Doing Business 2021 report will be completed in mid-2021.)

The Macedonian Credit Bureau (https://mkb.mk/en/), commercial banks, and the National Bank of the Republic of North Macedonia serve as credit monitoring authorities.

4. Industrial Policies

Investment Incentives

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

North Macedonia does not impose a “forced localization” policy for data. The government does not prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. Post is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to encryption. Furthermore, there are no measures which 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 adopted in February 2020 amendments to the Law on Personal Data Protection (Official Gazette of the Republic of North Macedonia, No. 42/2020) 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 investors. Government entities include the Agency for Foreign Investments and Export Promotion (Invest North Macedonia), Directorate for Technological Industrial Development Zones (TIDZ), and the Ministry of Economy.

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

5. Protection of Property Rights

Real Property

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

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

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

Intellectual Property Rights

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

As North Macedonia awaits a date to begin EU accession negotiations, it continues to harmonize its IPR laws and regulations with EU standards, but still needs to demonstrate adequate enforcement of those laws. The European Commission’s 2020 report on North Macedonia noted some progress in raising awareness in the fight against counterfeiting, smuggling, and the importation of counterfeit goods, as well as an increase in seized goods. The EU raised concerns that an information platform for law enforcement institutions to exchange data on IPR had still not been established despite continuing recommendations. This is an obstacle to the creation of a credible enforcement record and to gathering reliable statistics on the institutional handling of IPR infringements. The EU also noted the need for further improvement of the legal framework on IPR, notably the collective rights management system, by aligning with the Collective Rights Management Directive, and industrial property rights, by aligning with the Enforcement Directive and the Trade Secrets Directive. By delaying amendments to the legal framework on copyright and neighboring rights, North Macedonia’s royalty fee collection system will continue to decline. The Law on industrial property is still not aligned with the EU acquis on trade secrets, which further increases companies’ mistrust. The business community frequently complains the State Office for Industrial Property does not register patents or take enforcement action in a timely manner.

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

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

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, although North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2020 was $3.5 billion, a 1.2 percent drop from the previous year. The main index, MBI10, increased by 1.2 percent, reaching 4,705 points at year-end. Foreign portfolio investors accounted for an average of 7.6 percent of total MSE turnover, 17.4 percentage points less than in 2019. The current regulatory framework does not appear to discriminate against foreign portfolio investments.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members to trade in securities and regulates the market. In 2020, the total number of listed companies was 104, two less than in 2019, and total turnover increased by 6.4 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions. Individuals generally trade on the MSE as individuals, rather than through investment funds, which have been present since 2007.

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

Money and Banking System

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

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 14 banks and a central bank, the NBRNM. On August 12, 2020, NBRNM revoked the operating license of Eurostandard Bank due to the bank’s insolvency. Eurostandard Bank controlled just 1.3 percent of the total banking sector’s assets, and its closure did not affect the banking sector’s stability, but did improve its overall ratio of non-performing loans by one percentage point. The banking sector is highly concentrated, with three of the largest banks controlling 57.6 percent of the banking sector’s total assets of about $10.7 billion and collecting 70.9 percent of total household deposits. The largest commercial bank in the country has estimated total assets of about $2.4 billion, and the second largest about $2 billion. The nine smallest banks, which have individual market shares of less than 6 percent each, account for 23.5 percent of total banking sector assets. Foreign banks or branches are allowed to establish operations in the country on equal terms as domestic operators, subject to licensing and prudent supervision from the NBRNM. In 2020, foreign capital remained present in 13 of North Macedonia’s 14 banks, and was dominant in 10 banks, controlling 71.5 percent of total banking sector assets, 80.4 percent of total loans, and 69.4 percent of total deposits.

According to the NBRNM, the banking sector’s non-performing loans at the end of Q3 of 2020 (latest available data) were 3.4 percent of total loans, dropping by 1.4 percentage points on an annual basis, mostly due to the NBRNM’s anti-crisis measures allowing temporary postponement of loan installment payments and regulatory amendments in managing and calculating credit risk. Total profits at the end of Q3 of 2020 reached $112 million, which was 2.1 percent higher compared to the same period of 2019.

Banks’ liquid assets at the end of Q3 of 2020 were 29.9 percent of total assets, 2.5 percentage points lower compared to the same period in 2019, remaining comfortably high. In 2020, the 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 the banking sector is healthy and resilient, 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 Q3 of 2020 was 16.9 percent, unchanged compared to the same period in 2019, with all banks, except the one which was closed, maintaining a ratio above the required minimum.

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations. By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days. There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for North Macedonia’s households. In 2020, net private transfers amounted to $1.5 billion, accounting for 12.2 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, predominately owned by the central government or the 81 local governments. The government estimated about 8,600 people are employed in SOEs. SOEs operate in several sectors of the economy, including energy, transportation, and media. There are also industries such as arms production and narcotics in which private enterprises may not operate without government approval. SOEs are governed by boards of directors, consisting of members appointed by the government. All SOEs are subject to the same tax policies as private sector companies. SOEs are allowed to purchase or supply goods or services from the private sector and are not given advantages that are not market-based, such as preferential access to land and raw materials.

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

The government has yet to implement broad public administration reform, which would also include SOEs, especially addressing their employment policies and governance. 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 full member of the Government Procurement Agreement (GPA). The negotiation process is still ongoing.

Privatization Program

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

8. Responsible Business Conduct

Responsible business conduct (RBC) is a nascent concept in North Macedonia, and the number of enterprises which contribute to sustainable development is very limited. 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. Previously, the government has failed to fully enforce laws related to labor rights, consumer protection, environmental protection, and other laws and regulations intended to protect individuals from adverse business impacts.

North Macedonia passed the Law on Trade Companies in 2004 and the Securities Law in 2005 which regulate corporate governance. Together these laws provide a clear distinction between the rights and duties of shareholders versus the operations and management of the company. Shareholders generally cannot be held liable for the acts or omissions of the company. The American Chamber of Commerce in North Macedonia has a committee on Community Engagement and Responsible Business Conduct, which, beginning in 2015, organizes seminars on relevant topics and maintains an online database of corporate social responsibility activities carried out by over 260 companies ( http://amcham.mk/csr/ ). The government does not take any measures to encourage adherence to the OECD Due Diligence Guidance for Responsibility Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. North Macedonia does not participate in the Extractive Industries Transparency Initiative.

Additional Resources 

Department of State

Department of Labor

9. Corruption

North Macedonia has laws intended to counter bribery, abuse of official position, and conflicts-of-interest, and government officials and their close relatives are legally required to disclose their income and assets. However, enforcement of anti-corruption laws has at times been weak and selectively targeted government critics and low-level offenders. There have been credible allegations of corruption in law enforcement, the judiciary, and many other sectors. The current State Commission for the Prevention of Corruption (SCPC) (https://www.dksk.mk/index.php?id=home ), appointed in February 2019, resumed its work after the passage of new anticorruption legislation in January 2019 and has been particularly proactive since. The SCPC opened a number of corruption-related inquiries, focused on high-level officials from across the political spectrum for alleged nepotism and conflict of interest. After the Chief Special Prosecutor was indicted on racketeering charges in November 2019 and the mandate of the Special Prosecutor’s Office (SPO) expired, all SPO cases (which emanated from a massive wiretapping scandal which revealed extensive abuse of office by former public officials and corruption involving public tenders) were transferred to the Public Prosecution Office’s Organized Crime and Corruption Prosecution Office. A few of the high-profile cases were completed in 2020, with defendants receiving prison sentences of up to 12 years. Transparency International ranked North Macedonia 111th out of 180 countries in the 2020 Corruption Perceptions Index, a drop of 5 places, for a lack of government efforts to combat corruption and conflict of interest in public administration. The resulting public disappointment and pressure over the high index score, in part, triggered the Deputy Prime Minister for Anti-Corruption to introduce a Code of Ethics for members of the government and all other officials appointed by the government, under which they must commit to transparent and responsible work.

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 which allows publication of notices from domestic and international institutions, tender documentation previews without registering in the system, e-payments for system use, electronic archiving, and electronic complaint submission (https://www.e-nabavki.gov.mk/PublicAccess/Home.aspx#/home). 

The government does not require private companies to establish internal codes of conduct prohibiting bribery of public officials. A number of domestic NGOs focus on anti-corruption and transparency in public finance and tendering procedures. There are frequent reports of nepotism in public tenders. The government does not provide any special protections to NGOs involved in investigating corruption. North Macedonia has ratified the UN Convention against Corruption and the UN Convention against Transnational Organized Crime, and has signed the 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, who can provide financial and background information on local businesses and potential partners.

Resources to Report Corruption

Contacts at government agencies responsible for combating corruption:

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

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

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

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

10. Political and Security Environment

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

Following 2016 parliamentary elections, an organized group of protestors leveraged ongoing protests and eventually stormed the parliament building on April 27, 2017 in reaction to the change of government and the election of Talat Xhaferi as Speaker of Parliament, the first ethnic Albanian to assume that post since the country’s independence. More than 100 people were injured, including several members of the government and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attack, including the former head of the Public Security Bureau (who had previously served as Minister of Interior) and former security officers. The trial against the suspected organizers is ongoing. Defendants include the former prime minister and now fugitive from justice (Nikola Gruevski), parliament speaker, two former ministers, and a former director of the Department of Security and Counterintelligence.

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

North Macedonia formally deposited its instrument of accession to the North Atlantic Treaty and was formally accepted as NATO’s 30th member on March 27, 2020. The country has been an EU candidate country since December 2005 and, on March 25, 2020, the General Affairs Council of the European Union decided to open accession negotiations with North Macedonia, which was endorsed by the European Council the following day. However, Bulgaria refused to approve North Macedonia’s EU negotiating framework in November 2020, effectively blocking the official launch of EU accession talks.

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 2020 was MKD 28,294 ($554) per month. Тhe minimum net wage for June 2020 through March 2021 was set to MKD 14,934,00 ($260) per month.

In 2019, North Macedonia’s labor force consisted of 964,014 people, of which 797,651 (82.7 percent) were officially employed and 166,363 (17.3 percent) were officially unemployed. North Macedonia’s employed labor force is roughly 59.9 percent male and 40.1 percent female. The largest number of employees are engaged in manufacturing at 19.8 percent, trade 14.1 percent, and agriculture 13.9 percent. The total unemployment rate for youth ages 15 to 24 years old is 35.6 percent. About 20 percent of the unemployed have a university education. Informal sectors of the economy, including agriculture, are estimated to account for 22 percent of employment.

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

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

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

There is no limitation on the number of employed foreign nationals or the duration of their stay. Work permits are required for foreign nationals, and an employment contract must be signed upon hiring. The employment contract, which must be in writing and kept on the work premises, should address the following provisions: description of the employee’s duties, duration of the contract (finite or indefinite), effective start and termination dates, workplace location, 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 local branches, are generally not independent of the influence of 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 sectors. Both associations, along with representatives from the Organization of Employers of North Macedonia and 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 industrial divisions are regulated by National Collective Bargaining Agreements, and there are two on the national level – one for the public sector and one for the private sector. Only about 25 percent of the labor force is covered by these agreements. National collective agreements in the private sector are negotiated between representative labor unions and representative employer associations. The national collective agreement for the public sector is negotiated between the Ministry of Labor and Social Policy and labor unions. Separate contracts are negotiated by union branches at the industry or company level. Collective bargaining agreements are most prevalent in the metal industry, private sector education, and court administration.

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

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) 2020 $12,266 2019 $12,547 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source
of data: BEA; IMF; Eurostat;
UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $145 2019 $15 BEA data available at
https://apps.bea.gov/
international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2019 $0.2 2019 $-1 BEA data available at
https://www.bea.gov/international/
direct-investment-and-
multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2020 $52 2019 50% UNCTAD data available at https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html 

* 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 6,382 100% Total Outward 68 100%
Austria 864 12.6% Serbia 78 114.7%
United Kingdom 738 11.6% Slovenia 33 48.2%
Greece 580 9.1% Netherlands 32 47.1%
Netherlands 446 7.0% Russia 12 17.6%
Slovenia 445 7.0% Bosnia and Herzegovina 9 13.2%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 454 100% All Countries 417 100% All Countries 38 100%
United States 316 69.6% United States 316 75.8% Austria 13 34.2%
Germany 52 11.5% Germany 52 12.4% Turkey 6 15.8%
France 17 3.7% France 17 4.1% Netherlands 3 7.9%
Austria 13 2.9% Switzerland 8 1.9% Spain 3 7.9%
Switzerland 8 1.8% International Organizations 6 1.4% Italy 3 7.9%

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

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
E-mail: gegaa@state.gov 

Romania

Executive Summary

Romania welcomes all forms of foreign investment. The government provides national treatment for foreign investors and does not differentiate treatment due to source of capital. Romania’s strategic location, membership in the European Union, relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets. U.S. investors have found opportunities in the information technology, automotive, telecommunications, energy, services, manufacturing, consumer products, insurance, and banking sectors.

The investment climate in Romania remains a mixed picture, and potential investors should undertake due diligence when considering any investment. The European Commission’s 2020 European Semester Country Report for Romania points to persistent legislative instability, unpredictable decision-making, low institutional quality, and corruption as factors eroding investor confidence. The report also noted that important legislation was adopted without proper stakeholder consultation and often lacked impact assessments. Frequent reorganizations of public institutions also contribute to the significant degree of instability.

Prior government efforts to undermine prosecutors and weaken judicial independence had shaken investor confidence in anti-corruption efforts. Political rhetoric had taken an increasingly nationalist tone, with some political leaders occasionally accusing foreign companies of not paying taxes, taking advantage of workers and resources, and sponsoring anti-government protests. President Iohannis was reelected in November 2019 with a pro-business stance. The December 2020 parliamentary elections resulted in a pro-investment, center right coalition government with a parliamentary majority, providing increased political stability. The coalition has repeatedly voiced its support for rule of law and reform.

The government’s sale of minority stakes in state-owned enterprises (SOEs) in key sectors, such as energy generation and exploitation, has stalled since 2014. A bill passed in 2020 instituted a two-year ban on the sale of state assets and state equity in SOEs. The Government of Romania (GOR) is in the process of drafting legislation that will terminate the ban. Successive governments have weakened enforcement of the state-owned enterprise (SOE) corporate governance code by resorting to appointments of short-term interim managers to bypass the leadership requirements outlined in the corporate governance code. Instability in the management of SOEs hinders the ability to plan and invest.

Consultations with stakeholders and impact assessments are required before enactment of legislation. However, this requirement has been unevenly followed, and public entities generally do not conduct impact assessments. Frequent government changes have led to rapidly changing policies and priorities that serve to complicate the business climate. Romania has made significant strides to combat corruption, but it remains an ongoing challenge.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 69 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 55 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 46 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country historical stock positions) 2019 $3.46B https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $12,630 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment and offers a market of around 19.5 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources. To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector, consumer products, insurance, and banking. InvestRomania, part of the Ministry of Economy, is the government’s lead agency for promoting and facilitating foreign investment in Romania. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.

Romania’s accession to the European Union (EU) on January 1, 2007 helped solidify institutional reform. However, legislative and regulatory unpredictability, lack of regulatory impact assessments, and low institutional capacity continue to negatively impact the investment climate. As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania. Governments in Romania have repeatedly allowed political interests or budgetary imperatives to supersede accepted business practices in ways harmful to investor interests.

The energy sector has suffered from unanticipated changes. In 2018, offshore natural gas companies benefited from a streamlined permitting process but were hit with a windfall profit tax that previously applied only to onshore gas production. Additionally, in February 2018, legislation changed the reference price for natural gas royalties from the Romanian market price to the Vienna Central European Gas Hub (CEGH) price, resulting in a significant increase in royalties. The GOR liberalized the natural gas market on July 1, 2020, and the electricity market as of January 1, 2021, for both household and non-household consumers.

In March 2021, the Parliament passed a bill reinforcing the government’s authority to vet the transfer of a petroleum agreement to a company from a non-EU country to determine if it is deemed to pose a threat to Romania’s national security. Transfer of a petroleum agreement must be approved through a government decision (GD).

Investments involving public authorities can be more complicated than investments or joint ventures with private Romanian companies. Large deals involving the government – particularly public-private partnerships and privatizations of key state-owned enterprises (SOE) – can be stymied by vested political and economic interests or bogged down due to a lack of coordination between government ministries.

In 2020, Romania capped the claw back tax in an effort to ease the burden on pharmaceutical companies. Designed to recoup drug reimbursement costs that exceeded budgeted amounts, the tax had increased up to 27.65 percent in 2019. In May 2020, President Klaus Iohannis signed off on a revised and differentiated claw back tax, capped at 25 percent for innovative medicines, 20 percent for generic medicines, and 15 percent for locally produced medicines. The claw back tax is one factor that continues to negatively impact the availability of drugs in the Romanian marketplace.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are free to establish and own business enterprises, and to engage in all forms of remunerative activity. Romanian legislation and regulation provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations. There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits.

Romania has established legal parameters to resolve contract disputes expeditiously. Mergers and acquisitions are subject to review by the Competition Council. According to the Competition Law, the Competition Council notifies Romania’s Supreme Defense Council regarding any merger or acquisition of stocks or assets which could impact national security. The Supreme Defense Council then reviews these referred mergers and acquisitions for potential threats to national security. To date, the Supreme Defense Council has not blocked any merger or acquisition. The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007. Foreign firms are allowed to participate in the management and administration of investments, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Other Investment Policy Reviews

Romania has not undergone any third-party investment policy reviews through multilateral organizations in over ten years. The Heritage Foundation’s 2021 Economic Freedom Report saw Romania’s score fall slightly due to an increase in the country’s fiscal deficit. Romania scored best in the Tax Burden category due to its low income and corporate tax rates. Romania’s economy had been rising through the ranks of the “moderately free” – a classification given by the report – over the past decade and will need to improve the following to continue its ascent: Improving the judicial system, strengthening anti-corruption efforts, removing rigidities in the labor market, and further modernizing the financial sector.

According to the World Bank, economic growth rates have increased, but the benefits have not been felt by all Romanians. Progress on implementing reforms and improving the business environment has been uneven. The World Bank’s 2020 Doing Business Report and Doing Business in the European Union Report indicate that Romania ranks below the EU average in the ease of starting a business.

Business Facilitation

The National Trade Registry has an online service available in Romanian at https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal  . Romania has a foreign trade department and an investment promotion department within the Ministry of Economy. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities. More information is available at http://www.investromania.gov.ro/web/ .

According to the World Bank, it takes six procedures and 20 days to establish a foreign-owned limited liability company (LLC) in Romania, compared to the regional average for Europe and Central Asia of 5.2 procedures and 11.9 days. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Romania must authenticate and translate its documents. Foreign companies do not need to seek investment approval. A Trade Registry judge must hold a public hearing on the company’s application for registration within five days of submission of the required documentation. Registration documents can be submitted and the status of the registration request monitored online.

Companies in Romania are free to open and maintain bank accounts in any foreign currency, although, in practice, Romanian banks offer services only in Romanian lei (RON) and certain hard currencies (euros and U.S. dollars). The minimum capital requirement for domestic and foreign LLCs is RON 200 (USD 49). Areas for improvement include making all registration documents available to download online in English. Currently, only a portion are available online, and they are only in Romanian.

Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium-sized enterprises as having less than 250 employees. Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget. Business facilitation mechanisms provide for equitable treatment of women in the economy.

Outward Investment

There are no restrictions or incentives on outward investment.

3. Legal Regime

Transparency of the Regulatory System

Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”). Some draft pieces of legislation pending with the government are available in Romanian at  http://www.sgg.ro/acte-normative/ . Proposed items for cabinet meetings are not always publicized in advance or in full. As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision, but this is not always the case. Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck.home  for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx   for the Senate. The Chamber of Deputies is the decision-making body for economic legislation.

Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups.

The Sunshine Law (Law 52/2003 on Transparency in Public Administration) requires public authorities to allow the public to comment on draft legislation and sets the general timeframe for stakeholders to provide input; however, comments received are not published. The Sunshine Law’s public consultation timelines do not have enforceable penalties or sanctions, and thus public authorities can bypass its provisions without harm. In some cases, public authorities have set deadlines much shorter than the standards set forth in the law or passed a piece of legislation before the deadline for public input expired.

International Regulatory Considerations

As an EU member state since 2007, Romanian legislation is largely driven by the EU acquis, the body of EU legislation. European Commission (EC) regulations are directly applicable, while implementation of directives at the national level is done through the national legislation. Romania’s regulatory system incorporates European standards. Romania has been a World Trade Organization (WTO) member since January 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since November 1971. Technical regulation notifications submitted by the EU are valid for all Member States. The EU signed the Trade Facilitation Agreement (TFA) in October 2015. Romania has implemented all TFA requirements.

Legal System and Judicial Independence

Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult. Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues. There are no specialized commercial courts, but there are specialized civil courts. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws. As stipulated in the Constitution, the judicial system is independent from the executive branch and generally considered procedurally competent, fair, and reliable. Affected parties can challenge regulations and enforcement actions in court. Such challenges are adjudicated in the national court system.

Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society. Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders or cases where the public administration unjustifiably challenges court decisions constitute obstacles to the binding nature of court decisions.

Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices. The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.

There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, they must present their proposed resolution to a judge upon completion of the mediation process. The judge must then approve the agreement.

Laws and Regulations on Foreign Direct Investment

Since Romania became a member of the European Union in 2007, the country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion. At the same time, implementation of these laws and regulations frequently lags or is inconsistent, and lack of legislative predictability undermines Romania’s appeal as an investment destination.

Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s. It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011, including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices. The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013. Fiscal legislation is revised frequently, often without scientific or data-driven assessment of the impact the changes may have on the economy.

Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court. There have been few hostile takeover attempts reported in Romania. Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.

Competition and Antitrust Laws

Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices. A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC), saving considerable time and money for all parties involved. Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between EUR 10,000 (USD 11,944) and EUR 50,000 (USD 59,720). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.

Romania’s Public Procurement Directives outline general procurements of goods and equipment, utilities procurement (“sectorial procurement”), works and services concessions, and remedies and appeals. An extensive body of secondary and tertiary legislation accompanies the four 2016 laws and has been subject to repeated revisions. Separate legislation governs defense and security procurements. In a positive move, this body of legislation moved away from the previous approach of using lowest price as the only public procurement selection criterion. Under the laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) to participate in the award procedures. Only the winner must later submit full documentation.

The public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts. Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure. Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.

The EC’s 2020 European Semester Country Report for Romania notes that despite improved implementation, public procurement remains inefficient. According to the report, 97 percent of businesses think corruption is widespread in Romania, and 87 percent say it is widespread in public procurement managed by national authorities.

Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved. In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.

Dispute Settlement

ICSID Convention and New York Convention

Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961 and is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Romania’s 1975 Decree 62 provides for legal enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

Romania is a signatory to the New York Convention, the European Convention on International Commercial Arbitration (Geneva), and the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). There have been 17 ICSID cases in total against Romania. Three of them involved U.S. investors. The arbitral tribunal ruled in favor of Romania in two of them. Eight investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID). Local courts recognize and enforce foreign arbitral awards against the government. There is no history of extrajudicial action against investors.

International Commercial Arbitration and Foreign Courts

Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts. There are no statistics on the percentage of cases in which Romanian courts ruled against state-owned enterprises (SOEs).

Romanian law and practice recognize applications to other internationally known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL). Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC). This new arbitration center focuses on business and commercial disputes involving foreign investors and multinationals active in Romania.

According to the World Bank 2020 Doing Business Report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment. Associated costs can total around 27 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.

Bankruptcy Regulations

Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings. The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.

According to the World Bank’s Doing Business Report, resolving insolvency in Romania takes 3.3 years on average, compared to 2.3 years in Europe and Central Asia, and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company. The average recovery rate is 34.4 cents on the dollar. Globally, Romania stands at 56 in the ranking of 190 economies on the ease of resolving insolvency.

4. Industrial Policies

Investment Incentives

Currently, customs and tax incentives are available to investors in six free trade zones. State aid is available for investments in free trade zones under EU regional development assistance rules.

In 2007, Romania adopted EU regulations on regional investment aid and instituted state aid schemes for large investments, SMEs, and job creation. Both Romanian and EU state aid regulations aim to limit state aid in any form, such as direct state subsidies, debt rescheduling schemes, debt for equity swaps, or discounted land prices. The European Commission (EC) must be notified of and approve GOR state aid that exceeds the pre-approved monetary threshold for the corresponding category of aid. To benefit from the remaining state aid schemes, the applicant must secure financing separate from any public support for at least 25 percent of the eligible costs, either through his own resources or through external financing, and must document this financing in strict accordance with Ministry of Finance guidelines. Under amendments passed in 2010, the state aid scheme for regional projects scores applications based not only on the economics of the project, but also on the GDP per capita and unemployment rate for the county of intended investment. When granting state aid, the Ministry of Finance requires that the state revenues through taxes equals the state aid granted. Numerous foreign and U.S firms have successfully applied for and received Romanian State Aid.

The renewable energy support through Green Certificate System, part of the Renewable Energy Law, provided incentives for certain types of renewable energy. The support is not available for renewable energy investments made after January 1, 2017, but investors that qualified under the support system can trade certificates until 2032. The Green Certificates are traded in parallel with the energy produced. The Green Certificates are intended to provide an additional source of revenue for renewable energy producers. Repeated revisions to the support system – including deferring release of the certificates and lowering the mandatory green certificate quota that consumers and suppliers have to acquire – have created instability, however, in the renewables investment climate. Energy intensive industrial consumers receive exemptions from acquiring green certificates.

As an EU member state, Romania must receive EC approval for any state aid it grants not covered by the EU’s block exemption regulations. The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the EC. The failure of state aid grantors to notify the EC properly of aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations. Investors should ensure that the government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance to ensure a proper understanding of notification requirements.

Companies operating in Romania can also apply for aid under EU-funded programs that are co-financed by Romania. When planning a project, prospective applicants must bear in mind that the project cannot start before the financing agreement is finalized; the application, selection, and negotiations can be lengthy. Applicants also must secure financing for non-eligible expenses and for their co-financing of the eligible expenses. Finally, reimbursement of eligible expenses – which must be financed upfront by the investor – is often very slow. Procurements financed by EU-funded programs above a certain monetary threshold must comply with public procurement legislation. In an effort to increase the rate of EU funds absorption, Romania has amended regulations to allow applicants to use the assets financed under EU-funded programs as collateral. However, Government of Romania entities’ understaffing and lack of management expertise, cumbersome procedures, and applicants’ difficulty obtaining private financing still significantly impede the absorption and implementation of EU funds.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (FTZs) received legal authority in Romania in 1992 under the authority of the Ministry of Transportation. General provisions include unrestricted entry and re-export of goods, and exemption from customs duties. The law further permits the leasing or transfer of buildings or land for terms of up to 50 years to corporations or natural persons, regardless of nationality. Foreign-owned firms have the same investment opportunities as Romanian entities in FTZs. Currently six FTZs, primarily located on the Danube River or close to the Black Sea, operate: Sulina, Constanta-Sud Agigea, Galati, Braila, Curtici-Arad, and Giurgiu. The administrator of each FTZ is responsible for all commercial activities performed within the zone.

Performance and Data Localization Requirements

The government generally does not mandate local employment. The notable exception is the Offshore Law (Law 256/2018), which requires that at least 25 percent of the employees of offshore titleholders have to be Romanian citizens with fiscal residence in Romania. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors or their employees. There are no government-imposed conditions on permission to invest. The government does not require investors to establish or maintain data storage in Romania. Romania neither follows nor is there legislation requiring a “forced localization” policy for goods, technology, or data. Romania does not have requirements for foreign IT providers to turn over source code or provide access for government surveillance. Romania’s Constitutional Court has twice ruled such specific legislative drafts are unconstitutional. There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment.

5. Protection of Property Rights

Real Property

The Romanian Constitution, adopted in December 1991 and revised in 2003, guarantees the right to ownership of private property. Mineral and airspace rights, and similar rights, are excluded from private ownership. Under the revised Constitution, foreign citizens can gain land ownership through inheritance. With EU accession, citizens of EU member states can own land in Romania, subject to reciprocity in their home country.

Companies owning foreign capital may acquire land or property needed to fulfill or develop company goals. If the company is dissolved or liquidated, the land must be sold within one year of closure and may only be sold to a buyer(s) with the legal right to purchase such assets. Investors can purchase shares in agricultural companies that lease land in the public domain from the State Land Agency, however, legislation passed in Fall 2020 imposed additional restrictions and limitations on the purchase of agricultural land by foreign investors.

The 2006 legislation that regulates the establishment of specialized mortgage banks also makes possible a secondary mortgage market by regulating mortgage bond issuance mechanisms. Commercial banks, specialized mortgage banks, and non-bank mortgage credit institutions offer mortgage loans. Romania’s mortgage market is now almost entirely private. The state-owned national savings bank (CEC Bank) also offers mortgage loans. Since 2000, the Electronic Archives of Security Interests in Movable Property (AEGRM) has overseen the filing of transactions regarding mortgages, assimilated operations, or other collateral provided by the law as well as their advertising. Most urban land has clear title, and the National Cadaster Agency (NCA) is slowly working to identify property owners and register land titles. According to the National Cadaster Plan, 2023 is the deadline for full registration of lands and buildings in the registry. According to NCA data, 1.9 million hectares of land and 37.7 percent of the estimated real estate assets (buildings) were registered in the cadaster registry as of March 2020.

Romania has made marginal improvement in implementing digital records of real estate assets, including land. The 2020 World Bank Doing Business Report ranks Romania 46 for the ease of registering property. The cadaster property registry is far from complete, and the lack of accurate and complete information for land ownership continues to be a challenge for private investors ‎and SOEs alike.

Intellectual Property Rights

Romania remains on the Watch List of the U.S. Trade Representative’s Special 301 Report in 2021, it reportedly hosts an infringing website included in the 2020 Notorious Markets List. The United States continues to welcome the participation of the Romanian government on intellectual property rights (IPR)-related trainings and in international enforcement operations, as well as the continued working-level cooperation between stakeholders and law enforcement authorities. Internet piracy remains the most serious type of IPR infringement, and the technical sophistication of online piracy continues to increase. The shift of counterfeit goods trade from physical marketplaces to online networks, or social media marketplaces, has created new challengers for IPR enforcement. Low penalties for IPR crimes and the treatment of IPR violations without “social harm” often impede effective enforcement and prosecution. To increase the odds of IPR cases being brought to trial, law enforcement authorities have attempted to bundle charges of fraud, tax evasion, and organized crime activities with IPR violations, but frequently authorities forego IPR enforcement and focus on tax evasion. The government is taking additional steps to improve IPR enforcement coordination among public agencies and strengthen cooperation with private sector stakeholders.

Romania is a signatory to international conventions concerning IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has enacted legislation protecting patents, trademarks, and copyrights. Romania passed broad IPR protection enforcement provisions as required by the WTO, yet gaps remain in enforcement. Romania has signed the Internet Convention to protect online authorship. In January 2020, Romania passed a law to enhance the transparency of collective rights management of copyrights, and in July 2020 passed legislation to implement the EU Trademark Directive. The new legislation introduced a series of changes, including removal of requirements for graphic representation of trademarks and allowing for registration of sound marks, multimedia marks, and holograms. To increase transparency, the law included provisions to clarify dates of completed trademark registration and their entry into force.

Romania is both a transit and destination country for counterfeit goods. China is the top country of origin for counterfeit goods. Customs officers can seize counterfeit products ex-officio and destroy them upon inspection and declaration by the rights holder. The government is responsible for paying for the storage and destruction of the counterfeit goods. The National Customs Directorate reported the seizure of 1.65 million pieces of counterfeit goods worth USD 9.35 million in 2020, compared to 6.11 million pieces worth USD 6.84 million in 2019. Customs authorities closely coordinate their efforts with the European Commission’s Anti-Fraud Office (OLAF), the European Observatory on Infringements of Intellectual Property Rights, and other stakeholders to increase trans-border cooperation in line with the EU’s IPR action plan.

Patents

Romania is a party to the World Intellectual Property Organization (WIPO) Patent Cooperation Treaty and the Paris Convention. Romanian patent legislation generally meets international standards with foreign investors accorded equal treatment with Romanian citizens under the law. Patents are valid for 20 years. Romania has been party to the European Patent Convention since 2002. Patent applications can be filed online. Since 2014, Romania has also enforced a distinct law regulating employee inventions. The right to file a patent belongs to the employer for up to two years following the departure of the employee.

Trademarks

Romania is party to the Madrid Agreement, the Singapore Treaty, and the Trademark Law Treaty. In 1998, Romania passed a trademark and geographical indications law, which was amended in 2010 to make it fully consistent with equivalent EU legislation at that time. The EU has since adopted a new Trademark Directive (EU Directive 2436/2015) that was to be implemented by all EU member states by January 2019. Law 84/1998 transposing the EU Directive 2015/2436 of the European Parliament and of the Council relating to Trademarks and Geographic Indications was approved by Parliament and came in force in July 2020.

Copyrights

Romania is a member of the Berne Convention, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. The Romanian Copyright Office (ORDA) was established in 1996 and promotes and monitors copyright legislation. The General Prosecutor’s Office (GPO) provides national coordination of IPR enforcement. Many magistrates still tend to view copyright piracy as a “victimless crime” and this attitude has resulted in weak enforcement of copyright law.

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

6. Financial Sector

Capital Markets and Portfolio Investment

Romania welcomes portfolio investment. In September 2019, the Financial Times and the London Stock Exchange (FTSE) promoted the Bucharest Stock Exchange (BVB) to Emerging Secondary Capital Market status from Frontier Capital Market classification.  The Financial Regulatory Agency (ASF) regulates the securities market. The ASF implements the registration and licensing of brokers and financial intermediaries, the filing and approval of prospectuses, and the approval of market mechanisms.

The BVB resumed operations in 1995 after a hiatus of nearly 50 years. The BVB operates a two-tier system with the main market consisting of 83 companies. The official index, BET, is based on an index of the ten most active stocks. BET-TR is the total return on market capitalization index, adjusted for the dividends distributed by the companies included in the index. Since 2015, the BVB also has an alternative trading system (MTS-AeRO) with 289 listed companies – mostly small- and medium-sized enterprises (SMEs) – and features relaxed listing criteria. The BVB allows trade in corporate, municipal, and international bonds. Investors can use gross basis trade settlements, and trades can be settled in two net settlement cycles. The BVB’s integrated group includes trading, clearing, settlement, and registry systems. The BVB’s Multilateral Trading System (MTS) allows trading in local currency of 16 foreign stocks listed on international capital markets.

Neither the government nor the Central Bank imposes restrictions on payments and transfers. Country funds, hedge funds, private pension funds, and venture capital funds continue to participate in the capital markets. Minority shareholders have the right to participate in any capital increase. Romanian capital market regulation is now EU-consistent, with accounting regulations incorporating EC Directives IV and VII.

Money and Banking System

Thirty- five banks and credit cooperative national unions currently operate in Romania. The largest is the privately-owned Transilvania Bank (18.4 percent market share), followed by Austrian-owned Romanian Commercial Bank (BCR-Erste, 14.2 percent); French-owned Romanian Bank for Development (BRD-Société Générale, 11.0 percent); Dutch-owned ING (9.5 percent); Austrian-owned Raiffeisen (9.2 percent), and Italian-owned UniCredit (8.1 percent).

The banking system is stable and well-provisioned relative to its European peers. According to the National Bank of Romania, non-performing loans (NPLs) have steadily fallen in recent years and currently account for 3.89 percent of total bank loans. As of December 2020, the banking system’s solvency rate was 22.7 percent, which has remained steady over recent years.

The government has encouraged foreign investment in the banking sector, and mergers and acquisitions are not restricted. The only remaining state-owned banks are the National Savings Bank (CEC Bank) and EximBank, comprising 10.63 percent of the market combined, having grown after the latter’s acquisition of Banca Romaneasca from Greek-owned NBG.

While the National Bank of Romania must authorize all new non-EU banking entities, banks and non-banking financial institutions already authorized in other EU countries need only notify the National Bank of Romania of plans to provide local services based on the EU passport.

In response to the COVID-19 pandemic, the government instituted a credit/lease installment moratorium in 2020, and later extended it into 2021. Borrowers are permitted a total of nine months of non-payment of their installments. As of September 2020, 558,000 borrowers applied for the installment moratorium, representing 14.7 percent of the total non-government credit balance.

Foreign Exchange and Remittances

Foreign Exchange

Romania does not restrict the conversion or transfer of funds associated with direct investment. All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.

Romania’s national currency, the Leu, is freely convertible in current account transactions, in accordance with the International Monetary Fund’s (IMF) Article VII.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs. Proceeds from the sales of shares, bonds, or other securities, as well as from the conclusion of an investment, can be repatriated.

Romania implemented regulations liberalizing foreign exchange markets in 1997. The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows. Commission fees for real-time electronic banking settlements have gradually been reduced.

Capital inflows are also free from restraint. Romania concluded capital account liberalization in September 2006, with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills, and other monetary instruments.

Sovereign Wealth Funds

Plans to establish a Sovereign Development and Investment Fund (SDIF) were repealed by the government in January 2020.

7. State-Owned Enterprises

According to the World Bank, there are approximately 1,200 state-owned enterprises (SOEs) in Romania, of which around 300 are majority-owned by the Romanian government.  There is no published list of all SOEs since some are subordinated to the national government and some to local authorities. SOEs are governed by executive boards under the supervision of administration boards. Implementation of the Corporate Governance Code (Law 111/2016) remains incomplete and uneven.

SOEs are required by law to publish an annual report. Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited. Many SOEs are currently managed by interim boards, often with politically appointed members that lack sector and business expertise. The EC’s 2020 European Semester Country Report for Romania noted that the Corporate Governance Law is still only loosely applied. The appointment of interim boards has become standard practice. Administrative offences carry symbolic penalties, which do not change behavior. The operational and financial results of most state-owned enterprises deteriorated in 2019 and 2020.

Privatization Program

Privatization has stalled since 2014. The government has repeatedly postponed IPOs for hydropower producer Hidroelectrica, though its sale is currently slated for end-2021 pending repeal of the ban on the sales of state equities

As a member of the EU, Romania is required to notify the EC’s General Directorate for Competition regarding significant privatizations and related state aid. Prospective investors should seek assistance from legal counsel to ensure compliance with relevant legislation. The state aid schemes aim to enhance regional development and job creation through financial support for new jobs or investment in new manufacturing assets. The Ministry of Finance issues public calls for applications under the schemes. The government’s failure to consult with, and then formally notify, the EC properly has resulted in delays and complications in some previous privatizations.

Private enterprises compete with public enterprises under the same terms and conditions with respect to market access and credit. Energy production, transportation, and mining are majority state-owned sectors, and the government retains majority equity in electricity and natural gas transmission. The Ministry of Energy has authority over energy generation assets and natural gas production. According to the EU’s Third Energy Package directives, the same entity cannot control generation, production and/or supply activities, and at the same time control or exercise any right over a transmission system operator (TSO). Consequently, natural gas carrier Transgaz and national electricity carrier Transelectrica are under the Government’s General Secretariat. The Ministry of Infrastructure has authority over the entities in the transportation sector, including rail carrier CFR Marfa, national air carrier Tarom, and the Constanta Port Administration. There are currently no plans to privatize companies in the transportation sector.

Romanian law allows for the inclusion of confidentiality clauses in privatization and public-private partnership contracts to protect business proprietary and other information. However, in certain high-profile privatizations, parliament has compelled the public disclosure of such provisions.

9. Corruption

Romania’s fight against high- and medium-level corruption, a model in Southeastern Europe over the past decade, suffered significant setbacks between 2017 and late 2019 due to a concerted campaign under the previous government to weaken anti-corruption efforts, the criminal and judicial legislative framework, and judicial independence. Judicial institutions, NGOs, the EU, and NATO allied governments raised concerns about legislative initiatives that furthered this trend during that time period. In Transparency International’s 2020 Corruption Perceptions Index, Romania remained 44 out of 100. This is among the lowest ranking of EU member states, tying with Hungary and Bulgaria. The current government began rolling back the negative actions of the prior government, but this effort will take some time to have full effect.

Domestic and international rule-of-law observers and law enforcement criticized the wide range of amendments that the former government introduced to the criminal code and criminal procedure codes as weakening the investigative toolkits, including in fighting corruption between 2017 and 2019. In July 2019, the Constitutional Court found these changes unconstitutional, and the current government plans to revise these codes.

The European Commission under the Cooperation and Verification Mechanism (CVM), and the Council of Europe’s (COE) Group of States Against Corruption (GRECO) prepared 2019 reports prior to the National Liberal Party (PNL) government taking power in November 2019. The October 2019 report, which covered actions taken through June 2019, confirmed the backtracking from the progress made in previous years and set out in the November 2018 report. The report also emphasized that key institutions needed to collectively demonstrate a strong commitment to judicial independence and the fight against corruption as indispensable cornerstones, and to ensure the capacity of national safeguards and checks and balances to act.

GRECO’s July 2019 Interim Compliance Report warned that statutes enacted through emergency ordinances, or with insufficient transparency and public consultation, weaken judicial independence. A June 2019 Venice Commission report was also highly critical of the use of Emergency Ordinances. A May 2019 non-binding referendum banned the use of Emergency Ordinances for issues related to the justice sector. The chapter on Romania in the EC’s 2020 report on the rule of law situation in the EU noted that in 2020 the government continued to affirm its commitment to restore the path of judicial reform after the reversals between 2017 and 2019.

After a political and media campaign against the National Anti-Corruption Directorate (DNA) resulted in the dismissal of the Chief Prosecutor of the DNA in 2018, the position remained vacant until a new government filled the position in March 2020. The DNA’s 2020 performance report showed that the failure to correct the legislative framework to incorporate the Constitutional Court decisions have negatively impacted the agency’s efficiency. The special prosecutor’s office set up by the previous government to investigate and prosecute judges and prosecutors, which appeared to only be undertaking politically motivated cases, continues to operate.

The current government has resumed efforts to have the special prosecutor’s office disbanded. Successful court challenges of the High Court of Cassation and Justice’s procedures triggered the review of numerous high-level corruption cases. Both the national Cabinet and Parliament adopted codes of conduct, yet their overly general provisions have so far rendered them inconsequential. Conflicts of interest, respect for standards of ethical conduct, and integrity in public office in general remained a concern for all three branches of government. Individual executive agencies enforced sanctions slowly, and agencies’ own inspection bodies were generally inactive.

In June 2019, the previous government adopted a sizable Administrative Code by emergency ordinance. The Code weakened the authority of the National Civil Service Agency to oversee civil service by merit-based selection, lowered the voting requirements for transferring management of properties by local councils, and limited local elected officials’ legal liability for official acts by shifting it to civil servants. Implementation of the 2016-2020 national anticorruption strategy, which the previous government adopted in 2016, has been slow, especially on prevention efforts. The government plans to draft the strategy for the 2021-2024 period based on a review of the previous one, which focused on strengthening administrative review and transparency within public agencies, prevention of corruption, increased and improved financial disclosure, conflict of interest oversight, more aggressive investigation of money laundering, and passage of legislation to allow for more effective asset recovery. The current government made more aggressive asset recovery a priority and has worked on a strategy for strengthening the National Agency for Managing Seized Assets (ANABI).

Romania implemented the revised EU Public Procurement Directives with the passage in 2016 of new laws to improve and make public procurement more transparent. The National Agency for Public Procurement has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities. State entities, as well as public and private beneficiaries of EU funds, are required by law to follow public procurement legislation and use the e-procurement system. Sectoral procurements, including private companies in energy and transportation, must follow the public procurement laws and tender via the e-procurement website. The February 2020 EU Country Report for Romania points out that public procurement remains inefficient.

In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency for ex-ante check of conflicts of interests in public procurement, was signed into law. The mechanism aims to avoid conflicts of interest by automatically detecting conflict of interests in public procurement before the selection and contract award procedure.

Laws prohibit bribery, both domestically and for Romanian companies doing business abroad. The judiciary remains paper-based and inefficient, and Romania loses several cases each year in the European Court of Human Rights (ECHR) due to excessive trial length. Asset forfeiture laws exist, but a functioning regime remains under development. Fully 80 percent of cases in the court system are property related.

While private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the government has rolled back corporate governance rules for state-owned enterprises and has repeatedly resorted to profit and reserves distribution in dividends to bolster the budget. U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named. According to the EC’s 2020 European Semester Country Report for Romania, the share of companies that perceive corruption as a problem increased in Romania in contrast with the EU average, which continued to decrease (now at 37 percent). Overall, 97 percent of businesses think that corruption is widespread in Romania, and 87 percent say it is widespread in public procurement managed by national authorities. On a more positive note, 50 percent of respondents think that those engaged in corruption would be caught by police, and 43 percent think that those caught for bribing a senior official receive appropriate sanctions. These results are both higher than the EU average.

Romania is a member of the Southeast European Law Enforcement Center (SELEC). NGOs enjoy the same legal protections as any other organization, but NGOs involved in investigating corruption receive no additional protections.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Romania is member of the UN Anticorruption Convention and the Council of Europe’s Group of States Against Corruption (GRECO). Romania is not a member of the OECD Anti-Bribery Convention.

Romania expressed interest to join the new anti-corruption working group of the Open Government Partnership initiative.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

National Anticorruption Directorate (DNA)
Str. Stirbei Voda nr. 79-81, Bucuresti
+40 21 312 73 99
anticoruptie@pna.ro 
http://www.pna.ro/sesizare.xhtml?jftfdi=&jffi=sesizare 

Contact at “watchdog” organizations:

Laura Stefan
Executive Director
Expert Forum
Strada Semilunei, apt 1, Sector 2, Bucuresti
+40 21 211 7400
]laura.stefan@expertforum.ro
office@expertforum.ro 

Cristina Guseth
Director
Freedom House Romania
Bd. Ferdinand 125, Bucuresti +40 21 253 2838
guseth@freedomhouse.ro 

Elena Calistru
President
Funky Citizens
+40 723 627 448
elena@funkycitizens.org 

10. Political and Security Environment

Romania does not have a history of politically motivated damage to foreign investors’ projects or installations. Major civil disturbances are rare, though some have occurred in past years. Anti-shale gas protestors invaded the site of a U.S. energy company’s exploratory well in 2013, damaging the perimeter fence and some equipment.

During the February 2017 anti-government protests, and intermittently during the previous government, some government leaders pointed to “multinationals” as among the orchestrators of the protests. However, no officials took any action and public attention diminished. The current coalition government supports the creation of a business-friendly environment.

11. Labor Policies and Practices

Romania has traditionally boasted a large, skilled labor force at comparatively low wage rates in most sectors. The labor pool has tightened in highly skilled professions, in particular the information technology and health sectors, due to emigration and a deteriorating primary and secondary education system that fails to adequately prepare many graduates, particularly in rural areas, for university. The university system is generally regarded as good, particularly in technical fields, though foreign and Romanian business leaders have urged reform of outdated higher education curricula to better meet the needs of a modern, innovation-driven market. Payroll taxes remain steep. As a result, an estimated 25 to 30 percent of the labor force works in the underground economy as “independent contractors” where their salaries are neither recorded, nor taxed. Even for registered workers, underreporting of actual salaries is common.

The unemployment rate in Romania declined by 0.3 percent from 4.2 percent in 2018 to 3.9 percent in 2019; however, the rate has risen due to the COVID-19 pandemic and was 5.6 percent in January 2021. Additional data show a shrinking labor supply. At 68.6 percent in 2019, the labor force participation rate – the portion of the working age population (15-64 years) who are employed or actively seeking employment – remains among the lowest in the EU. Romanian employers in the engineering, machinery, IT services, and healthcare sectors report difficulties in hiring and retaining employees as Romania faces a shortage of medium- to high-skill workers. As Romania’s emigration crisis deepens, other industries including food service and construction also face worker shortages. According to the EC, Romanians were the largest working age group of EU citizens residing in other member states in 2019 (19.4 percent of the working age resident population). Many emigrants are young and well qualified, constraining the supply of skilled labor remaining in Romania. The World Bank estimates that between 2000 and 2018, Romania’s population fell from 22.5 million to 19.5 million, with emigration accounting for more than 75 percent of the decline. Romania faces a shortage of healthcare staff as doctors and nurses continue to seek work abroad, motivated not only by the higher salaries, but also by the country’s antiquated medical system.  According to the Ministry of Health, roughly 10,000 doctors left Romania between 2017 and 2018.

The government lacks a comprehensive strategy to remedy labor shortages despite having taken some steps in recent years to attract and retain talent. Employees in some sectors have benefitted from fiscal incentives. For example, IT professionals are eligible for certain income tax exemptions. In addition, in 2018, the GOR introduced an additional income tax and social contributions exemption for a period of ten years for employees in the construction sector. The provision also introduced a specific minimum wage of RON 3,000 (USD 728) for construction workers. In 2017, the government adopted a unitary wage law to establish a more consistent framework for wages across the public sector. The law provided for a salary increase of at least 25 percent for most public sector employees; wages for some workers in the healthcare sector doubled in nominal terms as of March 2018. Discussions with unions and businesses continue on the specific applications of the Unitary Wage Law.

The Labor Code regulates the labor market in Romania, controlling contracting, jurisdiction, and the application of regulations. It applies to both national and foreign citizens working in Romania or abroad for Romanian companies. As an EU member state, Romania has no government policy that requires the hiring of nationals, but it has annual work permit quotas for other non-EU nationals. Starting in 2020, employers are no longer required to obtain General Immigration Inspectorate (IGI) approval for nationals from Moldova, Ukraine, and Serbia for fulltime labor contracts of up to 9 months per year. For 2021 the government decreased the annual work permits to 25,000, down from 30,000 in 2020. Work permits are valid for one year and are renewable with an individual work contract. Employers pay a EUR 100 tax for most foreign workers with the exception of seasonal workers and those present in Romania on student visas, for whom the tax is EUR 25. The government also reduced the cost of employing non-EU citizens in 2018. The amended legislation no longer requires employers to pay a minimum wage equivalent to the gross average wage. Normal minimum wage law applies with the exception that highly skilled non-EU workers must receive at least twice the gross minimum wage. Foreign companies still resort to expensive staff rotations, special consulting contracts, and non-cash benefits.

Since Romania’s revolution in 1989, labor-management relations have occasionally been tense, the result of economic restructuring and personnel layoffs. Trade unions, much better organized than employers’ associations, are vocal defenders of their rights and benefits. Employers are required to make severance payments for layoffs according to the individual labor contracts, company terms and conditions, and the applicable collective bargaining agreements. The Labor Code differentiates between layoffs and firing; severance payments are due only in case of layoffs. There is no treatment of labor specific to special economic zones, foreign trade zones, or free ports.

Romanian law allows workers to form and join independent labor unions without prior authorization, and workers freely exercise this right. Labor unions are independent of the government. Unions and employee representatives must typically notify the employer before going on strike and must take specific steps provided by law before launching a general strike, including holding discussions and attempting reconciliation with management representatives. Companies may claim damages from strike organizers if a court deems a strike illegal. Labor dispute mechanisms are in place to mediate any conflicts between employers and employees regarding economic, social, and professional interests. Unresolved conflicts are adjudicated in court according to the civil code. The employee, employer, or labor union may initiate proceedings. In 2019, employees from household appliances, electrical and railcar industries went on strike. They sought higher pay, better working conditions, and sufficient staffing.

Union representatives allege that few incidents of anti-union discrimination are officially reported because it is difficult to prove that employers laid-off employees in retaliation for union activities. The government has generally respected the right of association, and union officials state that registration requirements stipulated by law are complicated, but generally reasonable. The current law permits, but it does not impose, collective labor agreements for groups of employers or sectors of activity. Companies with more than 21 employees may use collective bargaining, which provides for written agreements between employees and the employer or employers’ association. According to the Ministry of Labor, companies and employees had finalized 8,233 collective labor agreements in 2019 and 4,364 collective labor agreements as of Q3 2020. Since 2014, Parliament has periodically considered reintroducing collective bargaining nationwide, a practice that previously established minimum pay and working conditions for the entire economy, but which the Social Dialogue Act eliminated in 2011.

As an EU and International Labor Organization member state, Romania observes international labor rights. The law prohibits all forms of forced or compulsory labor, but enforcement is not uniform or effective. As penalties are insufficient to deter violations, reports indicated that such practices continued to occur, often involving Roma, disabled persons, and children. The minimum age for most forms of employment is 16, but children may work with the consent of parents or guardians at age 15, provided the tasks correlate with their abilities. Employment in harmful or dangerous jobs is forbidden for those under the age of 18; the government maintains a list of dangerous jobs in which the employment of minors is restricted.

Romania does not waive or derogate labor laws and regulations to attract or retain investments. Since 2011, employers have had more flexibility to evaluate employees based on performance and hiring and firing procedures have been significantly relaxed. The main objective for Romania’s national labor strategy for 2014-2020 is the development of an efficient, dynamic, and flexible workforce. Romania aims to ensure that by 2020, 70 percent of people aged 20-64 will have access to a quality job which rewards them based on their capacity and competence and ensures a decent standard of living.

The minimum wage has more than tripled in nominal terms since 2012, rising from RON 700 (USD 170) to RON 2,300 (USD 558) per month in 2021. In addition, the government introduced a differentiated minimum wage in December 2018, decreeing that employees with a university degree, as required by the job description and one year on the job, must receive at least RON 2,350 (USD 570) monthly, 5 percent more than other minimum wage workers earn.  Despite these measures, Romania has the highest rate of employed persons at risk of poverty among EU member states; 15.7 percent in 2019.

Wage increases have been outpacing productivity growth since 2016. This led to a marked acceleration of hourly labor costs, which posted a 6 percent nominal increase in December 2020 as compared with the same period in 2019.

In December 2017, the GOR shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees. To avoid reductions in employee net pay and retain labor in a tight market, many companies increased salaries to offset employee losses. Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending employee contracts.

Separately, in December 2019, Parliament reduced payroll taxes for part-time workers. The bill reversed 2017 provisions when, in an effort to curtail underreporting of work, the government increased the minimum required payroll taxes that employers must pay for their part-time employees to equal those for a full-time employee earning minimum wage. Coupled with the change in the legal tax incidence of social contributions described above, the law had the unintended consequence that some employees owed more in social contributions than their monthly earnings. Subsequently, the government issued an ordinance in February 2018 to allow part-time workers to pay social contributions for their actual gross income only, mandating that the employer make up the difference. Effective January 1, 2020, part-time employees are taxed based on their actual earnings, and employers do not cover additional charges.

In 2018, the government passed new legislation clearly articulating the way the labor code applies to companies employing teleworkers, defining the distinction between teleworkers and employees who work full-time from home.

In response to COVID-19 restrictions, the government extended the categories of employees eligible for unemployment benefits to independently registered business people, lawyers, and individuals with income deriving from copyright and sports activities. In August 2020, the government adopted a flexible work scheme model that required employers to cover half of full-time wages, and the GOR to pay 75 percent of the difference between the gross wage and the basic wage paid to the employee based on the number of hours actually worked. As part of the same package, independent and seasonal workers affected by the epidemic could continue to receive 41.5 percent of the average gross wages for a limited period. Day workers and SME employees also would be able to receive separate, limited payments to cover wages and teleworking equipment. The law also allows for one caretaker of school-age children to receive paid days off for periods when schools are closed.

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) (USD) 2020 $250B 2020 $257B www.worldbank.org/en/country  https://insse.ro/cms/ 
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 (stock positions, USD) 2020 $5.87B 2019 $3.46B BEA data available at https://apps.bea.gov/international/factsheet/  National Office of the Trade Register National Bank of Romania
Host country’s FDI in the United States (stock positions, USD) N/A N/A 2019 $38M BEA data available at ttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as %host GDP N/A N/A 2019 2.5% UNCTAD data available at https://stats.unctad.org/handbook/EconomicTrends/Fdi.html 

* Source for Host Country Data:

National Statistics Institute: https://insse.ro/cms/ 

National Bank of Romania: https://www.bnr.ro/

National Office of the Trade Register: https://www.onrc.ro/ 

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 99,050 100% Total Outward N/A
Netherlands 23,012 23.2% Country #1 N/A
Austria 12,461 12.6% Country #2 N/A
Germany 12,219 12.3% Country #3 N/A
Italy 8,146 8.2% Country #4 N/A
Cyprus* 6,161 6.2% Country #5 N/A
“0” reflects amounts rounded to +/- USD 500,000.*The National Bank of Romania estimates the United States to be #5 when methodology is altered to account for investments made by foreign subsidiaries of origin country companies.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (US Dollars, Millions)
Total Equity Securities Total Debt Securities
All Countries 6,137 100% All Countries 1,839 100% All Countries 4,298 100%
Luxembourg 1,346 22% Luxembourg 851 46% International Organizations 859 20%
International Organizations 859 14% Austria 198 11% U.S. 666 15%
U.S. 769 13% Ireland 165 9% Luxembourg 495 12%
Austria 674 11% Germany 141 8% Austria 476 11%
Netherlands 397 6% Netherlands 129 7% France 286 7%

14. Contact for More Information

Kevin Manuel
B-dul Dr. Liviu Librescu 4-6
+40-21-200-3343
InfoBuch@state.gov

Serbia

Executive Summary

Serbia’s investment climate has modestly improved in recent years, driven by macroeconomic reforms, greater financial stability, fiscal discipline, and a European Union (EU) accession process that encourages legal changes that improve the business climate. The government successfully completed a 30-month Policy Coordination Instrument with the International Monetary Fund (IMF) in January 2021 and is now negotiating a new stand-by arrangement. Serbia improved four places in 2020 on the World Bank’s Doing Business index and is now ranked 44th globally. Attracting foreign investment remains an important priority for the government; and in 2021 the United States and Serbia signed a new Investment Incentive Agreement that may facilitate opportunities in a variety of sectors. U.S. investors in Serbia are generally positive due to the country’s strategic location, well-educated and affordable labor force, excellent English language skills, investment incentives, and free-trade arrangements with key markets, particularly the EU. U.S. investors generally enjoy a level playing field with their Serbian and foreign competitors. The U.S. Embassy in Belgrade often assists investors when issues arise, and Serbian leaders are responsive to investment concerns. However, challenges remain, particularly bureaucratic delays and corruption, as well as loss-making state-owned enterprises (SOEs), a large informal economy, and an inefficient judiciary. Political influence on the decisions of nominally independent regulatory agencies is also a concern.

The Serbian government has identified economic growth and job creation as top priorities and has committed to resolving several long-standing issues related to consolidating market-driven capitalism. The government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Companies and officials have noted that the adoption of reforms has sometimes outpaced thorough implementation of these reforms. Digitizing certain functions (e.g., construction permitting, tax administration, e-signatures, and removing the previously ubiquitous requirement for ink stamps) has not yet brought a dramatic improvement in processing times and may not be consistently implemented.

The government is slowly making progress on resolving troubled SOEs. Where possible, this has been achieved through bankruptcy or privatization actions. The government plans to privatize 78 more companies and is also slowly reducing Serbia’s bloated public-sector workforce, mainly through attrition and hiring limitations that cap new hiring at 70% of the previous year’s attrition.

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

Women in Serbia generally enjoy equal treatment in business, and the government offers various programs to support women’s businesses. Starting in 2017, a Serbian government program provides approximately 1 million USD annually in grants from the government budget to support women’s innovative entrepreneurship.

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

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 94 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 44 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 53 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $149 million http://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $7,030 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Attracting FDI is a priority for the Serbian government. The Law on Investments extends national treatment to foreign investors and prohibits discriminatory practices against them. The Law also allows the repatriation of profits and dividends, provides guarantees against expropriation, allows waivers of customs duty for equipment imported as capital in-kind, and enables foreign investors to qualify for government incentives.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own businesses and to engage in all forms of remunerative activity. Serbia has no investment screening or approval mechanisms for inbound foreign investment. U.S. investors are not disadvantaged or singled out by any rules or regulations.

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

Serbian citizens and foreign investors enjoy full private-property ownership rights. Private entities can freely establish, acquire, and dispose of interests in business enterprises. By law, private companies compete equally with public enterprises in the market and for access to credit, supplies, licenses, and other aspects of doing business.

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

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

Other Investment Policy Reviews

Serbia has not undergone any third-party investment policy reviews in the past three years.

Business Facilitation

According to the World Bank’s 2020 Doing Business report, it takes seven procedures and seven days to establish a foreign-owned limited liability company in Serbia. This is fewer days but more procedures than the average for Europe and Central Asia. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Serbia must translate its corporate documents into Serbian.

Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in Serbian at www.apr.gov.rs/home.1435.html. All entities applying for incorporation with SBRA can use a single application form and are not required to have signatures notarized.

Companies in Serbia can open and maintain bank accounts in foreign currency, although they must also have an account in Serbian dinars (RSD). The minimum capital requirement is symbolic at RSD 100 (less than 1 USD) for limited liability companies, rising to RSD 3 million (approximately 29,900 USD) for a joint stock company. (Some foreign companies have difficulties opening a bank account due to a requirement from the Law on Prevention of Money Laundering and Terrorist Financing that requires companies to disclose their ultimate owner). A single-window registration process enables companies that register with SBRA to obtain a tax registration number (poreski identifikacioni broj – PIB) and health insurance number with registration. In addition, companies must register employees with the Pension Fund at the Fund’s premises. Since December 2017, the Labor Law requires employers to register new employees before they start their first day at work; previously, the deadline was registration within 15 days of employment. These amendments represent an attempt by the government to decrease the grey labor market by allowing labor inspectors to penalize employers if they find unregistered workers.

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

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

Serbia’s business-facilitation mechanisms provide for equitable treatment of both men and women when a registering company, according to the World Bank’s 2020 Doing Business Index. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.

2. Bilateral Investment Agreements and Taxation Treaties

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

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

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

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

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

Serbia signed a free-trade agreement with the Eurasian Economic Union (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) on October 25, 2019. The Serbian Parliament ratified the agreement on February 25, 2020, and the Russian Parliament ratified it on November 3, 2020, but it has yet to be ratified by the other signatory countries. Once it comes into force, 60 days following final ratification by other signatory countries, it will replace the current bilateral FTAs with most EAEU member countries.

Serbia’s duty-free treatment of certain exports to the United States under the Generalized System of Preferences (GSP) expired on December 31, 2020. Serbia has Most Favored Nation status on exports of other goods. The U.S. Congress did not re-authorize the GSP program before adjourning for the year. As a result, imports entering the United States that were previously eligible for duty-free treatment under GSP are now subject to regular, Normal Trade Relations (MFN) rates of duty, which are shown in the U.S. tariff schedule under the “General” column heading. Congress may choose to renew the program retroactively, as it has previously. If so, duties paid on GSP-eligible items will be refunded. Importers should continue to mark GSP-eligible importations with the applicable special program indicator (SPI) for GSP (“A,”) which will allow CBP to process duty refunds automatically.

3. Legal Regime

Transparency of the Regulatory System

Serbia is undertaking an extensive legislative amendment process aimed at harmonizing its laws with those of the European Union’s acquis communautaire. Harmonization of Serbian law with the acquis has created a legal and regulatory environment more consistent with international norms.

The government, ministries, and regulatory agencies develop, maintain, and publish a plan online of all anticipated legislation and regulations, as well as deadlines for their enactment. Serbian law requires that the text of proposed legislation and regulations be made available for public comment and debate if the law would significantly affect the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public. The website of Serbia’s unicameral legislature, called the National Assembly (www.parlament.gov.rs ), provides a list of both proposed and adopted legislation. There is no minimum period set by law for the text of proposed legislation or regulations to be publicly available.

In recent years, Serbia’s National Assembly has adopted many laws through an “urgent procedure”. By law, an urgent procedure can be used only “under unforeseeable circumstances,” to protect human life and health, and to harmonize legislation with the EU acquis. Bills proposed under an urgent procedure may be introduced with less than 24 hours’ notice, thus limiting public consideration and parliamentary debate. Use of the urgent procedure for the adoption of laws was concerningly frequent in the previous period. Concerns regarding the consequent lack of transparency in the legislative process were regularly reported by the European Commission and the Council of Europe’s Group of States against Corruption (GRECO). The 2019 European Commission Staff Working Document for Serbia stated that “some steps were taken to address shortcomings in the work of the parliament with the reduction of urgent procedures and previous practices of filibustering.” Urgent parliamentary procedures were reduced from 44% of all legislative acts in the previous reporting period (2018-2019) to 19% between March 2019 and March 2020.

International Financial Reporting Standards (IFRS) are required for publicly listed companies and financial institutions, as well as for the following large legal entities, regardless of whether their securities trade in a public market: insurance companies, financial leasing lessors, voluntary pension funds and their management companies, investment funds and their management companies, stock exchanges, securities brokerages, and factoring companies. Additionally, IFRS standards are required for all foreign companies whose securities trade is in any public market.

Although there are no informal regulatory processes managed by NGOs or the private sector, several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors’ Council publishes an annual White Book (http://www.fic.org.rs/projects/white-book/white-book.html ), the National Alliance for Local Economic Development (NALED) publishes a recommendations titled Eliminating Administrative Barriers to Doing Business in Serbia (https://www.slideshare.net/NALED/grey-book-10-recommendations-for-eliminating-administrative-obstacles-to-doing-business-in-serbia ), and the American Chamber of Commerce (AmCham) publishes similar materials on its website (www.amcham.rs ).

In 2018, Serbia enacted a Law on Ultimate Beneficial Owners Central Registry (“Law”). This Law was adopted to harmonize domestic legislation with international standards and to improve the existing system of detecting and preventing money laundering and the financing of terrorism. The Law on Ultimate Beneficial Owners Central Registry introduced a single, public, online electronic database maintained by the Serbian Business Registers Agency (www.apr.gov.rs), containing information on natural persons which are the ultimate beneficial owners of the companies (“Register”). Companies incorporated before December 31, 2018, are obliged to prepare and keep documentation regarding their ultimate beneficial owners at their offices, while new companies are obliged to register this information with the Register within 15 days of their incorporation. All companies were required to be registered accordingly in 2019.

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

Regulatory inspections in Serbia are numerous and decentralized despite the existence of the Coordination Commission for Inspection Supervision. Nationally, there are 37 different inspectorates, operating within the competence of 12 different ministries. They operate without any significant cooperation or coordination, there is overlapping and duplication of functions among inspectorates, and there is a lack of consistency even within individual inspectorates, which represents a source of additional burdens and difficulties for business operation. The administrative court is the legal entity that considers appeals from inspection decisions.

Serbia’s public finances are relatively transparent, as the government regularly publishes draft and adopted budgets, as well as budget revisions. The government has also published, and Parliament has adopted, all end-of-year budgets from 2002 through 2020. The government regularly publishes information related to public debt on the website www.javnidug.gov.rs. This information is updated daily.

International Regulatory Considerations

Serbia is not a member of the World Trade Organization or the EU. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations. Serbia has formally opened 18 chapters of the EU acquis communautaire and has provisionally closed two. Most recently, Chapter VI on Free movement of capital was opened on December 10, 2019. None of the remaining 17 chapters have been opened since, including the chapters on free movement of goods, competition policy, energy, taxation, environment, and transport policy. The WTO accepted Serbia’s application for accession on February 15, 2005, and Serbia currently has observer status. No accession dates have been set for Serbia’s membership in either the EU or WTO.

Legal System and Judicial Independence

Serbia has a civil law system. The National Assembly codifies laws; the courts have sole authority to interpret legislation with the exception of so-called “authentic interpretation” reserved for the legislature itself. Although judicial precedent is not a source of law, written judgments have the non-binding effect of helping to harmonize court practices. Serbia has a law on contracts and commercial law.

In general, contract enforcement is weak, and the courts responsible for enforcing property rights remain overburdened. When negotiating contracts, the parties may agree on the means of resolving disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil litigation. Under Serbian commercial law, the Law on Obligations regulates contractual relations (also known as the Law on Contracts and Torts). Civil Procedure Law, which details the procedure in commercial disputes, governs contract-related disputes. Serbian law need not be the governing law of a contract entered into in Serbia. Foreign courts’ judgments are enforceable in Serbia only if Serbian courts recognize them. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. The Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements, regulates the procedures for recognition of foreign court decisions.

The organization of the court system and jurisdiction of courts in Serbia are regulated by statute. The court system consists of the Constitutional Court, courts of general jurisdiction, and courts of special jurisdiction. Basic courts are courts of first instance and cover one or more municipalities. Higher courts cover the territory of one or more basic courts and are also courts of first instance, while acting as courts of second instance over basic courts. Commercial courts adjudicate commercial matters, with the Commercial Appeal Court being the second-instance court for such matters. Appellate courts are second instance courts to both basic and higher courts, except when higher courts act as second instance courts to basic courts. The Constitutional Court decides on the constitutionality and legality of laws and bylaws, and it protects human and minority rights and freedoms. The Supreme Cassation Court, the country’s highest court, is competent to decide on extraordinary judiciary remedies and to ensure uniform application of the law and equality of the parties in court proceedings. Regulations and regulatory enforcement actions are appealable within the national court system.

Serbia’s legal system distinguishes between Commercial Courts and courts of general jurisdiction. Commercial Courts have original jurisdiction over disputes arising from commercial activities, including disputes involving business organizations, business contracts, foreign investment, foreign trade, maritime law, aeronautical law, bankruptcy, civil economic offenses, intellectual property rights, and misdemeanors committed by commercial legal entities. Their jurisdiction extends to legal and natural persons only if a natural person has a joint or related interest with the legal entity (already) in dispute, in cases where both parties are economic operators. When only one of the parties is an economic operator and the other is not, such disputes are decided by courts of general civil jurisdiction and not by Commercial Courts. As an exception, in bankruptcy and reorganization proceedings, Commercial Courts have jurisdiction over all disputes where an economic operator is in bankruptcy in relation to other economic or non-economic operators.

Jurisdiction over civil commercial disputes is organized on two levels: Commercial Courts hear first instance cases; and the Appellate Commercial Court decides on appeals against lower court decisions. Commercial courts have broad jurisdiction. There are 16 trial-level Commercial Courts in Serbia. They handle disputes between legal entities, those between domestic and foreign companies; disputes concerning intellectual property and related rights; those arising under the application of Serbia’s Company Law and its regulation; and those relating to privatization and securities; relating to foreign investments, ships and aircraft, navigation at sea and on inland waters, and involving maritime and aviation law. Commercial courts also conduct bankruptcy and reorganization proceedings.

Congestion in the Commercial Courts is high. The time to case disposition in commercial litigation is in line with EU averages. However, there is inconsistent application of the law across Serbia, including in Commercial Courts.

According to the Constitution, Serbia’s judicial system is legally independent of the executive branch; but in practice, significant obstacles remain to true judicial independence. The current constitutional and legislative framework leaves room for undue political influence over the judiciary, and political pressure on the judiciary remains high. The European Commission’s 2020 Staff Working Document for Serbia re-stated that Serbia’s judicial system made no progress and that the scope for continued political influence remains a serious concern.

Laws and Regulations on Foreign Direct Investment

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

Serbia undertook major anti-money laundering and counter-financing of terrorism regime (AML/CFT) legislative reforms following the intergovernmental Financial Action Task Force’s (FATF) February 2018 finding that Serbia had strategic deficiencies in its AML/CFT regime. To respond to the deficiencies, twelve new laws and over 60 regulations came into force. The new legislation includes a new AML/CFT Law, as well as amendments to the Criminal Code that address money laundering. Among other AML/CFT reforms, Serbia introduced a Law on Ultimate Beneficial Owners Central Registry. The Serbian Business Registers Agency maintains a single, public, online electronic database containing information on natural persons who are the ultimate beneficial owners of legal entities. FATF removed Serbia from its monitoring process in June 2019, but Serbia remains subject to enhanced follow-up procedures by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, known as MONEYVAL.

There is no primary or “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors. However, numerous Serbian firms that provide legal and other professional services publish comprehensive information for foreign investors, including PricewaterhouseCoopers, https://www.pwc.rs/en/publications/assets/Doing-Business-Guide-Serbia-2019.pdf.

Competition and Antitrust Laws

The Law on Protection of Competition was enacted in 2009 and amended in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and in principle implements the law as an independent agency reporting directly to the National Assembly. In some cases, companies have reported perceptions that political factors have influenced the Commission’s decision-making. In 2019, the Commission completed ten proceedings for violations of competition rules, approved 172 mergers (and dismissed four), and issued 23 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online at http://www.kzk.gov.rs/izvestaji. Laws and regulations related to market competition are available at http://www.kzk.gov.rs/en/zakon-2.

Expropriation and Compensation

A foreign investor is guaranteed national treatment, which means that any legal entity or natural person investing in Serbia enjoys full legal security and protection equal to those of local entities. A stake held by a foreign investor or a company with a foreign investment cannot be the subject of expropriation. The contribution of a foreign investor may be in the form of convertible foreign currency, contribution in kind, intellectual property rights, and securities.

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

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

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

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

Serbia committed itself under its restitution law to allocate €2 billion, plus interest, for financial compensation to citizens in bonds and in cash. The restitution law caps the amount of compensation that any single claimant may receive at 500,000 EUR (approximately 586,400 USD). With amendments to the Law on Restitution and Compensation adopted in December 2018, the government postponed for the third time issuance of these bonds until December 2021, pending approval of necessary by-laws that would regulate bond issuance. The Law mandates that by-laws be adopted by Government of Serbia by June 2020. The bonds will be denominated in euros, carry a 2% annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution received 75,414 property claims, and the adjudication process is still ongoing. Parliament adopted new amendments to the Law on Restitution and Compensation in December 2020. These amendments enable a special way of compensating the beneficiaries of restitution to whom, according to the final decisions on compensation, the corresponding amount of compensation does not exceed the amount of 1,000 EUR, in which case the payment will be made exclusively in cash, starting in 2022. The amendments also regulate the dynamics and technique of issuing compensation bonds, starting in 2022.

Information about the Agency for Restitution and the status of cases is available on its website at www.restitucija.gov.rs/eng/index.php.

Dispute Settlement

ICSID Convention and New York Convention

Serbia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention), and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Law on Arbitration and the Law on Management of Courts regulate proceedings and jurisdiction over the recognition of foreign arbitral awards.

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

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

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

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

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

Bankruptcy Regulations

Serbia’s bankruptcy law is in line with international standards. According to the bankruptcy law, the goal is to provide compensation to creditors via the sale of the assets of a debtor company. The law stipulates automatic bankruptcy for legal entities whose accounts have been blocked for more than three years, and it allows debtors and creditors to initiate bankruptcy proceedings. The law ensures a faster and more equitable settlement of creditors’ claims, lowers costs, and clarifies rules regarding the role of bankruptcy trustees and creditors’ councils. Parliament adopted new amendments to the Bankruptcy Law in December 2017. These amendments enable better collection and reduced costs for creditors; provide shorter deadlines for action by bankruptcy trustees and judges; improve the position of secured creditors; anticipate new ways of assessing debtors’ assets by licensed appraisers; and introduce a special rule to lift bans on the execution of debtor assets that are under mortgage, giving rights to the secured creditor to sell such assets under rules that apply to mortgage sales. The latest amendments to the Law on Bankruptcy were adopted in December 2018, providing the amount up to which the advance payment can be determined, and guidelines to bankruptcy judges within which they can determine the advance payment in each specific case. A draft of the latest amendments to the Bankruptcy Law is being prepared. As explained by the Ministry of Economy, the purpose of these amendments is to provide conditions for creating a better business environment and more efficient implementation of bankruptcy proceedings.

Foreign creditors have the same rights as Serbian creditors with respect to initiating or participating in bankruptcy proceedings. Claims in foreign currency are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced. Serbia’s Criminal Code criminalizes intentionally causing bankruptcy, and fraud in relation to a bankruptcy proceeding. The 2020 World Bank Doing Business index ranked Serbia 41 out of 190 economies with regards to resolving insolvency, with an average time of two years needed to resolve insolvency and average cost of 20% of the estate. The recovery rate was estimated at 34.5 cents on the dollar (https://www.doingbusiness.org/content/dam/doingBusiness/country/s/serbia/SRB.pdf).

4. Industrial Policies

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% of eligible costs from their own resources. For investment projects valued at 50-100 million EUR, subsidies are limited to 25% of the total investment, falling to 17% for projects over 100 million EUR. Under certain conditions, large companies can gain support for up to 50% of eligible costs for investment projects, medium-sized companies up to 60%, and small companies up to 70%.

The Decree makes available funds for investment projects in manufacturing and customer service centers. For manufacturing investments, state subsidies are available for any company that invests the equivalent of 100,000 EUR and employs at least 10 persons in a “devastated area.” For service center investments, subsidies are available for companies investing the equivalent of 150,000 EUR and creating at least 15 new jobs anywhere in the country. The required minimum investment and employment levels for subsidies increase on a sliding scale according to the level of development of the investment location. For each investment project in a devastated area, the state will pay the investor 40% of the eligible gross salary costs for newly employed people in the two-year period after reaching employment commitments, up to the equivalent of 7,000 EUR per new job; the subsidy declines to 20% of eligible costs up to 3,000 EUR per job in the most developed regions. For labor-intensive projects that create more than 200 new jobs, the government can approve additional incentives. The state will also provide subsidies for the purchase of fixed assets, again on a sliding scale based on the level of development at the investment location. The subsidy reaches 30% of eligible asset costs in a devastated area and declines to 10% in the most developed areas of Serbia. The total amount of subsidies granted cannot exceed the amount allowed under Serbia’s EU-compliant state aid regulations. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance.

There is a separate Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments in Production of Food Products also approved in January 2019 with almost identical conditions to those mentioned above. The only difference is that state subsidies are available for any company that invests the equivalent of the minimum 2 million EUR and employs at least 30 new employees regardless of the level of the municipality development. For projects investing over 20 million EUR in the fixed assets, the government will approve additional incentives.

The government also approved a Decree on Conditions and Methods of Attracting Direct Investments in the Hotel Accommodation Service Sector in May 2019, making similar state subsidies available for any company that invests a minimum of the equivalent of 2 million EUR and employs at least 70 new employees in the sector. For investment projects valued at up to 30 million EUR, subsidies are limited to 20% of the of the eligible costs of investment in fixed assets, falling to 10% for projects over 30 million EUR. Details on all three decrees are available at: http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives/ and https://privreda.gov.rs/cat_propisi/uredbe1/.

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

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

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

Serbia’s tax laws offer several incentives to new investors. The corporate profit tax rate is a flat 15%, one of the lowest in the region. Non-resident investors are taxed only on income earned in Serbia. A ten-year tax holiday on corporate profits is available for investors who hire more than 100 workers and invest more than RSD 1 billion (10 million USD). The tax holiday begins once the company starts making a profit.

According to the December 2019 Decree on Film Incentives, both domestic and foreign filmmakers are eligible to apply for a refund of 25% of qualifying costs. For film projects over €5 million, the government offers a refund of up to 30% of qualifying costs. The 2021 budget for film incentives is 7.1 million USD.

Employment incentives allow payroll tax deductions for persons registered with the National Employment Service for at least six months continuously. The incentives currently in place are valid from the moment of employment until December 31, 2021:

  • 1-9 new jobs: 65% deduction
  • 10-99 new jobs: 70% deduction
  • 100+ new jobs: 75% deduction

The Serbian Innovation Fund provides various granting opportunities for young entrepreneurs and start-ups, including mini grants for development of technological innovation, matching grants for commercialization of research and development, and a collaborative grant scheme for joint R&D projects creating new products and services. These grants are mainly available for companies established in Serbia with majority private Serbian ownership.

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

The government issues guarantees or jointly finances foreign direct commercial investment projects. The government participates as a minority partner in financed infrastructure projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Serbia maintains 15 designated customs-free zones: in Apatin, Belgrade, two zones in Kragujevac (the second one was established on October 1, 2019), Krusevac, Novi Sad, Pirot, Priboj, Sabac, Smederevo, Svilajnac, Subotica, Uzice, Vranje, and Zrenjanin. The zones, established under the 2006 Law on Free Zones, are intended to attract investment by providing tax-free areas for company operations. Businesses operating in the zones qualify for benefits including unlimited duty-free imports and exports, preferential customs treatment, and tax relief in the form of value-added tax (VAT) exclusions. Companies operating within a free zone are subject to the same laws and regulations as other businesses in Serbia, except for their tax privileges.

Goods entering or leaving the zones must be reported to customs authorities, and payments must be made in accordance with regulations on hard-currency payments. Goods delivered from free zones into other areas of Serbia are subject to customs duties and tax unless they contain a minimum of 50% Serbian inputs. Earnings and revenues generated within free zones may be transferred freely to any country, including Serbia, without prior approval, and are not subject to any taxes, duties or fees.

In 2019 (the most recent year for which complete information is available), there were a total of 209 companies operating in Serbia’s free economic zones, of which 157 were domestically owned and 47 foreign-owned. The number of companies dropped by 21% compared to 2016 (from 265 companies in 2016 to 209 in 2019). The companies employed a total of 37,855 workers, which represents an increase of 7% compared to 2018. Total exports from free zones exceeded$2.5 billion USD in 2019, which is approximately 13% of Serbia’s total exports. Total imports into the zones were approximately 1.7 billion USD, or 6% of total imports. Total annual turnover in the free zones in 2019 stood at some 5 billion USD, a 1.5% drop compared to 2018. The largest drop came in the Kragujevac zone, where total turnover dell by 33% year-on-year, mostly due to production cuts at the Fiat manufacturing plant. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Tigar Tyres, Ametek, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic.

Performance and Data Localization Requirements

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

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

With the Data Protection Law passed in November 2018, Serbia has implemented the requirements of the EU’s General Data Protection Regulation (GDPR). The law entered into force in August 2019 after a nine-month transition period. Some experts have criticized the law as unclear, citing provisions transcribed from EU law that include mechanisms that do not yet exist in Serbia’s domestic legal system, which leads to questions regarding the law’s implementation. Other experts have argued that with the law, Serbia has enacted a high personal data-protection standard, and that defects will be resolved over time.

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

5. Protection of Property Rights

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

During the country’s socialist years, owners of nationalized land became users of the land and acquired rights of use that, until 2003, could not be freely sold or transferred. In 2015, the government adopted a law that allows for property usage rights to be converted into ownership rights with payment of a market-based fee.

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

Serbia’s real-property registration system is based on a municipal cadaster and land books. Serbia has the basis for an organized real estate cadaster and property-title system. However, legalizing tens of thousands of structures built over the past twenty years without proper licenses remains an enormous challenge, as an estimated two million buildings in Serbia are not registered in the cadaster, of which almost half are residential properties. According to some estimates, every third building in Serbia was not built in accordance with legal requirements. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 230,000 decisions on legalization have been issued. The deadline set by the law for legalization of all buildings constructed without proper permits is November 2023.

The World Bank’s 2020 Doing Business Index ranks Serbia 58th of 190 countries for time required to register real property (33 days).

Intellectual Property Rights (IPR)

Serbia is a member of the World Intellectual Property Organization (WIPO) and party to all major WIPO treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. While Serbia is not a member of the WTO, the Serbian government has taken steps to adhere to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Serbia’s IPR laws include TRIPS-compliant provisions and are enforced by courts and administrative authorities.

Serbia’s IPR legislation is modern and compliant with both the EU acquis communautaire and international standards. According to the EU’s 2019 Progress Report, Serbia has generally aligned its IPR legislation with the acquis.

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

Enforcement of IPR remains haphazard but is roughly consistent with levels in neighboring countries. The government has a Permanent Coordination Body for IPR enforcement activities with participation from the tax administration, police, customs, and several state inspection services. Cooperation with the Special Department for High-Technology Crime has resulted in court decisions to impose penalties in test cases against online traders and counterfeits. The Public Procurement Law requires bidders to affirm that they have ownership of any IPR utilized in fulfilling a public procurement contract. Although still present, trade in counterfeit goods—particularly athletic footwear and clothing—is declining in volume as the government has increased its enforcement efforts, including at the border. Upon seizure, however, authorities cannot destroy the goods unless they receive formal instructions from the rightsholders, who are billed for the storage and destruction of the counterfeit goods. Rightsholders are encouraged to register their IPR with the Customs Office by filling out an application for surveillance measures.

Inspectorates and customs authorities’ actions against IPR violations are relatively fast. However, enforcement of IPR in the court system often lasts up to two years in the first instance. Proceedings improved after the creation of semi-specialized IPR courts in 2015 according to the Foreign Investors’ Council. The Serbian Intellectual Property Office continues to train judges on IPR to enable more timely court decisions.

Digital IPR theft is not common, but many digital brands are not properly protected, and there is a risk of trademark squatting.

Developments in 2019 and 2020

Patents: The Law on Patents in 2019 introduced significant changes to an employer’s ability to patent their employees’ inventions. The amended law allows employers to file a patent application for a former employee’s innovations for up to one year after the employment ends, providing a higher level of legal certainty for corporations.

Topography of Semiconductor Products: The Law on the Legal Protection of Topography of Semiconductor Products was amended in 2019 and made fully compliant with EU legislation. There is no publicly available data indicating that anyone has ever exercised these rights in Serbia.

Copyright: Amendments made in 2019 to the Law on Protection of Copyright and Related Rights extends the definition of a work of authorship to include the technical and user documentation associated with software. The Law also addresses two additional issues: first, that multiple authors of a software product will all be deemed to be co-authors, and second, that an employee may require their employment contract to include additional remunerations for any software they create that their employer uses. However, if the employment agreement lacks such provisions, the employee is not entitled to remuneration after the fact, even if their software generates revenue for their employer. These provisions also apply to database producers. With respect to digital works, the 2019 amendments draw a clear line between digital and physical works. Owners or purchasers of a digital copy of a video game, TV show episode, or software are not entitled to further share and/or distribute copies.

Enforcement of Copyright: Court procedures for copyright infringement and related rights case are defined comprehensively, for they emphasize the need to preserve evidence and render urgent precautionary measures, including before an official claim might be submitted or the alleged infringing party is able to respond to the claim. The 2019 amendments clarify that a revision (as a legal remedy) may be filed in copyright infringement and related rights cases regardless of the claim’s value. The amendments also explicitly authorize the courts to summon any retailer or user of illegally downloaded mp3 files, software, or TV episodes.

Trademarks: Serbia recently adopted a new Law on Trademarks that came into force on February 1, 2020. The law includes two major changes. The first is the introduction of an opposition system. As before, the Intellectual Property Office performs an official examination of the refusal grounds for a trademark application, but now the trademark applications are published before the trademark is granted so that interested parties can challenge the validity of the pending registration. Interested parties have three months to file opposition proceedings from the date of publication, and the trademark applicant must respond within another 60 days or opposition is granted and the trademark is refused. This approach is similar to that of other European countries. The second major change due to Serbia’s new Law is the allowance of parallel imports. Serbia’s previous national trademark exhaustion system authorized brand-holders to prevent parallel imports. In contrast, the new worldwide system means that the trademark-holder cannot prohibit others from reselling the products that are legally in circulation anywhere in the world. Serbia is now compliant with U.S. standards. The former national system was aligned with EU legislation, which differentiates between goods circulating within the single market and those that were imported from a country outside of the EU market. During its EU accession process, Serbia is required to align its legislation with that of the EU.

Administrative Fees: Amendments to Serbia’s Law on Administrative Fees entered into force in December 2019 and decreases the filing fee for applications filed electronically compared to those filed on paper. The fees for electronic filing of patents and utility model applications have been reduced by 50%, and electronic fees for industrial design and trademark applications have been reduced by 25%. These measures are meant to encourage electronic filings and make the process more accessible for individuals and small companies.

Statistics: The Customs Administration and Market Inspection issue periodic reports on seizures, but there is no unified methodology. The Customs Administration publishes daily information on the significant border seizures via its official Internet presentation at: http://www.carina.rs/cyr/Stranice/Default.aspx and its official Facebook page: and http://www.facebook.com/upravacarina.rs/.

Market inspectors perform regular on-demand and ex-officio inspections. In 2020, there were 2,664 controls performed, and 228,758 articles were seized. The statistics are accessible at: https://mtt.gov.rs/informator-o-radu/.

The tax administration checks software legality during its regular tax controls of businesses. The estimated value of Serbia’s illegal software market is approximately 51 million USD. According to the 2018 BSA Global Software Survey, software piracy in Serbia is around 66%. Although this is down from 72% in 2011, it remains among the highest piracy rates in the Balkan region. Serbia is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.

The outbreak of COVID-19 pandemic temporarily affected Serbia’s IPR registration and enforcement. The courts and administrative authorities were not operational for approximately one month, and pending proceedings faced delays throughout the year. Since May 2020, authorities resumed work at full capacity. Market Inspectors seized a significant level of pirated and counterfeit e-commerce goods throughout the year by using specialized software tools for detecting and investigating trade of illicit goods online.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/details.jsp?country_code=RS.

6. Financial Sector

Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed most restrictions on short-term portfolio investments in April 2018. Residents of Serbia, both companies and persons, are now allowed to purchase foreign short-term securities issued by EU residents and EU countries, and by international financial organizations who have EU countries in their membership. Banks registered in Serbia can also purchase short-term securities issued by OECD countries. Foreigners may only purchase short-term securities in Serbia if they have residency and/or headquarters in EU countries. Payments related to long-term securities have no restriction.

In January-November 2020, Serbia recorded net inflows of 1.5 billion USD in portfolio investment, according to the National Bank of Serbia. Analysts explain that this inflow mostly as a result of Serbia’s issuance of Eurobonds on the international market. The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached 12.4 billion USD in December 2020, with 77% in dinars and 23% in euros. In addition, Serbia issued a total value of 5.1 billion EUR of Eurobonds on the international market. The share of dinar denominated securities held by non-residents was 26%, which was equal to 2.5 billion USD at the end of December 2020.

Total Serbian government-issued debt instruments on the domestic and international markets stood at $18 billion in December 2020.

Serbia’s international credit ratings are improving. In March 2021, Moody’s Investors Service upgraded Serbia’s long-term issuer and senior unsecured ratings from Ba3 to Ba2 while adjusting its outlook from positive to stable. In December 2019, Standard & Poor’s raised its ratings for Serbia from BB to BB+ with a positive outlook. In May 2020 S&P maintained its BB+ rating after raising it from BB in December 2019, but it modified the outlook from positive to stable; it confirmed the BB+ rating on December 14, 2020. Fitch raised Serbia’s credit rating from BB to BB+ in September 2019 and confirmed it in September 2020 with a stable outlook. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE) www.belex.rs. Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2020 was 455 million USD, which represents a decrease of 47%. The trading volumes have declined since 2007, when the total turnover reached 2.7 billion USD.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of February 2021, 19 registered investment funds operate in Serbia: http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds.

Market terms determine credit allocation. In September 2020, the total volume of issued loans in the financial sector stood at 26 billion USD. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 62% of all lending is denominated in euros, an additional 0.1% in Swiss francs, and 0.2% in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers.

Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

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

Money and Banking System

Serbian companies often do not access credit, instead turning to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued, and the financial market is not well developed. In April 2020, the government amended corporate-bond issuance legislation to increase companies’ access to financing in response to COVID-19’s economic impact. According to a statement from the Finance Minister, the amendments aim to cut the timeline for issuing corporate bonds from 77 to 17 days and cut the price to issue a corporate bond from 88,000 USD to 11,000 USD. State-owned Telekom Srbija issued corporate bonds for the first time with a total value of 200 million EUR, of which the National Bank of Serbia (NBS) purchased around 70 million EUR.

The NBS regulates the banking sector. Foreign banks may establish operations in Serbia, and foreigners may freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91% of the total assets of the financial sector. As of September 2020, consolidation had reduced the sector to 26 banks with total assets of 43 billion USD (about 80% of GDP), with 86% of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets, are Banca Intesa (Italy, 6.8 billion USD in assets); UniCredit (Italy, 5.1 billion USD); Komercijalna Banka (recently sold to Slovenia’s NLB Bank, 4.6 billion USD); OTP (Hungary, 3.7 billion USD); Raiffeisen (Austria, 3.7 billion USD); Erste Bank (Austria, 2.8 billion USD) AIK Banka Nis (Serbia, 2.3 billion USD); Eurobank EFG (Greece, 1.9 billion USD); Vojvodjanska Banka (Hungary, 2.4 billion USD); and Postanska Stedionica (Serbian government, 2.7 billion USD). For more information, see:

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly 1 billion USD. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2020, savings deposits in the banking sector reached 14.4 billion USD, exceeding pre-crisis levels.

The IMF assessed in its January 2021 report on Serbia’s Policy Coordination Instrument that the financial sector has shown improved resilience since the 2017 Article IV Consultation. As of June 2020, banks’ capital adequacy was stable at 22.7%, well above the regulatory minimum, while asset quality is improving. Banks’ profitability remains robust with return on assets and return on equity ratios of 1.1% and 6.5% respectively in December 2020. The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 21.6% to 3.7% of the total loan portfolio as of December 2020. NPLs remain fully provisioned. In addition, there are significant foreign-exchange risks, as 67% of all outstanding loans are indexed to foreign currencies (primarily the euro). In April 2019, the government adopted a law that protected consumers who had taken mortgage loans denominated in Swiss francs by converting them into euros. Banks and the state shared losses resulting from a reduction of outstanding principal and interest balances. This law enabled borrowers to continue servicing debt on more favorable terms.

The parliament adopted Serbia’s first Law on Cryptocurrencies in December 2020 to be implemented as of June 29, 2021. The law regulates the issuance, trade, and service provision of digital assets, as well as the NBS and Securities Commission’s supervision of digital assets. The law will regulate cryptocurrencies market and protect consumers, as it defines standards which every cryptocurrencies service provider must fulfill. Companies trading in this area must be licensed. The law limits issuance of digital assets per issuer at 3 million EUR per year. While trading in cryptocurrencies is free for persons and most companies, the law prohibits possession and trade of digital assets for financial institutions under NBS supervision. The government must adopt related bylaws before the law can be implemented. The Serbian Administration for Prevention of Money Laundering and Terrorist Financing oversees every transaction in cryptocurrencies performed on ATMs or online in Serbia. As of February 2021, there were total of 24 ATMs for cryptocurrencies in Serbia installed in Belgrade, Novi Sad, Nis, Subotica, Indjija and Kopaonik.

The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, Ethereum ETH, Tether, and Bitcoin Cash) at https://ecd.rs/ . The company claims to have over 20,000 registered users of the platform, while the Chief Operating Officer of the company claims that a total of 50,000 people in Serbia have opened an account and executed at least one transaction. EDC claims that it has executed over 100,000 transactions since it was established in 2012. As of June 2019, Xcalibra established a new digital platform (Xcalibra.com) to trade cryptocurrencies in Serbian dinars without mediator currencies, which will avoid currency exchange loss. There is also a Bitcoin Association of Serbia.- http://www.bitcoinasocijacija.org .

Foreign Exchange and Remittances

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.

Many companies have raised concerns that the NBS uses excessive enforcement of the Foreign Exchange Law to individually examine all cross-currency financial transactions – including intra-company transfers between foreign headquarters and local subsidiaries, as well as loan disbursements to international firms – thus raising the cost and bureaucratic burden of transactions and inhibiting the development of e-commerce within Serbia. For this reason, international financial institutions and the business community have urged revision of the law. The NBS has defended the measure as necessary to prevent money laundering and other financial crimes.

The NBS targets inflation in its monetary policy and regularly intervenes in the foreign-exchange market to that end. In 2020, the NBS made net sales of 1.4 billion EUR on the interbank currency market to prevent sharp fluctuations of the dinar. In 2020, the dinar remained stable against the euro and appreciated 10% against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad. In February 2021, JP Morgan announced it would include Serbian government bonds into the JP Morgan GBI-EM Index of Emerging Market bonds beginning June 30, 2021.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2020, total remittances from abroad reached 3 billion USD, approximately 6% of GDP.

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

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.

8. Responsible Business Conduct

Responsible Business Conduct (RBC) and Corporate Social Responsibility are relatively new concepts in Serbia, and until recently many Serbian companies viewed them mainly as public relations tools.

The Serbian government has no formal mechanism in place to encourage companies to follow a due-diligence approach to RBC. A Council for Philanthropy held its first session in September 2018. Founded with grant support from USAID, the Council aims to use public policy to create a more encouraging environment for corporate giving in Serbia. Chaired by the Prime Minister, other members of the Council include ten government ministers, the Belgrade Mayor, the Director of the Tax Administration, and several NGOs. The council had 29 member companies in April 2020. Donors have pointed to issues that have a negative impact on philanthropy, including a lack of tax incentives for donors, no available VAT exemptions for in-kind donations, the lack of a system for monitoring donations from companies, and the absence of official data on charities. According to the 2019 World Giving Index published by the Charities Aid Foundation, Serbia was ranked 123rd out of a total of 126 countries listed in a 10-year aggregate survey of number of people who donate to charity or participate in volunteer work: https://www.cafonline.org/docs/default-source/about-us-publications/caf_wgi_10th_edition_report_2712a_web_101019.pdf .

The Law on Public Procurement allows the government to ask bidders to fulfill additional conditions, especially those related to social and environmental issues, and allows the government to consider criteria such as environmental protection and social impact when evaluating bids.

The United Nations Development Program’s Global Compact initiative has 118 participants in Serbia and has organized a number of educational events intended to strengthen RBC capacity in Serbia. The list of members is available at: http://www.ungc.rs/srb/clanovi .

Several local organizations, such as the American Chamber of Commerce (AmCham), the Foreign Investors’ Council, and the Serbian Chamber of Commerce (PKS) promote the concept of RBC among the Serbian business community and the public. PKS presents a national award to Socially Responsible Businesses. The Trag Foundation supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia. The NGO Smart Kolektiv is providing consulting services in RBC and establishing an RBC Index, which is the first national platform for assessing responsible business conduct in Serbia. Responsible Business Conduct Forum and Smart Kolektiv launched the index with USAID support in 2016. The Responsible Business Forum Serbia is a network of socially responsible companies that contribute to the development of the community, stimulating the development of corporate social responsibility and the establishment of firm and lasting socially responsible practices in the business sector. It was established in 2008 on the initiative of 14 leading companies in Serbia. More info available at: https://odgovornoposlovanje.rs/vesti .

Multinational companies often bring international best practices, with U.S. companies among the most active. For example, Molson Coors supported Serbia’s Special Olympics team in Rio de Janeiro in September 2016. Companies such as Eaton and Ball Packaging Serbia have contributed to their communities through can recycling, public service campaigns, educational and environmental initiatives, and donations in kind. Since 2003, Phillip Morris Serbia has donated over 17 million USD to community initiatives in the country. During the COVID-19 pandemic, many large companies donated money and goods to help government combat the crisis; more info is available at: https://odgovornoposlovanje.rs/vesti .

According to a 2016 OECD study on small and medium enterprises, Serbia has no national strategy that targets environmental policy toward SMEs. See http://www.oecd.org/education/sme-policy-index-western-balkans-and-turkey-2016-9789264254473-en.htm . The study found no evidence of any financial or regulatory incentives to promote the greening of SMEs. Serbia’s 2011 Corporate Law introduced contemporary corporate standards, but business associations indicate that implementation is inconsistent.

The government does not maintain a national point of contact for OECD’s Guidelines for Multinational Enterprises, including OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.

Serbia has a private sector security industry but is not a signatory of the Montreux Document on Private Military and Security Companies. Serbia is also not a supporter of the International Code of Conduct for Private Security Service Providers and is not a participant in the International Code of Conduct Association.

Additional Resources 

Department of State

Department of Labor

9. Corruption

Surveys show that corruption is believed to be prevalent in many areas and remains an issue of concern. Serbia was ranked 91st in Transparency International’s 2020 Corruption Perceptions Index, down from 87th in 2018. However, its score – 39 out of 100 possible points – remained unchanged.

Serbia is a signatory to the Council of Europe’s Civil Law Convention on Corruption and has ratified the Council’s Criminal Law Convention on Corruption, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Serbia also is a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members’ anti-corruption efforts on a continuing basis. Twenty-five local governments are participating in USAID’s anti-corruption program and are introducing and increasing transparency measures in their processes.

The Serbian government has worked to bring its legal framework for preventing and combating corruption more in line with EU norms, and a dedicated state body— the Corruption Prevention Agency (CPA) (formerly the Anti-Corruption Agency) plays a preventative role in fighting corruption, while dedicated Anticorruption Police and prosecutors investigate and prosecute cases of corruption. The Criminal Code specifies a large number of potential offenses that can be used to prosecute corruption and economic offenses, including but not limited to giving or accepting a bribe, abuse of office, abuse of a monopoly, misfeasance in public procurement, abuse of economic authority, fraud in service, and embezzlement. However, a new National Strategy for Fighting Corruption to replace the expired 2013-2018 version has yet to be drafted – a concern frequently raised by the European Commission and Serbia’s Anti-Corruption Council, an advisory body to the government.

In 2018, Serbia’s National Assembly strengthened anti-corruption laws through three pieces of legislation. The Law on Organization and Jurisdiction of State Organs in Suppressing Organized Crime, Terrorism and Corruption for the first time established specialized anti-corruption prosecution units, police and judicial departments, mandated the use of task forces, and introduced liaison officers and financial forensic experts. The Law on Asset Forfeiture was amended to expand coverage to new criminal offences, and amendments to the Criminal Code made corruption offenses easier to prosecute. Following these legal changes, specialized anti-corruption departments started operations in March 2018 in Novi Sad, Belgrade, Kraljevo, and Niš to prosecute offenders who have committed crimes of corruption valued at less than RSD 200 million (2 million USD). Cases valued above this level are handled by the Organized Crime Prosecutor’s Office.

Serbian law also requires income and asset disclosure by appointed or elected officials, and it regulates conflicts of interest for all public officials. The disclosures cover assets of officials, spouses, and dependent children. Declarations are publicly available on the CPA website, and failures to file or to fully disclose income and assets are subject to administrative and/or criminal sanctions. Significant changes to assets or income must be reported annually, upon departure from office, and for a period of two years after separation.

In September 2020, a new Law on the Prevention of Corruption went into effect, officially renaming the Anti-Corruption Agency to the Corruption Prevention Agency, expanding its role as the state body for preventing corruption, and extending the statute of limitations for asset disclosures from one to five years.

A new Law on Public Procurement was adopted in 2020, which governs procedures related to public procurement, and introduced mandatory use of an electronic portal for public procurement. While the portal noticeably improved transparency and procedures, watchdogs reported that more than half of completed public procurement tenders since the implementation of the new law have resulted in only one offer, which indicated continued issues with transparency of public procurement procedures.

Serbian authorities do not require private companies to establish internal codes of conduct related to corruption or other matters, but some professional associations – e.g., for attorneys, engineers, and doctors – enforce codes of conduct for their members. Private companies often have internal controls, ethics, or compliance programs designed to detect and prevent bribery of government officials. Large companies often have elaborate internal programs, especially in industries such as tobacco, pharmaceuticals, medical devices, and industries regularly involved in public procurement. In December 2020, the Parliament adopted a Parliamentary Code of Conduct, aimed at addressing GRECO recommendations regarding conflict of interest and other issues of ethics among parliamentarians. However, the code lacks enforcement mechanisms.

Serbian law does not provide protection for non-governmental organizations involved in investigating corruption. However, the criminal procedure code provides witness protection measures, and Serbia enacted a Whistleblower Protection Law in June 2015, under which individuals can report corruption in companies and government agencies and receive court protection from retaliation by their employers.

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

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

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

Resources to Report Corruption

Corruption may be reported to officers at any police station. If dedicated anti-corruption law-enforcement personnel are not available, the officer in charge is to contact Anti-Corruption Police personnel to report to the location so that a complaint may be filed.

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

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

10. Political and Security Environment

Since October 2000, Serbia has had democratically elected governments that have committed publicly to supporting regional stability and security. Governments, however, frequently call early elections at the local and national level, which often leave politicians and elected officials focused on the next campaign. During the 2020 COVID-19 crisis, Serbia’s first regularly scheduled parliamentary elections in several cycles were postponed due to the state of emergency declared by President Vucic. When elections were finally held in June 2020, most opposition parties boycotted the elections, claiming an unfair media and electoral environment which favored the ruling party. As a result, the current Parliament is overwhelmingly controlled by the ruling Serbian Progressive Party (SNS), and 97% of current MPs are part of the ruling coalition. Although the current Parliament has a four-year mandate, President Vucic has already announced that he plans to call early parliamentary elections in 2022. Elections in Serbia are generally free and without incidents of violence, although observers have noted irregularities at polling stations and incidents of vote-buying and pressure on voters during past elections. After the 2020 elections, Serbia’s Republic Electoral Commission decided to hold new elections in 234 of the country’s 8,253 polling stations – an unusually high number – after finding calculation errors, missing records, and other irregularities.

The government has made EU membership a primary goal, but progress toward that goal is slow, with only 18 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. The European Commission did not recommend opening any new chapters in 2020, indicative of the stagnation in Serbia’s accession process. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn out and subject to a lengthy appeal process.

Protests are not uncommon, particularly in urban areas, and most protests are peaceful. In July 2020 significant protests occurred over the government’s handling of the COVID-19 crisis, including lockdown measures. Protests in Belgrade were at times violent, with protestors attempting to enter the parliament building. Press noted that in addition to concerns regarding COVID, many of the demonstrators were also protesting political corruption.

Although previous years had seen some assaults against participants in LGBTQI events in Serbia, following its sixth successive incident-free Pride Parade, Serbia was selected to host EuroPride in 2022. Although this indicates some confidence that a recurrence of wide-scale violence against Serbia’s LGBTQI community is unlikely, discrimination and physical attacks continue.

Since 2017, there has been an increase in criminal activity linked to transnational organized crime groups. Sport hooliganism in Serbia is often associated with organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia. A significant police operation in January 2021 against a major organized crime group, linked to Belgrade’s Partizan football club, resulted in the arrest of the group’s leader, who was suspected of multiple crimes. A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, minority groups, and media outlets considered to be pro-Western, but these incidents are infrequent. Incidents include attacks on Roma settlements and anti-Roma riots in 2010, 2012, and 2013, and attacks on shops and bakeries owned by ethnic Albanians in Vojvodina in 2014.

11. Labor Policies and Practices

According to the Statistical Office, in 2020, Serbia had a total active labor force of approximately 3.18 million people, of which close to 2.9 million were employed (55.6% men and 44.4% women), and 286,600 were unemployed. In 2020, the formal employment rate was 49.1%, and the informal employment rate was 16.4%, compared to 18.1% the previous year, with most of the total informally employed in services and agriculture. Unemployment in 2020 averaged 9%, compared to 10.4% the prior year. Youth unemployment remained relatively high at 26.6%. Emigration of younger high-skilled working-age citizens is a serious concern, and the share of youth in the total population drops from year to year. The role of foreign or migrant workers is extremely limited. The leading sector for employment is manufacturing, followed by government and public administration, agriculture and forestry and fishery, trade, transport, construction, and hospitality services.

Demand for IT experts (web developers, programmers, designers) is significantly higher than supply. The National Employment Service (NES) administers various employment support schemes, including new employment, apprenticeship, and re-training programs. For more details see http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives/ and http://rav.org.rs/business-environment/incentives. Labor costs are relatively low in Serbia, especially compared to European averages. In December 2020, the average net take-home salary was approximately 666 USD per month. The minimum wage is approximately 324 USD per month. Investors routinely cite favorable labor costs, as well as a highly educated, multilingual workforce, as advantages to doing business in Serbia, while availability of skilled labor is limited by ongoing, large-scale emigration. Approximately 57% of the workforce has completed secondary education, while some 26% have completed higher education.

Amendments to the Labor Law in 2014 simplified procedures for hiring and dismissing workers and changed rules for collective bargaining and the extension of collective agreements to non-negotiating parties. The law also changed severance payment requirements, so that the employer pays severance based on the years of service with that specific employer, rather than on the employee’s total years of employment, as was the case previously. Employees may be hired for up to 24 months on a provisional basis before it is required to engage them on an indefinite basis.

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

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

The Department of Labor’s report on the World Forms of Child Labor in Serbia can be found online at https://www.dol.gov/agencies/ilab/resources/reports/child-labor/serbia.

In December 2019, a Staff Leasing Law was approved and went into force from March 2020. The law regulates leased employees’ status, the staffing agencies, and recipient employers. According to the law, employers can hire up to 10% of its workforce with fixed-term contracts through an agency, with no limit on those with indefinite-term employment contracts.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International
Source of Data:
BEA; IMF; Eurostat;
UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2020 $53,039 2018 $50,597 www.worldbank.org/en/country 
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) 2020 $63 2019 $149 BEA data available at
https://apps.bea.gov/
international/factsheet/ 
Host country’s FDI in the United States (M USD, stock positions) 2020 $1.5 2019 $5 BEA data available at
http://bea.gov/international/
direct_investment_
multinational_companies_
comprehensive_data.htm 
Total inbound stock of FDI as % host GDP 2020 5% 2019 7.8% UNCTAD data available at
https://stats.unctad.org/
handbook/Economic
Trends/Fdi.html

*Source of GDP data: Ministry of Finance of the Republic of Serbia at https://www.mfin.gov.rs/wp-content/uploads/2021/01/Tabela-1-Osnovni-makroekonomski-indikatori-2020.xlsx.

*Source of FDI data: National Bank of Serbia (NBS) at https://www.nbs.rs/export/sites/NBS_site/documents/statistika/ino_ekonomski_odnosi/platni_bilans/fdi_po_zemljama_20.xls.

Source for Host Country Data:

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

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions), 2019
Inward Direct Investment Outward Direct Investment
Total Inward $43,845 100% Total Outward $4,123 100%
The Netherlands $8,183 19% Bosnia and Herzegovina $1,027 25%
Austria $4,574 10% Montenegro $742 18%
Germany $2,919 7% Slovenia $659 16%
Cyprus $2,791 6% Switzerland $244 6%
Russia $2,664 6% Russian Federation $212 5%
“0” reflects amounts rounded to +/- $500,000.

Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Dejan Gajic
Economic Section
Bulevar kneza Aleksandra Karadjordjevica 92
11040 Belgrade, Serbia
+381-11-706-4271
SerbiaInvestment@state.gov 

Slovenia

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.  With a small domestic market of just over two million people, Slovenia’s economy is heavily dependent on foreign trade and susceptible to international price and currency fluctuations as well as economic conditions among its major trading partners.

In recent years, Slovenia’s economic growth rate has outpaced those of most other EU member states, and the country has enjoyed rising incomes, growing domestic consumption, falling unemployment, low inflation, and burgeoning consumer confidence.  However, in 2020, GDP contracted by 5.5 percent to EUR 46 billion due to the COVID-19 pandemic, in line with previous estimates.  The COVID-19 pandemic impacted certain industries, including retail and hospitality sectors, more severely than others.  Overall, the economy faired relatively well, with a series of government COVID-19 stimulus measures – worth approximately EUR 2.5 billion (USD 2.9 billion) – mainly focused on preserving jobs.  Slovenia’s economy is expected to rebound in 2021 as the pandemic is expected to improve in the second half of the year, with projected GDP growth of between 3.5 and 5.2 percent.

Although the government privatized the country’s first and third largest state-owned banks in 2019 and the fourth one in 2020, roughly 35 percent of Slovenia’s economy remains state-owned or state-controlled, and there is widespread skepticism in some quarters toward privatization and foreign direct investment, despite general awareness of FDI’s importance to economic growth, job creation, and developing new technologies.  Potential investors in Slovenia may 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 figures, FDI in Slovenia totaled EUR 16.0 billion in 2019, a 4.9 percent increase over the previous year.  Slovenia’s most important sources for direct foreign investment were Austria (24.7 percent), Luxembourg (13.0 percent), Switzerland (11.4 percent), Germany (8.5 percent), and Italy (7.9 percent).  However, Bank of Slovenia data indicated U.S. companies accounted for almost ten percent of total inward foreign direct investment (FDI) in 2019, EUR 172 million (USD 206 million) invested directly and an additional EUR 1.3 billion (USD 1.56 billion) invested indirectly through U.S. subsidiaries in other European countries.  This combined investment of EUR 1.48 billion (USD 1.78 billion) placed the United States as Slovenia’s fourth largest source of direct and indirect foreign investment, behind Austria (EUR 2.28 billion), Germany (EUR 2.28 billion), and Italy (EUR 1.5 billion).  The most important sectors for FDI were manufacturing (34.6 percent), financial and insurance activities (22.3 percent), wholesale and retail trade and repair of motor vehicles and motorcycles (17.0 percent).

Firms with foreign owners generated EUR 1.4 billion in profits in 2019, with average returns on investment of 5.2 percent.  Although they represented just 1.8 percent of all Slovenian firms in 2019, firms with FDI accounted for 24 percent of capital, 25.8 percent of assets, and 23.8 of corporate sector employees.  Their capital and workforce generated EUR 31.0 billion in net sales revenue and EUR 1.4 billion in operating profit.  Foreign companies accounted for more than 44 percent of corporate sector exports and 49 percent of corporate sector imports.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 35 of 179 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 37 of 191 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 32 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 286 https://www.bea.gov/data/economic-accounts/international
World Bank GNI per capita 2019 USD 25,940 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards 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, often in collaboration with diplomatic missions and business associations based 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, including 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 may prove challenging to 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.  There are no formal limits on foreign investors’ ability to establish an investment or operate in the market.

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 in some parts of the country, 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. In May 2020, Slovenia enacted a screening mechanism for foreign investments that will remain in force until June 2023. The investment screening mechanism was enacted as part of the COVID-19 stimulus package and will need to be made permanent before the legislation sunsets. The investment screening mechanism stipulates that foreign investments acquiring at least 10 percent of share capital or voting rights in Slovenian companies with activities involving critical infrastructure, critical technologies and dual use items, supply of critical inputs, access to sensitive information, the freedom and pluralism of the media, and certain projects and programs in the interest of the EU must seek approval from the Ministry of Economic Development and Technology. The ministry was also authorized to retroactively screen foreign direct investment transactions within the past five years. The application for such approval must be submitted to the ministry within 15 days from the date of the execution of the agreement. The Slovenian government envisages that the review process can take up to two months. Failure to comply to this new legislation may result in a fine ranging between EUR 50,000 and EUR 500,000 for companies based on their size and a fine of EUR 10,000 for individuals.   

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.

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 2020” 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. To establish a business in Slovenia, a foreign investor must produce capital of at least EUR 7,500 (USD 8,835) for a limited liability company and EUR 25,000 (USD 29,450) 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 http://www.podjetniski-portal.si/ustanavljam-podjetje/vem-tocke/seznam-vstopnih-tock-vem .

More information on how to invest and register a business in Slovenia is available at http://www.investslovenia.org/business-environment/establishing-a-company/  and http://www.eugo.gov.si/en/starting/business-registration/ .

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 34.5 percent of Slovenia’s investments abroad, followed by Serbia (13.9 percent), Bosnia and Herzegovina (8.7 percent), Russia (6.8 percent), and North Macedonia (6.3 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, Belarus, the Belgium – Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, China, Croatia, Czechia, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Israel, Italy, Kuwait, Lithuania, North Macedonia, Malta, Moldova, the Netherlands, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, the United Kingdom, and Uzbekistan.

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 in Slovenia 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 Small and Medium Enterprise (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 https://www.uradni-list.si/glasilo-uradni-list-rs . 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 68 points out of 100 on its Open Budget Survey 2019 , assessing Slovenia’s budget transparency as sufficient with substantial information available.

Slovenia meets the Department of State’s minimum requirements for fiscal transparency. In 2020, 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 countries. Slovenia 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 Antitrust 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, which added an element of unpredictability for some investors and their legal counsel.

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 8th out of 168 economies for ease of “resolving insolvency” in the World Bank’s 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 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 FTZ 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 5.96), while prices in the vicinity of Ljubljana can run to 50 euros (USD 59.63) 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 here .

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 2020 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 54th 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 various EU directives. Slovenia negotiated its commitments under the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) as a developing country and implemented the policy as of January 1996. Slovenia is a full member of the TRIPS Council 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 IPR 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 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 sanctions, 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 470) to EUR 45,000 (USD 53,000) for legal persons and from EUR 40 (USD 47) to EUR 2,000 (USD 2,400) 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 regarding 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 included in USTR’s 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 https://ec.europa.eu/taxation_customs/business/customs-controls/counterfeit-piracy-other-ipr-violations/ipr-infringements-facts-figures_en .

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 IPR offices, please see WIPO’s country profiles at  http://www.wipo.int/directory/en/ .

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 sizeable 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. In 2017, KDD successfully aligned its procedures to that of the uniform European securities settlement platform TARGET2-Securities (T2S).  In 2019, Slovenia’s Securities Market Agency (ATVP) licensed KDD to operate under the EU’s Central Securities Depository Regulation (CSDR) and provide services as a Central Securities Depository (CSD), pursuant to Article 17 of the Regulation (EU) 909/2014 on improving securities settlement in the European Union and on central securities depositories.

Established in 1994, the ATVP has powers similar to those of the U.S. Securities and Exchange Commission and supervises investment firms, the Ljubljana Stock Exchange (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  http://www.ljse.si/ .

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 11 commercial banks, three savings banks, and two foreign bank branches in Slovenia serving two million people. All commercial banks are private as of January 2021, and most have foreign owners and shareholders. SID Bank (Slovenian Export and Development Bank), which supports Slovenian companies’ export activities and provides financing for economic development, remains state-owned. 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 41.2 billion (USD 49.4 billion) at the end of 2019, equaling approximately 86 percent of GDP, still EUR 8.2 billion less than the total banking assets volume at the end of 2009, when banking sector assets equaled 146 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 4.2 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, 2.8 percent of NLB’s total assets and an estimated 3.4 percent of all Slovenian banking assets were non-performing as of the end of 2019. According to European Bank Authority statistics, 5.3 percent of all loans in Slovenia were past due in June 2019, a marked turnaround from the post-crisis period.

NLB, the country’s largest bank, was privatized in 2019, although the government remains a major shareholder with a 25 percent plus one share stake. Of the remaining shares, more than fifty 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 remainder. The country’s second largest bank, Nova Kreditna Banka Maribor (NKBM), was sold to an American fund (80 percent) and the European Bank of Reconstruction and Development (EBRD) (20 percent) in 2016. In 2020, NKBM acquired the country’s third largest state-owned bank, Abanka. As of January 2021, the banks have been fully merged. With a total asset of EUR 9.2 billion (USD 11 billion) and approximately 22 percent market share, NKBM is on par with the country’s largest commercial bank NLB.

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. The Slovenian government adopted in March 2021 a draft banking legislation, which transposed provisions of an EU directive on exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers, and capital conservation measures. The new legislation also addresses the 2019 Constitutional Court decision that invalidated a provision that exempted banks from worker representation requirements in corporate governance. Under the proposed legislation, workers will be entitled to at least one seat of a bank’s supervisory board, but these workers’ representatives must meet professional qualifications of the supervisory board. The banking legislation is expected to be finalized by the National Assembly in summer 2021.

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 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.

Thirteen insurance companies, two re-insurance companies, three retirement companies, and five branches of foreign firms operate in Slovenia. The three largest insurance companies in Slovenia account for over 60 percent of the market, with the largest, state-owned Triglav d.d., controlling 37 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 2017 OECD report on SOEs, 37 companies with a total value of USD 12.5 billion and employing 47,000 people were majority state owned. In 2020, an OECD report assessed that privatization has progressed slowly, with the Slovenian Sovereign Holdings (SSH) maintaining controlling shares in most SOEs. Most state-owned companies are in the energy, transportation, public utilities, telecommunications, insurance, and financial sectors, although the government successfully completed the privatization of the three largest state-owned banks by 2020.  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 https://www.sdh.si/en-gb/asset-management/list-of-assets .

Privatization Program

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 strategicimportant, or 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 https://www.sdh.si/sl-si/prodaje-nalozb/kapitalske-nalozbe-v-postopku-prodaje .

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 Ministry of Economic Development and Technology is the National Contact Point  for the OECD Guidelines.

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.

Slovenia is a signatory of The Montreux Document on Private Military and Security Companies since 2012.

Additional Resources

Department of State

Department of Labor

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 47,000) and projects above EUR 80,000 (USD 93,000). In June 2012, the Ministry of Finance took over the agency’s duties and employees. In 2016, the Directorate for Public Procurement was established under the Ministry of Public Administration to oversee public procurements. 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 current prime minister, were convicted in 2013, the convictions were annulled on appeal. In February 2021, four orthopedic surgeons and a salesperson were convicted and sentenced to prison in one of the largest healthcare corruption trials in Slovenia.  The court found that the doctors received a bribe in exchange for continuing to use medical supplies made by a particular producer. The court decision is currently under appeal, but the case marks one of the first convictions for corruption in the national healthcare system.

The CPC has instituted a new system for tracking corruption in public procurement at the municipal level and has uncovered 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 the government agency or agencies that are responsible for combating corruption:

Robert Šumi
President
Commission for the Prevention of Corruption
56 Dunajska cesta
1000 Ljubljana
Slovenia
Tel: +386 1 400 5710
Fax: +386 1 400 8472
E-mail: anti.korupcija@kpk-rs.si
Web:  www.kpk-rs.si/en 

Contact at “watchdog” organization:

Alma Sedlar, Ph.D.
Acting President
Transparency International Slovenia
Vožarski pot 12, 1000 Ljubljana
Tel +386 1 3207325 info@transparency.si 

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  http://www.trade.gov/cs .

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 http://tcc.export.gov/Report_a_Barrier/index.asp .

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  http://www.justice.gov/criminal/fraud/fcpa . 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 https://ogc.commerce.gov/. 

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

Prior to the COVID-19 pandemic and ensuing economic upheaval, Slovenia’s unemployment rate had fallen steadily since 2014 and reached a ten-year low of 4.5 percent at the end of 2019. Although inflation prior to the crisis remained low at about two percent, private sector contacts reported increasing difficulties in finding qualified staff, which might be expected to put upward pressure on wages and salaries.

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 eased the conditions for termination of employment. In December 2020, a provision allowing employers to unilaterally terminate workers once formal conditions for retirement were met was included in the government’s COVID-19 stimulus package and passed in the National Assembly, but is currently being reviewed by the courts. 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 691) to EUR 667 (USD 723) in 2019 and EUR 700 (USD 759) 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. In November 2019, the National Assembly adopted changes to the retirement law to remove differential treatment for men and women and encourage older workers to remain in the job market.

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) 2019 $54.152 2019 $54.174 https://data.worldbank.org/country/slovenia
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $206 2019 $286 BEA data available at

https://www.bea.gov/international/di1usdbal 

Host country’s FDI in the United States ($M USD, stock positions) 2019 $61 2019 $5 BEA data available at

https://www.bea.gov/international/di1fdibal 

Total inbound stock of FDI as % host GDP 2019 33% 2019 33% UNCTAD data available at

https://unctadstat.unctad.org/wds/TableViewer/
tableView.aspx
 
 

*Bank of Slovenia; published in November 2020

N.B.: The Bank of Slovenia (BoS), in its official data, lists U.S. FDI at approximately EUR 172 million in 2019, or 1.1 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 1.78 billion (EUR 1.48 billion euros) or 9.3 percent of Slovenia’s total FDI originated in the United States in 2019, putting the United States behind Austria, Germany, and Italy 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 17,931 100% Total Outward 7,132 100%
Austria 4,450 25% Croatia 2,574 36%
Luxembourg 2,342 13% Serbia 1,043 15%
Switzerland 2,051 11% Bosnia-Herzegovina 605 9%
Germany 1,522 8% Russian Federation 509 7%
Italy 1,419 8% North Macedonia 467 6%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF’s Coordinated Direct Investment Survey (2019) CDIS Table 1: Direct Investment Positions (Inward and Outward) – IMF Data

Comment: IMF data are consistent with Bank of Slovenia 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 fourth with 1.48 billion euros (USD 1.78 billion) in 2019.

Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 24,911 100% All Countries 6,121 100% All Countries 18,789 100%
United States 2,810 11% United States 1,553 25% France 2,188 12%
France 2,568 10% Ireland 863 14% Netherlands 1,454 8%
Germany 1,743 7% Luxembourg 747 12% Germany 1,382 7%
Netherlands 1,561 6% France 380 6% Spain 1,340 7%
Spain 1,372 6% Germany 361 6% United States 1,257 7%

Source: IMF’s Coordinated Direct Investment Survey   Table 1: Reported Portfolio Investment Assets by Economy of Nonresident Issuer – IMF Data

14. Contact for More Information

Onejin Wu
Economic & Commercial Officer
31 Presernova Street, Ljubljana, Slovenia +386 1 200 5668
+386 1 200 5668
Email: DoingBusinessinSlovenia@state.gov