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serbia
July 2008
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serbia Table of Contents
1. General Information 4
2. Economic Situation 5
Selected Indicators 2004 to 2009 6
Development of the Serbian Dinar vs. the Euro and US Dollar 6
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serbia Table of Contents
4.7. Securities 12
Mortgage (Land Register) 12
Pledge 12
Guarantee 13
Assignment of Claim 13
Warranty 13
4.8. Labour Law 13
Work Permits 13
Termination of Employment 13
Social Security Contributions 13
5. Business in serbia 14
5.1. Payment Conditions 14
Payment Performance 14
Instalments 14
Retention of Title 14
Financial System 14
5.2. Collection Procedures 14
Statute of Limitations 14
5.3. Acquisition of Real Estate 15
5.4. Investment Climate 15
5.5. Restrictions on Travel and Residence 15
5.6. Foreign Exchange 15
7. serbia Online 17
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serbia 1. general information
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serbia 2. Economic Situation
Correspondingly, economic indicators have been good in recent years. The high growth of 8%
recorded for 2004 was neither matched in 2005 with an increase of 5% nor in 2006 with 5.7%. The
sharp increase in wages and the loosening of fiscal discipline have intensified that unfavourable
trend since 2006. However, the GDP is expected to increase at rates well above 5% in the coming
years. The effects of the more restrictive monetary policy options adopted since August 2007 and
the likely slowdown in worldwide demand should be offset by dynamic consumption spurred by
the continuing rise of wages as well as by investments made in recently privatised companies
and increased public spending. The excessively high current account deficit remains one of the
major weaknesses and will be difficult to reduce. Although mitigated by high foreign currency
reserves, foreign exchange risks have increased. Private foreign debt has also been growing
rapidly. Anti-corruption efforts need to be intensified and the reform of legal and administrative
institutions should be continued.
The most important growth sectors are construction and public works, transportation, trade
and financial services as well as electricity and gas supply. Deregulation and a reduction in
the minimum capital requirements for establishing companies have increased momentum in
the corporate sector. The political reorientation has resulted in a steadily increasing flow of
investment into Serbia, whereby the most important investor countries are the members of the
European Union. However, the recent political turmoil has made foreign investors more cautious.
Major deals planned for 2008 include the privatisation of the country’s large oil and gas provider,
NIS, and the second largest insurer DDOR.
The development of trade between Austria and Serbia is strong, with reactors, machinery and
mechanical equipment as the most important export goods (although data for 2007 is not
available). Austrian companies can be found mainly in the banking, insurance and leasing
sectors.
With the re-election of President Boris Tadic and the formation of a coalition government of Liberal
Democrats and Socialists after early parliamentary elections in May, further rapprochement to
the West seems certain. Designated Prime Minister is Mirko Cvetkovic. Problems could arise
externally due to the refusal also of the new government to recognise the Kosovo, and internally
because of taking the Socialists (SPS, Ex-Milosevic-party) into the coaltion.
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serbia 2. Economic Situation
(e) estimate
(f) forecast Sources: UniCredit Group New Europe Research Network, NBH, Coface S.A
n.a. not available
(f) forecast Sources: UniCredit Group New Europe Research Network, NBH
n.a. not available
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serbia 3. serbia and the EU
The EU entered negotiations for the preparation of a Stabilisation and Association Agreement
with Serbia in October 2005. This represents the most important step taken by Belgrade towards
EU integration to-date and is also a pre-stage for accession, which should take place in 2012.
However, this process has faltered on several occasions, among others because Serbia failed to
comply with the deadline for extraditing the ex-general and alleged war criminal Ratko Mladic
to The Hague. The re-election of President Tadic should ensure continued rapprochement with
the EU, but a worsening of diplomatic relations with some member states and a shift towards
Russia remain possible if anti-EU forces retain their grip on the country. The EU members were
unable to reach a political consensus on signing a pre-membership Stabilisation and Association
Agreement (SAA) with Serbia for many years. In spite of this situation, an agreement was signed
in April 2008 to strengthen pro-western forces before parliamentary elections in May. Progress
on visa liberalisation is uncertain.
Serbia has received financial support under the Pre-Accession Instrument (IPA) since 2007, and
the country was allocated EUR 164.8 million for that year. Since 1991, the total amount granted to
Serbia by the EU under CARDS (formerly OBNOVA) as well as macro-financial and humanitarian
measures amounted to EUR 2.9 billion.
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serbia 4. Legal Framework
and Useful Facts
Foreign natural and legal persons are treated equally with domestic natural and legal persons.
The four forms of companies discussed in the following are considered to be legal entities.
Stock Company
A stock company may be private or public. A public stock company is listed on the stock exchange
and has a minimum equivalent capital of EUR 25,000.-. The private stock company is not listed,
has a minimum equivalent capital of EUR 10,000.- and a maximum of 100 shareholders. The
nominal value of each share may not be less than the equivalent of EUR 5.-.
The registration of the company becomes effective with the filing of the articles of association.
Legal entities as well as natural persons may establish a stock company.
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serbia 4. Legal Framework
and Useful Facts
Share capital may be contributed in the form of cash or contributions in kind, such as
equipment, goods, know-how, work and services etc. Shares can be transferred freely between
the shareholders. The existing shareholders have pre-emptive rights if plans call for the sale
of shares to third parties. Shareholders are only liable beyond the value of their shares if the
company is misused for illegal or fraudulent purposes. The founding of a partnership in which a
limited liability company serves as the general partner (similar to the Austrian “GmbH & Co KG”)
is not possible in Serbia.
Limited Partnership
A limited partnership must have at least one general partner and one limited partner. The general
partner is fully liable for the obligations of the partnership; the limited partner is liable only up
to the amount of the agreed contribution. A limited partnership has two or more persons as
partners, and there are no minimum equity requirements.
Partnership
All partners of a general partnership are liable without limit for obligations arising during the
course of business activities. A partnership has two or more persons as partners, and there are
no minimum equity requirements.
Non-commercial Partnership
No information is available at the present time.
Sole Proprietorship
No information is available at the present time.
Subsidiary, Representation
Domestic and foreign companies are entitled to establish one or more branches, but business
activities must be conducted in the name and on behalf of the company. A branch must be duly
registered.
Foreign persons may open a representative office in Serbia, but are not permitted to engage in
commercial activities in the country. Under certain conditions they are exempt from tariffs on the
import of necessary inventory and equipment. The Ministry for External Trade maintains a special
register for representative offices.
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serbia 4. Legal Framework
and Useful Facts
Audits have been mandatory for all medium-sized and large companies since 1.1.2004. Medium-
sized companies must change auditors every five years, large companies every three years.
Corporate Tax
The corporate tax rate is 10%, which is the lowest in Europe. The tax base is calculated according
to IFRS. Dividends paid to domestic parent companies are exempt from taxation at the subsidiary
level. A withholding tax of 20% applies to rental payments transferred outside the country and
gains on sale earned by non-residents.
Income Tax
Serbia has a two-tier income tax system: The different forms of income are taxed separately
during the year (personal earnings 14%, royalties 20%, income from capital 20%), and total
income is calculated and taxed at an additional rate of 10% at the end of the year. This additional
taxation only applies to foreigners whose earnings exceed ten times the average annual wage per
employee in the republic, and only the excess amount is taxed. For local residents, this additional
tax is only levied when annual earnings exceed four times the average wage per employee.
Value-Added Tax
Serbia was one of the last countries in Europe without a value-added tax (Serbian: PDV). The
new Value-Added Tax Law was enacted on the 1.1.2005, and provides for a standard VAT rate
of 18% and a reduced VAT rate of 8%. Banking transactions and banking services, the sale of
land and rental of apartments and business premises are exempt from VAT without the right to
deduct input VAT. VAT exemption with the right to recover input VAT is available for the export
of goods, transportation services, services performed on temporarily imported goods etc. The
registration threshold is around EUR 50,000.
Excise Duties
Excise duty is paid by producers and importers in Serbia when taxable products are dispatched
from a factory or goods are imported. The products subject to excise duty include petroleum
products, tobacco, alcoholic beverages, artificially flavoured soft drinks and coffee. A new excise
law eliminated discriminatory elements of the taxation of tobacco products and cigarettes
beginning in January 2008. It also established a specific and ad valorem duty on cigarettes, thus
bringing the structure broadly into line with European standards.
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serbia 4. Legal Framework
and Useful Facts
Communal Taxes
No information is available at the present time.
Companies that invest a minimum of RSD 600 mio. (ca. EUR 8 mio.) in tangible fixed assets and
hire at least 100 new employees during the investment period are exempt from taxation for a
period of ten years. Commercial investments are exempt from taxation for five years.
The free trade zones in Serbia are Belgrade, Backa Palanka, Lapovo, Nis, Novi Sad, Pirot, Prahovo,
Sabac, Senta, Sombor, Sremska Mitrovica and Vladicin Han.
4.5. Litigation
Investment law gives equal treatment to foreigners and domestic persons/entities, and foreigners
are no longer discriminated by the national courts. Nevertheless, legal actions should be avoided
because of the length of proceedings. There is no bilateral agreement between Austria and
Serbia for the recognition and enforcement of judgements in civil law matters. Therefore,
contracts should include a provision for arbitration.
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serbia 4. Legal Framework
and Useful Facts
Arbitration Proceedings
The anticipated arbitration law has not been passed to date, and domestic arbitration proceedings
are rare. However, the Serbian Chamber of Commerce has established an international permanent
tribunal that operates in accordance with western rules. Ad-hoc tribunals are not yet recognised
for domestic disputes.
Serbia has signed the New York Convention on the recognition and enforcement of foreign
arbitral awards.
4.6. Insolvency
Insolvency Law
The new law on bankruptcy took effect on the 1st February 2005. It stipulates an exact period
of time for the start of bankruptcy procedures against an insolvent debtor. An insolvent debtor
is defined as a person who cannot meet payment obligations within a period of 45 days, or who
ceases payments during this same period, or who has announced that obligations will not be
paid, or is unable to pay obligations despite court or tax execution procedures. The Law on the
Agency for Licensing Receivers in Bankruptcy provides for the recovery of insolvent debtors
through a reorganisation plan. Serbian law does not regulate insolvencies without assets.
4.7. Securities
The law on the fiduciary transfer of property provides for assignment as security for immoveable
goods. Title is acquired through recording in a public register with an appropriate notation. The
contract must be concluded in writing and notarised by the court.
Rights to property are acquired through filing with the land register. Instead of an application,
regulations require the filing of legal changes. The land register is open to the public.
Pledge
A recently enacted law on the assignment of moveable goods as security creates the possibility
of a pledge without possession. In this case, the debtor is required to register the secured assets
in a special register. Moveable goods, rights, shares in joint ventures and future assets may be
used as security.
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serbia 4. Legal Framework
AND Useful Facts
Guarantee
No information is available at the present time.
Assignment of Claim
No information is available at the present time.
Warranty
No information is available at the present time.
Work Permits
Foreigners require a temporary or a permanent residence permit, which is issued by the Ministry
of the Interior, as well as a work permit from the labour office. Furthermore, the jobs for which
foreigners may be employed must be defined in the articles of association of the company.
Termination of Employment
The employer may terminate the contract for valid reason, e.g. lack of ability, behaviour or
general business reasons. Business reasons include technological, economic or organisational
changes or a reduction in the volume of orders.
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serbia 5. Business in serbia
Payment Performance
No information is available at the present time.
Instalments
No information is available at the present time.
Retention of Title
Legal regulations governing the retention of title are defined in the law of obligations. The
retention of title must be stipulated in the sale contract. This retention should be explicitly stated
during customs proceedings, since there is no possibility to re-export imported goods unless by
permitted by the Ministry of Foreign Trade and this permission is rarely granted. It is therefore
advisable to avoid deliveries with retention of title.
Financial System
The system for bank supervision and deposit insurance meets EU standards. The establishment
of a bank by a foreigner in Serbia is not subject to special requirements, provided there is
reciprocity with the foreigner’s home country. The bank requires a license to conduct business.
Statute of Limitations
No information is available at the present time.
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serbia 5. Business in serbia
conditions before they can acquire property: The property must be required for business use and
reciprocity must exist with the foreigner’s home country.
Land registration procedures are still under development. The recording of titles in the land
register is still quite complicated because of the unclear ownership structure.
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serbia 6. checklist for Business
Operations in serbia
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serbia 7. serbia Online
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serbia References
Internet
http://www.ahk.de
http://www.bankaustria.at
http://www.bfia.org
http://www.cofacecentraleurope.com
http://www.dresdner-bank.de
http://www.dsgv.de
http://www.euractiv.org
http://www.raiffeisen.at
http://www.trading-safety.com
http://www.volksbanken.at
http://www.wko.at
Print
Coface and GMB Publishing Limited: The handbook of Country Risk 2007. A guideline to
International Business and Trade 2007
European Commission, Progress Report 2007 on Serbia
Falke, Zum Stand der Insolvenzrechte in Staaten Süd – und Südosteuropas, Wirtschaft und
Recht in Osteuropa, Heft 06/2006, S. 161
Piuk, Schiedsgerichtsbarkeit in Serbien, eastlex 2005, 159
Schummer/Stevic, Konzessionen in Serbien als Form der Investition durch Ausländer,
Wirtschaft und Recht in Osteuropa, Heft 02/2005, S. 33
Vasiljevi, Serbisches Gesetz über Wirtschaftsgesellschaften im Überblick, Wirtschaft und
Recht in Osteuropa, Heft 01/2006, S. 1
Zwitter-Tehovnik, Beschäftigung ausländischer Personen in Serbien Abgaben- und
sozialversicherungsrechtliche Fragen, eastlex 2006, 19
Imprint
Editor: Coface Central Europe Holding AG, Stubenring 24, 1010 Vienna, Austria; CEO: Martina
Dobringer; Editorial Office: Yvonne Schmidhuber; Establishment: Coface Central Europe Holding
AG, Stubenring 24, 1010 Vienna, Austria; Content: Marcus Klamert.
The Coface Rating was included in this country report as of 30.6.2008. Coface Central Europe
Holding AG cannot accept responsibility for changes made at a later date.
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