Albania

Executive Summary

Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,288 (2018) and a population of approximately 2.9 million people, around 45 percent of whom live in rural areas.  According to IMF estimates, real GDP increased by 4.2 percent in 2018, and growth is expected to decline during 2019 but remain close to 4 percent in the medium term. Albania received European Union (EU) candidate status in June 2014 and has since been seeking to open accession negotiations.  The EU has encouraged Albania to continue progress in reforms related to five key priorities: public administration reform, justice reform, the fight against corruption, the fight against organized crime, and protection of human rights, including the rights of persons belonging to minorities and property rights.

Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, and poor enforcement of contracts as continuing problems in Albania.  In 2016, the Government of Albania (GOA) passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law. The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth.  While numerous judges and prosecutors have been dismissed by a vetting commission for unexplained wealth or organized crime ties, foreign investors perceive the investment climate as problematic and say Albania remains a difficult place to do business.

Investors report ongoing concerns that regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies.  Regulations and laws governing business activity change frequently and without meaningful consultation with the business community; business owners and business associations frequently note they did not receive enough notice, time, or opportunity for engagement on regulatory and legislative changes.  Major foreign investors report pressure to hire specific, politically connected subcontractors and express concern about compliance with the Foreign Corrupt Practices Act while operating in Albania. Reports of corruption in government procurement are commonplace. The increasing use of public private partnership (3P) contracts has narrowed the 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 3P contracts are ongoing concerns. The government had signed more than 200 3P contracts by the end of 2018.

Property rights remain another challenge in Albania, as clear title is difficult to obtain.  There have been instances of individuals manipulating the court system to obtain illegal land titles.  Compensation for land confiscated by the former communist regime is difficult to obtain and inadequate.  The agency charged with removing illegally constructed buildings often acts without full consultation and fails to follow procedures.

To attract FDI and promote domestic investment, the host government 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, depending on the size of the investment and number of jobs created.  The government also passed legislation creating Technical Economic Development Areas (TEDAs), like free trade zones. The development of the first TEDA, in Spitalle, Durres, was granted to a consortium of local companies in August 2017, but only after the tender had failed three times.  Development of the TEDA has yet to begin, as one of the bidders has challenged the decision in the court.

Transparency International’s 2018 Corruption Perceptions Index ranked Albania 99th of 180 countries, a drop of eight places from 2017.  Consequently, Albania is now perceived as the most corrupt country in the Western Balkans. While it improved by two spots, to 63rd, in the World Bank’s 2019 “Doing Business” survey, Albania continued to score poorly in the areas of enforcing contracts, registering property, granting construction permits, and obtaining electricity.

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 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.

Energy and power, tourism, water supply and sewerage, road and rail, mining, and information communication technology represent the best prospects for foreign direct investment in Albania over the next several years.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 99 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 63 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 83 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $56 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 4$,320 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 support 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 2010 amendments to the Law on Foreign Investment introduced criteria specifying when the state would grant special protection to foreign investors involved in property disputes, providing additional guarantees to investors for investments of more than 10 million euros.  Amendments in 2017 and 2018 extended state protection for strategic investments as defined under the 2015 Law on Strategic Investments.

The Albanian Investment Development Agency (AIDA) oversees 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, serve as a one-stop shop for foreign investors, from filing of the application form to granting the status of strategic investment/investor.

Despite hospitable legislation, U.S. investors are challenged by corruption and the perpetuation of informal business practices.  Several U.S. investors have left the country in recent years after contentious commercial disputes, including some that were brought before international arbitration.

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.”  According to the World Bank’s “Investing Across Borders”   indicator, just three of 33 sectors have restrictions against full foreign ownership, or in the case of the agriculture sector, against foreign land ownership.

  • 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;
  • Television broadcasting: no entity, foreign or domestic, may own more than 40 percent of a television company.
  • Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years

Albania lacks an investment review mechanism for inbound foreign direct investment.  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 Entrepreneur; Unlimited Partnership; Limited Partnership; Limited Liability Company; Joint Stock Company; Branches and Representative Offices; and Joint Ventures.

Other Investment Policy Reviews

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, UNCTAD completed the first Investment Policy Review (IPR) 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 on-line (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.  

Outward Investment

Albania neither promotes nor incentivizes outward investment or restricts domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Investment Treaties

The United States and Albania signed a Bilateral Investment Treaty (https://www.state.gov/e/eb/ifd/bit/117402.htm) in 1995, which entered into force in January 1998.  The treaty ensures that U.S. investors receive national or most-favored-nation treatment and provides for dispute settlement.  There is no free trade agreement or bilateral taxation treaty between the two countries.

As of April 2018, Albania had concluded bilateral investment treaties with 45 countries.

See a full list here: https://investmentpolicyhub.unctad.org/IIA/CountryBits/2#iiaInnerMenu  .  Out of 45 agreements, seven are not yet in force.  The BIT with the United States has been in force since 1998.

Taxation Treaties

As of April 2018, 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  .

Albania has also signed free trade agreements with the EU, CEFTA countries (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.

3. Legal Regime

Transparency of the Regulatory System

Albania’s legal, regulatory, and accounting systems have improved in recent years, but challenges remain.  Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency all hinder the business community.

Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of capital, mergers and divisions, takeover bids, shareholders’ rights, as well as corporate governance principles.  The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards 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 law on notification and public consultation requires that the GOA publish draft laws and regulations for public consultation or notification.  Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/. However, the business community frequently complains that final versions of laws and regulations fail to incorporate their comments and concerns.

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

Other independent agencies and bodies, including, but not limited to, the Energy Regulator (ERE), Telecom Regulator (AKEP), Natural Resources Bureau (AKBN), and Extractive Industries Transparency Initiative (EITI), oversee transparency in specific sectors.

State-owned oil company Albpetrol retains some regulatory authority over legacy oilfields and is a consistent source of reports of corruption, malign interpretation of regulations, and inefficiency in the hydrocarbons sector.  Major foreign investors in this sector report difficulties in complying with often overlapping regulatory requirements, and inconsistent and often conflicting interpretations of Albanian legislation and regulations governing oil exploration and extraction.

International Regulatory Considerations

Albania acceded to the World Trade Organization 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, and currently seeks to open accession talks with the EU.  The country has embarked on a gradual process of legislation approximation with the EU.

Legal System and Judicial Independence

The Albanian legal system is based on the continental judicial 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 procedure in Albania. The civil court system consists of district courts, appellate courts, and 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, now adjudicate administrative disputes.  Administrative courts aim to adjudicate administrative cases quickly. The Constitutional Court reviews whether laws or subsidiary legislation comply with the Constitution, and in limited cases protects and enforces the constitutional rights of citizens and legal entities.

Parties may appeal the judgment of the first instance courts within 15 days, while appellate court judgments must be appealed to the Supreme 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.

Albania does not have a specific commercial code, but defines commercial legislation through a series of relevant commercial laws including, Foreign Investment Law, Commercial Companies Law, Bankruptcy 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, Value Added Law, Sports Law, etc.

Corruption is endemic in the Albanian judicial system and U.S. investors are advised to include binding international arbitration clauses in agreements with Albanian counterparts.  While the government has historically respected decisions by international arbitration courts, the GOA ignored a 2016 injunction from such a court in a high-profile investment dispute (a decision that was later reversed.)  Albania is a signatory to the New York Convention and foreign arbitration awards may be enforced in local courts.

Laws and Regulations on Foreign Direct Investment

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

  1. No prior government authorization is needed for an initial investment;
  2. Foreign investment 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;
  3. Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments;
  4. 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” as deemed by the government benefits from either “assisted procedure” or “special procedure” assistance by 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 or consortiums of local and foreign partners have been designated as strategic investments, mostly in the tourism sector.

Major Laws Governing Foreign Investments:

  • Law 55/2015, “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 7764/1993 “On the Foreign Investments” amended by the Law 10316/2010.
  • Law 9901/2008 “On Entrepreneurs and Commercial Companies”: Outlines general rules and regulations on the merger of commercial companies;
  • Law 110/2012 “On Cross-Border Mergers”: Determines rules on mergers when one of the companies involved in the process is a foreign company;
  • Law 9121/2003 “On Protection of Competition”: Stipulates provisions for the protection of competition, and the concentration of commercial companies;
  • Law 10198/2009 “On Collective Investment Undertakings”: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies;

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.

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.  Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania, although the government refused to recognize an injunction from a foreign arbitration court in one high profile case, in 2016, calling into question the government’s commitment to arbitration (this refusal was later reversed).  The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial 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.

Albania’s tax system does not distinguish between foreign and domestic investors.  Informality in the economy, which may represent as much as 40 percent of the formal 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 only potential complication to obtaining a work permit is the requirement that a foreign employer maintain a certain number of local employees.  The Law on Foreigners states that a foreign employer will be granted a work permit only if the number of foreign employees did not exceed 10 percent of the total number of employees on the payroll over the preceding 12 months.

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 Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects.  Concessions may be identified by central or local governments or through third party unsolicited proposals. In the case of unsolicited proposals, the proposing company is entitled to receive a bonus of up to 10 percent of total points based on the technical and financial proposal.  The GOA is in the process of approving changes to the law that would restrict third party unsolicited proposals in certain sectors.

Competition and Anti-Trust 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 particular share transfers in insurance and banking industries, the Financial Supervisory Authority (http://amf.gov.al/  ) and/or 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 explicitly states that the transactions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market.

Expropriation and Compensation

The Albanian Constitution guarantees the right of private property.  According to Article 41, expropriation or limitation in 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 below market value and owners have complained that the compensation process is slow and unfair. Civil courts are responsible for resolving such complaints.

Change of government can also be of concern to foreign investors.  Following the 2013 elections and peaceful transition of power, the new government revoked or attempted to renegotiate numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors.  This practice has occurred in years past, as well.

There are many ongoing disputes regarding properties 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 suffered from long-running restitution disputes.  Court cases drag on for years without a final decision, forcing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. As of December 2018, the Court had issued around 31 decisions in favor of Albanian citizens in civil cases involving protection of property, with financial bill in the millions of euros for the GOA.  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 provide a solution to the 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 10-year timeframe for the completion of the entire process.

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, especially in the mining and energy sectors, based on contract violation claims.

Dispute Settlement

ICSID Convention and New York Convention

Under the Albanian Constitution, ratified international agreements prevail over domestic legislation.  Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention).  It also is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Albania has ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

Investor-State Dispute Settlement

For an arbitration award to be locally recognized, the claimant must enforce the award before the Court of Appeals.  The procedure to recognize a foreign arbitral award typically lasts around one month and either party may appeal the Court’s decision to the Supreme Court.  The appeal must be filed within 30 days from the date of decision or notification of the other party (if absent).

The possibility of bringing an action before the local court to avoid arbitration proceedings is remote.  According to explicit 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 the merits of the case.  The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.

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.  Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal.  Mediation is also applicable in 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.

There are no consolidated institutions for dispute resolution through arbitration and arbiters are appointed ad hoc in compliance with the provisions of the Code of Civil Procedure.  The law provides for the National Chamber of Mediators and Chambers of Mediators as institutions to perform mediation. Mediators are licensed and registered at the Mediators Register at the Ministry of Justice, which maintains a list of mediators from which the parties can choose.

The provisions for 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 arbitration. Although the arbitration chapter of the Code of Civil procedure stipulates only the rules for domestic arbitration, the country is signatory to the 1958 New York Convention, and as such, recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.

The Albanian Code of Civil Procedure requires the courts to reach a judgment within a reasonable amount of time, but does not provide for a specific deadline to decide on commercial disputes.  Reaching a final judgment in a commercial litigation may take several years to exhaust all stages of the process.

The procedure for the recognition of a foreign arbitral award should take on average approximately one month; however, in certain cases this decision may be appealable.  An appeal against a court decision that recognizes a foreign arbitral award does not automatically suspend the effects of the enforcement.

International Commercial Arbitration and Foreign Courts

Over the past ten years, there have been six investment disputes between the GOA and U.S. companies, four of which resulted in international arbitration.  Despite a stated desire to attract and support foreign investors, U.S. investors in disputes with the GOA report a lack of productive dialogue with government officials, who frequently display a reluctance to settle the disputes before they are escalated to the level of international arbitration, or before the international community exerts pressure on the government to resolve the issue.  U.S. investors in Albania are encouraged to include strong binding arbitration clauses in any agreements with Albanian counterparts.

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 law on bankruptcy that entered into force in May 2017 aimed to address 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, creditors, or tax authorities can initiate a bankruptcy procedure.  Debtors and creditors can file for either liquidation or reorganization. Tax authorities can request a bankruptcy procedure when the subject reports losses three years consecutively.  Bankruptcy proceedings may also be invoked when the debtor is unable to pay the obligations at maturity date or will be unable to pay in the near future.

According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings would suspend the enforcement of claims by all creditors against the debtor subject to bankruptcy.  Creditors of all categories should submit their claims to the bankruptcy administrator to be treated under the bankruptcy proceeding. The Bankruptcy Law provides specific treatment for different categories, including, secured creditors, unsecured creditors, and unsecured creditors of lower ranking (i.e. those whose claims would be paid after all the secured and unsecured creditors were satisfied).  The claims of the secured creditors will be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors will be paid out of bankruptcy estate excluding the assets used for payment of the secured creditors, following the priority ranking described under the Albanian Civil Code.

Pursuant to the provisions of the Bankruptcy Law, the creditors have the right to establish a creditors committee and the creditors’ assembly.  The creditors’ committee is appointed by the Commercial Section Courts, before the first meeting of the creditors’ assembly. The creditors’ committee represents the secured creditors, the unsecured creditors with larger claims, and creditors with small claims.  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 of vote and the dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation.  Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately and 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 creditors.

The creditor has the right to object to decisions accepting or rejecting creditors’ claims and should approve the sale of substantial assets of the debtor.  The creditor does not have the right to request information from the insolvency representative and the law does not require approval by the creditor for the selection of appointment of insolvency representative.

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 provides for several criminal offenses in bankruptcy such as: (i) 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 2019 “Doing Business” Report, Albania ranked 39th out of 190 countries in the insolvency index.  A reference analysis of ‘resolving insolvency’ can be found at the following link: http://www.doingbusiness.org/data/exploreeconomies/albania#resolving-insolvency  

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 new 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 by one year, to December 2019, the deadline to apply to qualify as a strategic investment. 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.  The law foresees that investments in strategic sectors may benefit the status of assisted procedure and special procedure, based on the level of investment, which varies from EUR 1 million to EUR 100 million, depending on the sector and other criteria stipulated in the law.

In the Assisted Procedure, the public administration coordinates, assists, and supervises the entire administrative process for the investment approval and makes available to the investor state-owned property needed for the investment.  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 headed by the prime minister whose members include ministers covering the respective strategic sectors, the state advocate, and relevant ministers whose portfolios are impacted by the strategic investment.  The Albanian Investment Development Agency (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/investors based on the size of investments and other criteria defined in the law.

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

Tourism and Economic Areas: Investments of 5 million euros or more enjoy the status of assisted procedure, while investments greater than 50 million euros 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 8 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 value-added tax (VAT) of just 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. In the information technology sector, the government has recently reduced the profit tax for software development companies from 15 percent to 5 percent.

Agriculture (large agricultural farms) and Fishing: Investments greater than 3 million euros that create at least 50 new jobs enjoy the status of assisted procedure, while investments greater than 50 million euros enjoy the status of special procedure.

In addition, the GOA offers a wide range of incentives and subsidies for investments in the agriculture and agro-tourism sectors.  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 71 million euros.  The program is managed by the Agricultural and Rural Development Agency (http://azhbr.gov.al/  ).  Profit taxes for agrotourism ventures are now 5 percent, down from 15 percent previously, while the value-added tax (VAT) is now six percent, down from 20 percent previously.  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 one million euros that create at least 150 new jobs enjoy the status of assisted procedure.  Investments greater than 10 million euros that create at least 600 new jobs enjoy the status of special procedure.

Energy sector: 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 fewer than 15 megawatts.  Imports of machinery and equipment for investments of greater than 400,000 euros for mall wind and solar parks with an installed capacity of fewer 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.

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.

Incentives for manufacturing sector

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 10 million euros, 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 two million euros 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.

Manufacturing activities are exempt from VAT on machinery and equipment.

The employer is exempt from the social security tax payment for one year for all new employees.

The state pays the salaries for four months for the new employees and offers various financing incentives for job training.

VAT credit for fuel: Taxpayers whose main business activity is production of bricks and tiles and the transport of goods with technological means can credit VAT on the purchase of fuel used wholly and exclusively for their business activities, up to the limit of a certain percentage of the taxpayer’s total annual turnover.

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 so long as 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 the 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.  A full list of incentives can be found at: http://www.teda.gov.al/?page_id=687  .

Foreign Trade Zones/Free Ports/Trade Facilitation

Albania has no functional duty-free import zones, although legislation exists for the creation of such.  The May 2015 amendments to the Law on the Establishment and Operation of TEDAs created the legal framework to establish TEDAs (a.k.a. free trade zones), defining the incentives for developers investing in the development of these zones and companies operating within the zones.  The Ministry of Finance and Economy has announced two investment opportunities that seek private sector developers to obtain, develop, and operate fully serviced areas located in Koplik (61 hectares) and Spitalle (100 hectares). Interested investors and developers can find more information for the development of TEDAs at the following link: http://aida.gov.al/faqe/zonat-me-zhvillim-teknik-dhe-ekonomik  .  

Performance and Data Localization Requirements

Although visa, residence, and work permit requirements are straightforward and do not pose an undue burden on potential investors, the Law on Foreigners requires foreign investors to prove that foreign employees constitute less than 10 percent of the investor’s total workforce before a work permit is granted.  There is no minimum requirement for domestic content in goods or technology.

According to current legislation in force, companies with sensitive data (primarily in telecommunications, banking, and energy) are not authorized to transfer data abroad.  To do so, they must receive approval and fulfill certain security criteria. As such, many companies operating in Albania are returning their data to Albania. The two largest private datacenters in Albania belong to telecom operator Albtelekom and the Albanian Telecommunication Union (ATU).

5. Protection of Property Rights

Real Property

Protection and enforcement of property rights remain significant challenges for individuals and investors in Albania.  Despite recent improvements, procedures are cumbersome, and registrants have complained of corruption during the process.  The GOA has drafted and passed property legislation in a piecemeal and uncoordinated way. Reform of the sector has yet to incorporate consolidation of property rights or the elimination of legal uncertainties.  According to the EU’s 2018 Progress Report, significant progress has yet to be made toward improving the legal framework for registration, expropriation, and compensation of property. As well, the legalization process for illegal construction throughout the country remains far from complete.  

Through international donor assistance, the property registration system has improved, but reform is incomplete.  Approximately 15 percent of properties nationwide are unregistered, mostly in urban and high-value coastal areas. Albania counts around 4.4 million properties, of which 3.8 million have been registered.  Albania has an estimated 440,000 illegal structures, and illicit construction remains a major impediment to securing property titles. A process that aims to legalize or eliminate such structures was begun in 2008, but remains incomplete.  The situation has led to clashes between squatters and owners of allegedly illegal buildings and the Albanian State Police during the demolition of such structures.

According to the 2019 World Bank’s “Business Report,” Albania performed poorly in the property registration category, ranking 98th out of 190 countries.  It took an average of 19 days and six procedures to register property, and the associated costs could reach 9.2 percent of the total property value. The civil court system manages property rights disputes, though verdicts can take years and authorities often fail to enforce court decisions.

To streamline the property management process, the GOA in April 2019 established the State Cadaster Agency, which integrated several major agencies responsible for property registration, compensation, and legalization, including the Immovable Property Registration Office (IPRO) and the Office for the Legalization of Illegal Structures (ALUIZNI).   

Intellectual Property Rights

Albania is not listed on the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.  However, 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, ranging from software to garments to machines. Albanian law protects copyrights, patents, trademarks, stamps, marks of origin, and industrial designs, but significant gaps remain between the law’s intent and its enforcement.  Regulators are ineffective at collecting fines and prosecutors rarely press charges for IP theft. U.S. companies should consult an experienced IPR attorney and avoid potential risks by establishing solid commercial relationships and drafting strong contracts.

A revised 2016 IPR law aimed to harmonize domestic legislation with EU law to strengthen IPR enforcement and address shortcomings in existing legislation.  The main institutions responsible for IPR enforcement include the State Inspectorate for Market Surveillance (SIMS), the Albanian Copyright Office (ACO), the Audiovisual Media Authority (AMA), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, law enforcement, and the courts.  The law also stipulated the establishment of three new IPR bodies: The National Council of Copyrights, which is responsible to monitor the implementation of the law; the Agency for the Collective Administration, in charge of IPR administration; and the Copyrights Department within the Ministry of Culture. The Criminal Code was also amended in 2017 to better address copyright infringements.

The SIMS, established in 2016, is responsible to inspect, control, and enforce copyright and other related rights.  The Directorate has noted some progress on IPR protection. Yet, despite minor improvements, law enforcement on copyrights remains problematic and copyright violations are rampant.  The number of copyright violation cases brought to court remains low.

While official figures are not available, Customs does report the quantity of counterfeit goods destroyed annually.  In cases of seizures, the rights holder has the burden of proof and must first inspect the goods before any further action takes place.  The rights holder is also responsible for the storage and destruction of the counterfeit goods.

The GDPT is responsible to register and administer patents, commercial trademarks and service marks, industrial designs, and geographical indications.  The 2008 law on Industrial Property was amended in 2014 to reflect EU legislation on the matter.

Albania became a contracting party to the World Intellectual Property Organization (WIPO) Patent Law Treaty and a full member of the European Patent Organization in 2010.  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 34/2018 law, which ensures Albania’s adherence to the Vienna Agreement for the International Classification of the Figurative Elements of Marks.

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/  

Resources for Rights Holders

Contact at mission on IP issues:

Jeffrey D. Bowan
Economic and Commercial Officer
Phone: + 355 (0) 4229 3115
E-mail: BowanJD@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

In the absence of a stock market, the country’s banking sector remains the main channel for business financing.  The sector is sound, profitable, and well capitalized, although the high rate of non-performing loans (NPL) remains a concern.  The Bank of Albania’s legal measures to address the problem have generated mostly positive results. The banking sector is fully private.  It has undergone significant consolidation over the last year, shrinking the number of banks to 12, down from 16 at the beginning of 2018. As of December 2018, the Turkish National Commercial Bank had further consolidated its position as the largest bank, with 28.4 percent of the market, followed by Austria’s Raiffeisen Bank, with 15 percent, and Albania’s Credins Bank, with 12.9 percent.  The share of Greek banks has significantly decreased in recent years due to the departure from Albania of the National Bank of Greece and Greece-based Piraeus Group’s Tirana Bank.

The government has adopted policies promoting the free flow of financial resources to promote foreign investment in Albania.  The government and Central Bank refrain from restrictions on payments and transfers for international transactions. Despite Albania’s shallow FX market, banks enjoy enough liquidity to support sizeable positions.  Furthermore, portfolio investments remain limited mostly to company shares, government bonds, and real estate.

Nevertheless, the high rate of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards.  After a slight increase in 2017, the stock of loans decreased by 3.3 percent year-on-year in 2018, due also to the 9 percent appreciation of the domestic currency against the euro.  The credit market is competitive, but interest rates in domestic currency can be high, ranging from 6 percent to 8 percent. Most mortgage and commercial loans are denominated in euros, as rate differentials between local and foreign currency average 2.5 percent.  Commercial banks have improved the quality and quantity of services they offer, and the private sector has benefited from the expansion of these instruments.

Money and Banking System

Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a lack of exposure to international capital markets and lack of a domestic housing bubble.  The sector has contracted in recent years. In December 2018, Albania had 474 bank branches, down from 552 in 2016. Capital adequacy, at 18.2 percent, remains above Basel requirements and indicates sufficient assets, which in 2018 totaled USD 13.54 billion.  At the end of 2018, the return on assets was 1.2 percent. Non-performing loans continued to fall, reaching 11.1 percent at the end of the 2018, down from 13.2 percent compared with 2017, and a significant improvement over 2014, when NPLs stood at 25 percent.

The Bank of Albania has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but not for longer than 12 months.  As part of its strategy to stimulate business activity, the Bank of Albania has persistently lowered interest rates, which in June 2018 reached a historic low of 1 percent, down from a rate of 1.25 percent in place since May 2016.

Most banks operating in Albania are subsidiaries of foreign banks, and just two have Albanian shareholders.  However, Albanian ownership is expected to increase because of the sector’s ongoing consolidation. Foreigners are not required to prove residency status to establish a bank account, aside from the normal know-your-client procedures.  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

The Central 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).

The Bank of Albania maintains a free float exchange rate regime for its 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.  The Bank of Albania does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate.  Foreign exchange is readily available at banks and exchange bureaus. However, when exchanging several million dollars or more, preliminary notification may be necessary, as the exchange market in Albania remains small.  A 2018 campaign launched by the BOA with a goal to reduce the domestic use of the euro and other foreign currencies has yet to produce tangible results. The campaign is part of a larger reform that aims to improve the effectiveness of domestic economic policies.

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, the Bank of Albania rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets.  It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. The BOA lifted these restrictions in 2010.

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.  The 2019 INCSR maintains 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.

Sovereign Wealth Funds

Albania does not have a sovereign wealth fund.  A draft law to establish the Albanian Investment Corporation is currently under discussion.  The GOA plans to transfer state owned assets, including state-owned land, and provide initial capital to launch the corporation.  The corporation would develop, manage, and administer state-owned property and assets as public investments.

7. State-Owned Enterprises

State-owned enterprises (SOEs) are defined as legal entities, which 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.

No discrimination exists 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 same domestic accounting and international financial reporting standards, as other commercial companies.  The High State Audit is the institution that 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 World Trade Organization (WTO), but has obtained observer status and is negotiating full accession.  However, private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.

The 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 covering the sector in which the company operates represent the state as the owner of the SOEs. There are no legal binding requirements for the SOEs to adhere to Organization for Economic Cooperation and Development (OECD) guidelines.  However, basic principles of corporate governance are stipulated in the above-mentioned 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 is comprised of 3-9 members, who are not employed by the SOE, two-thirds of whom 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 for the SOE through a two-thirds vote.

Privatization Program

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining.  Such opportunities include OSHEE, the state-run electricity distributor; 16 percent of Albtelekom, the fixed- line telephone company; and state-owned oil company Albpetrol.

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.  No public timelines exist for future privatizations.

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining.  Such opportunities include OSHEE, the state-run electricity distributor; 16 percent of Albtelekom, the fixed- line telephone company; and state-owned oil company Albpetrol.

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.  No public timelines exist for future privatizations.

8. Responsible Business Conduct

Public awareness of corporate social responsibility (CSR) in Albania is low and CSR remains a relatively new concept for much of the business community.  The small level of CSR 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 awareness. 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. The government maintains relatively robust CSR, labor, and employment rights, consumer protection, and environmental protection legislation, but enforcement and implementation is inconsistent.

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

The Law on Commercial Companies and Entrepreneurs outlines generic corporate governance and accounting standards.  According to the above-mentioned law and the law on the national business registration center, companies are required to 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 a best-practice framework above the minimum legal requirements, while assisting Albanian companies to develop a governance framework.

9. Corruption

Corruption is a continuing problem in Albania, undermining the rule of law and jeopardizing economic development.  Albania ranked 99th out of 180 countries in Transparency International’s 2018 Corruption Perceptions Index (CPI). Despite some improvement in the index from 2013 and 2014, progress in tackling corruption has been slow and unsteady.  Albania remains one of the most corrupt countries in Europe, according to the CPI. The passage by Parliament 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 developments 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, insufficient training, or those who have issued questionable past decisions are removed from the system.  The reform is also establishing an independent prosecutor and a specialized investigation unit to investigate and prosecute 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.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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 Network (SPAI).  Albania is not a member of the OECD Convention on Combating Bribery of Foreign Public Officials in international Business Transactions.

Resources to Report Corruption

In an effort 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.

10. Political and Security Environment

While political violence is rare, political protests in 2019 have included instances of civil disobedience, low-level violence, and the use of tear gas by police.  Albania’s June 2017 elections and transition to a new government were peaceful. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration.  In its external relations, Albania remains a source of stability in the region and maintains generally friendly relations with neighboring countries.

11. Labor Policies and Practices

Albania’s labor force numbers around 1.2 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, falling to 12.3 percent in December 2018.  However, unemployment among persons aged 15-29 remains high, at 23 percent. Around 40 percent of the population is self-employed in the agriculture sector. Informality remains widespread in the Albanian labor market.  A 2016 International Labor Organization (ILO) report on the informal economy showed that informal employment constituted 32 percent of the labor market in Albania excluding the agriculture sector.

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 actors such as employment agencies and vocational training centers.  Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement remains weak due to persistent informality in the work force.

Outward labor migration remains an ongoing problem affecting the Albanian labor market.  For example, recent media reports say a significant number of doctors and nurses have emigrated to Europe, mostly to Germany.  In December 2018, the average public administration salary was approximately 63,276 Albanian lek (approximately USD 575) per month.  The GOA increased the national minimum wage in January 2019 to 26,000 lek per month (approximately USD 225), but it remains the lowest in the region.  

While some in the labor force are highly skilled, many work in low-skill industries or have outdated skills.  The government provides fiscal incentives for labor force training for the inward processing industry, which in Albania includes the footwear and textile sectors.  The National Employment Service provided training and internship opportunities to 8,500 registered job seekers in 2018. It also promotes self-employment through the establishment of new businesses.  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 2018, 20.5 percent of high school pupils were enrolled in vocational schools, compared with 15.7 percent in 2013.

Law 108/2013 of 2013, “On Foreigners,” and various decisions of the Council of Ministers regulate the employment regime in Albania.  The law limits to 10 percent the number of foreigners hired by employers in Albania. However, employment can be regulated through special laws in the case of specific projects, or to attract foreign investment, and wages and training costs may be tax deductible.  The law on Free Trade Zones also provides fiscal incentives for labor taxes in case of investments in the zone.

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 makes up around 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 state-owned enterprises. Albania has a labor dispute resolution mechanism as specified in the Labor Code, but the mechanism is considered weak.

Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the entire set of fundamental and governance conventions.  The implementation of labor relations and standards remains 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.

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/

U.S. Department of Labor Child Labor Report: http://www.dol.gov/ilab/reports/child-labor  

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) signed an agreement with Albania in 1991.  Albania has also ratified the World Bank’s Multilateral Investment Guarantees Agency (MIGA) Convention.  Both instruments provide investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors for qualified investments in developing member countries.  MIGA’s coverage covers the following risks: currency transfer restriction, expropriation, breach of contract, war, terrorism, civil disturbance, and failure to honor sovereign financial obligations. MIGA and OPIC often cooperate on projects.

For more information on OPIC please see: http://www.opic.gov/  

For more information on MIGA, please see: http://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) 2017 $13,039 2017 $13,039 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $89 2017 $56 BEA
Host country’s FDI in the United States ($M USD, stock positions) 2017 N/A 2017 $0 BEA
Total inbound stock of FDI as % host GDP 2017 55.4% 2017 55.4% UNCTAD

* Source for Host Country Data: Bank of Albania (http://www.bankofalbania.org/  ), Albanian Institute of Statistics (http://www.instat.gov.al/  ), Albanian Ministry of Finances (http://www.financa.gov.al/  )

 

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 $6,739 100% Total Outward $471 100%
Greece $1,279 19% Kosovo $314 66.6%
Switzerland $1,066 15.8% Italy $137 29%
Canada $1,051 15.5% U.S.A. $9 1.9%
Netherlands $944 14% Netherlands $2 0.4%
Turkey $508 7.5% Germany $2 0.4%
“0” reflects amounts rounded to +/- USD 500,000.

 

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $814 100% All Countries $38 100% All Countries $776 100%
Turkey $258 32% Turkey $17 46% Turkey $241 44.4%
Czech Rep. $101 12% Netherlands $8 22% Czech rep. $101 14.76%
Italy $89 11% Canada $8 22% Italy $89 12.53%
Germany $67 8% Bahamas $2 5% Germany $67 9%
Poland $37 5% U.S.A. $2 5% Poland $37 2.78%

14. Contact for More Information

Jeffrey D. Bowan
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
Tirana, Albania
+355 4 224 7285
BowanJD@state.gov

Bosnia and Herzegovina

Executive Summary

Bosnia and Herzegovina (BiH) is open to foreign investment, but investors must overcome endemic corruption, complex legal and regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system to succeed.  Economic reforms to complete the transition from a socialist past to a market-oriented future have proceeded slowly and the country has a relatively low level of foreign direct investment. According to the BiH Central Bank, FDI in BiH in the first nine months of 2018 amounted to USD 458 million. According to the World Bank’s 2019 Ease of Doing Business Report, BiH has the least attractive business environment in Southeast Europe, with a ranking of 89 out of 190 global economies.  According to the World Bank’s Regular Economic Report (April 2019), BiH’s economic growth is expected to gain speed in 2019 and 2020 before reaching 4 percent in 2021, backed mainly by consumption and to some extent by public investment. BiH’s economy expanded by an estimated 3.0 percent in 2018, with domestic demand remaining the dominant growth driver, and growth is expected to accelerate to 3.4 percent in 2019 and 3.9 percent in 2020. A moderate rise in exports is expected but strong demand for imported goods implies that growth will continue to be driven by consumption while remittances are likely to remain high and stable at 8.3 percent of GDP.

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.  Nonetheless, BiH offers business opportunities to well-prepared and persistent exporters and investors. Companies who have managed to overcome the challenges of establishing a presence in BiH have often made 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 simplified tax structure (17 percent VAT and 10 percent flat income tax). BiH is actively pursuing World Trade Organization membership and hopes to join that organization in the near future. It is also richly endowed with natural resources, providing potential opportunities in energy (hydro and thermal power plants), 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 2018, the United States exported USD 380.5 million in goods to BiH, an increase of 13 percent from 2017. (source: BiH Statistics Agency).

Table 1 

Measure Year Index/Rank Website 
TI Corruption Perceptions Index     2018                       89 of 180 www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2019 89 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2018           77 of 128 https://www.globalinnovationindex.org/home
U.S. FDI in BiH 2018 $250 million Estimated
World Bank GNI per capita 2017 $4,910 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.  There are two exceptions: 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. In 2013, 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
Website: http://www.mvteo.gov.ba 

BiH Foreign Investment Promotion Agency (FIPA)
Ph: + 387 33 278 080
Website: http://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 is designated as a beneficiary country under the United States Generalized System of Preferences (GSP) program through December 31, 2020. Between 2013 and 2017, BiH exported to the U.S. over USD 42 million worth of goods eligible for the GSP program.

The Interim Agreement on Trade and Trade-related matters (IA) between the European Union (EU) and Bosnia and Herzegovina is currently 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. The country responded to two rounds of questions from the EU and expects to receive the official EU Opinion on next steps towards EU candidate status in 2019.

3. Legal Regime

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 TFA.

Legal System and Judicial Independence

BiH has a clogged 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 cases, 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 rights 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, an Entity Government 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 Anti-Trust 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

BiH 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.  Namely, 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, in which a minimum KM 4 million (approx. USD 2.5 million) must be invested, shall have reduced the obligations of the calculated income tax for 50 percent of the amount in the year of investment.  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 manufactured goods leaving the free zone within the period of 12 months.

Performance and Data Localization Requirements

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 2019 World Bank Doing Business Report ranked BiH at number 99 out of 190 in the ease of registering property, which takes 7 procedures and an average of 24 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 consider several general principles for effective management of intellectual property rights (IPR) in BiH.  It is important for companies to have a comprehensive IPR protection strategy. IPR is protected differently in BiH than in the United States and rights must be registered and enforced according to local law. U.S. trademark and patent registrations do not protect IPR in BiH.

Bosnia’s IPR framework consists of seven laws, adopted and put into force by the BiH Parliament in 2010.  This legislation is compliant with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and EU legislation.  BiH belongs to over 20 international treaties related to IPR and, in 2009, ratified the 1996 World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performance and Phonograms Treaty.  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, and no institution has 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.

The entity governments have been using licensed software for a number of years.  The state-level government came into compliance in 2009, a significant step forward in the government’s commitment to IPR protection.  Some of the Cantonal governments continue using unlicensed software, as some officials still lack understanding of the importance of IPR.

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 software, CDs, and DVDs. According to the Business Software Alliance (BSA), the rate of illegal software installed on personal computers in Bosnia and Herzegovina currently remains at 66 percent, which is the regional average.

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.  The U.S. government generally cannot enforce rights for private individuals in BiH. Companies may wish to seek advice from local attorneys who are experts in IPR law.

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

Online and broadcast piracy remains a challenging copyright enforcement issue in BiH.  The U.S. Government, in conjunction with local partners, has made IPR awareness within the enforcement community a priority through training and public awareness programs. The U.S. Department of Commerce (DOC) recently conducted a judicial training on intellectual property rights in the Republika Srpska.  DOC supports other capacity building for judiciary in intellectual property, including assistance with writing and publishing a judicial bench book and promoting the international arbitration regime in Bosnia.

Bosnia and Herzegovina is not included in the USTR’s Special 301 report.

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

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.  During the global economic crisis, foreign investment dwindled and investors saw previous gains dissipate on both exchanges. Foreign investment has shown few signs of growth since 2008, shaped not only by the global financial crisis but also by BiH’s lack of political stability and slowdown of reforms.

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.

The S&P revised up BiH’s sovereign otulook from stable to positive in March 2019, while keeping the country’s long and shortterm foreign and local currency sovereign credit rating at B/B.  The agency noted the economy has been more resilient than expected to ongoing political tensions, specifically citing the country’s solid fiscal position, reduction in government debt, and steady economic growth.  The agency said it could further improve BiH’s outlook should the country form a government this year, resume reform measures and revive an IMF program.  The agency said political tensions will likely impede BiH’s fiscal-policy creation, largescale reform of the state owned enterprises, and slow the transition to investment-led growth.

Money and Banking System

The banking and financial system has been stable with the most significant investments coming from Austria.  As of March 2019, there are 23 commercial banks operating in BiH: 15 with headquarters in the Federation and 8 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 defines and controls the implementation of monetary policy (via its currency board) 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-own 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. The bad 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 resulted in a public view that privatization just leads to unemployment and the enrichment of a few politically-connected individuals. Well-done 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 2018 privatization plan.  The privatization plan includes the fuel retailer Energopetrol dd. Sarajevo, the engineering company Energoinvest, the aluminum smelter Aluminij Mostar and the insurer Sarajevo-Osiguranje.  In 2016, the Federation Government sold its stake in the Sarajevo Tobacco Factory (39.9 percent stake), and BiH’s largest pharmaceutical company, Bosnalijek (19 percent stake). 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 local American Chamber of Commerce (AmCham) has recently set up an Ethics and Compliance Committee to raise awareness about responsible business conduct and make it a more routine part of doing business in BiH.

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) 2018 Corruption Perception Index ranked BiH 89 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 prevent and 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
E
mail: kontakt@apik.ba
Website:
http://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
E
mail: info@ti-bih.org
Website: http://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. The official rate of registered unemployment according to the BiH Statistical Agency was approximately 34.5 percent in January 2019, while the BiH Statistics Agency’s Labor Force Survey suggests the total unemployment rate was 18.4 percent in 2018.  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 2017.  The ILO estimated in 2017 that the youth unemployment rate was 46 percent.  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. OPIC and Other Investment Insurance Programs

Overseas Private Investment Corporation (OPIC) concluded an investment incentive agreement with BiH in 1996.  OPIC has no activities in BiH at the moment, 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.

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) ($M USD) 2017 $18,050 2016 $16,000 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI ($M USD, stock positions)     2018 $250
(estimate)
N/A N/A N/A
FDI in the United States ($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


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 Amount 100% Total Outward Amount 100%
Austria $1,610 19.2% N/A N/A N/A
Croatia $1,420  16.7% N/A N/A N/A
Serbia $1,410  16.7% N/A N/A N/A
Slovenia $628  7.5% N/A N/A N/A
Netherlands $520 6.2% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

According to the BiH Central Bank, FDI in BiH in 2018 amounted to USD 458 million.  In 2017 total FDI in BiH was USD 445 million. The all-time high for FDI was USD 2.1 billion in 2007.  Most investments in 2013-2018 came from Croatia, Austria, Russia, Serbia, UAE, and the United Kingdom.


Table 4: Sources of Portfolio Investment

There is no data available from the IMF’s Coordinated Portfolio Investment Survey regarding sources of Portfolio Investment in BiH.

14. Contact for More Information

United States Embassy Sarajevo
Economic/Commercial Section
Robert C. Frasure 1
71000 Sarajevo Bosnia and Herzegovina
T
el.  +387-33-704-000
F
ax. +387-33-659-722
E
mail: sarajevocommercialservice@state.gov
Website: https://ba.usembassy.gov/business/

Kosovo

Executive Summary

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

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

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

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

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

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

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

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 93 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 44 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 N/A https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2018 $ 172 http://data.imf.org/CDIS
World Bank GNI per capita 2018 $3,900 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

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

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

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

3. Legal Regime

Transparency of the Regulatory System

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

The Public Procurement Regulatory Commission (PPRC) oversees and supervises all public procurement and ensures that the Law on Public Procurement is fully implemented.  The PPRC publishes contract information on its website (https://e-prokurimi.rks-gov.net/Home/ClanakItemNew.aspx?id=327). The National Audit Office conducts annual procurement audits of the various Kosovo ministries, municipal authorities, and agencies that receive funds from the Kosovo consolidated budget.  The Procurement Review Body, an independent administrative body, is responsible for hearing appeals related to government procurement. As of 2019, an e-procurement platform is fully operational all procurements are handled through it, which has greatly enhanced transparency.

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

The Assembly publishes draft laws on its website.  The relevant committees also hold public hearings on proposed laws, including investment laws.  The 2016 regulation on the Minimum Standards for Public Consultation Process clarifies the standards, principles, and procedures for consultations during the drafting of legislation.  Kosovo has developed an online platform for public comments (http://konsultimet.rks-gov.net/  ) and publishes rules, regulations, and laws in the official Kosovo Gazette (https://gzk.rks-gov.net/  ) and on the Kosovo Assembly’s website (http://www.kuvendikosoves.org/?cid=2,191  ).  The Ministry of Finance regularly publishes detailed reports on Kosovo’s public finances and debt obligations.

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

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

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

Laws and Regulations on Foreign Direct Investment

Foreign firms operating in Kosovo are entitled to the same privileges and treatment as local businesses.  Kosovo’s commercial laws are available to the public in English, as well as Kosovo’s official languages (Albanian and Serbian) on the Kosovo Assembly’s website (www.assembly-kosova.org/?cid=2,191  ) and on the Official Gazette website (http://gzk.rks-gov.net/default.aspx  ).

Laws of particular relevance include:

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

Competition and Anti-Trust Laws

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

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

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

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

d) The International Chamber of Commerce Rules.

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

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

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

Bankruptcy Regulations

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

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

4. Industrial Policies

Investment Incentives

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

Performance and Data Localization Requirements

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

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

5. Protection of Property Rights

Real Property

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

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

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

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

Intellectual Property Rights

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

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

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

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

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

6. Financial Sector

Capital Markets and Portfolio Investment

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

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

Money and Banking System

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

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

Remittance Policies

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

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

Sovereign Wealth Funds

Kosovo does not have any sovereign wealth funds.

7. State-Owned Enterprises

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

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

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

Privatization Program

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

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

8. Responsible Business Conduct

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

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

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

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

9. Corruption

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

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

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

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

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

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

Resources to Report Corruption

Shaip Havolli
Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+381 38 518 980
Email: shaip.havolli@rks-gov.net

Hilmi Jashari
OMBUDSMAN
The Republic of Kosovo OMBUDSPERSON Institution
Str. “MIGJENI”, no. 21, Pristina, Kosovo
Email: hilmi.Jashari@oik-rks.org
+383 (0) 38 223 782

Ismet Kryeziu
Executive Director
Kosovo Democratic Institute
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
ikryeziu@kdi-kosova.org

Jeta Xharra
Executive Director
Balkan Investigative Reporting Network Kosovo
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+ 381 38 22 44 98
Email: jeta@birn.eu.com

10. Political and Security Environment

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

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

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

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

11. Labor Policies and Practices

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

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

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

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

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

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

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

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

12. OPIC and Other Investment Insurance Programs

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

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

* Source for Host Country Data: Central Bank of Kosovo


Table 3: Sources and Destination of FDI

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

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


Table 4: Sources of Portfolio Investment

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

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

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

14. Contact for More Information

Dren Pozhegu
Economic Advisor
U.S. Embassy Pristina
Nazim Hikmet 30
Pristina, Kosovo
+383 38 5959 3183
Email: PozheguDM@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 depend on a very narrow tax base and a band of three developing sectors: tourism, energy, and to a lesser extent, agriculture.  Montenegro has one of the highest public debt to GDP ratios in the region, currently at 70.9 percent, with a forecast to increase to 75.4 percent once the repayment to China’s Ex/Im Bank of a USD 1 billion highway loan begins. The World Bank and the International Monetary Fund (IMF) have been assisting the government in implementing measures to control the debt.  The economic growth rate in 2018 was the highest in the region at 4.9 percent, while the unemployment rate at the end of 2018 was 15.2 percent. Despite regulatory improvements, official corruption remains a major concern. Montenegro ranks 67th out of 180 countries surveyed in Transparency International’s (TI) 2018 “Corruption Perception Index.” 

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

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

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

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

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

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

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

Table 1

Measure Year Index /Rank Website Address
TI Corruption PerceptionIndex 2018 67 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2018 50 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 52 of 127 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD , stock positions) 2017 $5 http://www.bea.gov/international/factsheet
World Bank GNI per capita 2017 $7,400  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 foreign direct investment (FDI). 

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

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

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

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

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

Inquiries on investment opportunities in Montenegro can be directed to:

Milos Jovanovic, Director

Montenegrin Investment Promotion Agency (MIPA)

Jovana Tomasevica 2

81000 Podgorica, Montenegro

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

Website: http://www.mipa.co.me  

E-mail: info@mipa.co.me

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

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

Business Facilitation

The Central Register of the Commercial Court (CRPS) is responsible for business registration procedures (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. Details regarding the definitions and requirements for each type of company are as follows:

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

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

Limited liability company

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

Joint stock company

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

General partnership

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

Limited partnership

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

Part of a foreign company (foreign company branch)

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

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

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

Outward Investment

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

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

2. Bilateral Investment Agreements and Taxation Treaties

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

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

(http://www.mek.gov.me/en/WTO/LIBRARY/free_trade?alphabet=lat  )

Bilateral Taxation Treaties

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

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

Investment Treaties

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

Montenegro has 23 BITs in force with the following countries: Austria, Czech Republic, Finland, Denmark, Malta, France, Germany, Poland, Greece, Netherlands, Spain, Cyprus, Lithuania, Slovakia, Romania, the Republic of Serbia, Qatar, Macedonia, Azerbaijan, the United Arab Emirates, Moldova, Israel, and Switzerland.  Additional information can be found at 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 the General Agreement on Tariffs and Trade and World Trade Organization (WTO) that prohibits discrimination between imported and domestically produced goods with respect to internal taxation or other government regulation.

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

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

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

4. Industrial Policies

Investment Incentives

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

Contact:

AD Luka Bar (Port of Bar Holding)
Obala 13. Jula bb
85000 Bar, Montenegro
+382 30 312 666
lukabar@t-com.me
http://www.lukabar.me/   

Performance and Data Localization Requirements

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

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

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

5. Protection of Property Rights

Real Property

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

Intellectual Property Rights (IPR)

The acquisition and disposition of IPR are protected by the Law on the Enforcement of Intellectual Property Rights, which entered into force in 2006.  The law provides for fines for legal entities of up to EUR 30,000 (approximately USD 37,000) for selling pirated and/or counterfeited goods. It also provides ex-officio authority for market inspectors in the areas mentioned above.  Additional amendments to the existing Law on the Enforcement of Intellectual Property Rights were adopted over the last several years (beginning in 2006) in line with the EU regulations, and they are expected to bring more efficiency in implementation as well as a multifunctional approach to property-rights protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Border Measures, which provides powers to customs authorities to suspend customs procedures and seize pirated and counterfeit goods. Statistics on seizures of counterfeit goods are published by the Customs Administration and available on their webpage 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 officially opened in 2008.

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

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

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

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

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

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:

Kyle Hatcher
Political and Economic Deputy Chief
+382 20 410 500
HatcherBK@State.gov

6. Financial Sector

Real Property

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

Intellectual Property Rights (IPR)

The acquisition and disposition of IPR are protected by the Law on the Enforcement of Intellectual Property Rights, which entered into force in 2006.  The law provides for fines for legal entities of up to EUR 30,000 (approximately USD 37,000) for selling pirated and/or counterfeited goods. It also provides ex-officio authority for market inspectors in the areas mentioned above.  Additional amendments to the existing Law on the Enforcement of Intellectual Property Rights were adopted over the last several years (beginning in 2006) in line with the EU regulations, and they are expected to bring more efficiency in implementation as well as a multifunctional approach to property-rights protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Border Measures, which provides powers to customs authorities to suspend customs procedures and seize pirated and counterfeit goods. Statistics on seizures of counterfeit goods are published by the Customs Administration and available on their webpage 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 officially opened in 2008.

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

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

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

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

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

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:

Kyle Hatcher
Political and Economic Deputy Chief
+382 20 410 500
HatcherBK@State.gov

7. State-Owned Enterprises

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

More information about the council, the privatization process, and the actual privatization plan is available on the council’s website http://www.savjetzaprivatizaciju.me  

8. Responsible Business Conduct

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

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

9. Corruption

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

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

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

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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

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

Resources to Report Corruption

Contact at government agencies responsible for combating corruption:

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

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

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

Vanja Calovic
Executive Director
MANS (Network for Affirmation of NGO sector)
Dalmatinska 188, 81000 Podgorica
+382 20 266 326
vanja.calovic@mans.co.me or mans@t-com.me
www.mans.co.me  

10. Political and Security Environment

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

Montenegro joined NATO in June 2017.

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

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

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

11. Labor Policies and Practices

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

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

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

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

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

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

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

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

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

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

12. OPIC and Other Investment Insurance Programs

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2016 $4,374 2017 $4,845 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) N/A N/A N/A N/A BEA data available at http://bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data.htm   
Host country’s FDI in the United States (M USD , stock positions) N/A N/A N/A N/A BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Total inbound stock of FDI as % host GDP N/A N/A 2017 116.3% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx   


Table 3: Sources and Destination of FDI

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

14. Contact for More Information

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

North Macedonia

Executive Summary

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

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

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

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

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 93 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 10 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 84 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $43 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $4,880 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

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

Three government ministers and multiple agencies promote North Macedonia as an investment destination.  Invest North Macedonia – the Agency for Foreign Investments and Export Promotion, http://www.investinmacedonia.com  , is the primary government institution in charge of facilitating foreign investments.  It works directly with potential foreign investors, provides detailed explanations and guidance for registering a business in North Macedonia, provides analysis on potential industries and sectors for investing, provides information on business regulations, and publishes reports about the domestic market.  The North Macedonia Free Zones Authority, http://fez.gov.mk/  , a governmental managing body responsible for developing free economic zones throughout the country, also assists foreign investors interested in operating in the zones.  It manages all administrative affairs of the free economic zones and assists foreign investors in developing their physical facilities.

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

There has been no third-party review of the government’s investment policy in the past three years.  The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy, published in 2014, is available at: https://www.wto.org/english/tratop_e/tpr_e/tp390_e.htm  .  There is no OECD investment policy review available on North Macedonia.  The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2011d3_en.pdf .  The International Monetary Fund (IMF) and the World Bank have assessed aspects of the government’s policies for attracting foreign investment in their regular country reports.

Business Facilitation

All legal entities in the country must register with the Central Registry.  Foreign businesses may register a limited liability company, single-member limited liability company, joint venture, joint stock company, as well as branches and representative offices.  There is a one-stop-shop system that enables investors to register their businesses within a day by visiting one office, obtaining the information from a single place, and addressing one employee.  Once the company is registered with the Central Registry it is valid for all other agencies. In addition to registering, some businesses must obtain additional working licenses or permits for their activities from relevant authorities.  More information on business registration documentation and procedures is available at the Central Registry’s website, http://www.crm.com.mk  .  All investors may register a company online at http://e-submit.crm.com.mk/eFiling/en/home.aspx  .  Applications must be submitted by an authorized registration agent.  The online business registration process is clear and complete, and available for use by foreign companies.  The World Bank’s Doing Business Ranking 2019 put North Macedonia 47th in the world for ease of starting a business, unchanged from 2018.

Outward Investment

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

2. Bilateral Investment Agreements and Taxation Treaties

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

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

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

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

3. Legal Regime

Transparency of the Regulatory System

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

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

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

There is no one centralized location that maintains a copy of all regulatory actions.  All newly adopted regulations, rules, and government decisions are published in the Official Gazette of the Republic of North Macedonia after they are adopted by the government, parliament, or signed by the corresponding minister or director.  Public comments are not published or made public as part of the regulation.

North Macedonia accepts International Accounting Standards, which are transparent and consistent with international norms.  However, North Macedonia has not yet aligned its national law with EU directives on corporate accounting and auditing.

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

The Trade Companies Law

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

Law on Privatization of State-owned Capital

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

Foreign Loan Relations Law

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

Law on Investment Funds

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

Law on Takeover of Shareholding Companies

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

Law on Foreign Exchange Operations

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

Profit Tax Law

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

Labor Law

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

Law on Financial Discipline

Effective from May 1, 2014, this law regulates timely payment of liabilities between private sector legal entities, and liabilities stemming from business relations between private sector and public sector legal entities (http://www.finance.gov.mk/files/u11/Zakon percent20za percent20finansiska percent20disciplina_precisten_januari_2015.pdf ).  Under the law, private entities must settle payment liabilities within 60 days of the day when the liability occurred.  Failure to comply with the provisions of the law results in high fines both for legal entities and for the responsible person.

Law on Financial Support of Investments

On May 3, 2018 the Parliament adopted the Law on Financial Support of Investments, http://fez.gov.mk/wp-content/uploads/2018/06/Law-on-the-Financial-Support-of-Investments.pdf .  This law regulates the types, amount, conditions, manner, and procedure for providing financial assistance to eligible foreign and domestic investors.  In March 2019, the government proposed amendments to this law, lowering some of the criteria for businesses’ eligibility for financial assistance from the government.

Law on Technological Industrial Development Zones

The Law on Technological Industrial Development Zones (http://fez.gov.mk/wp-content/uploads/2018/01/law-in-tidz-eng.pdf ) regulates the incentives for investing in technological industrial development zones as well as the conditions, manner and procedure for the establishment, development, and operation of the zones.  It also regulates the business activities performed in the zones, the procedure for acquisition of facilities in the zones, the procedure for issuance of a construction permit in the zones, and the procedure for leasing construction land in the zones.

Competition and Anti-Trust Laws

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

Expropriation and Compensation

The Law on Expropriation (https://www.finance.gov.mk/files/u17/_______-_____________________________________2.pdf ) provides that seizure and limitation of the right to ownership and property rights of real estate could be applied for the purpose of realization of public interest and for the purpose of building facilities and carrying out other activities of public interest.  According to the Constitution and the Law on Expropriation, property under foreign ownership is exempt from expropriation except during instances of war or natural disaster, or for reasons of public interest. Under the Law on Expropriation, the state is obliged to pay market value for any expropriated property.  If the payment is not made within 15 days of the expropriation, interest will accrue. The government has conducted a number of expropriations, primarily to enable capital projects of public interest, such as construction of highways and railways to which the government offered fair market value compensation. Expropriation procedures have followed strict legal regulations and due process.  The government has not undertaken any measures that have been alleged to be, or could be argued to be, indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

North Macedonia accepts international arbitration decisions on investment disputes.  The country’s Law on International Commercial Arbitration is modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.  Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but are seldom utilized.  A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. North Macedonia requires mediation in disputes between companies up to USD16,871 in value before companies can go to court.

There is no tracking system of cases involving SOEs involved in investment disputes in North Macedonia, and post is not aware of any particular examples.

Bankruptcy Regulations

North Macedonia’s bankruptcy law governs the settlement of creditors’ claims against insolvent debtors.  Bankruptcy proceedings may be initiated over the property of a debtor, be it a legal entity, an individual, a deceased person, joint property of spouses, or business.  However, bankruptcy proceedings may not be implemented over a public legal entity or property owned by the Republic of North Macedonia. The World Bank’s Doing Business Report for 2019 (benchmarked to May 2018) ranked North Macedonia 10th out of 190 countries for ease of doing business.

In addition to commercial banks and the National Bank of North Macedonia serving as credit monitoring authorities, the Macedonian Credit Bureau (http://www.mkb.mk/en/MKBPogled.aspx  ) serves as a credit bureau.

4. Industrial Policies

Investment Incentives

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

Depending on the sector and type of investment, various government authorities oversee and assess the fulfillment of investment promises made by foreign direct investments (FDI).  The government entities include the Agency for Foreign Investments and Export Promotion (InvestNorthMacedonia), the Directorate for Technological Industrial Development Zones (TIDZs), and the Ministry of Economy.

There is no discriminatory export or import policy affecting foreign investors.  Almost 96 percent of total foreign trade is unrestricted. Current tariffs and other customs-related information are published on the website of the Customs Administration (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 the laws is inconsistent.  Mortgages and liens exist and are regularly used, and the recording system is reliable. Highly centralized control of government owned “construction land,” the lack of coordinated local and regional zoning plans, and the lack of an efficient construction permitting system continues to impede business and investments.  Over the past few years, however, the government has improved the cadaster system, which has increased the security and speed of real estate transactions. Over 97 percent of real estate records are digitized. The World Bank’s 2019 Doing Business Report ranked North Macedonia 46th out of 190 for the ease of registering property, two places up from 2018, and 13th for the ease of dealing with construction permits.

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

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

Intellectual Property Rights

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

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

While North Macedonia has most necessary IPR laws in place, infringements of IPR are frequent, and protection of IPR by the court system should be improved.  Prosecutors and judges in both civil and criminal cases are aware of IPR but lack adequate experience due to the small number of IPR cases and so do not have specialized courts to handle IPR cases.  Many rights holders do not pursue legal action, as IPR infringers usually lack the financial resources to pay damages anyway.  Courts reportedly are reluctant to find accused infringers of IPR guilty due to the criminalization of counterfeiting and stiff mandatory minimum sentences for small distributors of counterfeit goods.  The penalties for IPR infringement range from 30 to 60 days closure of businesses, monetary fines of up to EUR 5,000, (USD5,624), or a prison sentence of up to five years. North Macedonia does not track and report cumulative statistics on IPR infringement or seizures of counterfeit goods, and therefore lacks a credible enforcement record. North Macedonia is not listed in the U.S. Trade Representative Special 301 Report or the Notorious Markets List. However, the government currently uses, and has used for the past ten years, unlicensed Microsoft software.  In early 2018, the government initiated talks to resolve the issue.

North Macedonia joined the World Intellectual Property Organization (WIPO) in 1993 and in 1994 became a member of WIPO’s Permanent Committee of Industrial Property Protection Information.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at 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.  North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2018 was USD3.1 billion, a 19 percent rise from the previous year.  The main index, MBI10, increased by 36.6 percent, reaching 3,469 points at year-end. Foreign portfolio investors accounted for an averaged 13.5 percent of total MSE turnover, 3.9 percentage points less than in 2017.  The authorities do not discriminate against foreign portfolio investments in any way.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members for trading in securities and regulates the market.  In 2018, the total number of listed companies was 105, two less than a year prior, but total turnover increased by 119.8 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions.  Individuals generally trade at the MSE as individuals, rather than through investment funds, which have been present since 2007.

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

Money and Banking System

In its regular report on Article IV consultations, published January 2019, the International Monetary Fund assessed that North Macedonia’s banking sector is well-capitalized, liquid, profitable, and banks comfortably meet capital adequacy requirements and maintain sound aggregate liquidity buffers.  Domestic companies secure financing primarily from their own cash flow and from bank loans, due to the lack of corporate bonds and other securities as credit instruments.

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 15 banks and a central bank.  It is a highly concentrated system, with the three largest banks controlling 57.1 percent of the banking sector’s total assets of about USD9.2 billion, and collecting 69.6 percent of total household deposits.  The largest commercial bank in the country has estimated total assets of about USD 2 billion, and the second largest of about USD 1.7 billion. The nine smallest banks, which have individual market share of less than 5 percent, account for one-fifth of total banking sector assets.  Foreign banks or branches are allowed to establish operations in the country at equal terms as domestic operations, subject to licensing and prudent supervision from the Central Bank. In 2018, foreign capital remained present in 14 of North Macedonia’s 15 banks, and was dominant in 11 banks, controlling 71.1 percent of total banking sector assets, 79.9 percent of total loans, and 70 percent of total deposits.

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

Banks’ liquid assets at the end of the third quarter of 2018 were 30.6 percent of total assets, which was 1.1 percentage points higher compared to the same period of 2017, remaining comfortably high.  In 2018 NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed that the banking sector is healthy and resilient to shocks, with a capital adequacy ratio remaining above the legally required minimum of eight percent.  The actual capital adequacy ratio of the banking sector at the end of September 2018 was 16.3 percent, 0.5 percent higher compared to the same period of the previous year. Only one individual bank had a ratio below the required minimum.

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations.  By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days.  There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for households in North Macedonia.  In 2018, net private transfers amounted to USD 2 billion, accounting for 15.8 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

7. State-Owned Enterprises

There are about 120 State Owned Enterprises (SOEs) in North Macedonia, the majority of which are public utilities in which the central government is the majority shareholder.  The 81 local governments also own local public utility enterprises. In March 2018, the government estimated that about 8,600 people are employed in SOEs. SOEs operate in several sectors of the economy including energy, transportation, and media.  There are also industries such as arms production and narcotics in which private enterprises may not operate without government approval. SOEs are governed by boards of directors consisting of members appointed by the government. All SOEs are subject to the same tax policies as private sector companies.  SOEs are allowed to purchase or supply goods or services from the private sector and are not given non-market based advantages, such as preferential access to land and raw materials.

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

A 2016 report by Transparency International-Macedonia commented that “policy decisions related to SOEs often comply with the political needs of the ruling political establishment, such as needs for employment…rather than with the actual needs of the SOEs.”  When it took office in June 2017, the new government declared it would change that practice. Following reports in 2018 and 2019 that party members and family were being hired in SOEs, the government announced it would review SOE hiring decisions. As a result of the review, several individuals have already resigned. North Macedonia is not a signatory to the OECD Guidelines on Corporate Governance for SOEs.  In February 2018 the government sent its bid to the World Trade Organization to upgrade its status from observer to a fully-fledged member of the Government Procurement Agreement (GPA). The process is ongoing.

Privatization Program

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

8. Responsible Business Conduct

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

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

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

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

9. Corruption

North Macedonia has laws intended to counter bribery, abuse of official position, and conflicts-of-interest; government officials and their close relatives are legally required to disclose their income and assets.  However, enforcement of anti-corruption laws has at times been weak and selectively targeted government critics and low-level offenders.  There have been credible allegations of corruption in law enforcement, the judiciary, and many other sectors.  The State Commission for Prevention of Corruption (https://www.dksk.mk/index.php?id=home  ), established in 2002 to prevent corruption and conflicts of interest did not function from March 2018 until February 2019 due to the resignation of its members after media revealed excessive and fraudulent travel invoicing.  Following the passage of new anticorruption legislation in January 2019 and the appointment of new commissioners in February 2019, the commission has restarted its work. The Special Prosecutor’s Office (SPO) was established in 2015 to investigate cases linked to a wiretapping scandal that revealed extensive abuse of office by public officials, including alleged corruption in public tenders.  In the 2018 Corruption Perception Index, Transparency International ranked North Macedonia 93rd out of 180 countries on the, an improvement of 14 places from 2017.

To deter corruption, the government uses an automated electronic customs clearance process, which allows businesses to monitor the status of their applications.  In order to raise transparency and accountability in public procurement, the Bureau for Public Procurement introduced an electronic system that allows publication of notices from domestic and international institutions, preview of tender documentation without registration in the system, e-payment for use of the system, electronic archiving, and the electronic submission of complaints.   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 NGOs focus on anti-corruption, transparency in public finances, and tendering procedures.  There are frequent reports of nepotism in public tenders. The government does not provide any special protections to NGOs involved in investigating corruption. North Macedonia has ratified the UN Convention against Corruption and the UN Convention against Transnational Organized Crime, and has signed the Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery.

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

Resources to Report Corruption

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

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

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

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 are strained at times.  Public protests, demonstrations, and strikes occur sporadically, and often result in disruptions, particularly near the center of Skopje.

On April 27, 2017 after a majority of parliament members elected Talat Xhaferi as Speaker, an organized attack leveraged ongoing protests to storm the parliament building.  More than 100 people were injured, including the now Prime Minister and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attacks, including the former head of the Department of Public Security Bureau (who had previously served as Minister of Interior), former security officers, and others.  Prosecutors are conducting a separate investigation into the organizers of the parliament attack, and named former Prime Minister Nikola Gruevski, the former Speaker of Parliament, two former ministers, and a former director of the Department of Security and Counterintelligence service as parties of interest in the investigation.

There is no widespread anti-American or anti-Western sentiment in North Macedonia.  There have been no incidents in recent years involving politically motivated damage to projects or installations.  Violent crime against U.S. citizens is rare.  Theft and other petty street crimes do occur, particularly in areas where tourists and foreigners congregate.

11. Labor Policies and Practices

Foreign investors, especially those in labor-intensive industries, find North Macedonia’s competitive labor costs and high number of English speakers attractive.  The average net wage in 2018 was USD 470 per month, but reportedly about 60 percent of workers receive wages lower than that average. In July 2018, the minimum net wage was raised to MKD 12,165 (USD 183) per month. The government has promised to raise the minimum wage to MKD 16,000 (USD 320) per month by the end of its mandate in 2020.

In 2018, North Macedonia’s labor force consisted of 957,623 people, of which 759,054 (45.1 percent) were officially employed and 198,569 (20.7 percent) were officially unemployed.  North Macedonia’s employed labor force is roughly 60.4 percent male and 39.6 percent female. The largest number of employees are engaged in manufacturing, agriculture, and trade. The total unemployment rate for youth ages 15 to 24 years old is 45 percent.  About 20 percent of the unemployed have a university education. Informal sectors of the economy, including agriculture, are estimated to account for 22 percent of employment.

Despite the relatively high unemployment rate, foreign investors report difficulties in recruiting and retaining workers.  Positions requiring technical and specialized skills can be especially difficult to fill, due to a mismatch between industry needs, the educational system, and graduates’ aspirations.  Many well-trained professionals with marketable skills, such as IT specialists, switch to outsourcing, or choose to work outside the country. To address shortages of factory workers, the government encourages the dispersal of labor-intensive manufacturing investments to different parts of the country, and companies often bus in workers from other areas.  The Operational Plan for Active Programs and Measures for Employment and Services in the Labor Market for 2019 (http://av.gov.mk/operativen-plan.nspx  )  defines programs and services for employment that will stimulate job creation, provide subsidies for companies creating new jobs, and deliver vocational training for unemployed persons.

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

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

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

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

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

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

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

An out-of-court mechanism for labor dispute resolution was introduced in 2015 with assistance from the ILO.  North Macedonia’s labor regulations comply with international labor standards and are in line with the ILO. In 2018, the Government adopted a number of changes in the Law on Labor relations, most of which related to workers’ rights in procedures for termination of work contracts and severance pay. http://www.mtsp.gov.mk/content/pdf/zakoni/2018/ZRO percent20izmeni percent202018.pdf 

12. OPIC and Other Investment Insurance Programs

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

OPIC insurance and project financing have been available to investors in North Macedonia since 1996.  OPIC’s three main activities are risk insurance, project finance, and investment funding. MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors who make qualified investments in developing member countries.

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $12,657 2017 $11,284 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $101 2017 $43 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) 2017 $0.1 2017 $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 2018 51.7% 2017 53.5% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

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


Table 3: Sources and Destination of FDI

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


Table 4: Sources of Portfolio Investment

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

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

14. Contact for More Information

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

 

Serbia

Executive Summary

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

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

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

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

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

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

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

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 87 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 48 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 55 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $164 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $5,180 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

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

The Government’s investment promotion authority is the Development Agency of Serbia (Razvojna agencija Srbije – RAS: 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.

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in English at 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 on applications notarized.

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

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

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

RAS supports direct investment and promotes exports. It also implements projects aimed at improving competitiveness, supporting economic development, and supporting small-and medium-sized enterprises (SMEs) and entrepreneurs. More information is available at 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 2019 Doing Business report. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.

Outward Investment

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

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

2. Bilateral Investment Agreements and Taxation Treaties

Serbia does not have a bilateral investment agreement with the United States. Serbia has bilateral investment treaties in force with Albania, Armenia, Algeria, Austria, Azerbaijan, Belarus, Belgium-Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Cuba, the Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guinea, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Kazakhstan, Kuwait, Latvia, Libya, Lithuania, Macedonia, Malta, Montenegro, Morocco, the Netherlands, Nigeria, Poland, Portugal, Romania, Russia, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Zimbabwe. (See 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, India, Indonesia (as of January 1, 2019), Iran, Ireland, Italy, Kazakhstan, Kuwait, Latvia, Lithuania, Libya, Luxembourg, Macedonia, Malta, Moldova, Montenegro, the Netherlands, Norway, Pakistan, Poland, Qatar, the Republic of Korea, Romania, Russia, San Marino (as of January 1, 2019) Slovakia, Slovenia, Spain, Sri Lanka, Switzerland, Sweden, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Vietnam. (See the Serbian Finance Ministry website at http://www.mfin.gov.rs/pages/issue.php?id=7063  .)

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

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

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

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

3. Legal Regime

Transparency of the Regulatory System

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

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

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

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

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

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

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

Several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors Council publishes an annual White Book (http://www.fic.org.rs/projects/white-book/white-book.html  ), NALED publishes a Grey Book (https://www.slideshare.net/NALED/grey-book-10-recommendations-for-eliminating-administrative-obstacles-to-doing-business-in-serbia  ), and AmCham publishes similar materials on its website (http://www.amcham.rs/home.1.html  ).

Serbia’s National Assembly website (http://www.parlament.gov.rs/narodna-skupstina-.871.html  ) provides a list of adopted laws and those that have been proposed. In addition, individual ministries generally provide access to the relevant legislative framework under which the ministry operates on the ministry’s website.

The Business Entities Register (http://www.apr.gov.rs/eng/Registers/Companies/CompaniesRegister.aspx  ) is a centralized electronic database of business entities in Serbia and contains registration data.

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Key tax legislation includes the Law on Value Added Tax, Law on Income Tax, Law on Corporate Profit Tax, Law on Real Estate Tax, and the Law on Mandatory Social Contributions. Laws and regulations related to taxes can be found on the Finance Ministry’s website at http://www.mfin.gov.rs/pages/issue.php?id=1578  .

Laws and regulations related to business operations can be found on the Economy Ministry’s website at http://www.privreda.gov.rs/cat_propisi/zakoni/  .

Laws and regulations on portfolio investments are on the Securities Commission’s website at http://www.sec.gov.rs/  .

Laws and regulations related to payment operations can be found on the National Bank of Serbia’s website at http://www.nbs.rs/internet/english/20/index.html  

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

Competition and Anti-Trust Laws

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

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

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

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

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

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

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

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

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

Bankruptcy Regulations

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

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

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

The Credit Bureau of Serbia is part of the Association of Banks of Serbia (http://www.ubs-asb.com/Default.aspx?tabid=541  ). Its primary aim is to check the credit capacity of potential banking clients. The Credit Bureau records all financial obligations of citizens and companies toward banks and other service providers, and tracks if clients meet their obligations. Credit Bureau data are considered accurate, as most participants provide information on client indebtedness on a daily basis. Credit Bureau data include debts related to loans, credit cards, leasing, mobile telephony service providers, current accounts, and issued guarantees.

4. Industrial Policies

Investment Incentives

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

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

The Decree makes available funds for investment projects in manufacturing and customer service centers. For manufacturing investments, state subsidies are available for any company that invests the equivalent of EUR 100,000 and employs at least 10 persons in a “devastated area.” For service center investments, subsidies are available for companies investing the equivalent of EUR 150,000 and creating at least 15 new jobs anywhere in the country. The required minimum investment and employment levels for subsidies increase on a sliding scale according to the level of development of the investment location. For each investment project in a devastated area, the state will pay the investor 40 percent of the eligible gross salary costs for newly employed people in the two-year period after reaching employment commitments, up to the equivalent of EUR 7,000 per new job; the subsidy declines to 20 percent of eligible costs up to EUR 3,000 per job in the most developed regions. For labor-intensive projects that create more than 200 new jobs, the government can approve additional incentives. The state will also provide subsidies for the purchase of fixed assets, again on a sliding scale based on the level of development at the investment location. The subsidy reaches 30 percent of eligible asset costs in a devastated area, and declines to 10 percent in the most developed areas of Serbia. The total amount of subsidies granted cannot exceed the amount allowed under Serbia’s EU-compliant state aid regulations. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance. There is a separate Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments in Production of Food Products also approved in January 2019 with almost identical conditions to those mentioned above. The only difference is that state subsidies are available for any company that invests the equivalent of the minimum EUR 2 million and employs at least 30 new employees regardless of the level of the municipality development. For projects investing over EUR 20 million in the fixed assets the government will approve additional incentives. For more details visit: https://ras.gov.rs/uploads/2019/02/uredba-2019.pdf  and https://privreda.gov.rs/cat_propisi/uredbe2/   (Serbian only).

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

At the provincial level, the government of the Vojvodina region offers investment incentives, which are very similar to those described above. The main difference is that the program is implemented by the Development Agency of Vojvodina, which was established in February 2017 as the successor to the Vojvodina Investment Promotion Agency (VIP) (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 percent, one of the lowest in the region. Non-resident investors are taxed only on income earned in Serbia. A ten-year tax holiday on corporate profits is available for investors who hire more than 100 workers and invest more than RSD 1 billion (USD 10.5 million). The tax holiday begins once the company starts making a profit.

In February 2018, the government approved a new decree on film incentives that allows both domestic and foreign filmmakers to receive a refund of 25 percent of qualified costs, an increase from an earlier 20 percent incentive. The budget for film incentives in 2019 amounts to USD 8.6 million.

Employment incentives allow payroll tax deductions for persons registered with the National Employment Service for more than six months. The incentives currently in place are valid from the moment of employment until December 31, 2019:

  • 1-9 new jobs: 65 percent deduction
  • 10-99 new jobs: 70 percent deduction
  • 100+ new jobs: 75 percent deduction

The Serbian Innovation Fund provides various granting opportunities for young entrepreneurs and start-ups, including mini grants for development of technological innovation, matching grants for commercialization of research and development, and a collaborative grant scheme for joint R&D projects creating new products and services. These grants are mainly available for companies established in Serbia with majority private Serbian ownership. For more details visit: http://www.innovationfund.rs/  

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.

Foreign Trade Zones/Free Ports/Trade Facilitation

Serbia maintains 14 designated customs free zones, in Apatin, Belgrade, Kragujevac, Krusevac, Novi Sad, Pirot, Priboj, Sabac, Smederevo, Svilajnac, Subotica, Uzice, Vranje, and Zrenjanin. The free zones, established in accordance with the 2006 Law on Free Zones, are intended to attract investment by providing tax-free areas for company operations. Businesses operating in the zones qualify for benefits including unlimited duty-free imports and exports, preferential customs treatment, and tax relief in the form of value-added tax (VAT) exclusions. If goods produced within zone use a minimum of 50 percent of domestic components, they are considered to be of Serbian origin and are therefore eligible to be imported into Serbian territory or exported without customs pursuant to free trade agreements. Companies operating within a free zone are subject to the same laws and regulations as other businesses in Serbia, except for their tax privileges.

Goods entering or leaving the free zones must be reported to customs authorities, and payments must be made in accordance with regulations on hard-currency payments. Goods delivered from free zones into other areas of Serbia are subject to customs duties and tax. Earnings and revenues generated within free zones may be transferred freely to any country, including Serbia, without prior approval, and are not subject to any taxes, duties or fees.

In 2017, there were a total of 221 companies operating in Serbia’s free economic zones, of which 166 were domestically-owned and 55 foreign-owned. The number of companies dropped by 16 percent compared to 2016. The companies employed a total of 28,366 workers, which represents an increase of 13 percent compared to 2016. Total exports from free zones exceeded USD 2.5 billion in 2017, which is approximately 15 percent of Serbia’s total exports. Total imports into the zones were approximately USD 2.4 billion, or 11 percent of total imports. Total annual turnover in the free zones stands at some USD 5.5 billion. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Tigar Tyres, Ametek, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic. Additional information about Serbia’s free zones is available at: www.usz.gov.rs/eng/index.php  

Performance and Data Localization Requirements

The Serbian government does not mandate local employment or have onerous visa, residence, or work permitting requirements for foreign nationals. It does not impose conditions for foreign investors to receive permission to invest.

The Serbian government does not maintain a policy of forced localization designed to oblige foreign investors to use domestic content in goods or technology. Similarly, the government does not force foreign investors to establish or maintain a specified amount of data storage within the country. There are no requirements for foreign IT providers to turn over source code or provide access to encryption.

With the Data Protection Law passed in November 2018, Serbia has implemented the requirements of the EU’s General Data Protection Regulation (GDPR). The law set a transition period of nine months, with full enforcement scheduled for August 2019. Some experts have criticized the law as unclear, citing provisions transcribed from EU law that included mechanisms that do not yet exist in Serbia’s domestic legal system. This may lead to questions regarding the law’s implementation in Serbia. Other experts have argued that with the law, Serbia has enacted a high personal data protection standard, and that defects will be resolved over time.

The Decree on Conditions for Approving Incentives in Attracting Direct Investments defines conditions and limitations for investment incentives, such as maintaining investments at a specified location for up to five years. Similarly, investors are obliged to maintain the number of newly engaged employees for up to five years. Potential investors who want to use state grants are required to provide a minimum of 25 percent of eligible costs from their own resources. The deadline for implementation of investment projects and the creation of new work places is three years from the date of applying for state grants. This deadline may be extended for up to five years based on a written justification. Beneficiaries are obliged to provide a bank guarantee as security for the eventual return of received funds. In case of non-fulfilment of the conditions provided for in the state grant contract, the Ministry of Economy and the Council for Economic Development may decide to terminate the contract at any time; however, authorities have generally shown great flexibility in favor of investors to succeed. Conditions are applied uniformly to both domestic and foreign investors.

5. Protection of Property Rights

Real Property

Serbia has an adequate body of laws for the protection of property rights, but enforcement of property rights through the judicial system can be very slow. A multitude of factors can complicate property titles: restitution claims, unlicensed and illegal construction, limitation of property rights to rights of use, outright title fraud and other issues. Investors are cautioned to investigate thoroughly all property title issues on land intended for investment projects.

During the country’s socialist years, owners of nationalized land became users of the land and acquired rights of use that, until 2003, could not be freely sold or transferred. In July 2015, the government adopted a law that allows for property usage rights to be converted into ownership rights with payment of a market-based fee.

In March 2015, the government implemented new amendments to the Law on Planning and Construction that separated the issuance of permits from conversion issues. These amendments cut the administrative deadline for issuing construction permits for a potential investor to 30 days and introduced a one-stop shop for electronic construction permits.

Serbia’s real property registration system is based on a municipal cadaster and land books. Serbia has the basis for an organized real estate cadaster and property title system. However, legalizing tens of thousands of structures built over the past twenty years without proper licenses remains an enormous challenge, as two million buildings in Serbia are not registered in the cadaster, of which almost half are residential properties. According to some estimates, every third building in Serbia was not built in accordance with legal requirements. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 183,000 decisions on legalization have been issued. The deadline set by the law for legalization of all buildings constructed without proper permits is November 2023.

The World Bank’s 2019 Doing Business Report ranks Serbia 55 of 190 countries for time required to register real property (21 days).

Intellectual Property Rights

Serbia is a World Intellectual Property Organization (WIPO) member and a signatory to all key agreements administered by WIPO. The government has taken steps to implement and enforce the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Serbia’s intellectual property rights (IPR) laws include TRIPS-compliant provisions and are enforced by courts and administrative authorities.

For the most part, Serbia’s IPR legislation is modern and compliant with both the EU acquis communautaire and international standards. According to the EU’s 2017 Progress Report, Serbia has done a good job aligning its IP legislation with the acquis. Further alignment with the acquis is needed for the Law on Copyright and Related Rights, the Law on Topographies of Semiconductor Products, and the Laws on Patents and Trademarks; strengthening enforcement capacity and coordination among stakeholders is also needed. Serbia opened Chapter 7 pertaining to Intellectual Property in June 2017. Serbian laws extend legal protections to all major forms of IPR (including patents, trademarks, copyrights, industrial designs, geographic indicators, and semiconductor products). Serbia aims to adopt amendments to the Law on Trademarks (particularly to introduce a procedure for third-party objection), the Law on Patents, the Law on Semiconductor Circuits, and the Law on Copyright and Related Rights. An initial deadline for aligning IP legislation with the acquis by September 2018 has now been extended into 2019 due to changes in the relevant EU legislation, thus allowing Serbian legislators to incorporate new requirements. Amendments to the Law on Patents were adopted in 2018, which introduced changes to provisions on the protection of plant varieties and to the general patent prosecution proceedings before the IP Office and courts. In the first quarter of 2019, the Government adopted proposed amendments to the Law on Copyright and Related Rights and sent it to Parliament for adoption. Amendments to the Law on Special Competence for Efficient Protection of Intellectual Property Rights are also expected, with the goal of restructuring enforcement responsibilities among inspectorates.

The level of IPR protection in Serbia is improving. Enforcement remains haphazard but is roughly consistent with levels in neighboring countries. The government has a Permanent Coordination Body for IPR enforcement activities with participation from the tax administration, police, customs, and a number of state inspection services. The Public Procurement Law requires bidders to affirm that they have ownership rights to any IPR utilized in fulfilling a public procurement contract. Although still available, trade in counterfeit trademarked goods—particularly athletic footwear and clothing—are declining in volume as the government has stepped up its actions to combat illegal street sales and seize pirated goods at the border. Upon seizure, however, authorities cannot destroy the goods unless they receive formal instructions from the rights holders, who are billed for the storage and destruction of the counterfeit goods. The Customs Administration and Trade Inspection issues periodic reports on seizures, but these are segregated according to the type of good (e.g. cigarettes or apparel) rather than type of infringement (e.g. IPR or tax payments). Data on seizures is not publicly available. It is, however, possible to monitor the Customs Administration’s daily border seizures via their official Facebook page: https://www.facebook.com/upravacarina.rs/  

The tax administration checks software legality during its regular tax controls of businesses, but it intends to halt software inspection operations on the grounds that it is a non-core activity. In this case, responsibility would be transferred to the general market inspectorate. The estimated value of Serbia’s illegal software market is approximately USD 116 million. According to the most recent International Data Corporation (IDC) study, dated 2015, software piracy in Serbia is around 67 percent. Although this is down from 72 percent in 2011, it remains among the highest piracy rates in the Balkan region. However, the number of legal entities using illegal software continues to drop and was estimated at 55 percent in 2016.

Procedures for registration of industrial property rights and deposit of works of authorship with the Serbian Intellectual Property Office are straightforward and similar to procedures in most European countries. Relevant information is available at http://www.zis.gov.rs/home.59.html  .

Regarding copyright and related rights, Serbia has room to improve, particularly with regard to the digitalization of orphan works and broadcasting of audiovisual works, including cross-border, satellite, and cable broadcasting. Potential improvements include:

  • Amend the Criminal Procedure Code and related procedural laws, particularly in the area of cyber-crime
  • Adopt implementing regulations for various IPR laws that specify enforcement procedures and steps, currently subject to different interpretation by relevant authorities
  • Reverse Copyright Law amendments from December 2012, when the National Assembly exempted small businesses from paying royalties for copyrighted music, capped fees payable to collective rights managers, and allowed businesses to pay one collective bill for all music rights
  • Amend the Copyright Law regarding collective rights for video works
  • Align the Laws on Copyright, Topographies of Semiconductor Products, Patents and Trademarks with the EU acquis, including with the IPR Enforcement Directive
  • Amend the Law on Trademarks to enable third parties to oppose trademark registration if the submitted trademark resembles that party’s registered trademark

Enforcement actions by state authorities, such as inspectorates or customs authorities, can be relatively fast. However, enforcement of IPR in the court system often lasts up to two years. With the creation of semi-specialized IPR courts, which began operating in 2015, these proceedings have improved, according to the Foreign Investors’ Council. The Serbian Intellectual Property Office continues to organize IPR-focused training for judges, with the expectation that more specialized understanding of IPR will enable more timely court decisions.

Serbia is not listed in the Office of the United States Trade Representative (USTR) Special 301 Report or the USTR Out-of-Cycle Review of Notorious Markets. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at 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 restrictions on short-term portfolio investments April 2018. Residents of Serbia are now allowed to purchase foreign short-term securities, and foreigners are allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2018, Serbia recorded net outflows of USD one billion in portfolio investment, according to the National Bank of Serbia (NBS). The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached USD 9.9 billion in January 2019, with 67.3 percent in Serbian dinars, 32.1 percent in euros, and 0.6 percent in U.S. dollars.

Total Serbian government-issued debt instruments on the domestic and international markets stood at USD 13.3 billion in January 2019 (see http://www.javnidug.gov.rs/upload/Bilteni/2019 percent20Mesecni/Mesecni percent20izvestaj percent20Uprave percent20za percent20javni percent20dug percent20- percent20CIR percent20Januar percent202019.pdf ).

Serbia’s international credit ratings are improving. In March 2017, Moody’s upgraded the Government of Serbia’s long-term issuer ratings to Ba3, from B1. In December 2017, Standard & Poor’s raised its ratings for Serbia from BB- to BB with a positive outlook. Also in December 2017, Fitch raised Serbia’s credit rating from BB- to BB. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE). Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2018 was USD 584 million, which is almost unchanged compared to the volume of 2017. However, trading volumes have declined since 2007, when the total turnover reached USD 2.7 billion.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of March 2019, 21 registered investment funds operate in Serbia (see http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds  ).

Market terms determine credit allocation. In September 2018, the total volume of issued loans in the financial sector stood at USD 21 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 65 percent of all lending is denominated in euros, an additional 3 percent in Swiss francs, and 0.7 percent in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers. Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

Money and Banking System

Serbian companies often do not access credit, and look to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued so far, and the financial market is not well developed.

The NBS regulates the banking sector. Foreign banks are allowed to establish operations in Serbia, and foreigners can freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91 percent of the total assets of the financial sector. As of September 2018, consolidation had reduced the sector to 28 banks with total assets of USD 35 billion (about 80 percent of GDP), with 76 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets are Banca Intesa (Italy, USD 5.6 billion); UniCredit (Italy, USD 4.0 billion); Komercijalna Banka (Serbian government, USD 3.8 billion); Société Générale (France, USD 2.9 billion); Raiffeisen (Austria, USD 2.7 billion); AIK Banka Nis (Serbia, USD 1.9 billion); Erste Bank (Austria, USD 1.9 billion); Eurobank EFG (Greece, USD 1.6 billion); Postanska Stedionica (Serbian government, USD 1.6 billion); and Vojvodjanska Banka (Hungary, USD 1.2 billion). See http://www.nbs.rs/internet/latinica/55/55_4/kvartalni_izvestaj_III_18.pdf .

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly USD 1 billion. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2018, savings deposits in the banking sector reached USD 11.6 billion, exceeding pre-crisis levels.

In December 2017, the IMF assessed that Serbia’s banking sector remains robust, with large liquidity and capital buffers. Profitability of the sector is on the rise. Deposit growth has continued, and results of lending surveys point to more relaxed lending standards for SMEs amid greater competition, cheaper sources of funding, and higher risk tolerance. The IMF said it supports NBS efforts to enhance prudential policies in the context of implementing the Basel III framework on capital adequacy. In a recent review, the IMF pointed to the continued resilience of the banking sector, with an average capital adequacy ratio exceeding 22.8 percent in September 2018 and a gradual improvement in asset quality.

The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. NPLs have declined to 5.7 percent as of December 2018, their lowest level since January 2009. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 22.2 to 5.7 percent of the total loan portfolio. NPLs remain fully provisioned. In addition, there are significant foreign exchanges risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro). As of April 2019, the government was considering action to protect consumers who had taken mortgage loans denominated in Swiss francs. These measures would reportedly include mandatory conversion to euros, with banks and the state sharing losses from a reduction of outstanding principal and interest balances. However, no measures had yet been finalized.

The NBS, as chief regulator of the financial system, has announced that cryptocurrencies are not regulated by law in Serbia. NBS is not currently preparing such regulations, as the volume of cryptocurrency use is still very low. NBS said it therefore does not have the authority to issue licenses for trading in cryptocurrencies or for setting up cryptocurrency ATMs. Nor are cryptocurrency traders or internet platforms subject to NBS oversight. NBS stressed that those engaging in cryptocurrency transactions or activities are the sole carriers of risk.

Despite the lack of regulation, trading in cryptocurrencies in Serbia does occur. The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, and Ethereum ETH) at https://ecd.rs/  . The company claims to have over 1,000 registered users of the platform. ECD Group has also installed three ATMs for cryptocurrencies in Serbia, two of which are only for buying bitcoins and litecoins, while one supports two-way transactions – i.e. both buying and selling. Trading in crypto-currencies dropped by 90 percent in 2018 in Serbia compared to 2017, EDC Serbia said. Previously, some users would buy up to four to five bitcoins per day, but in 2018 Serbians were mostly selling bitcoin. Bitcoin “mining” also dropped in Serbia, and many are selling their equipment used for this purpose, according to EDC’s CEO, who is also the founder of the BitCoin Association of Serbia. (http://www.bitcoinasocijacija.org  )

Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.

Foreign Exchange and Remittances

Foreign Exchange

Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign currency and dinar denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign exchange market to that end. In 2018, the NBS sold the equivalent of USD 280 million on the interbank currency market, and bought USD two billion, to prevent sharp fluctuations of the dinar. In the one-year period ending March 2019, the dinar appreciated 3.2 percent against the euro and depreciated 8.6 percent against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2018, total remittances from abroad reached USD 3.1 billion, or approximately 7.2 percent of GDP.

The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that there are no limitations on investment remittances in Serbia.

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.

7. State-Owned Enterprises

The Law on Public Enterprises, adopted in February 2016, defines a public enterprise as “an enterprise pursuing an activity of common interest, founded by the State or Autonomous Province or a local government unit.” The law also defines “strategically important companies” as those in which the state has at least a 25 percent ownership share.

The law aimed to introduce responsible corporate management in public companies and strengthen supervision over public companies’ management. The law requires that directors of public companies be selected through a public application procedure and that they not hold any political party positions while serving. The law also requires that a portion of public companies’ profits be paid directly to the state, provincial, or local government budget. However, Transparency International Serbia analyzed implementation of the law in September 2017 and concluded that almost none of these requirements have been implemented, including the professionalization and transparency of management. The full report can be seen at: http://transparentnost.org.rs/images/publikacije/Political_influence_on_public_enterprises_and_media.pdf 

State-owned enterprises (SOEs) dominate many sectors of the economy, including energy, transportation, utilities, telecommunications, infrastructure, mining, and natural resource extraction. According to the Ministry of Economy, Serbia has 727 SOEs, which employ more than 250,000 people, or approximately 15 percent of the formal workforce. A list of all public enterprises is available at the Ministry of Economy’s website (http://www.privreda.gov.rs/wp-content/uploads/2015/05/Spisak-Javnih-Preduzeca-25.05.2016..pdf  ). In addition to these companies, at the end of 2018 some 90 companies with nearly 30,000 employees had not been resolved through privatization or bankruptcy, down from 150 companies with 52,000 employees at the end of 2017. The Ministry of Economy is preparing these companies for divestiture (see Privatization Program, below).

A quasi-governmental watchdog agency, the Fiscal Council, assessed in September 2017 that unreformed and un-privatized state-owned companies represent the most significant threat to Serbia’s state budget. In December 2016, the Serbian government committed to the IMF to significantly reduce the fiscal cost of SOEs by curtailing direct and indirect subsidies, strictly limiting the issuance of new guarantees, and enhancing the accountability, transparency, and monitoring of SOEs. According to the World Bank, the Serbian government currently spends approximately EUR 300 million (USD 340 million), or nearly one percent of GDP, on direct support for SOEs. The Fiscal Council said in January 2019 that even when they do not require immediate budget support, as a rule, SOEs operate inefficiently and do not invest enough to keep their businesses healthy. For example, by far the largest SOE in Serbia, the power company EPS, has invested less per year than the value of the depreciation of its assets, the Fiscal Council warned.

In June 2017, the Fiscal Council published a separate study on state-owned local utility and service companies, and assessed that they received subsidies up to EUR 200 million (0.7 percent of GDP) annually but still generated losses of EUR 50 million. In addition, they have accumulated payment arrears totaling some EUR 150 million. At the same time, the quality of the services they provide is very low. For example, 98 percent of waste ends up at landfills without any processing, compared to 25 percent in the EU. Only 15 percent of waste water is treated, compared to 85 percent in neighboring countries. The Council assessed that these local companies fail to collect 10 percent of their receivables, and the bulk of unpaid obligations are from SOEs.

In principle, SOEs are treated the same as private sector competitors. SOEs can purchase goods from the private sector and foreign firms under the Public Procurement Law. For example, foreign companies regularly win public tenders for the construction of roads and other infrastructure projects. Under the Public Procurement Law, a buyer must select a domestic supplier if the domestic supplier’s price is no more than five percent higher than a foreign supplier’s price. The Public Procurement Office (PPO) is an independent state body that supervises implementation of the Law on Public Procurement. Private enterprises have the same access to financing, land, and raw materials as SOEs, as well as the same tax burden and rebate policies. However, the IMF estimated that in 2014, SOEs enjoyed benefits amounting to approximately two percent of GDP.

Serbia—not yet a member of the WTO—is not a party to the WTO’s Government Procurement Agreement (GPA).

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

Privatization Program

In 2001-2015, the Serbian government privatized 3,047 SOEs. The government cancelled 646 of these privatizations, alleging that investors did not meet contractual obligations related to employment and investment. According to the Privatization Law, the deadline for the privatization of the 646 companies in the Privatization Agency’s portfolio was December 31, 2015. However, 90 companies were still unresolved at the end as of December 2018. Among others, these companies include 11 spas, which all have unresolved property issues; 19 companies in Kosovo; 15 veterinary stations which were transferred to local municipalities; and 19 companies that employ disabled persons.

Most significantly, the Ministry of Economy must still resolve several large, strategically important SOEs. These include the Resavica coal mine, MSK Kikinda, Petrohemija, and others; however, there was progress in privatization in 2018. Copper mining complex RTB Bor was sold to China’s Zijin Mining, and agricultural corporation PKB to Al Dahra of the United Arab Emirates. In addition, fertilizer producer Azotara was sent to bankruptcy. In many cases, closing these companies would mean leaving whole regions of Serbia destitute, since these companies are drivers of local economies. The Serbian government continues to engage foreign investors in the privatization process, inviting them to submit bids, participate in auctions, and purchase company shares. Invitations for privatization and bidding are published on the Ministry of Economy website at http://www.priv.rs/Naslovna  .

In December 2018, the French Vinci Airports took over operations of Belgrade’s Nikola Tesla Airport under a 25-year concession agreement. According to official statements, Vinci had offered EUR 501 million to manage the airport and EUR 732 million in investment, as well as an annual fee of up to EUR 16 million. The state telecommunications company Telekom Srbija has garnered investor interest, but the Serbian government has twice canceled its privatization, most recently in December 2015. The government has also committed to privatizing the second largest bank in the country, Komercijalna Banka, although this process has moved slowly.

8. Responsible Business Conduct

Responsible Business Conduct (RBC) and Corporate Social Responsibility are relatively new concepts in Serbia, and many Serbian companies view it mainly as a public relations tool. Multinational companies are more effective practitioners and often bring best practices, with U.S. companies among the most active. For example, Molson Coors in Serbia supported Serbia’s Special Olympics team in Rio de Janeiro in September 2016. Companies such as Eaton and Ball Packaging Serbia have contributed to their communities through can recycling, public service campaigns, educational and environmental initiatives, and donations in kind. Since 2003, Phillip Morris Serbia alone has donated over USD 17 million to community initiatives in Serbia.

The Serbian government has no formal mechanism in place to encourage companies to follow RBC principles; however, a new Council for Philanthropy held its first session in September 2018. Founded with grant support from USAID, the Council aims to use public policy to create a more encouraging environment for giving in Serbia. Chaired by the Prime Minister, other members of the Council include ten government ministers, the Belgrade Mayor, the Director of the Tax Administration, and several NGOs. Donors have pointed to issues that have a negative impact on philanthropy, including a lack of tax incentives for donors, no available exemptions from value-added tax for donations in kind, the lack of a system for monitoring donations from companies, and the absence of official data on charities. According to the 2018 World Giving Index, published by the Charities Aid Foundation, Serbia was ranked 129 out of a total of 144 countries listed. https://www.cafonline.org/docs/default-source/about-us-publications/caf_wgi2018_report_webnopw_2379a_261018.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 50 participants in Serbia, and has organized a number of educational events intended to strengthen RBC capacity in Serbia.

Several local organizations, such as the American Chamber of Commerce, Foreign Investors’ Council, and the Serbian Chamber of Commerce (PKS) promote the concept of RBC among the Serbian business community and the public. PKS presents a national award to Socially Responsible Businesses. The Trag Foundation supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia. The NGO Smart Kolektiv is providing consulting services in RBC and establishing an RBC Index, which is the first national platform for assessing responsible business conduct in Serbia. Responsible Business Conduct Forum and Smart Kolektiv launched the index with USAID support in 2016. The Responsible Business Forum Serbia is a network of socially responsible companies that contribute to the development of the community, stimulating the development of corporate social responsibility and the establishment of firm and lasting socially responsible practices in the business sector. It was established in 2008 at the initiative of 14 leading companies in Serbia. More info available at: https://odgovornoposlovanje.rs/en/about-us  .

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 contact point for OECD guidelines, including OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.

9. Corruption

Resources to Report Corruption

Surveys show that corruption in Serbia is believed to be pervasive, but is difficult to quantify. In Transparency International’s 2018 Corruption Perception Index (CPI), Serbia ranked 87 of 180 compared countries, worse than its ranking of 77 in 2017. In its 2018 progress report on Serbia, the EU said corruption remained a serious problem, and anti-corruption efforts had yet to yield meaningful results.

Some U.S. firms have identified corruption as an obstacle to foreign direct investment in Serbia. Corruption appears most pervasive in cases involving public procurement, natural resource extraction, government-owned property, and political influence/pressure on the judiciary and prosecutors.

Serbia is a signatory to the Council of Europe’s Civil Law Convention on Corruption and has ratified the Council’s Criminal Law Convention on Corruption, the United Nations Convention against Transnational Organized Crime, and the United Nations Convention against Corruption. Serbia also is a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members’ anti-corruption efforts on a continuing basis.

The Serbian government has worked to bring its legal framework for combating corruption more in line with EU norms, and a dedicated state body—the Anti-Corruption Agency (ACA) —oversees efforts in this area. The Criminal Code specifies a large number of potential offenses that can be used to prosecute corruption and economic offenses, including but not limited to giving or accepting a bribe, abuse of office, abuse of a monopoly, misfeasance in public procurement, abuse of economic authority, fraud in service, and embezzlement.

In November 2016, Serbia’s National Assembly further strengthened anti-corruption laws through three pieces of legislation. The Law on Organization and Competence of State Organs in Suppressing Corruption, Organized Crime for the first time established specialized anti-corruption prosecution units and judicial departments, mandated the use of task forces, and introduced liaison officers and financial forensic experts. The Law on Asset Forfeiture was amended to expand coverage to new criminal offences, and amendments to the Criminal Code made corruption offenses easier to prosecute. Following these legal changes, specialized anti-corruption departments started operations in March 2018 in Novi Sad, Belgrade, Kraljevo, and Niš to prosecute offenders who have committed crimes of corruption valued at less than RSD 200 million (USD 2.1 million). Cases valued above this level are handled by the Organized Crime Prosecutor’s Office (OPCO).

During the first 10 months of implementation of the new Law on Organization of State Bodies in Combating Organized Crime, Terrorism and Corruption (March 1 through Dec 31, 2018), three out of four of Serbia’s new specialized Anti-Corruption Prosecutorial Departments reported filing 444 indictments and obtaining 315 final criminal convictions for corruption and economic offenses, resulting in prison sentences for more than 60 individuals (the specialized anti-corruption department in Belgrade was unable to update statistics as of the date of this report). While Serbia has begun to establish a track record in low-level corruption convictions, the EU noted in its 2018 progress report that there are still very few convictions for high-level corruption, and those that exist are mostly against former Government officials. There have also been allegations that, in some cases, criminal law was being applied in a discriminatory manner. In one prominent example, a report by Serbia’s Administration for the Prevention of Money Laundering indicated a large number of bank accounts and a number of potentially suspicious transactions by a high-level official, but the Higher Prosecutor’s Office decided not to launch an investigation. In another, the ACA filed a criminal report with OPCO regarding an earlier purchase of real estate with unexplained funds by Serbia’s current Minister of Defense; OCPO dismissed the case, saying no evidence of a crime had been found.

In 2015-2018, there were a series of large-scale arrests of former and current officials on allegations of corruption and abuse of position. In total, these actions resulted in the arrest of over 200 people. To date the arrests have resulted in a number of criminal cases, but none has concluded in either a conviction or an acquittal.

The law requires income and asset disclosure by appointed or elected officials, and regulates conflict of interest for all public officials. The disclosures cover assets of the officials, spouses, and dependent children. Declarations are publicly available on the ACA website and failures to file or to fully disclose income and assets are subject to administrative and/or criminal sanctions. Significant changes to assets or income must be reported annually, upon departure from office, and for a period of two years after separation. In a report covering 2018, the ACA said that 10 criminal charges were dismissed against public office holders in the period. The report noted that there were three first-instance convictions in a basic court, all resulting in six-month terms of imprisonment. Of these, two were with suspended sentences of six months imprisonment plus two years of supervision.

Serbian authorities do not require private companies to establish internal codes of conduct related to corruption or other matters, but some professional associations – e.g. for attorneys, engineers and doctors – enforce codes of conduct for their members. Private companies often have internal controls, ethics, or compliance programs designed to detect and prevent bribery of government officials. Large companies often have elaborate internal programs, especially in industries such as tobacco, pharmaceuticals, medical devices, and industries regularly involved in public procurement.

Serbian law does not provide protection for non-governmental organizations involved in investigating corruption. However, the criminal procedure code provides witness protection measures, and Serbia enacted a Whistleblower Protection Law in June 2015, under which individuals can report corruption in companies and government agencies and receive court protection from retaliation by their employers. In 2017, the Higher Court in Novi Sad ruled in favor of a whistleblower who reported malfeasance in the local government. The court ruled that the whistleblower should be compensated financially for damages, and that defendant (city government) had to enable the whistleblower to perform her work duties. In addition, the defendant was obliged to publish the court judgment in daily newspapers. In 2018, 122 cases were filed under the Law.

U.S. firms interested in doing business or investing in Serbia are advised to perform due diligence before concluding business deals. Legal audits generally are consistent with international standards, using information gathered from public books, the register of fixed assets, the court register, the statistical register, as well as from the firm itself, chambers, and other sources. The U.S. Commercial Service in Belgrade can provide U.S. companies with background information on companies and individuals via the International Company Profile (ICP) service. An ICP provides information about a local company or entity, its financial standing, and reputation in the business community, and includes a site visit to the local company and a confidential interview with the company management. For more information, contact the local office at 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.

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

Serbian Anti-Corruption Agency

  • Carice Milice 1, 11000 Belgrade, Serbia
  • +381 (0) 11 4149 100
  • office@acas.rs

Transparency International Serbia

10. Political and Security Environment

Since October 2000, Serbia has had democratically-elected governments that have committed publicly to supporting regional stability and security. Governments, however, frequently call early elections on the local and national level, which often leave politicians and elected officials focused on the next campaign. Elections in Serbia are generally free, without incidents of violence. The government has made EU membership a primary goal, but progress toward that goal is slow, with only 16 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn-out and subject to a lengthy appeal process.

Protests are not uncommon, particularly in urban areas. Beginning in December 2018, weekly anti-government demonstrations have been held across the country, attracting large crowds in major cities. The protests have been broadly peaceful. There were large protests following the presidential election in April 2017, and in 2016 after the illegal demolition of residential buildings in Belgrade. Immediately following Kosovo’s February 2008 declaration of independence from Serbia, groups attacked embassies of countries that recognized Kosovo, including the torching of the U.S. Embassy in Belgrade.

Organized groups of counter protesters assaulted participants at the 2010 LGBTI Pride Parade in Belgrade. The Serbian government cancelled the three subsequent Pride Parades at the last minute, ostensibly because of threats of violence by the same nationalist and extremist groups that attempted to disrupt the 2010 parade. Since 2014, the government has allowed Pride Parades to take place in central Belgrade, under heavy police protection, but without incident. The 2018 Pride Parade was believed to be the first time participants outnumbered security forces since 2010. Nevertheless, Serbia is not permissive to LGBTI persons, most of whom experience low personal security and are not comfortable disclosing their sexual orientation, according to polling conducted by independent organizations.

Since 2017, there has been an increase in criminal activity linked to organized crime groups. Sports hooliganism in Serbia is often associated to organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia.

A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, and media outlets considered to be pro-Western, but these incidents are infrequent. Additionally, their calls for action against selected targets have not resulted in any violent incidents thus far. In the 2016 parliamentary elections, three far-right political parties were elected to the National Assembly: the Serbian Radical Party, the Democratic Party of Serbia, and Dveri.

11. Labor Policies and Practices

According to the Statistical Office, Serbia has a total active labor force of approximately 3.2 million people, of which 2.8 million are employed (55.6 percent men and 44.4 percent women) and some 412,000 are unemployed. In 2018, the formal employment rate was 47.3 percent and the informal employment rate was 19.5 percent, with two-thirds of the total informally employed in the agriculture sector. Unemployment in 2018 was 12.7 percent, compared to 13.5 percent a year earlier. Youth unemployment remains relatively high at 29.7 percent, and the share of youth in the total population drops from year to year. The leading sector for employment is the government and public administration, followed by trade, services, transport, agriculture, forestry and fishery, manufacturing, and construction.

Demand for IT experts (web developers, programmers, designers) is significantly higher than supply. The National Employment Service (NES) administers various employment support schemes, including new employment, apprenticeship, and re-training programs. For more details see 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 January 2019, the average net take-home salary was approximately USD 528 per month. The minimum wage is approximately USD 262 per month. Investors routinely cite favorable labor costs, as well as a highly-educated, multi-lingual workforce, as advantages to doing business in Serbia. Almost 58 percent of the workforce has completed secondary education, while 25 percent have completed higher education.

Amendments to the Labor Law in 2014 simplified procedures for hiring and dismissing workers, and changed rules for collective bargaining and the extension of collective agreements to non-negotiating parties. The law also changed severance payment requirements, so that the employer pays severance based on the years of service with that specific employer, rather than on the employee’s total years of employment, as was the case previously. Employees may be hired for up to 24 months on a provisional basis before it is required to engage them on an indefinite basis.

The official mechanism for tripartite labor dialogue is the Social and Economic Council, an independent body with representatives of the government, the Serbian Association of Employers, and trade unions. The Council is authorized to conclude an umbrella collective agreement at the national level covering basic employment conditions for all companies in Serbia. Additional information about the Council is available at http://www.socijalnoekonomskisavet.rs/eng/pocetna_eng.html.

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 http://www.dol.gov/ilab/reports/child-labor/serbia.htm  . The Human Rights Report on Serbia is available at http://www.state.gov/documents/organization/236786.pdf 

12. OPIC and Other Investment Insurance Programs

The former Serbia and Montenegro signed a bilateral agreement with the U.S. Overseas Private Investment Corporation (OPIC) in 2001. Following Serbia and Montenegro’s dissolution, the agreement remained in effect for Serbia. In 2009, OPIC severely restricted its programs for Serbia over an investment dispute involving a U.S. company that held OPIC insurance policies on its Serbian investments. The Serbian government and the investor concluded a settlement agreement in 2012. OPIC filed an arbitration claim against the investor and was awarded damages. OPIC then sought to use the Serbian court system to enforce the arbitration decision and collect from the investor’s property in Serbia. However, both the first instance and appellate courts rejected OPIC’s request. OPIC has reinstated its full range of programs for Serbia.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD ) 2018 $47,100 2017 $41,500 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 $79.4 2017 $164 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Host country’s FDI in the United States (M USD , stock positions) 2018 $2.6 2017 $4 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total inbound stock of FDI as % host GDP 2018 0.2% 2017 0.4% N/A

*Source of GDP data: Ministry of Finance of the Republic of Serbia at http://www.mfin.gov.rs/pages/issue.php?id=3   

*Source of FDI data: National Bank of Serbia (NBS) at http://www.nbs.rs/internet/cirilica/80/platni_bilans.html   

NBS data on FDI significantly differ from U.S. data. The NBS calculates FDI according to the country from which the investment arrives, rather than by the ownership of the investing company. Frequently, U.S. investments in Serbia are carried out through subsidiaries of U.S. companies located in another European country. If a U.S. company invests in Serbia through a Dutch subsidiary, for example, the NBS records the investment as coming from the Netherlands rather than from the United States.


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions) 2017
Inward Direct Investment Outward Direct Investment
Total Inward $37,605 100% Total Outward $3,615 100%
Netherlands $7,346 20% Bosnia and Herzegovina $995 27%
Austria $4,356 12% Montenegro $793 22%
Cyprus $2,890 8% Slovenia $453 13%
Germany $2,366 6% Russian Federation $187 5%
Slovenia $2,019 5% Bulgaria $110 3%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Sarah Gjorgjievski
Economic Section
Bulevar kneza Aleksandra Karadjordjevica 92
11040 Belgrade, Serbia
+381-11-706-4282
SerbiaInvestment@state.gov