Policies Towards Foreign Direct Investment

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

Outward Investment

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

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

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

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

Transparency of the Regulatory System

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

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

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

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

Competition and Antitrust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

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

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

Bankruptcy Regulations

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

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

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

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

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

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

Investment Incentives

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

Performance and Data Localization Requirements

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

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

Real Property

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

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

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

Intellectual Property Rights

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Capital Markets and Portfolio Investment

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

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

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

Foreign investors can access credit on the local market.

Money and Banking System

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

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

Remittance Policies

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

Sovereign Wealth Funds

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

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

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

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

Privatization Program

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

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

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

Foreign investors can participate in privatization programs.

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

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

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

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

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

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

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

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

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

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

Resources to Report Corruption

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

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

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

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

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

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

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

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

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

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

* Source for Host Country Data:  Bulgarian National Bank

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

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

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

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

Policies Towards Foreign Direct Investment

Attracting FDI remains one of the government’s main pillars of economic growth and job creation, although the COVID-19 pandemic prevented government officials from engaging with potential investors in person in 2020. There are no laws or practices that discriminate against foreign investors. In March 2018, the government passed its “Plan for Economic Growth” (https://vicepremier-ekonomija.gov.mk/?q=node/275), which provides substantial incentives to foreign companies operating in the 15 free economic zones. The incentives include a variety of measures such as job creation subsidies, capital investment subsidies, and financial support to exporters. Also, North Macedonia is a signatory to multilateral conventions protecting foreign investors and is party to a number of bilateral investment protection treaties, though none with the United States.

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Other Investment Policy Reviews

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

Business Facilitation

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

Outward Investment

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

Transparency of the Regulatory System

The government has made progress adopting reform priorities called for by the EU, NATO, and other bodies, leading to well defined laws, institutional structures, and regulatory legal frameworks. However, laws are not regularly drafted based on data-driven evidence or assessments and, at times, move through parliament using shortened legislative procedures. While laws are in place, enforcement and universal implementation of laws and regulations are generally lacking and can be a problem for businesses and citizens.

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

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

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

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

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

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

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

International Regulatory Considerations

As a candidate country for accession to the EU, North Macedonia is gradually harmonizing its legal and regulatory systems with EU standards. As a member of the WTO, North Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade. North Macedonia ratified the Trade Facilitation Agreement (TFA) in July 2015 (Official Gazette 130/2015), becoming the 50th out of 134 members of the WTO to do so. In October 2017, the government formed a National Trade Facilitation Committee, chaired by the Minister of Economy, which includes 22 member institutions. The Committee identified areas which need harmonization with the TFA and is working toward implementation.

Legal System and Judicial Independence

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Antitrust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

North Macedonia accepts international arbitration decisions on investment disputes. The country’s Law on International Commercial Arbitration is modeled on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Local courts recognize and enforce foreign arbitral awards and the judgments of foreign courts. Alternative dispute resolution mechanisms are available for settling disputes between two private parties but seldom utilized. A Permanent Court of Arbitration, established in 1993 within the Economic Chamber of Macedonia (a non-government business association), has the authority to administer both domestic and international disputes. North Macedonia requires mediation in disputes between companies up to €15,000 ($17,715 per 03/25/2021 exchange rate) in value before companies can go to court.

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

Bankruptcy Regulations

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

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

Investment Incentives

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

North Macedonia does not impose a “forced localization” policy for data. The government does not prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. Post is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to encryption. Furthermore, there are no measures which prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. However, based on the new EU General Data Protection Regulation (GDPR), which came into force in May 2018, North Macedonia’s Directorate for Personal Data Protection adopted in February 2020 amendments to the Law on Personal Data Protection (Official Gazette of the Republic of North Macedonia, No. 42/2020) to harmonize North Macedonia’s laws with the new EU regulations.

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

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

Real Property

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

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

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

Intellectual Property Rights

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

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

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

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

Capital Markets and Portfolio Investment

The government openly welcomes foreign portfolio investors. The establishment of the Macedonian Stock Exchange (MSE) in 1995 made it possible to regulate portfolio investments, although North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2020 was $3.5 billion, a 1.2 percent drop from the previous year. The main index, MBI10, increased by 1.2 percent, reaching 4,705 points at year-end. Foreign portfolio investors accounted for an average of 7.6 percent of total MSE turnover, 17.4 percentage points less than in 2019. The current regulatory framework does not appear to discriminate against foreign portfolio investments.

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

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

Money and Banking System

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

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

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

Banks’ liquid assets at the end of Q3 of 2020 were 29.9 percent of total assets, 2.5 percentage points lower compared to the same period in 2019, remaining comfortably high. In 2020, the NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed the banking sector is healthy and resilient, with a capital adequacy ratio remaining above the legally required minimum of eight percent. The actual capital adequacy ratio of the banking sector at the end of Q3 of 2020 was 16.9 percent, unchanged compared to the same period in 2019, with all banks, except the one which was closed, maintaining a ratio above the required minimum.

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations. By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days. There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for North Macedonia’s households. In 2020, net private transfers amounted to $1.5 billion, accounting for 12.2 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

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

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

The government has yet to implement broad public administration reform, which would also include SOEs, especially addressing their employment policies and governance. North Macedonia is not a signatory to the OECD Guidelines on Corporate Governance for SOEs. In February 2018, the government sent its bid to the World Trade Organization to upgrade its status from observer to a full member of the Government Procurement Agreement (GPA). The negotiation process is still ongoing.

Privatization Program

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

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

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

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

Additional Resources 

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor.
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

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

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

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

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

Resources to Report Corruption

Contacts at government agencies responsible for combating corruption:

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

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

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

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

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

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

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

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

Foreign investors, especially those in labor-intensive industries, find North Macedonia’s competitive labor costs and high number of English speakers attractive. The average net wage in 2020 was MKD 28,294 ($554) per month. Тhe minimum net wage for June 2020 through March 2021 was set to MKD 14,934,00 ($260) per month.

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

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

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

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

There is no limitation on the number of employed foreign nationals or the duration of their stay. Work permits are required for foreign nationals, and an employment contract must be signed upon hiring. The employment contract, which must be in writing and kept on the work premises, should address the following provisions: description of the employee’s duties, duration of the contract (finite or indefinite), effective start and termination dates, workplace location, hours of work, rest and vacation periods, qualifications and training, salary, and pay schedule. The law establishes a 40-hour work week with a minimum 24-hour rest period, paid vacation of 20 to 26 workdays, and sick leave benefits. Employees may not legally work more than an average of eight hours of overtime per week over a three-month period, or 190 hours per year. According to the collective agreement for the private sector between employers and unions, employees in the private sector have a right to overtime pay at 135 percent of their regular rate. In addition, the law entitles employees who work more than 150 hours of overtime per year to a bonus of one month’s salary. Although the government sets occupational safety and health standards for employers, those standards are not enforced in the informal sector.

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

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

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

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

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

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

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