Albania is an upper middle-income country with a gross domestic product (GDP) per capita of USD 5,286 (2020 IMF estimate) and a population of approximately 2.9 million people. The IMF estimates that Albania’s economy contracted by 3.5% in 2020, due to the combined effect of the COVID-19 pandemic and the November 2019 earthquake. The contraction is smaller than initial forecasts due in large part to the positive net growth in construction, real estate, and agriculture sectors fueled by large government spending and private investments in real estate. Albania’s economy maintained its macroeconomic and fiscal stability during 2020, thanks to prudent macro and fiscal policies. Budgetary and COVID-19 related support provided by the international financial institutions and the EU helped the country meet urgent payment needs, and respond efficiently to two consecutive shocks, the earthquake and pandemic. During 2020, the IMF disbursed USD190 million under the Rapid Financing Instrument, the World Bank approved USD 80 million under its Fiscal Sustainability and Growth Development Policy Financing (DPF) program, and the EU approved around USD 205 million for Albania under its 3-Billion-Euro Macro-Financial Assistance (MFA) package for ten enlargement and neighborhood partners.
The IMF projects the economy will grow by 5 percent in 2021. The rebound is expected to be fueled mostly by increased consumption, better performance of tourism sector, and continued post-earthquake reconstruction program financed by the government and close to USD 330 million in grants raised from the post-earthquake International Donors Conference in February 2020.
However, uncertainties related to the pandemic, elevated fiscal deficits and public debt, and a relatively high level of non-performing loans (NPLs) present challenges for the projected recovery. In 2020, the fiscal deficit expanded from 1.9% to 6.7% year-on-year and public debt increased from 66.6% to almost 80% of GDP.
Albania received EU candidate status in June 2014, and in March 2020, the European Council endorsed the recommendation of the European Commission to open accession talks with Albania. Albania awaits its first Intergovernmental Conference, which would mark the start of accession negotiations.
The Albanian legal system ostensibly does not discriminate against foreign investors. The U.S.-Albanian Bilateral Investment Treaty, which entered into force in 1998, ensures that U.S. investors receive national treatment and most-favored-nation treatment. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies in all but a few sectors. Albania has been able to attract increasing levels of foreign direct investment (FDI) in the last decade.
According to the UNCTAD data, during 2016-2019, the flow of FDI has averaged USD 1.2 billion and stock FDI reached USD 8.8 billion at the end of 2019. Despite the pandemic, according to preliminary data of the Bank of Albania the FDI flow in 2020 was relatively stable at USD 1 billion. Investments are concentrated in extractive industries, the energy sector, banking and insurance, information and communication technology, and real estate. Switzerland, The Netherlands, Canada, Italy, Turkey, Austria, Bulgaria, and Greece are the largest sources of FDI.
To attract FDI and promote domestic investment, Albania approved a Law on Strategic Investments in 2015. The law outlines investment incentives and offers fast-track administrative procedures to strategic foreign and domestic investors through December 31, 2021 depending on the size of the investment and number of jobs created. In 2015, to promote FDI, the government also passed legislation creating Technical Economic Development Areas (TEDAs) similar to free trade zones. The development of the first TEDA has yet to begin but the Government of Albania (GoA) announced a new tender on March 2021 for the development of the first TEDA after previous unsuccessful attempts.
As of March 2021, 95 percent of all public services to citizens and businesses were available online through the E-Albania Portal . The platform offered more than 1,200 types of services to citizens and businesses. Increased digitalization of services is expected to curb corruption by limiting direct contacts with public administration officials.
Despite a sound legal framework and progress on e-reform, foreign investors perceive Albania as a difficult place to do business. They cite corruption, particularly in the judiciary, a lack of transparency in public procurement, unfair competition, informal economy, frequent changes of the fiscal legislation, and poor enforcement of contracts as continuing problems in Albania. Reports of corruption in government procurement are commonplace. The increasing use of public private partnership (PPP) contracts has reduced opportunities for competition, including by foreign investors, in infrastructure and other sectors. Poor cost-benefit analyses and a lack of technical expertise in drafting and monitoring PPP contracts are ongoing concerns. U.S. investors are challenged by corruption and the perpetuation of informal business practices. Several U.S. investors have faced contentious commercial disputes with both public and private entities, including some that went to international arbitration. In 2019 and 2020, a U.S. company’s attempted investment was allegedly thwarted by several judicial decisions and questionable actions of stakeholders involved in a dispute over the investment. The case is now in international arbitration.
Property rights continue to be a challenge in Albania because clear title is difficult to obtain. There have been instances of individuals allegedly manipulating the court system to obtain illegal land titles. Overlapping property titles is a serious and common issue. The compensation process for land confiscated by the former communist regime continues to be cumbersome, inefficient, and inadequate. Nevertheless, parliament passed a law on registering property claims on April 16, 2020 which will provide some relief for title holders.
Transparency International’s 2020 Corruption Perceptions Index ranked Albania 104th out of 180 countries, an improvement by two places from 2019. Albania fell 19 spots in the World Bank’s 2020 Doing Business survey, ranking 82nd falling from 63rd in 2019. Although this change can be partially attributed to the implementation of a new methodology, the country continues to score poorly in the areas of granting construction permits, paying taxes, enforcing contracts, registering property, obtaining electricity, and protecting minority investors.
To address endemic corruption, the GoA passed sweeping constitutional amendments to reform the country’s judicial system and improve the rule of law in 2016. The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth. More than half the judges and prosecutors who have undergone vetting have been dismissed for unexplained wealth or ties to organized crime. The EU expects Albania to show progress on prosecuting judges and prosecutors whose vetting revealed possible criminal conduct. The implementation of judicial reform is ongoing, and its completion is expected to improve the investment climate in the country.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GoA understands that private sector development and increased levels of foreign investment are critical to supporting sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.
The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2021.
The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors ( http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serves as a one-stop-shop for foreign investors, from filing the application form to granting the status of strategic investment/investor. Despite supporting legislation, only a few foreign investors have benefited from the “Strategic Investor” status.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” There are only a few exemptions regarding ownership restrictions:
Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
Audio and audio-visual broadcasting: An entity, foreign or domestic, that has a national audio or audio-visual broadcasting license cannot hold more than 20 percent of shares in another audio or audio-visual broadcasting company. Additional restrictions apply to the regional or local audio and audio-visual licenses.
Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years.
Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.
Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 Law on Entrepreneurs and Commercial Companies and Law Establishing the National Registration Center (NRC) allow for the following legal types of business entities to be established through the NRC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.
The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online ( http://www.qkb.gov.al/information-on-procedure/business-registration/ ). Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.
Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Albania has also signed free trade agreements with the EU, CEFTA countries (North Macedonia, Montenegro, Serbia, Bosnia and Herzegovina, Kosovo, and Moldova), EFTA countries (Switzerland, Liechtenstein, Norway, and Iceland), and Turkey.
In addition, in 1992, Albania ratified the Agreement on Promotion, Protection and Guarantee of Investments among member states of the Organization of the Islamic Conference.
In July 2020, Albania ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which amends all the double taxation treaties in compliance with the convention.
Albania and the United States signed a Memorandum of Economic Cooperation in October 2020 with an aim of increasing trade and investment between the countries. Since the signing two U.S. energy groups have signed agreements form major energy projects in the country.
3. Legal Regime
Transparency of the Regulatory System
Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, distortion of competition, and a lack of transparency all hinder the business community.
Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority (http://caa.gov.al ) is an independent agency tasked with ensuring fair and efficient competition in the market. However, business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.
The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.
The rulemaking process in Albania meets the minimum requirements of transparency.
In August 2020, Albania approved the law for the establishment of the register of the Ultimate Beneficiary Owners. The law aims to ensure transparency on the ultimate beneficiary owners, who directly and indirectly own more than 25% of shares, voting rights, or ownership interests in all entities registered to do business in Albania, and was adopted following the recommendations of MONEYVAL.
Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and sets clear timeframes for these processes. Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/ . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are frequently not respected.
All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/.
Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.
International Regulatory Considerations
Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006. The EU agreed to open accession talks on March 25, 2020 and the country is awaiting to hold the first Inter-Governmental Conference (IGC), which would mark the official opening of accession talks. Albania has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.
Legal System and Judicial Independence
The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court). The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.
The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, reviews cases related to the constitutionality of legislation and, in limited instances, protects and enforces the constitutional rights of citizens and legal entities.
Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.
Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.
Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, and Value-Added Law.
Laws and Regulations on Foreign Direct Investment
There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage (www.aida.gov.al ), which offers broad information for foreign investors.
Major laws pertaining to foreign investments include:
Law on Foreign Investments
Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania
Law on Foreigners
Law on Concessions and Public Private Partnerships: Establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects
Law on Entrepreneurs and Commercial Companies: Outlines general guidelines on the activities of companies and the legal structure under which they may operate
Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.
The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:
No prior government authorization is needed for an initial investment.
Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law.
Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments.
Foreign investors receive most favored nation treatment according to international agreements and Albanian law.
There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.
To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies have been designated as strategic investments, mostly in the tourism sector.
Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority (ACA: http://www.caa.gov.al/laws/list/category/1/page/1 ), which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority (FSA: http://www.amf.gov.al/ligje.asp ), which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.
Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.
Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The government amended the Law on Foreigners in February 2020. The amendments remove restrictions on foreign employees and streamline the visa and work permit processes for foreigners and foreign workers by introducing online visa application process, simplifying and accelerating the working permit process, and providing the same access to the labor market for citizens of Western Balkan countries as the United States, EU, and Schengen-country citizens have.
The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.
The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.
Competition and Antitrust Laws
The Albanian Competition Authority (http://www.caa.gov.al/?lng=en ) is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance, banking and non-banking financial industries, the Financial Supervisory Authority (http://amf.gov.al/ ) and the Bank of Albania (https://www.bankofalbania.org/ ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market. Parties can appeal the decision of the CA to the Tirana First Instance Court within 30 days of receiving the notification. The appeal does not suspend the enforcement of the decision that authorize concentrations and the temporary measures.
Expropriation and Compensation
The constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is slow, and unfair. Civil courts are responsible for resolving such complaints.
Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked, or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.
There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged in long-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.
To address the situation, the GoA approved new property compensation legislation in 2018 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.
The GoA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.
The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.
ICSID Convention and New York Convention
Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). In addition, Albania ratified the 1961 European Convention on International Commercial Arbitration (Geneva Convention).
Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. The country has no specific domestic legislation providing for enforcement of foreign arbitral awards. Recognition and enforcement of foreign arbitral awards are regulated by provisions stipulated in the Code of Civil Procedure.
For an international arbitration award to be recognized locally, the claimant must bring the award before the Court of Appeals. The Appeals Court will not adjudicate the merits of the case and can strike down the award only for the reasons listed in Article V of the New York Convention.
The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining its merits. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal. There is no legal precedent to date, of local courts refusing to recognize or enforce binding international arbitral awards.
The Albanian Code of Civil Procedure requires the courts to reach a judgment in a reasonable amount of time but does not provide a specific timeline for adjudicating commercial disputes. Reaching a final judgment in commercial litigation can take several years.
Investor-State Dispute Settlement
Albania signed a Bilateral Investment Treaty with United States in 1995, and it entered into force in 1998. Foreign investors opt to include international arbitration clauses in their contracts with Albanian parties because the court system is not responsive, and the judiciary is marked by endemic corruption.
Over the past ten years, there have been three investment disputes between the GoA and U.S. companies, two of which resulted in international arbitration. Despite the GoA’s stated desire to attract and support foreign investors, U.S. investors in disputes with the GoA reported a lack of productive dialogue with government officials, who frequently displayed a reluctance to settle the disputes before they were escalated to the level of international arbitration, or before the international community exerted pressure on the government to resolve the issue. U.S. investors in Albania should strongly consider including binding arbitration clauses in any agreements with Albanian counterparts.
International Commercial Arbitration and Foreign Courts
An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by agreement at any time when a dispute arises.
Albania does not have a separate law on domestic arbitration. In 2017, Albania repealed all domestic arbitration provisions of the Civil Procedure Code, leaving the country without provisions to govern domestic arbitration. In 2020, the GoA drafted a new law on arbitration that aims to regulate domestic and international arbitration. The draft is going through consultation process.
Parties may currently engage in domestic arbitration because the Code of Civil Procedure guarantees the enforcement of domestic arbitral awards. Mediation is also available for resolving all civil, commercial, and family disputes and is regulated by the law On Dispute Resolution through Mediation. Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.
The provisions for international arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on international arbitration. The country is signatory to the 1958 New York Convention and therefore recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.
Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.
A 2017 law on bankruptcy aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.
Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.
According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.
Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.
If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.
According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally. The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.
The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not required the approval of the creditor. According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.
The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.
The Albanian Investment Development Agency (AIDA; www.aida.gov.al) is the best source to find incentives offered across a variety of sectors. Aside from the incentives listed below, individual parties may negotiate additional incentives directly with AIDA, the Ministry of Finance and Economy, or other ministries, depending on the sector.
To boost investments in strategic sectors, the GoA approved a Law on Strategic Investments in May 2015 that outlines the criteria, rules, and procedures that state authorities employ when approving a strategic investment. The GoA has extended the deadline to apply to qualify as a strategic investment to December 2021. A strategic investment is defined as an investment of public interest based on several criteria, including the size of the investment, implementation time, productivity and value added, creation of jobs, sectoral economic priorities, and regional and local economic development. The law does not discriminate between foreign and domestic investors.
The following sectors are defined as strategic sectors: mining and energy, transport, electronic communication infrastructure, urban waste industry, tourism, agriculture (large farms) and fishing, economic zones, and development priority areas. Investments in strategic sectors may obtain assisted procedure and special procedure, based on the level of investment, which varies from EUR one million to EUR 100 million, depending on the sector and other criteria stipulated in the law.
In the assisted procedure, public administration agencies coordinate, assist, and supervise the entire administrative process for investment approval and makes state-owned property needed for the investment available to the investor. Under the special procedure, the investor also enjoys state support for the expropriation of private property and the ratification of the contract by parliament.
The law and bylaws that entered into force on January 1, 2016, established the Strategic Investments Committee (SIC), a commission in charge of approving strategic investments. The Committee is headed by the prime minister and members include ministers covering the respective strategic sectors, the state advocate, and relevant ministers whose portfolios are affected by the strategic investment. AIDA serves as the Secretariat of SIC and oversees providing administrative support to investors. The SIC grants the status of assisted procedure and special procedure for strategic investments and investors based on the size of investments and other criteria defined in the law.
Major Incentives Albania Offers:
Energy and Mining, Transport, Electronic Communication Infrastructure, and Urban Waste Industry: Investments greater than EUR 30 million enjoy the status of assisted procedure, while investments of EUR 50 million or more enjoy special procedure status.
The government offers power purchasing agreements (PPA) for 15 years for electricity produced from hydroelectric plants with an installed capacity of less than 15 megawatts. The government also offers feed-in-premium tariff for solar installations with installed capacity of less than two megawatts and for wind installation of less than three megawatts. Exemption from custom duties and VAT is available for the manufacturing or the mounting of solar panel systems for hot water production.
Certain machinery and equipment imported for the construction of hydropower plants are VAT exempt. The government supports the construction of small wind and photovoltaic parks with an installed capacity of less than three megawatts and two megawatts, respectively, by offering feed-in-premium tariffs for 15 years. The Energy Regulatory Authority (ERE; http://www.ere.gov.al/) conducts an annual review of the feed-in-premium tariffs for wind and photovoltaic parks. The ERE also conducts an annual review of the feed-in-tariffs for small hydroelectric plants with an installed capacity of less than 15 megawatts. Imports of machinery and equipment for investments of greater than EUR 400,000 for small wind and solar parks with an installed capacity of less than three megawatts and two megawatts, respectively, enjoy a VAT exemption. Imports of hot water solar panels for household and industrial use are also VAT exempt.
Tourism and Agritourism: Investments of EUR five million or more enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure. In 2018, the GoA introduced new incentives to promote the tourism sector. International hotel brands that invest at least USD eight million for a four-star hotel and USD 15 million for a five-star hotel are exempt from property taxes for 10 years, pay no profit taxes, and pay a VAT of 6 percent for any service on their hotels or resorts. For all other hotels and resorts, the GoA reduced the VAT on accommodation from 20 percent to 6 percent. Profit taxes for agritourism ventures were reduced to 5 percent from 15 percent previously, while VAT for accommodation is now 6 percent, down from 20 percent.
Agritourism facilities are exempt from the infrastructure impact tax.
Agriculture (Large Agricultural Farms) and Fishing: Investments greater than EUR three million that create at least 50 new jobs enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure. In addition, the GoA offers a wide range of incentives and subsidies for investments in the agriculture sector. The funds are a direct contribution from the state budget and the EU Instrument of Pre-Accession for Rural Development Fund (IPARD.) IPARD funds allocated for the period 2018-2020 total EUR 71 million. The program is managed by the Agricultural and Rural Development Agency (http://azhbr.gov.al/). Agricultural inputs, agricultural machinery, and veterinary services are exempt from VAT. The government offers other subsidies to agricultural farms and wholesale trade companies that export agricultural products.
Development Priority Areas: Investments greater than EUR one million that create at least 150 new jobs enjoy the status of assisted procedure. Investments greater than EUR 10 million that create at least 600 new jobs enjoy the status of special procedure.
Foreign Tax Credit: Albania applies foreign tax credit rights even in cases where no double taxation treaty exists with the country in which the tax is paid. If a double taxation treaty is in force, double taxation is avoided either through an exemption or by granting tax credits up to the amount of the applicable Albanian corporate income tax rate (currently 15 percent).
In 2019, the GoA reduced the dividend tax from 15 percent to 8 percent.
Corporate Income Tax Exemption: Film studios and cinematographic productions, licensed and funded by the National Cinematographic Center, are exempt from corporate income tax.
Loss Carry Forward for Corporate Income Tax Purposes: Fiscal losses can be carried forward for three consecutive years (the first losses are used first). However, the losses may not be carried forward if more than 50 percent of direct or indirect ownership of the share capital or voting rights of the taxpayer is transferred (changed) during the tax year.
Lease of Public Property: The GoA can lease public property of more than 500 square meters or grant a concession for the symbolic price of one euro if the properties will be used for manufacturing activities with an investment exceeding EUR 10 million, or for inward processing activities. The GoA can also lease public property or grant a concession for the symbolic price of one euro for investments of more than EUR two million for activities that address certain social and economic issues, as well as activities related to sports, culture, tourism, and cultural heritage. Criteria and terms are decided on an individual basis by the Council of Ministers.
Incentives for the Manufacturing Sector: The GoA reduced the profit tax from 15 percent to 5 percent for software development companies and the automotive industry. Manufacturing activities are exempt from 20 percent VAT on imports of machinery and equipment. The government offers a one-euro symbolic rent for government-owned property (land and buildings) for investments exceeding USD 2.7 million that create a minimum of 50 jobs. No VAT is charged for products processed for re-exports. Employers are exempt from paying social security tax for one year for all new employees. The GOA pays the first four months of salaries for new employees and offers various financing incentives for job training.
The manufacturing sector obtains VAT refunds immediately in the case of zero risk exporters, within 30 days if the taxpayer is an exporter, and within 60 days in the case of other taxpayers.
Apparel and footwear producers are exempt from 20 percent VAT on raw materials if the finished product is exported. In 2011, the GoA also removed customs tariffs for imported apparel and raw materials in the textile and shoe industries (e.g., leather used for clothes, cotton, viscose, velvet, sewing accessories, and similar items).
Technological and Development Areas (TEDA): The Law on Economic Development Areas provides fiscal and administrative incentives for companies that invest in this sector and for firms that establish a presence in these areas. Major incentives include: Developers and users benefit from a 50 percent deduction of profit tax for five years, exemption from the infrastructure impact tax, and exemption from real estate tax for five years. A full list of incentives can be found at: TEDA (aida.gov.al)
Foreign Trade Zones/Free Ports/Trade Facilitation
Albania has no functional duty-free import zones or free trade zones, although legislation exists for their creation. The May 2015 amendments to the Law on the Establishment and Operation of Technological and Development Areas (TEDAs) created the legal framework to establish TEDAs, defining the incentives for developers investing in the development of these zones and companies operating within the zones.
The Albanian government has granted the status of the Technological and Development Areas to TEDA Spitalle (49.1 ha) and Koplik (61 ha) but neither has been developed to date. The Ministry of Finance and Economy announced in March 2021 the tender for the development and operation of Spitalle TEDA. Tirana Municipality has applied to get the status of TEDA for a third zone near the capital, with a surface of 35 ha.
Performance and Data Localization Requirements
There are no performance requirements for foreign investors or minimum requirements for domestic content in goods or technology. Investment incentives are equally available to foreign and domestic investors. Investments in certain sectors require a license or authorization and procedures are similar for foreign and domestic investors.
Visa, residence, and work permit requirements are straightforward and do not pose an undue burden on potential investors. The February 2020 amendments to the Law on Foreigners abolished the requirement for foreign investors to prove that foreign employees constituted less than 10 percent of the investor’s total workforce before a work permit was granted. U.S. citizens do not need a visa to enter and can stay in the country for up to one year without a residency permit. For longer stays they must apply for a residency permit, which can be valid for up to five years. To work in Albania, foreigners must apply for a work permit or work registration certificate, except for U.S. citizens and citizens from EU member countries, the Schengen area, and the Western Balkans, who are exempted from such requirement and enjoy the same employment rights and benefits as Albanian citizens. The February 2020 amendments exempt from work permit requirements foreign workers needed in jobs necessary to address the damages caused by natural disasters, partly to facilitate recovery from the November 2019 earthquake. The Council of Ministers approves the annual quota of foreign workers following a needs assessment by sector and profession. However, work permits for staff that occupy key positions, among other categories, can be issued outside the annual quota.
Albanian legislation regulating the functioning of the National Agency of Information (AKSHI) requires that every company contracted by the government to develop a computer system provide the source code and all related technical documents of the system. In addition, every government system and its data must be hosted at the government datacenter maintained by AKSHI.
There are no legal restrictions to transferring business-related data abroad, except for a few cases that need prior consent. There are more stringent requirements for personal data. Albania has comprehensive legislation for the protection of personal data: the Law On the Protection of Personal Data, including by-laws, as well as the 1981 Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, and the Additional Protocol to the Convention regarding Supervisory Authorities and Trans-border Flows of Personal Data, ratified by Albania in 2004. The authority in charge of the protection of personal data is the Information and Data Protection Commissioner (https://www.idp.al/?lang=en .)
Based on Albanian legislation, international transfers of personal data in countries deemed to have an adequate level of protection are not restricted. However, companies must notify the Commissioner in advance of any processing of personal data and any intention to transfer data to third countries. This applies to companies in foreign jurisdictions that operate in Albania using any means located within the country. To transfer data to third countries that do not have an adequate protection level, companies need prior authorization from the Commissioner. There are exemptions to this policy for certain data categories defined by the Commissioner as well as when certain conditions are met. Countries with an adequate protection level include EU member states, European Economic Area countries, members of the 1981 Convention and related protocol, and all countries approved by the European Commission.
Many foreign companies operating in Albania that process sensitive data opt to keep their data in Albania.
5. Protection of Property Rights
Individuals and investors face significant challenges with protection and enforcement of property rights. Despite recent improvements, procedures remain cumbersome, and registrants have complained of corruption during the process. Over the last three decades, the GoA has drafted and passed much, though not all, of its property legislation in a piecemeal and uncoordinated way. According to the EU’s 2020 Report, Albania must consolidate the entrenchment of property rights, especially by finalizing first registration, advancing the registration of property deeds, and implementing the compensation scheme. Reform of the sector has yet to incorporate consolidation of property rights and the elimination of legal uncertainties. The Law on the Finalization of Transitional Ownership Processes adopted in March 2020 aims to consolidate property rights by finalizing land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.
The property registration system has improved thanks to international donor assistance, but the process has moved forward very slowly as Albania has yet to complete the initial registration of property titles in the country. By the end of 2019, approximately one third of the properties were registered in digital form, focused almost entirely in Tirana and in other areas that experienced significant development. In total 3.5 million properties were registered as part of the initial registration process which represents slightly above 80% of total properties in Albania. However, plot records for many of these properties are still only in paper form and often in poor and outdated condition. Approximately 1 million properties have still not been registered for the first time, which includes the southern coastal area. In 2020, the government launched a process to register properties in the southern coastal area, and area that holds significant potential for the tourism industry. However, the poor state of the data is a risk for title security and a constraint to investment.
Albania has registered an estimated 440,000 illegal structures, built without permits, and illicit construction continues to be a major impediment to securing property titles. A process that aims to legalize or eliminate such structures started in 2006 but is not complete. Around 178,000 legalization permits were issued through the end of 2019.
The fluid situation has led to clashes between squatters, owners of allegedly illegal buildings, and the Albanian State Police including during the demolition of these structures to make way for public infrastructure projects.
To streamline the property management process, the GoA established in April 2019 the State Cadaster Agency (ASHK), which merged different agencies responsible for property registration, compensation, and legalization, including the Immovable Property Registration Office (IPRO), the Agency of Inventory and Transfer of Public Properties (AITPP), and the Agency for the Legalization and Urbanization of Informal Areas (ALUIZNI).
According to the 2020 World Bank’s “Doing Business Report,” Albania performed poorly in the property registration category, ranking 98th out of 190 countries. It took an average of 19 days and five procedures to register property, and the associated costs could reach 8.9 percent of the total property value. The civil court system manages property rights disputes, but verdicts can take years, authorities often fail to enforce court decisions, and corruption concerns persist within the judiciary.
Intellectual Property Rights
Albania is not included on the U.S. Trade Representative’s (USTR’s) Special 301 Report or Notorious Markets List. That said, intellectual property rights (IPR) infringement and theft are common due to weak legal structures and poor enforcement. Counterfeit goods, while decreasing, are present in some local markets and shopping malls, including software, garments, machines, and cigarettes. Albanian law protects copyrights, patents, trademarks, industrial designs, and geographical indications, but enforcement of these laws is weak. Regulators are ineffective at collecting fines and prosecutors rarely press charges for IPR theft. U.S. companies should consult an experienced IPR attorney and avoid potential risks by establishing solid commercial relationships and drafting strong contracts. According to the 2020 International Property Right Index published by Property Right Alliance, Albania ranks 112th out of 129 countries evaluated, and bottom in the region. It ranked 78th in the subcategory of copyright piracy.
A revised 2016 IPR law aimed to strengthen enforcement and address shortcomings so as to harmonize domestic legislation with that of the EU. In 2019, the Criminal Code was amended to include harsher punishments of up to three years in prison for IPR infringement.
In the areas of copyright, patent, and trademarks, the two main bodies responsible are the Copyright Directorate and the General Directorate of Industrial Property (GDIP), which is in charge of registering, administering, and promoting IPR. Other institutions responsible for IPR enforcement include the Copyright Division of the State Inspectorate for Market Surveillance (SIMS), the Audiovisual Media Authority (AMA), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, the State Police, and the courts. In 2018, the National Council of Copyrights was established as a specialized body responsible for monitoring the implementation of the law and certifying the methodology for establishing the tariffs. Two other important bodies in the protection and administration of IPR are the agencies for the Collective Administration (AAK) and the Copyrights Department within the Ministry of Culture. Four different AAKs have merged in 2017 to provide service into a sole window for the administration of IPR.
The SIMS, established in 2016, is responsible for inspecting, controlling, and enforcing copyright and other related rights. Despite some improvements, actual law enforcement on copyrights continues to be problematic and copyright violations are persistent. The number of copyright violation cases brought to court remains low. While official figures are not available this year, Customs does usually report the quantity of counterfeit goods destroyed annually. In cases of seizures, the rights holder has the burden of proof and so must first inspect the goods to determine if they are infringing. The rights holder is also responsible for the storage and destruction of the counterfeit goods.
Cigarettes are traditionally the most common counterfeited product seized by Customs. According to the EU 2020 report on Albania, the high number of counterfeit products in the country remains a cause for concerns
The GDIP is responsible for registering and administering patents, commercial trademarks and service marks, industrial designs, and geographical indications. The 2008 law on industrial property was amended in 2014 to more closely align with that of the EU. In 2020, the number of applications to register industrial property continued to rise with 2,654 new applications (including 1,475 trademarks and 1158 for patents). GDIP has prepared draft legislation on trade secrets in order to align the with the EU acquis which was deposited in the Parliament in December 2020.
Albania is party to the World Intellectual Property Organization (WIPO) Patent Law Treaty, the Patent Cooperation Treaty, the Berne Convention, the Paris Convention, and is a member of the European Patent Organization. The government became party to the London Agreement on the Implementation of Article 65 of the European Convention for Patents in 2013. In 2018, Parliament approved the Law 34/2018 on Albania’s adherence to the Vienna Agreement for the International Classification of the Figurative Elements of Marks. In June 2019, Albania joined the Geneva Act of WIPO’s Lisbon Agreement on Appellations of Origin and Geographical Indications.
The government has adopted policies to promote the free flow of financial resources and foreign investment in Albania. The Law on “Strategic Investments” is based on the principles of equal treatment, non-discrimination, and protection of foreign investments. Foreign investors have the right to expatriate all funds and contributions of their investment. In accordance with IMF Article VIII, the government and Central Bank do not impose any restrictions on payments and transfers for international transactions. Despite Albania’s shallow foreign exchange market, banks enjoy enough liquidity to support sizeable positions. Portfolio investments continue to be a challenge because they remain limited mostly to company shares, government bonds, and real estate.
In recent years, the high percentage of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards. However, following a continuing decrease in non-performing loans (NPL) which at the end of 2020 reached 8.1 percent, lending increased by 6.5 percent year-over-year in 2020. The credit market is competitive, but interest rates in domestic currency can be high, ranging from 5 percent to 6.5 percent. Most mortgage and commercial loans are denominated in euros because rate differentials between local and foreign currency average 1.5 percent. Commercial banks operating in Albania have improved the quality and quantity of services they provide, including a large variety of credit instruments, traditional lines of credit, and bank drafts, etc.
Money and Banking System
In the absence of an effective stock market, the country’s banking sector is the main channel for business financing. The sector is sound, profitable, and well capitalized. The Bank of Albania, the country’s Central Bank, is responsible for the licensing and supervision of the banking sector in Albania. The banking sector is 100 percent privately owned and its total assets have steadily increased over the years reaching $15 billion mostly based on customers deposits. The banking sector has consolidated recently as the number of banks decreased from 16 in 2018 to 12 in 2020. As of December 2020, the Turkish owned National Commercial Bank (BKT) was the largest bank in the market with 26.4 percent market share, followed by Albanian Credins Bank with 15.5 percent, and Austrian Raiffeisen Bank third with 14.9 percent. The American Investment Bank is the only bank with U.S. shareholders and ranks sixth with 5.5% percent of the banking sector’s total assets.
The number of bank outlets has also decreased over the recent years also due to the consolidation. In December 2020, Albania had 416 bank outlets, down from 446 from 2019 and the peak of 552 in 2016. Capital adequacy, at 18.23 percent, remains above Basel requirements and indicates sufficient assets. At the end of 2020, the return on assets was just 1.2 percent. The share of NPLs continued to fall, reaching 8.1 percent at the end of the 2020, down from 11.1 percent in 2018, and significantly below the 2014 level when NPLs peaked at 25 percent. As part of its strategy to stimulate business activity, the Bank of Albania has adopted a plan to ease monetary policy by continuing to persistently keep low interest rates. The most recent reduction was in March 2020, when the interest rate was reduced to the historic low of 0.5 percent, down from a rate of 1 percent in place since June 2018.
Many of the banks operating in Albania are subsidiaries of foreign banks. Only three banks have an ownership structure whose majority shareholders are Albanian. However, the share of total assets of the banks with majority Albanian shareholders has increased because of the sector’s ongoing consolidation. There are no restrictions for foreigners who wish to establish a bank account. They are not required to prove residency status. However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.
Foreign Exchange and Remittances
Bank of Albania (BoA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662. Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).
BoA maintains a free float exchange rate regime for the domestic currency, the Lek. Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage. BoA does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate of inflation targeting.
Foreign exchange is readily available at banks and exchange bureaus. Preliminary notification is necessary if the currency exchange is several million dollars or more – the law does not specify an amount but provides factors for determining the threshold for large exchanges – as the exchange market in Albania is shallow. A 2018 campaign launched by the BoA to reduce the domestic use of the euro to improve the effectiveness of domestic economic policies has produced tangible results. The share of foreign currency loans in total loans fell from 60 percent in 2015 to 47 percent in 2020. Foreign currency deposits, which to some extent reflect relatively high remittances, reached to 53.4 percent of total deposits.
The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange. However, local law authorizes the BoA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves. In practice, BoA rarely employs such measures. Faced with the unprecedented economic disruption following the COVID-19 pandemic, on July 1, 2020 Bank of Albania ordered banks to halt distribution of dividends and use dividends to cover potential losses and increase loans to the economy. The decision, initially in force till the end of 2020, was extended till the end of 2021.
The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate. Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items. Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.
Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements. Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. In January 2015, the FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.
Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body. In February 2020, Albania was included in the category of jurisdictions under increased monitoring, also referred to as the Grey List. Albania had previously been on this list and was taken off in 2015. The 2021 International Narcotics Control Strategy Report (INCSR) keeps Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking. Albania and the United States do not have a bilateral MLAT, but cooperation is possible through multilateral conventions.
Sovereign Wealth Funds
Parliament approved a law in October 2019 to establish the Albanian Investment Corporation (AIC). The law entered in force in January 2020. The AIC would develop, manage, and administer state-owned property and assets, invest across all sectors by mobilizing state owned and private domestic and foreign capital, and promote economic and social development by investing in line with government-approved development policies.
The GoA plans to transfer state-owned assets, including state-owned land, to the AIC and provide initial capital to launch the corporation. The IMF Staff Concluding Statement of November 26, 2019, warned that the law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes. There were no activities by the AIC in 2020.
7. State-Owned Enterprises
State-owned enterprises (SOEs) are defined as legal entities that are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.
The law does not discriminate between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures and the same domestic accounting and international financial reporting standards as other commercial companies. The High State Audit audits SOE activities. SOEs are also subject to public procurement law.
Albania is yet to become party to the Government Procurement Agreement (GPA) of the WTO but has obtained observer status and is negotiating full accession (see https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm). Private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.
SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies. The Ministry of Economy and Finance and other relevant ministries, depending on the sector, represent the state as the owner of the SOEs. SOEs are not obligated by law to adhere to Organization for Economic Cooperation and Development (OECD) guidelines explicitly. However, basic principles of corporate governance are stipulated in the relevant laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board comprises three to nine members, who are not employed by the SOE. Two-thirds of board members are appointed by the representative of the Ministry of Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports. The Supervisory Board is the highest decision-making authority and appoints and dismisses the administrator of the SOE through a two-thirds vote.
The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining. Entities to be privatized include OSHEE, the state-run electricity distributor; 16 percent of ALBtelecom, the fixed-line telephone company; and state-owned oil company Albpetrol. O ther sectors might provide opportunities for privatization in the future.
The bidding process for privatizations is public, and relevant information is published by the Public Procurement Agency at www.app.gov.al. Foreign investors may participate in the privatization program. The Agency has not published timelines for future privatizations.
8. Responsible Business Conduct
Public awareness of corporate social responsibility (CSR) and Responsible Business Conduct (RBC) in Albania is low, and CSR and RBC remains new concepts for much of the business community. The small level of CSR and RBC engagement in Albania comes primarily from the energy, telecommunications, heavy industry, and banking sectors, and tends to focus on philanthropy and environmental issues. International organizations have recently improved efforts to promote CSR. Thanks to efforts by the international community and large international companies, the first Albanian CSR network was founded in March 2013 as a business-led, non-profit organization. The American Chamber of Commerce in Albania also formed a subcommittee in 2015 to promote CSR among its members.
Legislation governing CSR, labor, and employment rights, consumer protection, and environmental protection is robust, but enforcement and implementation are inconsistent. The Law on Commercial Companies and Entrepreneurs outlines generic corporate governance and accounting standards. According to that law and the Law on the National Business Registration Center, companies must disclose publicly when they change administrators and shareholders and to disclose financial statements. The Corporate Governance Code for unlisted joint stock companies incorporates the OECD definitions and principles on corporate governance but is not legally binding. The code provides guidance for Albanian companies and aims to provide best-practices while assisting Albanian companies to develop a governance framework.
Albania has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.
Endemic corruption continues to undermine the rule of law and jeopardize economic development. Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, informal economy, and poor enforcement of contracts as some of the biggest problems in Albania. Despite some improvement in Albania’s score from 2013 to 2016, progress in tackling corruption has been slow and unsteady. In 2020, Albania’s Corruption Perceptions Index (CPI) score and ranking improved respectively from 35 to 36 and from 106 to 104 but still far from the 2016 score and rank of respectively 39 and 83. Albania is still one of the most corrupt countries in Europe, according to the CPI and other observers.
The country has a sound legal framework to prevent conflict of interest and to fight corruption of public officials and politicians, including their family members. However, law enforcement is jeopardized by a heavily corrupt judicial system.
The passage of constitutional amendments in July 2016 to reform the judicial system was a major step forward, and reform, once fully implemented, is expected to position the country as a more attractive destination for international investors. Judicial reform has been described as the most significant development in Albania since the end of communism, and nearly one-third of the constitution was rewritten as part of the effort. The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s vetting process will ensure that prosecutors and judges with unexplained wealth or insufficient training, or those who have issued questionable verdicts, are removed from the system. As of publication, more than half of the judges and prosecutors who have faced vetting have either failed or resigned. The establishment of the Special Prosecution Office Against Corruption (SPAK) and Organized Crime and of the National Investigation Bureau, two new judicial bodies, will step up the fight against corruption and organized crime. Once fully implemented, judicial reform will discourage corruption, promote foreign and domestic investment, and allow Albania to compete more successfully in the global economy.
The government has ratified several corruption-related international treaties and conventions and is a member of major international organizations and programs dealing with corruption and organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention against Corruption (UNCAC). Albania has also ratified several key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001) and the Convention on Cybercrime (2002). Albania has been a member of the Group of States against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption in 2001 and is a member of the Stability Pact Anti-Corruption Initiative (SPAI). Albania is not a member of the OECD Anti-Bribery Convention. Albania has adopted legislation for the protection of whistleblowers.
To curb corruption, the government announced a new platform in 2017, “Shqiperia qe Duam” (“The Albania We Want”), which invites citizens to submit complaints and allegations of corruption and misuse of office by government officials. The platform has a dedicated link for businesses. The Integrated Services Delivery Agency (ADISA), a government entity, provides a second online portal to report corruption. Effectiveness of the portal is minimal.
Resources to Report Corruption
Contact at the government agency or agencies that are responsible for combating corruption:
In February 2020, GOA approved the establishment of the Special Anticorruption and Anti-Evasion Unit which operates under the Council of Ministers. The mission of the unit is the coordination between the main public institutions, agencies and state owned companies in order to discover, investigate and punish corruption and abusive practices. The Unit is not fully operational yet.
Political violence is rare, the most recent being political protests in 2019 that included instances of civil disobedience, low-level violence and damage to property, and the use of tear gas by police. Albania’s June 2017 elections and transition to a new government were peaceful, as were its June 2019 local elections. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration. In its external relations, Albania has usually encouraged stability in the region and maintains generally friendly relations with neighboring countries.
11. Labor Policies and Practices
Albania’s labor force numbers around 1.22 million people, according to official data. After peaking at 18.2 percent in the first quarter of 2014, the official estimated unemployment rate has decreased in recent years. In December 2020, unemployment reached 11.8 percent compared to 11.2 percent at the end of 2019. Unemployment among people aged 15-29 remains high, at 21.7 percent. Around 40 percent of the population is self-employed in the agriculture sector. According to the International Labor Organization (ILO), share of informal employment in the employed population was almost 57% in 2019, the highest in the region.
The institutions that oversee the labor market include the Ministry of Finance, Economy and Labor, the Ministry of Health and Social Protection, the National Employment Service, the State Labor Inspectorate, and private entities such as employment agencies and vocational training centers. Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement is weak.
Outward labor migration remains an ongoing problem affecting the Albanian labor market. There is a growing concern about labor shortage for both skilled and unskilled workforces. Over the last several years, media outlets have reported that a significant number of doctors and nurses have emigrated to the European Union. According to WHO, Albania has the lowest number of doctors per capita in the region with just 16.7 doctors per 10,000 inhabitants in 2019. In December 2020, the average public administration salary was approximately 66,479 lek (approximately $630) per month. In January 2021 the GoA increased the minimum wage by 13 percent to 30,000 lek per month (approximately $280), which still remains the lowest in the region.
In March 2019, parliament approved a new law on employment promotion, which defined public policies on employment and support programs. Albania has a tradition of a strong secondary educational system, while vocational schools are viewed as less prestigious and attract fewer students. However, the government has more recently focused attention on vocational education. In the 2020-2021 academic year, about 19,000, or 18.5 percent, of high school pupils were enrolled in vocational schools, compared with 18 percent in the previous year.
The Law on Foreigners and various decisions of the Council of Ministers regulate the employment regime in Albania. Employment can also be regulated through special laws in the case of specific projects, or to attract foreign investment. The Law on TEDA’s provides financial and tax incentives for investments in the zone. In February 2020, parliament approved amendments to the Law on Foreigners, extending the same employment and self-employment rights of Albanian citizens to citizens of five Western Balkan countries. The new law extends to these citizens the same benefits that the original law provided to the citizens of EU and Schengen countries. The recent amendments also allow for hiring of foreign citizens in the framework of work in the reconstruction process surrounding the November 2019 earthquake.
The Labor Code includes rules regarding contract termination procedures that distinguish layoffs from terminations. Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract. Employees can collect up to 12 months of salary in the event of an unexpected interruption of the contract. Unemployment compensation is approximately 50 percent of the minimum wage.
Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management. While there are no official data recording the number of collective bargaining agreements used throughout the economy, they are widely used in the public sector, including by SOEs. Albania has a labor dispute resolution mechanism as specified in the Labor Code, article 170, but the mechanism is considered inefficient. Strikes are rare in Albania, mostly due to the limited power of the trade unions and they have not posed a significant risk to investments.
Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the eight Fundamental Conventions, the four Governance Conventions, and 42 Technical Conventions. The implementation of labor relations and standards continues to be a challenge, according to the ILO. Furthermore, labor dialogue has suffered from the 2017 division of the Ministry of Labor and Social Protection into two different institutions.
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
14. Contact for More Information
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
+355 4 224 7285 USALBusiness@state.gov
With improving security conditions in metropolitan areas, a market of 50 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in Latin America. Colombia ranked 67 out of 190 countries in the “Ease of Doing Business” index of the World Bank’s 2020 Doing Business Report.
The Colombian economy contracted for the first time in more than two decades in 2020, with the effects of COVID-19 and lower oil prices resulting in a 6.8 percent decline in GDP. Measures to alleviate the pandemic’s effects led to a temporary suspension of Colombia’s fiscal rule and the deficit surpassing eight percent of GDP for 2020, with a similar deficit expected in 2021.
Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The 2012 U.S.-Colombia Trade Promotion Agreement (CTPA) has strengthened bilateral trade and investment. Colombia’s dispute settlement mechanisms have improved through the CTPA and several international conventions and treaties. Weaknesses include protection of intellectual property rights (IPR), as Colombia has yet to implement certain IPR-related provisions of the CTPA. Colombia became the 37th member of the Organization for Economic Cooperation and Development (OECD) in 2020, bringing the obligation to adhere to OECD norms and standards in economic operations.
The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. Restrictions on foreign ownership in specific sectors still exist. FDI inflows increased 25.6 percent from 2018 to 2019, with a third of the 2019 inflow dedicated to the extractives sector and another 21 percent to professional services and finance. Roughly half of the Colombian workforce in metropolitan areas is employed in the informal economy, a share that increases to four-fifths in rural areas. Unemployment ended 2020 at 17.3 percent, a 4.3 percentage point increase from a year prior.
Since the 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC), Colombia has experienced a significant decrease in terrorist activity. Several powerful narco-criminal operations still pose threats to commercial activity and investment, especially in rural zones outside of government control.
Corruption remains a significant challenge. The Colombian government continues to work on improving its business climate, but U.S. and other foreign investors have voiced complaints about non-tariff, regulatory, and bureaucratic barriers to trade, investment, and market access at the national, regional, and municipal levels. Investors also note concern at a heavy reliance by the national competition and regulatory authority (SIC) on decrees to remedy perceived problems.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Colombian government actively encourages foreign direct investment (FDI). The economic liberalization reforms of the early 1990s provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions. All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations and the local chamber of commerce. All conditions being equal during tender processes, national offers are preferred over foreign offers. Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.
ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports. ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia. All services are free of charge and confidential. Priority sectors include business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy. ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors ). The Duque administration – including senior leaders at the Presidency, ProColombia, and the Ministry of Commerce, Industry, and Trade – continue to stress Colombia’s openness to foreign investors and aggressively market Colombia as an investment destination.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital. The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia: travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.
According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals. Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal. There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.
Foreign investors face specific exceptions and restrictions in the following sectors:
Media: Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services. For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services. Foreign investment in national television is limited to a maximum of 40 percent ownership of an operator.
Accounting, Auditing, and Data Processing: To practice in Colombia, providers of accounting services must register with the Central Accountants Board and have uninterrupted domicile in Colombia for at least three years prior to registry. A legal commercial presence is required to provide data processing and information services in Colombia.
Banking: Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.
Fishing: A foreign vessel may engage in fishing activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit. If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license. The costs of fishing permits are greater for foreign flag vessels.
Private Security and Surveillance Companies: Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital. Those constituted after that date can only have Colombian nationals as shareholders.
Transportation: Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service.” Colombia prohibits foreign ownership of commercial ships licensed in Colombia. The owners of a concession providing port services must be legally constituted in Colombia, and only Colombian ships may provide port services within Colombian maritime jurisdiction, unless there are no capable Colombian-flag vessels.
New businesses must register with the chamber of commerce of the city in which the company will reside. Applicants also register using the Colombian tax authority’s (DIAN) portal at: www.dian.gov.co to obtain a taxpayer ID (RUT). Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives, and obtain – in-person or online – an authorization for company invoices from DIAN. In 2019, Colombia made starting a business a step easier by lifting a requirement of opening a local bank account to obtain invoice authorization. Companies must submit a unified electronic form to self-assess and pay social security and payroll contributions to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar). After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.
Colombia does not incentivize outward investment nor does it restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Bilateral Investment Treaties and Free Trade Agreements: Colombia has free trade agreements or treaties with investment provisions with the United States, the European Union, the European Free Trade Association, MERCOSUR, CARICOM, Bolivia, Canada, Chile, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Israel, Mexico, Panama, Peru, the Republic of Korea, and Venezuela. Colombia has signed a trade agreement with the United Kingdom, but it is not yet in effect. Trade agreement negotiations are underway with Australia, Japan, New Zealand, and Singapore. Additionally, Colombia has stand-alone bilateral investment treaties with China, France, India, Japan, Peru, Singapore, Spain, Switzerland, Turkey, and the United Kingdom.
Bilateral Taxation Treaties: Colombia has active Agreements for the Elimination of Double Taxation in Income Tax Matters with the Andean Community of Nations, Canada, Chile, the Czech Republic, India, Mexico, Portugal, the Republic of Korea, Spain, Switzerland, and the United Kingdom. It has signed but not yet implemented additional treaties with France, Italy, Japan, and the United Arab Emirates, is currently negotiating agreements with Germany and the Netherlands, and has expressed interest in renewing negotiations with the United States. It has Agreements to Eliminate the Double Taxation of Air and Maritime Navigation Companies with Argentina, Brazil, Chile, Germany, Italy, Panama, the United States, and Venezuela.
3. Legal Regime
Transparency of the Regulatory System
The Colombian legal, accounting, and regulatory systems are generally transparent and consistent with international norms. The written commercial code and other laws cover broad areas, including banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries. There are no identified private-sector associations or non-governmental organizations leading informal regulatory processes. The ministries generally consult with relevant actors, both foreign and national, when drafting regulations. Proposed laws are typically published as drafts for public comment, although sometimes with limited notice. Information on Colombia’s public finances and debt obligations is readily available and is published in a timely manner.
Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The Constitution establishes the principle of free competition as a national right for all citizens and provides the judiciary with administrative and financial independence from the executive branch. Colombia has transitioned to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.
Colombia is a member of UNCTAD’s international network of transparent investment procedures (see http://www.businessfacilitation.org and Colombia’s websites http://colombia.eregulations.org and https://www.colombiacompra.gov.co). Foreign and national investors can find detailed information on administrative procedures for investment and income generating operations, including the number of steps, name, and contact details of the entities and people in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.
International Regulatory Considerations
Colombia became the 37th member of the OECD in April 2020. Colombia is part of the World Trade Organization (WTO). The government generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. In August 2020, Colombia fully joined the WTO Trade Facilitation Agreement (TFA). Regionally, Colombia is a member of organizations such as the Inter-American Development Bank (IADB), the Pacific Alliance, and the Andean Community of Nations (CAN).
Legal System and Judicial Independence
Colombia has a comprehensive, civil law-based legal system. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and various departmental and district courts, which collectively are overseen administratively by the Superior Judicial Council. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Regulations and enforcement actions are appealable through the different stages of legal court processes in Colombia. The judicial system in general remains hampered by time-consuming bureaucratic requirements.
Laws and Regulations on Foreign Direct Investment
Colombia has a comprehensive legal framework for business and FDI that incorporates binding norms resulting from its membership in the Andean Community of Nations and the WTO, as well as other free trade agreements and bilateral investment treaties.
The Superintendence of Industry and Commerce (SIC), Colombia’s independent national competition authority, monitors and protects free economic competition, consumer rights, compliance with legal requirements and regulations, and protection of personal data. It also manages the national chambers of commerce. The SIC has been strengthened in recent years with the addition of personnel, including economists and lawyers. The SIC has recently investigated companies, including U.S.-based technology firms and Colombian banks, for failing to protect customer data. Other investigations include those related to pharmaceutical pricing, “business cartelization” among companies supplying public entities, and misleading advertising by a major brewing company. One U.S. gig-economy platform was temporarily barred from operating in Colombia in early 2020, although other similarly-situated companies remained; a court overturned the prohibition on appeal. U.S. companies have expressed concern about limited ability to appeal SIC orders and the SIC’s increasing reliance on orders to remedy perceived problems. Other U.S. companies have noted that SIC investigations can be drawn-out and opaque, similar to the judicial system in general.
Expropriation and Compensation
Article 58 of the Constitution governs indemnifications and expropriations and guarantees owners’ rights for legally-acquired property. For assets taken by eminent domain, Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation. The Constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.
ICSID Convention and New York Convention
Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency. Colombia is also party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The National and International Arbitration Statute (Law 1563), modeled after the UNCITRAL Model Law, has been in effect since 2012.
Investor-State Dispute Settlement
Domestic law allows contracting parties to agree to submit disputes to international arbitration, provided that: the parties are domiciled in different countries; the place of arbitration agreed to by the parties is a country other than the one in which they are domiciled; the subject matter of the arbitration involves the interests of more than one country; and the dispute has a direct impact on international trade. The law permits parties to set their own arbitration terms, including location, procedures, and the nationality of rules and arbiters. Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to enforcing awards, and slow and unresponsive at times. However, some progress has been made in the number of qualified professionals and arbitrators with ample experience on transnational transactions, arbitrage centers with cutting-edge infrastructure and administrative capacity, and courts that are progressively more accepting of arbitration processes.
There were several pending investment disputes in Colombia in 2020, including:
A project management consultant contract with a state-owned entity related to the refurbishment of an oil refinery. Claims arise out of a $2.4 billion liability imposed by the national comptroller general.
Two separate shareholder claims related to a Colombian bank that Colombia put under new management and ultimately seized in 1998.
Three separate claims related to ownership and mining rights related to the Constitutional Court’s decision to ban mining in a range of high-altitude wetlands.
Ownership of a mobile communications subsidiary, with claims arising out of the government’s order that certain assets revert to State control on expiration of a concession.
Majority shareholder claims arising out of the government’s decision to seize and liquidate an electricity provider.
According to the Doing Business 2020 report, the time from the moment a plaintiff files a lawsuit until actual payment and enforcement of the contract averages 1,288 days. Traditionally, most court proceedings are carried out in writing and only the evidence-gathering stage is carried out through hearings, including witness depositions, site inspections, and cross-examinations. The government has accelerated proceedings and reduced the backlog of court cases by allowing more verbal public hearings and creating alternative court mechanisms. The Code of General Procedure that entered into force in 2014 also establishes oral proceedings that are carried out in two hearings, and there are now penalties for failure to reach a ruling in the time limit set by the law. Enforcement of an arbitral award can take between six months and one and a half years; a regular judicial process can take up to seven years for private parties and upwards of 15 years in conflicts with the State. Thus, arbitration results are cheaper and much more efficient. According to the Doing Business report, Colombia has made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. In 2020, Colombia’s global ranking in the enforcing contracts category of the report held at 177.
International Commercial Arbitration and Foreign Courts
Foreign judgments are recognized and enforced in Colombia once an application is submitted to the Civil Chamber of the Supreme Court. In 2012, Colombia approved the use of the arbitration process via adoption of new legislation (Law 1563) based on the UNCITRAL Model Law. The statute stipulates that arbitral awards are governed by both domestic law as well as international conventions (New York Convention, Panama Convention, etc.). This has made the enforcement of arbitral awards easier for all parties involved. Arbitration in Colombia is completely independent from judiciary proceedings, and, once arbitration has begun, the only competent authority is the arbitration tribunal itself. The CTPA protects U.S. investments by requiring a transparent and binding international arbitration mechanism and allowing investor-state arbitration for breaches of investment agreements if certain parameters are met. The judicial system is notoriously slow, leading many foreign companies to include international arbitration clauses in their contracts.
Colombia’s 1991 Constitution grants the government the authority to intervene directly in financial or economic affairs, and this authority provides solutions similar to U.S. Chapter 11 filings for companies facing liquidation or bankruptcy. Colombia’s bankruptcy regulations have two major objectives: to regulate proceedings to ensure creditors’ protection, and to monitor the efficient recovery and preservation of still-viable companies. This was revised in 2006 to allow creditors to request judicial liquidation, which replaces the previous forced auctioning option. Now, inventories are valued, creditors’ rights are considered, and either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities. The insolvency regime for companies was further revised in 2010 to make proceedings more flexible and allow debtors to enter into a long-term payment agreement with creditors, giving the company a chance to recover and continue operating. Bankruptcy is not criminalized in Colombia. In 2013, a bankruptcy law for individuals whose debts surpass 50 percent of their assets value entered into force.
Restructuring proceedings aim to protect the debtors from bankruptcy. Once reorganization has begun, creditors cannot use collection proceedings to collect on debts owed prior to the beginning of the reorganization proceedings. All existing creditors at the moment of the reorganization are recognized during the proceedings if they present their credit. Foreign creditors, equity shareholders (including foreign equity shareholders), and holders of other financial contracts (including foreign contract holders) are recognized during the proceeding. Established creditors are guaranteed a vote in the final decision. According to the Doing Business 2020 report Colombia is ranked 32nd for resolving insolvency and it takes an average of 1.7 years – the same as OECD high-income countries – to resolve insolvency; the average time in Latin America is 2.9 years.
4. Industrial Policies
The Colombian government offers investment incentives such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy” (creative industries), agriculture, and entrepreneurship. In 2020, the government announced additional incentive schemes that aim to attract large investments exceeding $350 million and create at least 250 local jobs, facilitate COVID-19 recovery, and generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most-favored-nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.
The government offers tax incentives to all investors, such as preferential import tariffs, tax exemptions, and credit or risk capital. Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters and former conflict-affected municipalities. Companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional, sector, or business size considerations. Border areas have special protections due to currency fluctuations in neighboring countries which can impact local economies. National and local governments also offer special incentives, such as tax holidays, to attract specific industries.
The Colombian government introduced a variety of incentives for specific sectors as part of the 2019 tax reform. Among the incentives are:
Income from hotels built, renovated, or extended through January 1, 2029 in municipalities of less than 200,000 inhabitants will be taxed at nine percent for 20 years. The same facilities in larger municipalities will be taxed at nine percent for 10 years.
Income normally taxed at 33 percent that is invested in agricultural projects or orange (creative) economy initiatives will be tax free.
Income from the sale of electric power generated by wind, biomass, solar, geothermal, or tidal movement will be tax free, provided carbon dioxide emission certificates are sold in accordance with the Kyoto Protocol and 50 percent of the income from the certificate sale is invested in social projects benefiting the region where the power was generated.
Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions. Investments or grants to technological research and development projects are fully tax deductible in the year the investment was made. R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits.
In a tax reform passed in 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC). Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes through 2021, pay 25 percent of the general rate through 2024, and 50 percent through 2027. Medium and large-sized businesses will pay 50 percent of their normal taxes through 2021 and 75 percent through 2024. The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund social investments and infrastructure projects in lieu of paying taxes.
Foreign Trade Zones/Free Ports/Trade Facilitation
To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of duty deferral programs. One example is free trade zones (FTZs). While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations. Benefits under the FTZ regime include a single 20 percent tax rate (compared to 31 percent normally) and no customs value-added taxes or duties on raw material imports for use in the FTZ. Each FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.
Colombia also has initiated Special Economic Zones for Exports in the municipalities of Buenaventura, Cucuta, Valledupar, and Ipiales in order to encourage investment. These zones receive the same import benefits of FTZs, and operators are exempt from some payroll taxes and surcharges. Infrastructure projects in the zones are also exempt from some income taxes.
Performance and Data Localization Requirements
Performance requirements are not imposed on foreigners as a condition for establishing, maintaining, or expanding investments. The Colombian government does not have performance requirements, local employment requirements, or require excessively difficult visa, residency, permission, or work permit requirements for investors. Under the CTPA, Colombia grants substantial market access across its entire services sector.
The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection. It has defined adequate data protection and responsibilities with respect to international data transfers. The SIC requires data storage facilities that hold personal data to comply with government security and privacy requirements, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.
Software and hardware are protected by IPR. There is no obligation to submit source code for registered software.
5. Protection of Property Rights
The 1991 Constitution explicitly protects individual rights against state actions and upholds the right to private property. Secured interests in real property, and to a lesser degree movable property, are recognized and generally enforced after the property is properly registered. In terms of protecting third-party purchasers, existing law is inadequate. The concepts of a mortgage, trust, deed, and other types of liens exist, as does a reliable system of recording such secured interests. Deeds, however, present some legal risk due to the prevalence of transactions that have never been registered with the Public Instruments Registry. According to a survey made shortly before the signing of the FARC peace accord, some eight million hectares of land – 14 percent of the country – had been abandoned or acquired illegally. The government is working to title these plots and has started a formalization program for land restitution. The 2020 Doing Business report ranked Colombia 62nd for ease of registering property.
Intellectual Property Rights
In Colombia, the granting, registration, and administration of intellectual property rights (IPR) are carried out by four primary government entities. The SIC acts as the Colombian patent and trademark office. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protections and data protections for agricultural products. The Ministry of Interior administers copyrights through the National Copyright Directorate (DNDA). The Ministry of Health and Social Protection handles data protection for products registered through the National Food and Drug Institute (INVIMA). Primary responsibility for enforcement resides with the Fiscalia General de la Republica (FGR), the Tax and Customs Authority (DIAN), and the Fiscal and Customs Police (POLFA).
The Intersectoral Intellectual Property Commission (CIPI) serves as the interagency technical body for IPR issues. Colombia aims to ratify the Treaty of Marrakesh in 2021, and CIPI has also mentioned progress toward ratification of the Beijing Treaty, the reactivation and update of the Anti-Piracy Agreement for Colombia, and the possible accession of Colombia to the Hague System on Industrial Designs. The last comprehensive interagency policy for IPR issues (Conpes 3533) was issued by the National Planning Department in 2008; the pandemic delayed its planned 2020 publication of a new national policy for IPR. Colombia is subject to Andean Community Decision 486 on trade secret protection, which is fully implemented domestically by the Unfair Competition Law of 1996.
Colombia provides a 20-year protection period for patents, a 10-year term for industrial designs, and 20- or 15-year protection for new plant varieties, depending on the species. Colombia has been on the U.S. Trade Representative’s Special 301 Watch List every year since 1991, and in 2019 was upgraded from “Priority Watch List” to “Watch List” status.
The CTPA improved standards for the protection and enforcement of a broad range of IPR. Improvements include state-of-the-art protections for digital products such as software, music, text, and videos; stronger protection for U.S. patents, trademarks, and test data; and prevention of piracy and counterfeiting by criminalizing end-use piracy. However, Colombia has outstanding CTPA commitments related to IPR. Colombian officials continue discussing with the United States draft legislation regulating internet service providers on issues such as compulsory takedown of online content and the protection of intermediaries with “safe harbor” provisions for unintentional copyright infringement. The legislation has not yet been introduced to Congress. Colombia has not yet signed the International Union for the Protection of New Varieties of Plants (UPOV 91). Colombia maintains that the existing Andean Community Decision 345 is in effect and equivalent to UPOV 91, but this is not an interpretation shared by the United States. On Colombia’s request, UPOV conducted a review and identified a non-conformity that Colombia asserts are addressed by two decrees, 2468 and 2687. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection.
Colombia reformed its copyright law under Decree 1915 of July 2018. The bill extends the term of copyright protection, imposes civil liability for circumvention of technological protection measures, and strengthens enforcement of copyright and related rights. On July 31, 2019 the Colombian Constitutional Court issued ruling C-345-19 that recognizes the constitutionality of statutory damages for copyright infringement.
Colombia’s success combating counterfeiting and IPR violations, and enforcement in the digital space, remains limited. In March 2021, Colombia’s National Copyright Directorate (DNDA) imposed an order requiring internet providers to block IP addresses used to transmit pirated digital content, the first such order in Colombia. Industry advocates called this an important precedent for combatting IP theft. A 2015 law increased penalties for those involved in running contraband, but more effective implementation is needed. Colombian authorities coordinate with the United States on investigations, but key agencies often do not have the requisite authorities or sufficient numbers of trained personnel to effectively inspect and seize merchandise and to investigate smugglers and counterfeiters. Despite high-profile seizures of counterfeit goods, such goods remain widely available in Colombia’s “San Andresitos” markets. No Colombian markets are listed in the U.S. Trade Representative’s (USTR) Review of Notorious Markets for Counterfeiting and Piracy.
U.S. stakeholders continue to raise concerns about Colombia’s regulation of the pharmaceutical sector, where regulatory barriers, a focus by the government on cost containment over health outcomes, delays in processing pharmaceutical registrations at INVIMA, and Congressional proposals to limit pharmaceutical IP restrict market entry and reduce the attractiveness of Colombia as a place to invest and do business.
Colombia is on the Watch List in USTR’s 2021 Special 301 Report.
The Colombian Securities Exchange (BVC after its acronym in Spanish) is the main forum for trading and securities transactions in Colombia. The BVC is a private company listed on the stock market. The BVC, as a multi-product and multi-market exchange, offers trading platforms for the stock market, along with fixed income and standard derivatives. The BVC also provides listing services for issuers.
Foreign investors can participate in capital markets by negotiating and acquiring shares, bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted by a local administrator, such as trust companies or Financial Superintendence-authorized stock brokerage firms. Direct and portfolio foreign investments must be registered with the Central Bank. Foreigners can establish a bank account in Colombia as long as they have a valid visa and Colombian government identification.
The market has sufficient liquidity for investors to enter and exit sizeable positions. The central bank respects IMF Article VIII and does not restrict payments and transfers for current international transactions. The financial sector in Colombia offers credit to nationals and foreigners that comply with the requisite legal requirements.
Money and Banking System
In 2005, Colombia consolidated supervision of all aspects of the banking, financial, securities, and insurance sectors under the Financial Superintendence. Colombia has an effective regulatory system that encourages portfolio investment, and the country’s financial system is strong by regional standards. Commercial banks are the principal source of long-term corporate and project finance in Colombia. Loans rarely have a maturity in excess of five years. Unofficial private lenders play a major role in meeting the working capital needs of small and medium-sized companies. Only the largest of Colombia’s companies participate in the local stock or bond markets, with the majority meeting their financing needs either through the banking system, by reinvesting their profits, or through credit from suppliers.
Colombia’s central bank is charged with managing inflation and unemployment through monetary policy. Foreign banks are allowed to establish operations in the country, and must set up a Colombian subsidiary in order to do so. The Colombian central bank has a variety of correspondent banks abroad.
Foreign Exchange and Remittances
There are no restrictions on transferring funds associated with FDI. Foreign investment into Colombia must be registered with the central bank in order to secure the right to repatriate capital and profits. Direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented, with few exceptions. The official exchange rate is determined by the central bank. The rate is based on the free market flow of the previous day. Colombia does not manipulate its currency to gain competitive advantages.
The government permits full remittance of all net profits regardless of the type or amount of investment. Foreign investments must be channeled through the foreign exchange market and registered with the central bank’s foreign exchange office within one year in order for those investments to be repatriated or reinvested. There are no restrictions on the repatriation of revenues generated from the sale or closure of a business, reduction of investment, or transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. International reserves have remained well above this threshold for decades.
Sovereign Wealth Funds
In 2012, Colombia began operating a sovereign wealth fund called the Savings and Stabilization Fund (FAE), which is administered by the central bank with the objective of promoting savings and economic stability in the country. Colombia is not a member of the International Forum of Sovereign Wealth Funds. The fund can administer up to 30 percent of annual royalties from the extractives industry. Its primary investments are in fixed securities, sovereign and quasi-sovereign debt (both domestic and international), and corporate securities, with just eight percent invested in stocks. The government transfers royalties not dedicated to the fund to other internal funds to boost national economic productivity through strategic projects, technological investments, and innovation. In 2020, the government authorized up to 80 percent of the FAE’s USD 3.9 billion in assets to be lent to the Fund for the Mitigation of Emergencies (FOME) created in response to the pandemic.
7. State-Owned Enterprises
Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance. According to Ministry’s 2019 annual report, the number of state-owned companies is 105, with a combined value of USD 20 billion. The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66. Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline). SOEs competing in the Colombian market do not receive non-market-based advantages from the government. The Ministry of Finance normally updates their annual report on SOEs every June.
Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995. This law stipulates that the sale of government holdings in an enterprise should be offered to two groups: first to cooperatives and workers’ associations of the enterprise, then to the general public. During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public. A series of privatizations planned for 2020 were postponed to 2021 due to the pandemic. The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority. The government is increasingly turning to concessions and using public-private partnerships (PPPs) to secure and incentivize infrastructure development.
In order to attract investment and promote PPPs, Colombian modified infrastructure regulations to clarify provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities. The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies. However, infrastructure development companies considering bidding on tenders have raised concerns about unacceptable levels of risk that result from a law (Ley 80) establishing a framework for public works projects. Interpretations of Ley 80 do not establish a liability cap on potential judgments and view company officials equal to those with fiscal oversight authority when it comes to criminal liability for misfeasance.
Municipal enterprises operate many public utilities and infrastructure services. These municipal enterprises have engaged private sector investment through concessions. There are several successful concessions involving roads. These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.
8. Responsible Business Conduct
In 2020, the Colombian government released its second National Action Plan on Business and Human Rights for the period 2020-2022, which responds to the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises. Colombia also adheres to the corporate social responsibility (CSR) principles outlined in the OECD Guidelines for Multinational Enterprises. CSR cuts across many industries and Colombia encourages public and private enterprises to follow OECD CSR guidelines. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia’s armed conflict, victims of violence, and the environment. Larger companies structure their CSR programs in accordance with accepted international principles. Companies in Colombia have been recognized on an international level for their CSR initiatives, including by the State Department.
Overall, Colombia has adequate environmental laws, is proactive at the federal level in enacting environmental protections, and does not waive labor or environmental regulations to attract investors. Colombian law also has provisions requiring consultations with indigenous communities before many large projects. However, the Colombian government struggles with enforcement, particularly in more remote areas. Geography, lack of infrastructure, and lack of state presence all play a role, as does a general shortage of resources in national and regional institutions. Environmental defenders face threats from narcotics traffickers, paramilitaries, and other illegal armed groups, particularly in areas with limited state presence. The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation. Colombia participates in the Extractive Industries Transparency Initiative (EITI).
In parallel with its OECD accession, the Colombian government worked with the OECD in a series of assessments in order to develop and implement the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, especially related to gold mining. The Colombian government faces challenges in formalizing illegal gold mining operations. Colombia ratified the Minamata Convention on Mercury in 2018 and banned the use of mercury in mining. It has committed to phase out mercury use from all other industries by 2023. Colombia is still determining how to enforce laws to achieve this goal.
Buyers, sellers, traders, and refiners of gold may wish to conduct additional due diligence as part of their risk management regimes to account for the influx of illegally-mined Colombian gold into existing supply chains. Throughout the country, Colombian authorities have taken some steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts, and often employ forced labor. The Colombian government has focused its efforts on transnational criminal elements involved in the production, laundering, and sale of illegally-mined gold, and the fraudulent documentation that is used to obscure the origin of illegally-mined gold. Colombia is actively pursuing new policies, proposing new legislation, and changing mechanisms to enforce laws against illegal gold mining.
Colombia has not signed the Montreux Document. In 2020, its National Organization for Accreditation (ONAC) and Institute for Technical Standards and Certification (ICONTEC) began ISO 18788 compliance certification processes for private security companies.
Corruption, and the perception of it, is a serious obstacle for companies operating or planning to invest in Colombia. Analyses of the business environment, such as the WEF Global Competitiveness Index, consistently cite corruption as a problematic factor, along with high tax rates, inadequate infrastructure, and inefficient government bureaucracy. Transparency International’s latest “Corruption Perceptions Index” ranked Colombia 92nd out of 180 countries assessed and assigned it a score of 39/100, a slight improvement from the year prior. Customs, taxation, and public works contracts are commonly-cited areas where corruption exists.
Colombia has adopted the OECD Convention on Combating Bribery of Foreign Public Officials and is a member of the OECD Anti-Bribery Committee. It also passed a domestic anti-bribery law in 2016. It has signed and ratified the UN Anticorruption Convention and adopted the OAS Convention against Corruption. The CTPA protects the integrity of procurement practices and criminalizes both offering and soliciting bribes to/from public officials. It requires both countries to make all laws, regulations, and procedures regarding any matter under the CTPA publicly available. Both countries must also establish procedures for reviews and appeals by any entities affected by actions, rulings, measures, or procedures under the CTPA.
Resources to Report Corruption
Useful resources and contact information for those concerned about combating corruption in Colombia include the following:
The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/
The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/ • The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio
The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio
Security in Colombia has improved significantly over recent years, most notably in large urban centers. Terrorist attacks and powerful narco-criminal group operations pose a threat to commercial activity and investment in some rural zones where government control is weak. In 2016, Colombia signed a peace agreement with the FARC to end half a century of confrontation. Congressional approval of that peace accord put in motion a disarmament, demobilization, and reintegration process, which granted the FARC status as a legal political organization and took over 13,000 combatants off the battlefield. Currently the peace negotiations with the National Liberation Army (ELN), which began in 2017, are suspended. This terrorist group continues a low-cost, high-impact asymmetric insurgency, including an attack on the Colombian police academy in 2019 that killed 22 cadets. The ELN often focuses attacks on oil pipelines, mines, roads, and electricity towers to disrupt economic activity and pressure the government. The ELN also extorts businesses in their areas of operation, kidnaps personnel, and destroys property of entities that refuse to pay for protection.
11. Labor Policies and Practices
An OECD economic survey of Colombia was published in October 2019. The report mentions progress on labor market reforms, but cites a weakening of the labor market given decelerating economic growth, stalled progress on labor force participation, and persistently high income inequality. At the end of 2020, 49.2 percent of the urban workforce was working in the informal economy. The overall unemployment rate at that time was 17.3 percent. Both figures represent deteriorations due to the economic shock of the COVID-19 pandemic. Colombia has a wide range of skills in its workforce, including managerial-level employees who are often bilingual, but faces large skills gaps. Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy, most notably the February 2021 announcement of ten-year Temporary Protected Status for the country’s estimated 1.8 million Venezuelan migrants.
Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation. Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions). It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security. Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force. Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage.
The 1991 Constitution protects the right to constitute labor unions. Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union. Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions. Colombia has a low trade union density (9.5 percent). Where unions are present, multiple affiliation sometimes poses challenges for collective bargaining. The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector. Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD. The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining and to strengthen union representation within companies and regulate strikes in the essential public services sector. Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions, and employers are prohibited from using strike-breakers at any time during the course of a strike. After 60 days of strike action, the parties are subject to compulsory arbitration. Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”
Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract. No labor laws are waived in order to attract or retain investment. In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals. Labor permits are not required in Colombia, except for minors of the minimum working age. Foreign employees have the same rights as Colombian employees. Employers may use temporary service agencies to subcontract additional workers for peaks of production. Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs. The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (for example, those with work-related injuries or union leaders). The Ministry of Labor has been cracking down on using temporary or contract workers for jobs that are not temporary in nature, although challenges remain in this area.
Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors. Homicides of unionists (social leaders) remain a concern. In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments. In January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report. For additional information on labor law enforcement see:
Serbia’s investment climate has modestly improved in recent years, driven by macroeconomic reforms, greater financial stability, fiscal discipline, and a European Union (EU) accession process that encourages legal changes that improve the business climate. The government successfully completed a 30-month Policy Coordination Instrument with the International Monetary Fund (IMF) in January 2021 and is now negotiating a new stand-by arrangement. Serbia improved four places in 2020 on the World Bank’s Doing Business index and is now ranked 44th globally. Attracting foreign investment remains an important priority for the government; and in 2021 the United States and Serbia signed a new Investment Incentive Agreement that may facilitate opportunities in a variety of sectors. U.S. investors in Serbia are generally positive due to the country’s strategic location, well-educated and affordable labor force, excellent English language skills, investment incentives, and free-trade arrangements with key markets, particularly the EU. U.S. investors generally enjoy a level playing field with their Serbian and foreign competitors. The U.S. Embassy in Belgrade often assists investors when issues arise, and Serbian leaders are responsive to investment concerns. However, challenges remain, particularly bureaucratic delays and corruption, as well as loss-making state-owned enterprises (SOEs), a large informal economy, and an inefficient judiciary. Political influence on the decisions of nominally independent regulatory agencies is also a concern.
The Serbian government has identified economic growth and job creation as top priorities and has committed to resolving several long-standing issues related to consolidating market-driven capitalism. The government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Companies and officials have noted that the adoption of reforms has sometimes outpaced thorough implementation of these reforms. Digitizing certain functions (e.g., construction permitting, tax administration, e-signatures, and removing the previously ubiquitous requirement for ink stamps) has not yet brought a dramatic improvement in processing times and may not be consistently implemented.
The government is slowly making progress on resolving troubled SOEs. Where possible, this has been achieved through bankruptcy or privatization actions. The government plans to privatize 78 more companies and is also slowly reducing Serbia’s bloated public-sector workforce, mainly through attrition and hiring limitations that cap new hiring at 70% of the previous year’s attrition.
If the government delivers on promised reforms during its EU accession process, business opportunities will likley continue to grow in the coming years. Sectors that stand to benefit include agriculture and agro-processing, solid waste management, sewage, environmental protection, information and communications technology (ICT), renewable energy, health care, mining, and manufacturing.
Women in Serbia generally enjoy equal treatment in business, and the government offers various programs to support women’s businesses. Starting in 2017, a Serbian government program provides approximately 1 million USD annually in grants from the government budget to support women’s innovative entrepreneurship.
Investors should monitor the government’s implementation of reforms, as well as its changing investment incentive programs.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Attracting FDI is a priority for the Serbian government. The Law on Investments extends national treatment to foreign investors and prohibits discriminatory practices against them. The Law also allows the repatriation of profits and dividends, provides guarantees against expropriation, allows waivers of customs duty for equipment imported as capital in-kind, and enables foreign investors to qualify for government incentives.
The Government’s investment promotion authority is the Development Agency of Serbia (Razvojna agencija Srbije – RAS: http://ras.gov.rs/ ). RAS offers a wide range of services, including support of direct investments, export promotion, and coordinating the implementation of investment projects. RAS serves as a one-stop-shop for both domestic and international companies. The government maintains a dialogue with businesses through associations such as the Serbian Chamber of Commerce, American Chamber of Commerce in Serbia, Foreign Investors’ Council (FIC), and Serbian Association of Managers (SAM).
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish and own businesses and to engage in all forms of remunerative activity. Serbia has no investment screening or approval mechanisms for inbound foreign investment. U.S. investors are not disadvantaged or singled out by any rules or regulations.
For some business activities, licenses are required (e.g., financial institutions must be licensed by the National Bank of Serbia prior to registration). Licensing limitations apply to both domestic and foreign companies active in finance, energy, mining, pharmaceuticals, medical devices, tobacco, arms and military equipment, road transportation, customs processing, land development, electronic communications, auditing, waste management, and production and trade of hazardous chemicals.
Serbian citizens and foreign investors enjoy full private-property ownership rights. Private entities can freely establish, acquire, and dispose of interests in business enterprises. By law, private companies compete equally with public enterprises in the market and for access to credit, supplies, licenses, and other aspects of doing business.
Agribusiness: Foreign citizens and foreign companies are prohibited from owning agricultural land in Serbia. However, foreign ownership restrictions on farmland do not apply to companies registered in Serbia, even if the company is foreign-owned. Unofficial estimates suggest that Serbian subsidiaries of foreign companies own some 20,000 hectares of farmland in the country. EU citizens are exempt from this ban, although they may only buy up to two hectares of agricultural land under certain conditions. They must permanently reside in the municipality where the land is located for at least 10 years, practice farming on the land in question for at least three years and own adequate agriculture machinery and equipment.
Defense: The Law on Investments adopted in 2015 ended discriminatory practices that prevented foreign companies from establishing companies in the production and trade of arms (for example, the defense industry) or in specific areas of the country. Further liberalization of investment in the defense industry continued via a new Law on the Production and Trade of Arms and Ammunition, adopted in May 2018. The law enables total foreign ownership of up to 49% in seven SOEs, collectively referred to as the “Defense Industry of Serbia,” so long as no single foreign shareholder exceeds 15% ownership. The law also cancels limitations on foreign ownership for arms and ammunition manufacturers.
Other Investment Policy Reviews
Serbia has not undergone any third-party investment policy reviews in the past three years.
According to the World Bank’s 2020 Doing Business report, it takes seven procedures and seven days to establish a foreign-owned limited liability company in Serbia. This is fewer days but more procedures than the average for Europe and Central Asia. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Serbia must translate its corporate documents into Serbian.
Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in Serbian at www.apr.gov.rs/home.1435.html. All entities applying for incorporation with SBRA can use a single application form and are not required to have signatures notarized.
Companies in Serbia can open and maintain bank accounts in foreign currency, although they must also have an account in Serbian dinars (RSD). The minimum capital requirement is symbolic at RSD 100 (less than 1 USD) for limited liability companies, rising to RSD 3 million (approximately 29,900 USD) for a joint stock company. (Some foreign companies have difficulties opening a bank account due to a requirement from the Law on Prevention of Money Laundering and Terrorist Financing that requires companies to disclose their ultimate owner). A single-window registration process enables companies that register with SBRA to obtain a tax registration number (poreski identifikacioni broj – PIB) and health insurance number with registration. In addition, companies must register employees with the Pension Fund at the Fund’s premises. Since December 2017, the Labor Law requires employers to register new employees before they start their first day at work; previously, the deadline was registration within 15 days of employment. These amendments represent an attempt by the government to decrease the grey labor market by allowing labor inspectors to penalize employers if they find unregistered workers.
Pursuant to the Law on Accounting, companies in Serbia are classified as micro, small, medium, and large, depending on the number of employees, operating revenues, and value of assets.
RAS supports direct investment and promotes exports. It also implements projects aimed at improving competitiveness, supporting economic development, and supporting small-and medium-sized enterprises (SMEs) and entrepreneurs. More information is available at http://ras.gov.rs.
Serbia’s business-facilitation mechanisms provide for equitable treatment of both men and women when a registering company, according to the World Bank’s 2020 Doing Business Index. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.
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 for short-term securities issued or purchased by EU countries and international financial institutions. 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. 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, Algeria, Austria, Azerbaijan, Belarus, Belgium-Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Cuba, the Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Finland, France, Germany, Ghana, Greece, Guinea, Hungary, Indonesia, Iran, Ireland, Israel, Italy, Kazakhstan, Kuwait, Libya, Lithuania, Macedonia, Malta, Montenegro, Morocco, the Netherlands, Nigeria, Poland, Portugal, Qatar, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Zimbabwe. (See http://mtt.gov.rs/download/Pregled percent20Zemalja.pdf)
Serbia does not have a bilateral taxation treaty with the United States.
Serbia has signed and implemented bilateral taxation treaties with Albania, Armenia, Austria, Azerbaijan, Belgium, Belarus, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, the Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Hong Kong, India, Indonesia (as of January 1, 2019), Iran, Ireland, Italy, Israel, Kazakhstan, Kuwait, Latvia, Lithuania, Libya, Luxembourg, Macedonia, Malta, Moldova, Montenegro, the Netherlands, Norway, Pakistan, Poland, Qatar, the Republic of Korea, Romania, Russia, San Marino (as of January 1, 2019) Slovakia, Slovenia, Spain, Sri Lanka, Switzerland, Sweden, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom, and Vietnam. (See the Serbian Finance Ministry website at https://www.mfin.gov.rs/propisi/ugovori-o-izbegavanju-dvostrukog-oporezivanja/.
Serbia has signed and ratified bilateral taxation treaties with Ghana, Guinea, Morocco, Palestine, the Philippines and Zimbabwe; however, the foreign legislatures have not yet ratified these agreements.
Serbia is a member of the Central European Free Trade Agreement (with Albania, Bosnia and Herzegovina, Macedonia, Moldova, Montenegro, and Kosovo). It enjoys free-trade status for almost all products exported to the European Customs Area (the EU plus the European Free Trade Association states of Iceland, Liechtenstein, Norway, and Switzerland). Serbia has bilateral free trade agreements (FTAs) with Belarus, Kazakhstan, Russia, and Turkey.
Serbia signed a free-trade agreement with the Eurasian Economic Union (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) on October 25, 2019. The Serbian Parliament ratified the agreement on February 25, 2020, and the Russian Parliament ratified it on November 3, 2020, but it has yet to be ratified by the other signatory countries. Once it comes into force, 60 days following final ratification by other signatory countries, it will replace the current bilateral FTAs with most EAEU member countries.
Serbia’s duty-free treatment of certain exports to the United States under the Generalized System of Preferences (GSP) expired on December 31, 2020. Serbia has Most Favored Nation status on exports of other goods. The U.S. Congress did not re-authorize the GSP program before adjourning for the year. As a result, imports entering the United States that were previously eligible for duty-free treatment under GSP are now subject to regular, Normal Trade Relations (MFN) rates of duty, which are shown in the U.S. tariff schedule under the “General” column heading. Congress may choose to renew the program retroactively, as it has previously. If so, duties paid on GSP-eligible items will be refunded. Importers should continue to mark GSP-eligible importations with the applicable special program indicator (SPI) for GSP (“A,”) which will allow CBP to process duty refunds automatically.
3. Legal Regime
Transparency of the Regulatory System
Serbia is undertaking an extensive legislative amendment process aimed at harmonizing its laws with those of the European Union’s acquis communautaire. Harmonization of Serbian law with the acquis has created a legal and regulatory environment more consistent with international norms.
The government, ministries, and regulatory agencies develop, maintain, and publish a plan online of all anticipated legislation and regulations, as well as deadlines for their enactment. Serbian law requires that the text of proposed legislation and regulations be made available for public comment and debate if the law would significantly affect the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public. The website of Serbia’s unicameral legislature, called the National Assembly (www.parlament.gov.rs ), provides a list of both proposed and adopted legislation. There is no minimum period set by law for the text of proposed legislation or regulations to be publicly available.
In recent years, Serbia’s National Assembly has adopted many laws through an “urgent procedure”. By law, an urgent procedure can be used only “under unforeseeable circumstances,” to protect human life and health, and to harmonize legislation with the EU acquis. Bills proposed under an urgent procedure may be introduced with less than 24 hours’ notice, thus limiting public consideration and parliamentary debate. Use of the urgent procedure for the adoption of laws was concerningly frequent in the previous period. Concerns regarding the consequent lack of transparency in the legislative process were regularly reported by the European Commission and the Council of Europe’s Group of States against Corruption (GRECO). The 2019 European Commission Staff Working Document for Serbia stated that “some steps were taken to address shortcomings in the work of the parliament with the reduction of urgent procedures and previous practices of filibustering.” Urgent parliamentary procedures were reduced from 44% of all legislative acts in the previous reporting period (2018-2019) to 19% between March 2019 and March 2020.
International Financial Reporting Standards (IFRS) are required for publicly listed companies and financial institutions, as well as for the following large legal entities, regardless of whether their securities trade in a public market: insurance companies, financial leasing lessors, voluntary pension funds and their management companies, investment funds and their management companies, stock exchanges, securities brokerages, and factoring companies. Additionally, IFRS standards are required for all foreign companies whose securities trade is in any public market.
In 2018, Serbia enacted a Law on Ultimate Beneficial Owners Central Registry (“Law”). This Law was adopted to harmonize domestic legislation with international standards and to improve the existing system of detecting and preventing money laundering and the financing of terrorism. The Law on Ultimate Beneficial Owners Central Registry introduced a single, public, online electronic database maintained by the Serbian Business Registers Agency (www.apr.gov.rs), containing information on natural persons which are the ultimate beneficial owners of the companies (“Register”). Companies incorporated before December 31, 2018, are obliged to prepare and keep documentation regarding their ultimate beneficial owners at their offices, while new companies are obliged to register this information with the Register within 15 days of their incorporation. All companies were required to be registered accordingly in 2019.
In February 2018, Serbia joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the framework, 112 countries and jurisdictions are collaborating to implement measures against BEPS.
Regulatory inspections in Serbia are numerous and decentralized despite the existence of the Coordination Commission for Inspection Supervision. Nationally, there are 37 different inspectorates, operating within the competence of 12 different ministries. They operate without any significant cooperation or coordination, there is overlapping and duplication of functions among inspectorates, and there is a lack of consistency even within individual inspectorates, which represents a source of additional burdens and difficulties for business operation. The administrative court is the legal entity that considers appeals from inspection decisions.
Serbia’s public finances are relatively transparent, as the government regularly publishes draft and adopted budgets, as well as budget revisions. The government has also published, and Parliament has adopted, all end-of-year budgets from 2002 through 2020. The government regularly publishes information related to public debt on the website www.javnidug.gov.rs. This information is updated daily.
International Regulatory Considerations
Serbia is not a member of the World Trade Organization or the EU. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations. Serbia has formally opened 18 chapters of the EU acquis communautaire and has provisionally closed two. Most recently, Chapter VI on Free movement of capital was opened on December 10, 2019. None of the remaining 17 chapters have been opened since, including the chapters on free movement of goods, competition policy, energy, taxation, environment, and transport policy. The WTO accepted Serbia’s application for accession on February 15, 2005, and Serbia currently has observer status. No accession dates have been set for Serbia’s membership in either the EU or WTO.
Legal System and Judicial Independence
Serbia has a civil law system. The National Assembly codifies laws; the courts have sole authority to interpret legislation with the exception of so-called “authentic interpretation” reserved for the legislature itself. Although judicial precedent is not a source of law, written judgments have the non-binding effect of helping to harmonize court practices. Serbia has a law on contracts and commercial law.
In general, contract enforcement is weak, and the courts responsible for enforcing property rights remain overburdened. When negotiating contracts, the parties may agree on the means of resolving disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil litigation. Under Serbian commercial law, the Law on Obligations regulates contractual relations (also known as the Law on Contracts and Torts). Civil Procedure Law, which details the procedure in commercial disputes, governs contract-related disputes. Serbian law need not be the governing law of a contract entered into in Serbia. Foreign courts’ judgments are enforceable in Serbia only if Serbian courts recognize them. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. The Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements, regulates the procedures for recognition of foreign court decisions.
The organization of the court system and jurisdiction of courts in Serbia are regulated by statute. The court system consists of the Constitutional Court, courts of general jurisdiction, and courts of special jurisdiction. Basic courts are courts of first instance and cover one or more municipalities. Higher courts cover the territory of one or more basic courts and are also courts of first instance, while acting as courts of second instance over basic courts. Commercial courts adjudicate commercial matters, with the Commercial Appeal Court being the second-instance court for such matters. Appellate courts are second instance courts to both basic and higher courts, except when higher courts act as second instance courts to basic courts. The Constitutional Court decides on the constitutionality and legality of laws and bylaws, and it protects human and minority rights and freedoms. The Supreme Cassation Court, the country’s highest court, is competent to decide on extraordinary judiciary remedies and to ensure uniform application of the law and equality of the parties in court proceedings. Regulations and regulatory enforcement actions are appealable within the national court system.
Serbia’s legal system distinguishes between Commercial Courts and courts of general jurisdiction. Commercial Courts have original jurisdiction over disputes arising from commercial activities, including disputes involving business organizations, business contracts, foreign investment, foreign trade, maritime law, aeronautical law, bankruptcy, civil economic offenses, intellectual property rights, and misdemeanors committed by commercial legal entities. Their jurisdiction extends to legal and natural persons only if a natural person has a joint or related interest with the legal entity (already) in dispute, in cases where both parties are economic operators. When only one of the parties is an economic operator and the other is not, such disputes are decided by courts of general civil jurisdiction and not by Commercial Courts. As an exception, in bankruptcy and reorganization proceedings, Commercial Courts have jurisdiction over all disputes where an economic operator is in bankruptcy in relation to other economic or non-economic operators.
Jurisdiction over civil commercial disputes is organized on two levels: Commercial Courts hear first instance cases; and the Appellate Commercial Court decides on appeals against lower court decisions. Commercial courts have broad jurisdiction. There are 16 trial-level Commercial Courts in Serbia. They handle disputes between legal entities, those between domestic and foreign companies; disputes concerning intellectual property and related rights; those arising under the application of Serbia’s Company Law and its regulation; and those relating to privatization and securities; relating to foreign investments, ships and aircraft, navigation at sea and on inland waters, and involving maritime and aviation law. Commercial courts also conduct bankruptcy and reorganization proceedings.
Congestion in the Commercial Courts is high. The time to case disposition in commercial litigation is in line with EU averages. However, there is inconsistent application of the law across Serbia, including in Commercial Courts.
According to the Constitution, Serbia’s judicial system is legally independent of the executive branch; but in practice, significant obstacles remain to true judicial independence. The current constitutional and legislative framework leaves room for undue political influence over the judiciary, and political pressure on the judiciary remains high. The European Commission’s 2020 Staff Working Document for Serbia re-stated that Serbia’s judicial system made no progress and that the scope for continued political influence remains a serious concern.
Laws and Regulations on Foreign Direct Investment
Significant laws for investment, business activities, and foreign companies in Serbia include the Law on Investments, the Law on Foreign Trade, the Law on Foreign Exchange Operations, the Law on Markets of Securities and other Financial Instruments, the Company Law, the Law on Registration of Commercial Entities, the Law on Banks and Other Financial Institutions, Regulations on Conditions for Establishing and Operation of Foreign Representative Offices in Serbia, the Law on Construction and Planning, the Law on Financial Leasing, the Law on Concessions, the Customs Law, and the Law on Privatization. These statutes set out the basic rules foreign companies must follow if they wish to establish subsidiaries in Serbia, invest in local companies, open representative offices in Serbia, enter into agency agreements for representation by local companies, acquire concessions, or participate in a privatization process in Serbia. Other relevant laws include:
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.
Serbia undertook major anti-money laundering and counter-financing of terrorism regime (AML/CFT) legislative reforms following the intergovernmental Financial Action Task Force’s (FATF) February 2018 finding that Serbia had strategic deficiencies in its AML/CFT regime. To respond to the deficiencies, twelve new laws and over 60 regulations came into force. The new legislation includes a new AML/CFT Law, as well as amendments to the Criminal Code that address money laundering. Among other AML/CFT reforms, Serbia introduced a Law on Ultimate Beneficial Owners Central Registry. The Serbian Business Registers Agency maintains a single, public, online electronic database containing information on natural persons who are the ultimate beneficial owners of legal entities. FATF removed Serbia from its monitoring process in June 2019, but Serbia remains subject to enhanced follow-up procedures by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, known as MONEYVAL.
There is no primary or “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors. However, numerous Serbian firms that provide legal and other professional services publish comprehensive information for foreign investors, including PricewaterhouseCoopers, https://www.pwc.rs/en/publications/assets/Doing-Business-Guide-Serbia-2019.pdf.
Competition and Antitrust Laws
The Law on Protection of Competition was enacted in 2009 and amended in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and in principle implements the law as an independent agency reporting directly to the National Assembly. In some cases, companies have reported perceptions that political factors have influenced the Commission’s decision-making. In 2019, the Commission completed ten proceedings for violations of competition rules, approved 172 mergers (and dismissed four), and issued 23 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online at http://www.kzk.gov.rs/izvestaji. Laws and regulations related to market competition are available at http://www.kzk.gov.rs/en/zakon-2.
Expropriation and Compensation
A foreign investor is guaranteed national treatment, which means that any legal entity or natural person investing in Serbia enjoys full legal security and protection equal to those of local entities. A stake held by a foreign investor or a company with a foreign investment cannot be the subject of expropriation. The contribution of a foreign investor may be in the form of convertible foreign currency, contribution in kind, intellectual property rights, and securities.
Serbia’s Law on Expropriation authorizes expropriation (including eminent domain) for the following reasons: education, public health, social welfare, culture, water management, sports, transport, public utility infrastructure, national defense, local/national government needs, environmental protection, protection from weather-related damage, mineral exploration or exploitation, resettlement of persons holding mineral-rich lands, property required for certain joint ventures, and housing construction for the socially disadvantaged.
In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law sets forth various criteria for arriving at the amount of compensation applicable to different types of land (e.g., agricultural, vineyards or forests), or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually agreed resolution within two months of the expropriation order.
The Law on Investment provides safeguards against arbitrary government expropriation of investments. There have been no cases of expropriation of foreign investments in Serbia since the dissolution of the former Federal Republic of Yugoslavia in 2003. There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia, which was dissolved in 1992.
The 2014 Law on Restitution of Property and Compensation applies to property seized by the government since March 9, 1945, shortly before the end of World War II, and includes special coverage for victims of the Holocaust, who are authorized to reclaim property confiscated by Nazi occupation forces. Under the law, restitution should be in kind when possible, and otherwise in the form of state bonds. Many properties are exempt from in-kind restitution, including property previously owned by corporations. Heirless property left by victims of the Holocaust is subject to a separate law, which was approved in February 2016.
Serbia committed itself under its restitution law to allocate €2 billion, plus interest, for financial compensation to citizens in bonds and in cash. The restitution law caps the amount of compensation that any single claimant may receive at 500,000 EUR (approximately 586,400 USD). With amendments to the Law on Restitution and Compensation adopted in December 2018, the government postponed for the third time issuance of these bonds until December 2021, pending approval of necessary by-laws that would regulate bond issuance. The Law mandates that by-laws be adopted by Government of Serbia by June 2020. The bonds will be denominated in euros, carry a 2% annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution received 75,414 property claims, and the adjudication process is still ongoing. Parliament adopted new amendments to the Law on Restitution and Compensation in December 2020. These amendments enable a special way of compensating the beneficiaries of restitution to whom, according to the final decisions on compensation, the corresponding amount of compensation does not exceed the amount of 1,000 EUR, in which case the payment will be made exclusively in cash, starting in 2022. The amendments also regulate the dynamics and technique of issuing compensation bonds, starting in 2022.
Serbia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention), and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Law on Arbitration and the Law on Management of Courts regulate proceedings and jurisdiction over the recognition of foreign arbitral awards.
Investor-State Dispute Settlement
Although Serbia is a signatory to many international treaties regarding international arbitration, enforcement of an arbitration award can be a slow and difficult process. Serbia’s Privatization Agency refused for five years (2007-2012) to recognize an International Chamber of Commerce/International Court of Arbitration award in favor of a U.S. investor. The dispute caused the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, to severely restrict its activities in Serbia. The U.S. Embassy facilitated a settlement agreement between the Serbian government and the investor, and OPIC reinstated its programs for Serbia in February 2012, but in 2015 and early 2016 both a first instance and appellate Serbian court dismissed OPIC’s request for enforcement action to collect damages awarded to it by an international arbitration board in the same case. Serbia has no Bilateral Investment Treaty (BIT) with the United States. In the past 10 years, three publicly known investment disputes have involved U.S. citizens. There is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
The Law on Arbitration authorizes the use of institutional and ad hoc arbitration in all disputes, and regulates the enforcement of arbitration awards. The law is modeled after the United Nations Commission on International Trade Law (UNICTRAL Model Law).
Commercial contracts, in which at least one contracting party is a foreign legal or natural person, may incorporate arbitration clauses, invoking the jurisdiction of the Foreign Trade Court of Arbitration of the Serbian Chamber of Commerce, or any other foreign institutional arbitration body, including ad hoc arbitration bodies. International arbitration is an accepted means for settling disputes between foreign investors and the state.
Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:
1923 Geneva Protocol on Arbitration Clauses
1927 Geneva Convention on the Execution of Foreign Arbitration Decisions
1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
1961 European Convention on International Business Arbitration
1965 International Centre for the Settlement of Investment Disputes (ICSID)
Serbia allows for mediation to resolve disputes between private parties. Mediation is a voluntary process and is conducted only when both parties agree. The Law on Mediation regulates mediation procedures in disputes in the following areas of law: property, commercial, family, labor, civil, administrative and in criminal procedures where the parties act freely, unless the law stipulates exclusive authority of a court or other relevant authority.
Mediators can be chosen from the list of the Serbian National Association of Mediators, or from an official registry within the Ministry of Justice. There are two types of mediation: court-annexed and private mediation. A person can also be referred to mediation by a court, advocate, local ombudsman, employees of municipal or state authorities, an employer, or the other party to the conflict.
Serbia’s bankruptcy law is in line with international standards. According to the bankruptcy law, the goal is to provide compensation to creditors via the sale of the assets of a debtor company. The law stipulates automatic bankruptcy for legal entities whose accounts have been blocked for more than three years, and it allows debtors and creditors to initiate bankruptcy proceedings. The law ensures a faster and more equitable settlement of creditors’ claims, lowers costs, and clarifies rules regarding the role of bankruptcy trustees and creditors’ councils. Parliament adopted new amendments to the Bankruptcy Law in December 2017. These amendments enable better collection and reduced costs for creditors; provide shorter deadlines for action by bankruptcy trustees and judges; improve the position of secured creditors; anticipate new ways of assessing debtors’ assets by licensed appraisers; and introduce a special rule to lift bans on the execution of debtor assets that are under mortgage, giving rights to the secured creditor to sell such assets under rules that apply to mortgage sales. The latest amendments to the Law on Bankruptcy were adopted in December 2018, providing the amount up to which the advance payment can be determined, and guidelines to bankruptcy judges within which they can determine the advance payment in each specific case. A draft of the latest amendments to the Bankruptcy Law is being prepared. As explained by the Ministry of Economy, the purpose of these amendments is to provide conditions for creating a better business environment and more efficient implementation of bankruptcy proceedings.
Foreign creditors have the same rights as Serbian creditors with respect to initiating or participating in bankruptcy proceedings. Claims in foreign currency are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced. Serbia’s Criminal Code criminalizes intentionally causing bankruptcy, and fraud in relation to a bankruptcy proceeding. The 2020 World Bank Doing Business index ranked Serbia 41 out of 190 economies with regards to resolving insolvency, with an average time of two years needed to resolve insolvency and average cost of 20% of the estate. The recovery rate was estimated at 34.5 cents on the dollar (https://www.doingbusiness.org/content/dam/doingBusiness/country/s/serbia/SRB.pdf).
4. Industrial Policies
The 2015 Law on Investment defines Serbia’s investment incentives program. Incentives are available to both domestic and foreign investors. The law established a Council for Economic Development and the Development Agency of Serbia (RAS). The Council has oversight responsibility for the investment incentives program, while RAS plays a more operational role.
The level of available subsidies for investment projects is determined under the Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments, approved for the current year in January 2019. Investors are obliged to provide 25% of eligible costs from their own resources. For investment projects valued at 50-100 million EUR, subsidies are limited to 25% of the total investment, falling to 17% for projects over 100 million EUR. Under certain conditions, large companies can gain support for up to 50% of eligible costs for investment projects, medium-sized companies up to 60%, and small companies up to 70%.
The Decree makes available funds for investment projects in manufacturing and customer service centers. For manufacturing investments, state subsidies are available for any company that invests the equivalent of 100,000 EUR and employs at least 10 persons in a “devastated area.” For service center investments, subsidies are available for companies investing the equivalent of 150,000 EUR and creating at least 15 new jobs anywhere in the country. The required minimum investment and employment levels for subsidies increase on a sliding scale according to the level of development of the investment location. For each investment project in a devastated area, the state will pay the investor 40% of the eligible gross salary costs for newly employed people in the two-year period after reaching employment commitments, up to the equivalent of 7,000 EUR per new job; the subsidy declines to 20% of eligible costs up to 3,000 EUR per job in the most developed regions. For labor-intensive projects that create more than 200 new jobs, the government can approve additional incentives. The state will also provide subsidies for the purchase of fixed assets, again on a sliding scale based on the level of development at the investment location. The subsidy reaches 30% of eligible asset costs in a devastated area and declines to 10% in the most developed areas of Serbia. The total amount of subsidies granted cannot exceed the amount allowed under Serbia’s EU-compliant state aid regulations. The Serbian government may sell land for construction at a below-market price in support of an investment project that is of national importance.
There is a separate Decree on Defining Conditions for Approving Incentives in Attracting Direct Investments in Production of Food Products also approved in January 2019 with almost identical conditions to those mentioned above. The only difference is that state subsidies are available for any company that invests the equivalent of the minimum 2 million EUR and employs at least 30 new employees regardless of the level of the municipality development. For projects investing over 20 million EUR in the fixed assets, the government will approve additional incentives.
The government also approved a Decree on Conditions and Methods of Attracting Direct Investments in the Hotel Accommodation Service Sector in May 2019, making similar state subsidies available for any company that invests a minimum of the equivalent of 2 million EUR and employs at least 70 new employees in the sector. For investment projects valued at up to 30 million EUR, subsidies are limited to 20% of the of the eligible costs of investment in fixed assets, falling to 10% for projects over 30 million EUR. Details on all three decrees are available at: http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives/ and https://privreda.gov.rs/cat_propisi/uredbe1/.
The decrees on Attracting Direct Investments also establish criteria for granting local incentives to investments of importance for local development.
At the provincial level, the government of the Vojvodina region offers investment incentives, which are very similar to those described above. The main difference is that the program is implemented by the Development Agency of Vojvodina, which was established in February 2017 as the successor to the Vojvodina Investment Promotion Agency (VIP) (http://rav.org.rs/business-environment/incentives).
Local municipalities may sell land for construction at below-market rates for investments that promote local economic development. Other major incentives at the local level include exemptions or deductions on land-related fees and other local fees.
Serbia’s tax laws offer several incentives to new investors. The corporate profit tax rate is a flat 15%, one of the lowest in the region. Non-resident investors are taxed only on income earned in Serbia. A ten-year tax holiday on corporate profits is available for investors who hire more than 100 workers and invest more than RSD 1 billion (10 million USD). The tax holiday begins once the company starts making a profit.
According to the December 2019 Decree on Film Incentives, both domestic and foreign filmmakers are eligible to apply for a refund of 25% of qualifying costs. For film projects over €5 million, the government offers a refund of up to 30% of qualifying costs. The 2021 budget for film incentives is 7.1 million USD.
Employment incentives allow payroll tax deductions for persons registered with the National Employment Service for at least six months continuously. The incentives currently in place are valid from the moment of employment until December 31, 2021:
1-9 new jobs: 65% deduction
10-99 new jobs: 70% deduction
100+ new jobs: 75% deduction
The Serbian Innovation Fund provides various granting opportunities for young entrepreneurs and start-ups, including mini grants for development of technological innovation, matching grants for commercialization of research and development, and a collaborative grant scheme for joint R&D projects creating new products and services. These grants are mainly available for companies established in Serbia with majority private Serbian ownership.
Some subsidized loans for start-ups, entrepreneurs and SMEs are available through the state-owned Fund for Development and various ministries, and part are issued through RAS. Detailed information is available at https://fondzarazvoj.gov.rs (Serbian only). These loans are available to foreign-owned companies registered in Serbia, provided the Serbian registered company has not recorded losses in the previous two years.
The government issues guarantees or jointly finances foreign direct commercial investment projects. The government participates as a minority partner in financed infrastructure projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Serbia maintains 15 designated customs-free zones: in Apatin, Belgrade, two zones in Kragujevac (the second one was established on October 1, 2019), Krusevac, Novi Sad, Pirot, Priboj, Sabac, Smederevo, Svilajnac, Subotica, Uzice, Vranje, and Zrenjanin. The zones, established under the 2006 Law on Free Zones, are intended to attract investment by providing tax-free areas for company operations. Businesses operating in the zones qualify for benefits including unlimited duty-free imports and exports, preferential customs treatment, and tax relief in the form of value-added tax (VAT) exclusions. Companies operating within a free zone are subject to the same laws and regulations as other businesses in Serbia, except for their tax privileges.
Goods entering or leaving the zones must be reported to customs authorities, and payments must be made in accordance with regulations on hard-currency payments. Goods delivered from free zones into other areas of Serbia are subject to customs duties and tax unless they contain a minimum of 50% Serbian inputs. Earnings and revenues generated within free zones may be transferred freely to any country, including Serbia, without prior approval, and are not subject to any taxes, duties or fees.
In 2019 (the most recent year for which complete information is available), there were a total of 209 companies operating in Serbia’s free economic zones, of which 157 were domestically owned and 47 foreign-owned. The number of companies dropped by 21% compared to 2016 (from 265 companies in 2016 to 209 in 2019). The companies employed a total of 37,855 workers, which represents an increase of 7% compared to 2018. Total exports from free zones exceeded$2.5 billion USD in 2019, which is approximately 13% of Serbia’s total exports. Total imports into the zones were approximately 1.7 billion USD, or 6% of total imports. Total annual turnover in the free zones in 2019 stood at some 5 billion USD, a 1.5% drop compared to 2018. The largest drop came in the Kragujevac zone, where total turnover dell by 33% year-on-year, mostly due to production cuts at the Fiat manufacturing plant. Many companies operating in free zones are producers of automobile parts and other industrial goods. They include large multinational companies like Fiat, Michelin, Tigar Tyres, Ametek, Continental, Yazaki, Lear, PKC, Siemens, Swarovski, and Panasonic.
Performance and Data Localization Requirements
The Serbian government does not mandate local employment or have onerous visa, residence, or work permitting requirements for foreign nationals. It does not impose conditions for foreign investors to receive permission to invest.
The Serbian government does not maintain a policy of forced localization designed to oblige foreign investors to use domestic content in goods or technology. Similarly, the government does not force foreign investors to establish or maintain a specified amount of data storage within the country. There are no requirements for foreign IT providers to turn over source code or provide access to encryption.
With the Data Protection Law passed in November 2018, Serbia has implemented the requirements of the EU’s General Data Protection Regulation (GDPR). The law entered into force in August 2019 after a nine-month transition period. Some experts have criticized the law as unclear, citing provisions transcribed from EU law that include mechanisms that do not yet exist in Serbia’s domestic legal system, which leads to questions regarding the law’s implementation. Other experts have argued that with the law, Serbia has enacted a high personal data-protection standard, and that defects will be resolved over time.
The Decree on Conditions for Approving Incentives in Attracting Direct Investments defines conditions and limitations for investment incentives, such as maintaining investments at a specified location for up to five years. Similarly, investors are obliged to maintain the number of newly engaged employees for up to five years. Potential investors who want to use state grants are required to provide a minimum of 25% of eligible costs from their own resources. The deadline for implementation of investment projects and the creation of new workplaces is three years from the date of applying for state grants. This deadline may be extended for up to five years based on a written justification. Beneficiaries are obliged to provide a bank guarantee as security for the eventual return of received funds. In case of non-fulfilment of the conditions provided for in the state grant contract, the Ministry of Economy and the Council for Economic Development may decide to terminate the contract at any time; however, authorities have generally shown great flexibility in favor of investors to succeed. Conditions are applied uniformly to both domestic and foreign investors.
5. Protection of Property Rights
Serbia has an adequate body of laws for the protection of property rights, but enforcement of property rights through the judicial system can be very slow. A multitude of factors can complicate property titles: restitution claims, unlicensed and illegal construction, limitation of property rights to rights of use, outright title fraud and other issues. Investors are cautioned to investigate thoroughly all property title issues on land intended for investment projects.
During the country’s socialist years, owners of nationalized land became users of the land and acquired rights of use that, until 2003, could not be freely sold or transferred. In 2015, the government adopted a law that allows for property usage rights to be converted into ownership rights with payment of a market-based fee.
In 2015, the government implemented new amendments to the Law on Planning and Construction that separated the issuance of permits from conversion issues. These amendments cut the administrative deadline for issuing construction permits for a potential investor to 30 days and introduced a one-stop shop for electronic construction permits.
Serbia’s real-property registration system is based on a municipal cadaster and land books. Serbia has the basis for an organized real estate cadaster and property-title system. However, legalizing tens of thousands of structures built over the past twenty years without proper licenses remains an enormous challenge, as an estimated two million buildings in Serbia are not registered in the cadaster, of which almost half are residential properties. According to some estimates, every third building in Serbia was not built in accordance with legal requirements. In November 2015, the government adopted a new Law on Legalization, which simplified the registration process. Since then, however, only slightly more than 230,000 decisions on legalization have been issued. The deadline set by the law for legalization of all buildings constructed without proper permits is November 2023.
The World Bank’s 2020 Doing Business Index ranks Serbia 58th of 190 countries for time required to register real property (33 days).
Intellectual Property Rights (IPR)
Serbia is a member of the World Intellectual Property Organization (WIPO) and party to all major WIPO treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. While Serbia is not a member of the WTO, the Serbian government has taken steps to adhere to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Serbia’s IPR laws include TRIPS-compliant provisions and are enforced by courts and administrative authorities.
Serbia’s IPR legislation is modern and compliant with both the EU acquis communautaire and international standards. According to the EU’s 2019 Progress Report, Serbia has generally aligned its IPR legislation with the acquis.
Procedures for registration of industrial property rights and deposit of works and authorship with the Serbian Intellectual Property Office are straightforward and similar to procedures in most European countries. Relevant information is available at: http://www.zis.gov.rs/home.59.html.
Enforcement of IPR remains haphazard but is roughly consistent with levels in neighboring countries. The government has a Permanent Coordination Body for IPR enforcement activities with participation from the tax administration, police, customs, and several state inspection services. Cooperation with the Special Department for High-Technology Crime has resulted in court decisions to impose penalties in test cases against online traders and counterfeits. The Public Procurement Law requires bidders to affirm that they have ownership of any IPR utilized in fulfilling a public procurement contract. Although still present, trade in counterfeit goods—particularly athletic footwear and clothing—is declining in volume as the government has increased its enforcement efforts, including at the border. Upon seizure, however, authorities cannot destroy the goods unless they receive formal instructions from the rightsholders, who are billed for the storage and destruction of the counterfeit goods. Rightsholders are encouraged to register their IPR with the Customs Office by filling out an application for surveillance measures.
Inspectorates and customs authorities’ actions against IPR violations are relatively fast. However, enforcement of IPR in the court system often lasts up to two years in the first instance. Proceedings improved after the creation of semi-specialized IPR courts in 2015 according to the Foreign Investors’ Council. The Serbian Intellectual Property Office continues to train judges on IPR to enable more timely court decisions.
Digital IPR theft is not common, but many digital brands are not properly protected, and there is a risk of trademark squatting.
Developments in 2019 and 2020
Patents: The Law on Patents in 2019 introduced significant changes to an employer’s ability to patent their employees’ inventions. The amended law allows employers to file a patent application for a former employee’s innovations for up to one year after the employment ends, providing a higher level of legal certainty for corporations.
Topography of Semiconductor Products: The Law on the Legal Protection of Topography of Semiconductor Products was amended in 2019 and made fully compliant with EU legislation. There is no publicly available data indicating that anyone has ever exercised these rights in Serbia.
Copyright: Amendments made in 2019 to the Law on Protection of Copyright and Related Rights extends the definition of a work of authorship to include the technical and user documentation associated with software. The Law also addresses two additional issues: first, that multiple authors of a software product will all be deemed to be co-authors, and second, that an employee may require their employment contract to include additional remunerations for any software they create that their employer uses. However, if the employment agreement lacks such provisions, the employee is not entitled to remuneration after the fact, even if their software generates revenue for their employer. These provisions also apply to database producers. With respect to digital works, the 2019 amendments draw a clear line between digital and physical works. Owners or purchasers of a digital copy of a video game, TV show episode, or software are not entitled to further share and/or distribute copies.
Enforcement of Copyright: Court procedures for copyright infringement and related rights case are defined comprehensively, for they emphasize the need to preserve evidence and render urgent precautionary measures, including before an official claim might be submitted or the alleged infringing party is able to respond to the claim. The 2019 amendments clarify that a revision (as a legal remedy) may be filed in copyright infringement and related rights cases regardless of the claim’s value. The amendments also explicitly authorize the courts to summon any retailer or user of illegally downloaded mp3 files, software, or TV episodes.
Trademarks: Serbia recently adopted a new Law on Trademarks that came into force on February 1, 2020. The law includes two major changes. The first is the introduction of an opposition system. As before, the Intellectual Property Office performs an official examination of the refusal grounds for a trademark application, but now the trademark applications are published before the trademark is granted so that interested parties can challenge the validity of the pending registration. Interested parties have three months to file opposition proceedings from the date of publication, and the trademark applicant must respond within another 60 days or opposition is granted and the trademark is refused. This approach is similar to that of other European countries. The second major change due to Serbia’s new Law is the allowance of parallel imports. Serbia’s previous national trademark exhaustion system authorized brand-holders to prevent parallel imports. In contrast, the new worldwide system means that the trademark-holder cannot prohibit others from reselling the products that are legally in circulation anywhere in the world. Serbia is now compliant with U.S. standards. The former national system was aligned with EU legislation, which differentiates between goods circulating within the single market and those that were imported from a country outside of the EU market. During its EU accession process, Serbia is required to align its legislation with that of the EU.
Administrative Fees: Amendments to Serbia’s Law on Administrative Fees entered into force in December 2019 and decreases the filing fee for applications filed electronically compared to those filed on paper. The fees for electronic filing of patents and utility model applications have been reduced by 50%, and electronic fees for industrial design and trademark applications have been reduced by 25%. These measures are meant to encourage electronic filings and make the process more accessible for individuals and small companies.
Market inspectors perform regular on-demand and ex-officio inspections. In 2020, there were 2,664 controls performed, and 228,758 articles were seized. The statistics are accessible at: https://mtt.gov.rs/informator-o-radu/.
The tax administration checks software legality during its regular tax controls of businesses. The estimated value of Serbia’s illegal software market is approximately 51 million USD. According to the 2018 BSA Global Software Survey, software piracy in Serbia is around 66%. Although this is down from 72% in 2011, it remains among the highest piracy rates in the Balkan region. Serbia is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.
The outbreak of COVID-19 pandemic temporarily affected Serbia’s IPR registration and enforcement. The courts and administrative authorities were not operational for approximately one month, and pending proceedings faced delays throughout the year. Since May 2020, authorities resumed work at full capacity. Market Inspectors seized a significant level of pirated and counterfeit e-commerce goods throughout the year by using specialized software tools for detecting and investigating trade of illicit goods online.
Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed most restrictions on short-term portfolio investments in April 2018. Residents of Serbia, both companies and persons, are now allowed to purchase foreign short-term securities issued by EU residents and EU countries, and by international financial organizations who have EU countries in their membership. Banks registered in Serbia can also purchase short-term securities issued by OECD countries. Foreigners may only purchase short-term securities in Serbia if they have residency and/or headquarters in EU countries. Payments related to long-term securities have no restriction.
In January-November 2020, Serbia recorded net inflows of 1.5 billion USD in portfolio investment, according to the National Bank of Serbia. Analysts explain that this inflow mostly as a result of Serbia’s issuance of Eurobonds on the international market. The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached 12.4 billion USD in December 2020, with 77% in dinars and 23% in euros. In addition, Serbia issued a total value of 5.1 billion EUR of Eurobonds on the international market. The share of dinar denominated securities held by non-residents was 26%, which was equal to 2.5 billion USD at the end of December 2020.
Total Serbian government-issued debt instruments on the domestic and international markets stood at $18 billion in December 2020.
Serbia’s international credit ratings are improving. In March 2021, Moody’s Investors Service upgraded Serbia’s long-term issuer and senior unsecured ratings from Ba3 to Ba2 while adjusting its outlook from positive to stable. In December 2019, Standard & Poor’s raised its ratings for Serbia from BB to BB+ with a positive outlook. In May 2020 S&P maintained its BB+ rating after raising it from BB in December 2019, but it modified the outlook from positive to stable; it confirmed the BB+ rating on December 14, 2020. Fitch raised Serbia’s credit rating from BB to BB+ in September 2019 and confirmed it in September 2020 with a stable outlook. The improved ratings remain below investment grade.
Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE) www.belex.rs. Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2020 was 455 million USD, which represents a decrease of 47%. The trading volumes have declined since 2007, when the total turnover reached 2.7 billion USD.
Market terms determine credit allocation. In September 2020, the total volume of issued loans in the financial sector stood at 26 billion USD. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 62% of all lending is denominated in euros, an additional 0.1% in Swiss francs, and 0.2% in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers.
Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.
Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.
Money and Banking System
Serbian companies often do not access credit, instead turning to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued, and the financial market is not well developed. In April 2020, the government amended corporate-bond issuance legislation to increase companies’ access to financing in response to COVID-19’s economic impact. According to a statement from the Finance Minister, the amendments aim to cut the timeline for issuing corporate bonds from 77 to 17 days and cut the price to issue a corporate bond from 88,000 USD to 11,000 USD. State-owned Telekom Srbija issued corporate bonds for the first time with a total value of 200 million EUR, of which the National Bank of Serbia (NBS) purchased around 70 million EUR.
The NBS regulates the banking sector. Foreign banks may establish operations in Serbia, and foreigners may freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91% of the total assets of the financial sector. As of September 2020, consolidation had reduced the sector to 26 banks with total assets of 43 billion USD (about 80% of GDP), with 86% of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets, are Banca Intesa (Italy, 6.8 billion USD in assets); UniCredit (Italy, 5.1 billion USD); Komercijalna Banka (recently sold to Slovenia’s NLB Bank, 4.6 billion USD); OTP (Hungary, 3.7 billion USD); Raiffeisen (Austria, 3.7 billion USD); Erste Bank (Austria, 2.8 billion USD) AIK Banka Nis (Serbia, 2.3 billion USD); Eurobank EFG (Greece, 1.9 billion USD); Vojvodjanska Banka (Hungary, 2.4 billion USD); and Postanska Stedionica (Serbian government, 2.7 billion USD). For more information, see:
Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly 1 billion USD. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2020, savings deposits in the banking sector reached 14.4 billion USD, exceeding pre-crisis levels.
The IMF assessed in its January 2021 report on Serbia’s Policy Coordination Instrument that the financial sector has shown improved resilience since the 2017 Article IV Consultation. As of June 2020, banks’ capital adequacy was stable at 22.7%, well above the regulatory minimum, while asset quality is improving. Banks’ profitability remains robust with return on assets and return on equity ratios of 1.1% and 6.5% respectively in December 2020. The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 21.6% to 3.7% of the total loan portfolio as of December 2020. NPLs remain fully provisioned. In addition, there are significant foreign-exchange risks, as 67% of all outstanding loans are indexed to foreign currencies (primarily the euro). In April 2019, the government adopted a law that protected consumers who had taken mortgage loans denominated in Swiss francs by converting them into euros. Banks and the state shared losses resulting from a reduction of outstanding principal and interest balances. This law enabled borrowers to continue servicing debt on more favorable terms.
The parliament adopted Serbia’s first Law on Cryptocurrencies in December 2020 to be implemented as of June 29, 2021. The law regulates the issuance, trade, and service provision of digital assets, as well as the NBS and Securities Commission’s supervision of digital assets. The law will regulate cryptocurrencies market and protect consumers, as it defines standards which every cryptocurrencies service provider must fulfill. Companies trading in this area must be licensed. The law limits issuance of digital assets per issuer at 3 million EUR per year. While trading in cryptocurrencies is free for persons and most companies, the law prohibits possession and trade of digital assets for financial institutions under NBS supervision. The government must adopt related bylaws before the law can be implemented. The Serbian Administration for Prevention of Money Laundering and Terrorist Financing oversees every transaction in cryptocurrencies performed on ATMs or online in Serbia. As of February 2021, there were total of 24 ATMs for cryptocurrencies in Serbia installed in Belgrade, Novi Sad, Nis, Subotica, Indjija and Kopaonik.
The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, Ethereum ETH, Tether, and Bitcoin Cash) at https://ecd.rs/. The company claims to have over 20,000 registered users of the platform, while the Chief Operating Officer of the company claims that a total of 50,000 people in Serbia have opened an account and executed at least one transaction. EDC claims that it has executed over 100,000 transactions since it was established in 2012. As of June 2019, Xcalibra established a new digital platform (Xcalibra.com) to trade cryptocurrencies in Serbian dinars without mediator currencies, which will avoid currency exchange loss. There is also a Bitcoin Association of Serbia.- http://www.bitcoinasocijacija.org.
Foreign Exchange and Remittances
Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign-currency and dinar-denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.
Many companies have raised concerns that the NBS uses excessive enforcement of the Foreign Exchange Law to individually examine all cross-currency financial transactions – including intra-company transfers between foreign headquarters and local subsidiaries, as well as loan disbursements to international firms – thus raising the cost and bureaucratic burden of transactions and inhibiting the development of e-commerce within Serbia. For this reason, international financial institutions and the business community have urged revision of the law. The NBS has defended the measure as necessary to prevent money laundering and other financial crimes.
The NBS targets inflation in its monetary policy and regularly intervenes in the foreign-exchange market to that end. In 2020, the NBS made net sales of 1.4 billion EUR on the interbank currency market to prevent sharp fluctuations of the dinar. In 2020, the dinar remained stable against the euro and appreciated 10% against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad. In February 2021, JP Morgan announced it would include Serbian government bonds into the JP Morgan GBI-EM Index of Emerging Market bonds beginning June 30, 2021.
Personal remittances constitute a significant source of income for Serbian households. In 2020, total remittances from abroad reached 3 billion USD, approximately 6% of GDP.
The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that Serbia has no limitations on investment remittances.
Sovereign Wealth Funds
Serbia does not have a sovereign wealth fund.
8. Responsible Business Conduct
Responsible Business Conduct (RBC) and Corporate Social Responsibility are relatively new concepts in Serbia, and until recently many Serbian companies viewed them mainly as public relations tools.
The Serbian government has no formal mechanism in place to encourage companies to follow a due-diligence approach to RBC. A Council for Philanthropy held its first session in September 2018. Founded with grant support from USAID, the Council aims to use public policy to create a more encouraging environment for corporate giving in Serbia. Chaired by the Prime Minister, other members of the Council include ten government ministers, the Belgrade Mayor, the Director of the Tax Administration, and several NGOs. The council had 29 member companies in April 2020. Donors have pointed to issues that have a negative impact on philanthropy, including a lack of tax incentives for donors, no available VAT exemptions for in-kind donations, the lack of a system for monitoring donations from companies, and the absence of official data on charities. According to the 2019 World Giving Index published by the Charities Aid Foundation, Serbia was ranked 123rd out of a total of 126 countries listed in a 10-year aggregate survey of number of people who donate to charity or participate in volunteer work: https://www.cafonline.org/docs/default-source/about-us-publications/caf_wgi_10th_edition_report_2712a_web_101019.pdf .
The Law on Public Procurement allows the government to ask bidders to fulfill additional conditions, especially those related to social and environmental issues, and allows the government to consider criteria such as environmental protection and social impact when evaluating bids.
The United Nations Development Program’s Global Compact initiative has 118 participants in Serbia and has organized a number of educational events intended to strengthen RBC capacity in Serbia. The list of members is available at: http://www.ungc.rs/srb/clanovi .
Several local organizations, such as the American Chamber of Commerce (AmCham), the Foreign Investors’ Council, and the Serbian Chamber of Commerce (PKS) promote the concept of RBC among the Serbian business community and the public. PKS presents a national award to Socially Responsible Businesses. The Trag Foundation supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia. The NGO Smart Kolektiv is providing consulting services in RBC and establishing an RBC Index, which is the first national platform for assessing responsible business conduct in Serbia. Responsible Business Conduct Forum and Smart Kolektiv launched the index with USAID support in 2016. The Responsible Business Forum Serbia is a network of socially responsible companies that contribute to the development of the community, stimulating the development of corporate social responsibility and the establishment of firm and lasting socially responsible practices in the business sector. It was established in 2008 on the initiative of 14 leading companies in Serbia. More info available at: https://odgovornoposlovanje.rs/vesti .
Multinational companies often bring international best practices, with U.S. companies among the most active. For example, Molson Coors supported Serbia’s Special Olympics team in Rio de Janeiro in September 2016. Companies such as Eaton and Ball Packaging Serbia have contributed to their communities through can recycling, public service campaigns, educational and environmental initiatives, and donations in kind. Since 2003, Phillip Morris Serbia has donated over 17 million USD to community initiatives in the country. During the COVID-19 pandemic, many large companies donated money and goods to help government combat the crisis; more info is available at: https://odgovornoposlovanje.rs/vesti .
The government does not maintain a national point of contact for OECD’s Guidelines for Multinational Enterprises, including OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. The government does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.
Serbia has a private sector security industry but is not a signatory of the Montreux Document on Private Military and Security Companies. Serbia is also not a supporter of the International Code of Conduct for Private Security Service Providers and is not a participant in the International Code of Conduct Association.
Surveys show that corruption is believed to be prevalent in many areas and remains an issue of concern. Serbia was ranked 91st in Transparency International’s 2020 Corruption Perceptions Index, down from 87th in 2018. However, its score – 39 out of 100 possible points – remained unchanged.
Serbia is a signatory to the Council of Europe’s Civil Law Convention on Corruption and has ratified the Council’s Criminal Law Convention on Corruption, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Serbia also is a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members’ anti-corruption efforts on a continuing basis. Twenty-five local governments are participating in USAID’s anti-corruption program and are introducing and increasing transparency measures in their processes.
The Serbian government has worked to bring its legal framework for preventing and combating corruption more in line with EU norms, and a dedicated state body— the Corruption Prevention Agency (CPA) (formerly the Anti-Corruption Agency) plays a preventative role in fighting corruption, while dedicated Anticorruption Police and prosecutors investigate and prosecute cases of corruption. The Criminal Code specifies a large number of potential offenses that can be used to prosecute corruption and economic offenses, including but not limited to giving or accepting a bribe, abuse of office, abuse of a monopoly, misfeasance in public procurement, abuse of economic authority, fraud in service, and embezzlement. However, a new National Strategy for Fighting Corruption to replace the expired 2013-2018 version has yet to be drafted – a concern frequently raised by the European Commission and Serbia’s Anti-Corruption Council, an advisory body to the government.
In 2018, Serbia’s National Assembly strengthened anti-corruption laws through three pieces of legislation. The Law on Organization and Jurisdiction of State Organs in Suppressing Organized Crime, Terrorism and Corruption for the first time established specialized anti-corruption prosecution units, police and judicial departments, mandated the use of task forces, and introduced liaison officers and financial forensic experts. The Law on Asset Forfeiture was amended to expand coverage to new criminal offences, and amendments to the Criminal Code made corruption offenses easier to prosecute. Following these legal changes, specialized anti-corruption departments started operations in March 2018 in Novi Sad, Belgrade, Kraljevo, and Niš to prosecute offenders who have committed crimes of corruption valued at less than RSD 200 million (2 million USD). Cases valued above this level are handled by the Organized Crime Prosecutor’s Office.
Serbian law also requires income and asset disclosure by appointed or elected officials, and it regulates conflicts of interest for all public officials. The disclosures cover assets of officials, spouses, and dependent children. Declarations are publicly available on the CPA website, and failures to file or to fully disclose income and assets are subject to administrative and/or criminal sanctions. Significant changes to assets or income must be reported annually, upon departure from office, and for a period of two years after separation.
In September 2020, a new Law on the Prevention of Corruption went into effect, officially renaming the Anti-Corruption Agency to the Corruption Prevention Agency, expanding its role as the state body for preventing corruption, and extending the statute of limitations for asset disclosures from one to five years.
A new Law on Public Procurement was adopted in 2020, which governs procedures related to public procurement, and introduced mandatory use of an electronic portal for public procurement. While the portal noticeably improved transparency and procedures, watchdogs reported that more than half of completed public procurement tenders since the implementation of the new law have resulted in only one offer, which indicated continued issues with transparency of public procurement procedures.
Serbian authorities do not require private companies to establish internal codes of conduct related to corruption or other matters, but some professional associations – e.g., for attorneys, engineers, and doctors – enforce codes of conduct for their members. Private companies often have internal controls, ethics, or compliance programs designed to detect and prevent bribery of government officials. Large companies often have elaborate internal programs, especially in industries such as tobacco, pharmaceuticals, medical devices, and industries regularly involved in public procurement. In December 2020, the Parliament adopted a Parliamentary Code of Conduct, aimed at addressing GRECO recommendations regarding conflict of interest and other issues of ethics among parliamentarians. However, the code lacks enforcement mechanisms.
Serbian law does not provide protection for non-governmental organizations involved in investigating corruption. However, the criminal procedure code provides witness protection measures, and Serbia enacted a Whistleblower Protection Law in June 2015, under which individuals can report corruption in companies and government agencies and receive court protection from retaliation by their employers.
U.S. firms interested in doing business or investing in Serbia are advised to perform due diligence before concluding business deals. Legal audits generally are consistent with international standards, using information gathered from public books, the register of fixed assets, the court register, the statistical register, as well as from the firm itself, chambers, and other sources. The U.S. Commercial Service in Belgrade can provide U.S. companies with background information on companies and individuals via the International Company Profile (ICP) service. An ICP provides information about a local company or entity, its financial standing, and reputation in the business community, and includes a site visit to the local company and a confidential interview with the company management. For more information, contact the local office at email@example.com and visit www.export.gov/serbia . The U.S. Commercial Service also maintains lists of international consulting firms in Belgrade, local consulting firms, experienced professionals, and corporate/commercial law offices, in addition to its export promotion and advocacy services for U.S. business.
Some U.S. firms have identified corruption as an obstacle to foreign direct investment in Serbia. Corruption appears most pervasive in cases involving public procurement, natural resource extraction, government-owned property, and political influence/pressure on the judiciary and prosecutors.
The Regional Anti-Corruption Initiative maintains a website with updates about anti-corruption efforts in Serbia and the region: http://rai-see.org/ .
Resources to Report Corruption
Corruption may be reported to officers at any police station. If dedicated anti-corruption law-enforcement personnel are not available, the officer in charge is to contact Anti-Corruption Police personnel to report to the location so that a complaint may be filed.
Transparency International Serbia
Palmoticeva 27, 11000 Belgrade, Serbia
+381 (0) 11 303 38 27 firstname.lastname@example.org
10. Political and Security Environment
Since October 2000, Serbia has had democratically elected governments that have committed publicly to supporting regional stability and security. Governments, however, frequently call early elections at the local and national level, which often leave politicians and elected officials focused on the next campaign. During the 2020 COVID-19 crisis, Serbia’s first regularly scheduled parliamentary elections in several cycles were postponed due to the state of emergency declared by President Vucic. When elections were finally held in June 2020, most opposition parties boycotted the elections, claiming an unfair media and electoral environment which favored the ruling party. As a result, the current Parliament is overwhelmingly controlled by the ruling Serbian Progressive Party (SNS), and 97% of current MPs are part of the ruling coalition. Although the current Parliament has a four-year mandate, President Vucic has already announced that he plans to call early parliamentary elections in 2022. Elections in Serbia are generally free and without incidents of violence, although observers have noted irregularities at polling stations and incidents of vote-buying and pressure on voters during past elections. After the 2020 elections, Serbia’s Republic Electoral Commission decided to hold new elections in 234 of the country’s 8,253 polling stations – an unusually high number – after finding calculation errors, missing records, and other irregularities.
The government has made EU membership a primary goal, but progress toward that goal is slow, with only 18 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. The European Commission did not recommend opening any new chapters in 2020, indicative of the stagnation in Serbia’s accession process. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn out and subject to a lengthy appeal process.
Protests are not uncommon, particularly in urban areas, and most protests are peaceful. In July 2020 significant protests occurred over the government’s handling of the COVID-19 crisis, including lockdown measures. Protests in Belgrade were at times violent, with protestors attempting to enter the parliament building. Press noted that in addition to concerns regarding COVID, many of the demonstrators were also protesting political corruption.
Although previous years had seen some assaults against participants in LGBTQI events in Serbia, following its sixth successive incident-free Pride Parade, Serbia was selected to host EuroPride in 2022. Although this indicates some confidence that a recurrence of wide-scale violence against Serbia’s LGBTQI community is unlikely, discrimination and physical attacks continue.
Since 2017, there has been an increase in criminal activity linked to transnational organized crime groups. Sport hooliganism in Serbia is often associated with organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia. A significant police operation in January 2021 against a major organized crime group, linked to Belgrade’s Partizan football club, resulted in the arrest of the group’s leader, who was suspected of multiple crimes. A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, minority groups, and media outlets considered to be pro-Western, but these incidents are infrequent. Incidents include attacks on Roma settlements and anti-Roma riots in 2010, 2012, and 2013, and attacks on shops and bakeries owned by ethnic Albanians in Vojvodina in 2014.
11. Labor Policies and Practices
According to the Statistical Office, in 2020, Serbia had a total active labor force of approximately 3.18 million people, of which close to 2.9 million were employed (55.6% men and 44.4% women), and 286,600 were unemployed. In 2020, the formal employment rate was 49.1%, and the informal employment rate was 16.4%, compared to 18.1% the previous year, with most of the total informally employed in services and agriculture. Unemployment in 2020 averaged 9%, compared to 10.4% the prior year. Youth unemployment remained relatively high at 26.6%. Emigration of younger high-skilled working-age citizens is a serious concern, and the share of youth in the total population drops from year to year. The role of foreign or migrant workers is extremely limited. The leading sector for employment is manufacturing, followed by government and public administration, agriculture and forestry and fishery, trade, transport, construction, and hospitality services.
Demand for IT experts (web developers, programmers, designers) is significantly higher than supply. The National Employment Service (NES) administers various employment support schemes, including new employment, apprenticeship, and re-training programs. For more details see http://www.ras.gov.rs/en/invest-in-serbia/why-serbia/financial-benefits-and-incentives/ and http://rav.org.rs/business-environment/incentives. Labor costs are relatively low in Serbia, especially compared to European averages. In December 2020, the average net take-home salary was approximately 666 USD per month. The minimum wage is approximately 324 USD per month. Investors routinely cite favorable labor costs, as well as a highly educated, multilingual workforce, as advantages to doing business in Serbia, while availability of skilled labor is limited by ongoing, large-scale emigration. Approximately 57% of the workforce has completed secondary education, while some 26% have completed higher education.
Amendments to the Labor Law in 2014 simplified procedures for hiring and dismissing workers and changed rules for collective bargaining and the extension of collective agreements to non-negotiating parties. The law also changed severance payment requirements, so that the employer pays severance based on the years of service with that specific employer, rather than on the employee’s total years of employment, as was the case previously. Employees may be hired for up to 24 months on a provisional basis before it is required to engage them on an indefinite basis.
The official mechanism for tripartite labor dialogue is the Social and Economic Council, an independent body with representatives of the government, the Serbian Association of Employers, and trade unions. The Council is authorized to conclude an umbrella collective agreement at the national level covering basic employment conditions for all companies in Serbia. Additional information about the Council is available at http://www.socijalnoekonomskisavet.rs/.
Serbia has ratified all eight International Labor Organization core conventions including Forced Labor (No. 29), Freedom of Association and Protection of the Right to Organize (No. 87), Right to Organize and Collective Bargaining (No. 98), Equal Remuneration (No. 100), Abolition of Forced Labor (No. 105), Discrimination (No. 111), Minimum Age (No. 138), and Worst Forms of Child Labor (No. 182).
In December 2019, a Staff Leasing Law was approved and went into force from March 2020. The law regulates leased employees’ status, the staffing agencies, and recipient employers. According to the law, employers can hire up to 10% of its workforce with fixed-term contracts through an agency, with no limit on those with indefinite-term employment contracts.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International
Source of Data:
BEA; IMF; Eurostat;
NBS data on FDI significantly differ from U.S. data. The NBS calculates FDI according to the country from which the investment arrives, rather than by the ownership of the investing company. Frequently, U.S. investments in Serbia are carried out through subsidiaries of U.S. companies located in another European country. If a U.S. company invests in Serbia through a Dutch subsidiary, for example, the NBS records the investment as coming from the Netherlands rather than from the United States.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions), 2019
Inward Direct Investment
Outward Direct Investment
Bosnia and Herzegovina
“0” reflects amounts rounded to +/- $500,000.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Bulevar kneza Aleksandra Karadjordjevica 92
11040 Belgrade, Serbia