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The Main Resolutions in Serbian Foreign Investment Law

October 8, 2017 by Nebojša Stanković

The Serbian Law on Foreign Investments that came into effect on 16 January 2002 was replaced with the new law that is still in force – the Law on Investments, which came into effect on 4 November 2015. As opposed to its predecessor, the new law is focused on both domestic and foreign investors. Nevertheless, take a look at the main resolutions in the previous law before the new Investment Law was enforced.

The Scope of Application

The Law on Foreign Investments regulated foreign investments in enterprises and other forms of business activity with the goal of making profit in the territory of Serbia, that is, at the time of the creation of the law, in the territory of the Federal Republic of Yugoslavia (FRY).

Foreign investor is a foreign natural person, foreign legal entity headquartered abroad, or a domestic citizen residing abroad for longer than one year. Foreign investment represented “investment in Yugoslav enterprise by which a foreign investor gains a stake or shares of equity capital of such enterprise”, as well as “acquisition of any other property right by a foreign investor by the means of which they realize their business interests in the Federal Republic of Yugoslavia”.

Basic and Special Forms of Foreign Investment

The basic forms of foreign investment included establishing an enterprise and purchasing shares or stakes in existing enterprises, both of which were regulated by a contract of establishment or an investment contract, which were concluded in written form.

The special forms of foreign investment included granting permits (concessions) to foreign investors for “the exploitation of natural resources, goods in general use or for performing activities of general interest, in accordance with the law. Under this law, “a foreign investor may be authorized to build, operate and transfer (B.O.T.) a particular facility, plant or section, as well as other infrastructure and/or communication facilities.

Guaranteed Rights of Foreign Investors

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The Law on Foreign Investments regulated the following guaranteed rights of foreign investors: the freedom of foreign investments, national treatment, legal security guarantee, the freedom of payment and currency conversion, the right to keep business books, the right to transfer profits and assets, and preferential treatment.

Under this law, “a foreign investor may establish or invest in an enterprise registered to perform pecuniary gain activities, unless otherwise stipulated by this law”. They had equal status, rights and duties as domestic investors in regards to their investments. An enterprise with a foreign investment had equal legal status and operated under equal terms and in the same manner as domestic enterprises with no investments.

“A foreign investor enjoys full legal security and legal protection in respect to the rights gained by the investment.” Foreign investors could exchange domestic currency for foreign convertible currency for every payment related to a foreign investment. Therefore, an enterprise with a foreign investment could freely carry out payments in international business relations, and they could “keep foreign currency on a foreign currency account with an authorized bank and freely use those resources”.

Enterprises with foreign investments had the right to keep business books and, apart from the mandatory bookkeeping and financial reporting in accordance with domestic regulations, they could keep their business books in accordance with international accounting and auditing standards.

Enterprises with foreign investments also had the right to transfer profits and assets and, under the law, “a foreign investor may, freely and without delay and in a convertible currency, transfer abroad all financial and other resources related to foreign investments.

If an international or bilateral agreement, the parties of which were the country of a foreign investor and our country, provided the foreign investor with a preferential treatment, that is, a treatment that was more favourable to a foreign investor or their investment than the treatment regulated by this law, then the treatment regulated by such an agreement was applicable.

Foreign Investment Incentives

The Law on Foreign Investments regulated foreign investment incentives, that is, tax and customs benefits and customs exemption. A foreign investor was exempt from customs and other import duties in regards to the import of equipment based on the investment (with the exception of motor vehicles and slot machines for entertainment and games of chance), until the construction of facilities was completed, that is, until the start of the activity into which the investment was made.

Special Regulations

The Foreign Investment Law regulated special rules, which included environment protection and the right to minority shareholding in specific areas and sectors, as well as the right to the acquisition of property and immovable property.

A foreign investor was obliged to comply with the environment protection laws while performing their activities. In regards to the minority shareholding in specific areas and sectors, a foreign investor could not establish an enterprise in the field of manufacturing and trade of weapons on the territory of FRY, “or in the area specified as a restricted zone under the law”.

The law also speculated that “a foreign natural person or legal entity, in the capacity of a foreign investor, may acquire an immovable property in accordance with the law”.

Foreign Investment Registration and Records

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Foreign investments were registered by an authorized court in accordance with the Law on Business Companies. “The registration of a foreign investment in other forms of pecuniary gain activities is carried out by the laws that regulate their status”. A foreign investor in the specific areas and sectors mentioned above must obtain the necessary consent for the registration of foreign investment with the authorized court.

In regards to the records of foreign investments, the Registry Court should inform the body “authorized for foreign economic relations about the registration of foreign investment, for record-keeping purposes”.

There were several more regulations stipulated by the Law on Foreign Investment, but these were the most important ones that each and every foreign investor who was looking to invest in the territory of the Federal Republic of Yugoslavia needed to be acquainted with before actually making their investments.