I have been considering writing a series of specialist articles on foreign investment in Serbia for years. During that time, our law firm has advised investors and provided legal and strategic support on numerous investment projects. Such projects often raise complex and interrelated issues, and the answers we have arrived at through our practical work have prompted us to turn some of that experience into structured content of practical value.
This series is primarily intended for foreign companies and individuals considering investing in Serbia. Our aim is to familiarise them with the legal framework and help them identify issues that require careful preparation before making business decisions. Understanding the basic concepts can contribute to more effective communication with us as legal advisers, as well as with others involved in preparing and implementing an investment, and allow consultations to focus on the circumstances of the specific project from the outset. These explanations will enable readers to become familiar with our way of thinking and our approach to work, while providing us with material that we can share with interested investors, supplement and develop as our own knowledge and experience grow.
One of my motivations was also to leave a written record that would help younger members of our firm prepare to become involved in future foreign investment projects. Through these articles, I want them to become familiar with the issues that arise in practice and the way we approach resolving them. There is also a personal reason for this series: foreign investment is an area I enjoy working in, one that gives me great professional satisfaction and, in a way, forms part of my professional identity. Writing provides an opportunity to study the relevant legislation systematically once again, reassess my existing knowledge and distinguish more clearly between what follows directly from its wording and questions that require legal interpretation or further research. In this way, preparing these articles also becomes part of my professional development and the sharing of knowledge within the firm.
We begin the series with the Law on Investments, which sets out the general legal framework for investments in the Republic of Serbia and governs investment support entities, the formation and operation of the Economic Development Council, and the establishment and operation of the Development Agency of Serbia. Building on this foundation, we will develop explanations tailored to investors’ questions and connect them with other sources of law relevant to the preparation, implementation and protection of investments. In this first article, we will present the legal and institutional framework and the issues that it is useful to clarify before undertaking a specific investment.
This will be followed by the article“Foreign Investment in Serbia - PART II: Investors’ Rights, Investment Protection and the Transfer of Funds”,in which we will examine in greater detail the investor’s legal position, the protection of their interests and issues relating to payments abroad and the transfer of funds. We will round off the core series with the article“Foreign Investment in Serbia - PART III: State Aid and Incentives - Conditions, Procedure and Obligations”,focusing on support options and the issues an investor should consider from preparing an application through to fulfilling the obligations they have undertaken. These three articles are intended to form a coherent whole, allowing readers first to understand the broader framework and then to examine in greater detail the topics relevant to their investment.
1. The Role of the Law on Investments and Key Concepts
The Law on Investments (“Official Gazette of the Republic of Serbia”, Nos. 89/2015 and 95/2018) provides a starting point for understanding the general legal framework for investment and the system of institutional support for investors in Serbia. Its objectives are to improve the investment environment and encourage direct investment in order to strengthen economic and business development and increase employment. Although our series focuses on foreign investment, this Law also covers domestic investors, including both legal entities and natural persons that have made an investment in the territory of the Republic of Serbia in accordance with the law.
Its role can be understood by considering several interrelated areas. The Law governs freedom of investment, the protection of acquired rights, expropriation, the position of foreign investors, payments abroad and the transfer of profits and assets (Articles 4-9 of the Law on Investments). It also defines investments of special importance, provides for forms of state aid and customs duty exemption for contributed assets, and regulates investment support entities and oversight of the Law’s implementation (Articles 11, 13-15 and 42 of the Law on Investments). These provisions already refer to other legislation: for example, payments abroad are linked to foreign exchange operations, while access to state aid is subject to the legislation governing the specific form of support (Article 8 and Article 13(1) of the Law on Investments).
To begin with, it is useful to clarify a few basic concepts that we will use in what follows. The Law provides that, for its purposes, investment means:
a. direct investment,
i.e. investment in the tangible and intangible assets of a company;
b. indirect investment,
i.e. the acquisition of equity interests or shares in a company.
We use these terms below in the sense given to them by the Law on Investments. We will specifically explain the distinction between its terminology and that of foreign exchange legislation in the section on related laws.
An investor
may be a domestic or foreign legal entity or natural person that has made an investment within the meaning of this Law in the territory of the Republic of Serbia, in accordance with the law. The definition therefore links investor status to an investment that has been made and its compliance with the law, which means that a legal analysis must establish who the specific person making the investment is and what the subject matter of that investment is.
An
investment project
is a project whose implementation results in direct investment, i.e. investment in the tangible and intangible assets of a company, in accordance with this Law. Reading these definitions together leads to the conclusion that the purchase of equity interests or shares alone, without direct investment as part of the project, does not fall within the concept of an investment project for the purposes of this Law.
What is not considered an investment?
The Law excludes the following from the definition of investment:
a.
a monetary or other claim arising directly from a commercial contract;
b.
a monetary claim arising from a loan connected with a commercial contract.
Hypothetical example:
A supplier delivers goods to a buyer and, on that basis, has a claim for payment of the purchase price. Such a claim is not considered an investment within the meaning of the Law on Investments because it arises directly from a commercial contract. The practical lesson is that, when assessing a business relationship, its precise legal nature must be determined, even when those involved refer to it as an investment in everyday language.
2. Applying Statutory Concepts to a Specific Investment
In a more complex business venture, it is useful to consider each participant separately, together with the subject matter of their investment and the contracts they enter into. We recommend preparing a simple overview at the outset:
- who is acquiring an equity interest;
- who is acquiring equipment;
- who is providing the funds; and
- which company will carry out the planned activity.
This makes it easier to identify issues that might otherwise remain hidden behind the general description that a foreign company is “investing in Serbia”.
Hypothetical example:
A German company purchases the entire equity interest in an existing limited liability company with its registered office in Serbia. Under the agreement in this example, it pays the purchase price to the company’s previous member. Following the change of member, the company in Serbia uses its own available funds to acquire a new production line from a supplier.
The acquisition of the equity interest by the German company constitutes indirect investment under the Law on Investments. The Serbian company’s investment in the production line constitutes direct investment in its tangible assets. The supplier’s claim for payment of the purchase price for that same equipment, considered solely on that basis, is excluded from the definition of investment under this Law.
The example shows why it is useful to distinguish the acquisition of an equity interest from a subsequent investment in the company’s assets. A company has its own legal personality, which it acquires upon registration, so a legal analysis must distinguish between the company and its member. In our example, the contracts for the purchase of the equity interest and the acquisition of the equipment are entered into by different persons, and the money is paid to different recipients. We therefore recommend that the documentation for each of these transactions be prepared to reflect its actual substance.
It is particularly important to distinguish an
investor from a beneficiary of incentive funds.
While an investor may be a domestic or foreign legal entity or natural person, a beneficiary of incentive funds under this Law is a company with its registered office in the Republic of Serbia.
Incentives
are monetary funds awarded to a beneficiary as investment support to finance investment projects in Serbia. Therefore, in a project involving a foreign parent company and a company in Serbia, their respective positions and roles in any procedure for the award of incentives should be clearly established.
Investor status alone does not confer a right to a specific amount of incentives: the criteria are set out in greater detail in the relevant state aid schemes, and awards are decided upon through the prescribed procedure. Our practical recommendation is that investors explore the possibility of obtaining support before including an anticipated incentive as a guaranteed source of funding in their business plan. We will address the conditions, procedure and obligations associated with the award of funds in detail in the third article in the series.
3. The Constitution, International Treaties and Related Legislation
To understand the legal position of a foreign investor, it is also necessary to consider the relationship between different sources of law. The Constitution is the supreme legal act of the Republic of Serbia, with which all laws and other general legal acts must comply. Ratified international treaties and generally accepted rules of international law form part of the domestic legal order and apply directly; ratified international treaties must be consistent with the Constitution, while laws and other general legal acts must not conflict with them.
Article 84 of the Constitution provides for an equal legal position for all market participants and places foreign persons on an equal footing with domestic persons in the market. It specifically provides that rights acquired through capital investment in accordance with the law may not be diminished by legislation. In addition, it guarantees the peaceful enjoyment of property and other proprietary rights acquired in accordance with the law (Article 58(1) of the Constitution of the Republic of Serbia). We will connect these constitutional foundations with specific forms of investment protection in the second article in the series.
When preparing a cross-border investment, we also recommend examining the relevant international treaty, its scope and the conditions for its application. For example, the Agreement between the Socialist Federal Republic of Yugoslavia and the Federal Republic of Germany on the Reciprocal Protection and Promotion of Investments, together with its Protocol, contains its own definitions of investments and investors, as well as provisions on the settlement of disputes between a Contracting Party and an investor of the other Contracting Party (Articles 1 and 9 of that Agreement). We will devote particular attention to these issues as the series continues, as they require a separate analysis of the specific investment and the conditions for protection under the treaty.
The
Companies Act
is important for the choice of how to conduct business in Serbia, the formation and governance of companies, and relations between their members. The Act distinguishes between general partnerships, limited partnerships, limited liability companies and joint-stock companies. When purchasing an equity interest in a limited liability company, it is necessary to consider the rules on the transfer of equity interests, including any restrictions under the law and the instrument of incorporation, pre-emption rights and the possibility of making the transfer subject to the company’s prior consent.
Hypothetical example:
a foreign buyer has agreed with one member of a company on the price and other terms for purchasing that member’s equity interest. The company has one other member. Before concluding the transaction, we recommend reviewing the instrument of incorporation and the other member’s rights, since company members have a right of pre-emption in respect of an equity interest being transferred to a third party, unless that right is excluded by the instrument of incorporation or by law. Such a review helps align the transaction plan with the rights of all relevant parties.
The
Law on Foreign Exchange Operations
regulates, among other matters, payments, receipts and transfers between residents and non-residents, as well as cross-border credit transactions. To understand this law correctly, it is important to note that it links the concept of direct investment to investment by a resident in a legal entity abroad, or by a non-resident in a legal entity in Serbia, with the aim of participating in the management of that entity’s business, and specifies the forms and conditions of such investment in greater detail (Article 2, point 17 of the Law on Foreign Exchange Operations). Payments and transfers of capital arising from direct investments by non-residents in Serbia may be made freely, in accordance with the law governing foreign investment (Article 11(2) of the Law on Foreign Exchange Operations).
Hypothetical example:
a foreign company purchases the entire equity interest in a company in Serbia in order to take over the management of its business. Such an acquisition constitutes an indirect investment under the Law on Investments, but may at the same time qualify as a direct investment under foreign exchange regulations (Article 3(1), point 1(b) of the Law on Investments; Article 2, point 17 of the Law on Foreign Exchange Operations). This is why, when preparing contracts, payments and supporting documentation, we should always check the meaning of the term in the legislation applicable to the specific issue.
The
Law on Protection of Competition
may be relevant when acquiring an existing business, since a concentration arises, among other circumstances, through the acquisition of direct or indirect control over another undertaking or a part of it capable of constituting an independent business unit (Article 17(1), point 2 of the Law on Protection of Competition). Whether a concentration must be notified is assessed against the statutory criteria, which include the turnover of the parties to the concentration (Article 61 of the Law on Protection of Competition). Therefore, when planning an acquisition, we recommend conducting a merger control assessment sufficiently early to allow notification deadlines and standstill rules to be incorporated into the transaction plan.
The
Law on Expropriation
is relevant to the protection of investments in immovable property. It provides that immovable property may be expropriated, or ownership rights over it restricted, only in the public interest established on the basis of law, and subject to compensation that may not be lower than market value. The Law on Investments refers to that law when setting out the conditions under which investors may be deprived of ownership and other rights in rem over immovable property, or those rights may be restricted, and includes additional provisions on compensation and legal protection. We will examine this relationship in greater detail in the second article.
The
Law on Arbitration
is important already at the contract drafting stage, when the method for resolving potential disputes is being considered. Arbitration is based on an agreement between the parties and may be agreed upon for the resolution of disputes of a pecuniary nature concerning rights of which the parties may freely dispose, except for disputes falling within the exclusive jurisdiction of a court. An agreement to submit future disputes to arbitration may be contained in an arbitration clause or a separate agreement. We recommend considering the choice of dispute resolution method during contract negotiations, taking into account the parties involved, the value and nature of the transaction, the language of the proceedings and the place where the decision would need to be enforced.
The
Law on State Aid Control
links the availability of support to the rules governing the compatibility and control of state aid (Articles 1, 5 and 29 of the Law on State Aid Control). Of particular importance is the cumulation rule, meaning the aggregation of state aid serving the same objective and purpose, regardless of the type of aid, the instrument used to grant it or the aid provider (Article 7(1) of the Law on State Aid Control). The Law on Investments also expressly refers to the need to comply with this rule (Article 13(2) of the Law on Investments).
Hypothetical example:
a company has already received state aid for certain costs of purchasing equipment and is now considering additional support from another source for the same costs. The fact that aid is granted by different providers does not exclude the application of the cumulation rules, and, before granting aid, the provider must obtain a written declaration from the beneficiary concerning aid previously granted for the same eligible costs (Article 7(1)-(2) of the Law on State Aid Control). We therefore recommend keeping a record of all forms of support, both planned and already obtained, in one place. The specific conditions must be checked against the relevant secondary legislation and aid scheme, since the law entrusts the competent authorities with laying down the detailed rules (Articles 5(3) and 7(4) of the Law on State Aid Control; Article 11(3) of the Law on Investments).
In addition to these sources, we recommend a separate review of the legislation governing the planned business activity for each project. The Companies Act expressly permits a special law to make the registration or carrying out of a particular activity subject to prior approval, consent or another act of the competent authority. Therefore, the question of what is required to actually carry out the planned business activities should be raised as early as the stage of choosing how to enter the market.
4. Institutions and Support for Investors
The Law on Investments identifies the following as investment support bodies: the Economic Development Council, the ministry responsible for economic affairs, the Development Agency of Serbia, the relevant authority or organisation at autonomous provincial level, and the local self-government unit acting through its unit for local economic development and investment support. In practical terms, it is important for investors to understand their respective responsibilities and direct their requests to the institution competent to deal with the particular issue.
The
Development Agency of Serbia,
or RAS, has legal personality and operates in accordance with the law governing public agencies, while its work is supervised by the ministry responsible for economic affairs. Its governing bodies are the management board and the director, while its organisation, the way it carries out its tasks and the responsibilities of its governing bodies are regulated in greater detail by its statute. When preparing an investment, however, it is more useful to focus on the Agency’s tasks and the support that may be requested from it.
Article 36 of the Law on Investments lists among RAS’s tasks cooperation with national, provincial and local authorities; expert, administrative and operational work relating to projects aimed at attracting investment, including direct investment; monitoring their implementation; providing expert and advisory support to companies and entrepreneurs; and proposing the award of incentives. In the incentive award procedure, RAS submits the application and the prescribed supporting documentation to the Council, including an expert analysis of the investment project, a proposal for the amount of incentives and a draft agreement (Article 26a(1) of the Law on Investments).
The
Economic Development Council
monitors conditions in the fields of investment and economic development and adopts decisions on the award of investment incentives in accordance with the Law on Investments and state aid legislation. The ministry responsible for economic affairs enters into agreements with investors for the award of incentives funded from the budget of the Republic of Serbia, with the Government’s prior consent (Article 26a(6) of the Law on Investments). This allocation of responsibilities helps investors understand what stage their case has reached and which institution they should approach to clarify a particular issue.
At local level, the
unit for local economic development and investment support
provides expert assistance and support to investors in implementing their investments upon request. Its tasks may be performed by various organisational entities and persons designated by an act of the local self-government unit, while two or more local self-government units may also designate a joint body to perform those tasks.
At provincial level, the
authority of the autonomous province
enters into agreements with investors for the award of incentive funds provided from the province’s budget.
Hypothetical example:
an investor is considering two municipalities for opening a manufacturing plant. We recommend preparing the same set of questions for both locations about available sites, infrastructure, the necessary procedures and opportunities for local support, and requesting assistance from the relevant unit for local economic development. Under the law, local development policy includes, among other things, communication with the business community, simplification of local procedures, development of public utility and local economic infrastructure, and the introduction of local relief measures and incentives on the basis of strategic documents. The responses obtained should then be considered together with the legal and technical assessment of each specific site.
5. Handling Investors’ Applications and Data Confidentiality
The Law requires public authorities, within their respective powers, to enable investments to proceed without obstruction and to monitor and oversee the exercise of investors’ rights and the fulfilment of both investors’ obligations and the obligations undertaken by the Republic of Serbia in connection with investments. For the purposes of this law, the term “public authority” also covers certain organisations entrusted with public powers and legal entities established or wholly or predominantly financed by public authorities. Therefore, when preparing a particular application, it is also necessary to examine the legal status of the entity to which the investor is applying.
Public authorities, other than the Commission for Protection of Competition, must handle matters concerning the implementation and maintenance of investments and the exercise of investors’ rights and fulfilment of their obligations under an expedited procedure (Article 16(2) of the Law on Investments). In administrative matters, this obligation entails giving priority to deciding on investors’ applications and issuing a public document within the shortest possible time, provided that the investor has submitted proper and complete documentation in a timely manner. This is an obligation to expedite the proceedings, which does not in itself guarantee that an application will be granted or establish a uniform time limit for all procedures.
Hypothetical example:
an investor submits an application for the issuance of a public document needed to implement an investment but omits a document that the rules governing that procedure require the investor to provide. Invoking the importance of the project does not dispense with the requirement for proper and complete documentation under the Law on Investments (Article 16(3) of the Law on Investments). When a client engages us to represent them in such proceedings, our law firm prepares the application, checks the necessary attachments and retains proof of submission. We monitor the subsequent progress of the proceedings, receive any requests to supplement the application and, in cooperation with the client, prepare the response and the necessary documentation within the time limit set.
An investor may also submit applications and collect documents through the unit for local economic development, in accordance with the rules on handling investors’ applications (Article 20(3) of the Law on Investments). Before using this option, we recommend clarifying with the local unit how documentation is to be submitted and how communication is to take place, so that the investor and their advisers have a clear overview of the applications submitted, the supporting documents provided and the official documents received.
Data confidentiality requires separate consideration. The Law provides that data submitted by an investor during the procedure for awarding incentives constitute a trade secret until, at the latest, the adoption of the decision approving the award of incentives. Communication between the investor and the unit for local economic development and investment support is confidential, except where disclosure of information is required by law (Article 20(4) of the Law on Investments). At the same time, access to information of public importance in the field of investments is governed by the law regulating free access to such information (Article 24 of the Law on Investments).
When interpreting these provisions, it is necessary to distinguish between data submitted during the procedure for awarding incentives, communication with the local unit and information subject to the rules on access to information of public importance. We therefore recommend identifying which data require protection and checking the legal basis for their protection before submitting sensitive business or technical documentation. Persons at RAS who have access to trade secrets or confidential information covered by the Law must keep such information confidential and must not misuse it to obtain benefits or cause harm (Article 39 of the Law on Investments).
Supervision of the implementation of the Law on Investments is carried out by the ministry responsible for economic affairs, which is also responsible for fulfilling the obligations of the Republic of Serbia concerning the monitoring of compliance with contractual obligations and the disbursement of funds under incentive agreements for or in connection with direct investments (Article 42 of the Law on Investments). The Law provides for a fine of RSD 50,000 to RSD 150,000 for a responsible person within the competent public authority who fails to decide on investors’ applications on a priority basis or fails to issue a public document within the statutory time limit, subject to the conditions laid down in that provision. We will examine the monitoring of contractual obligations relating to incentives in greater detail in the third article.
6. Questions to Clarify Before Investing
Knowledge of the relevant legislation becomes useful in practice when combined with a clear description of the planned business undertaking. To prepare for the initial consultations, we recommend that the investor focus on the questions set out below and gather the documents already in their possession. This overview provides practical recommendations for organising the preparatory work; the scope of the documentation and checks required is tailored to the particular project.
Who will participate in the investment, and how will their relationships be governed?
It is useful to establish in advance whether the investor is a natural person or a company, whether several investors are involved and what role each of them will play. If a joint business undertaking is planned, we recommend discussing equity participation, management, financing, profit distribution and a possible exit from the joint venture. Such discussions help identify differing expectations among the participants from the outset and take those expectations into account in good time when preparing the documentation.
What exactly is being acquired, and what circumstances should be examined?
When purchasing an equity interest, we recommend reviewing the company itself, its contracts, assets, liabilities, disputes and documentation relevant to the planned business operations. When acquiring specific assets, we tailor the focus of the review to the assets being acquired, the seller’s rights, any potential encumbrances and the intended use. The aim is to provide the investor, before assuming obligations, with sufficient information to assess the legal risks, the additional expenditure required and the matters that need to be addressed in the contract.
How will the investment be financed?
We recommend specifying precisely where the funds will come from, to whom they will be paid and on what legal basis. It is particularly useful to distinguish between the price paid to the seller of an equity interest and the funds intended for the company’s operations. If a capital increase, a loan or another form of financing is being considered, the legal structure should be aligned with the financial and tax plan, and the documentation required for the planned payments should be checked in advance. Timely communication between the investor, legal adviser, accountant and bank is useful during this preparatory stage.
Is the planned location suitable for the project?
Before purchasing or entering into a long-term lease, we recommend checking the legal status of the property, the development options under the applicable planning framework, the necessary approvals, access to infrastructure and the technical requirements of the future business operations. Depending on the project, it is also useful to involve appropriate technical experts. This links the legal review to the investor’s actual needs: available electrical capacity, access to transport routes, the possibility of expanding capacity or specific production requirements.
Hypothetical example:
an investor finds an industrial building whose price and floor area fit their plan, but has not yet checked whether the existing infrastructure can support the planned production process. We recommend clarifying these matters before agreeing on deadlines for the start of production and the delivery of equipment. In this example, the preparatory work should bring together the legal review of the site, the technical requirements and the business timetable, so that the investor does not plan different parts of the project on the basis of inconsistent assumptions.
Does the business plan rely on incentives?
If so, we recommend an early review of the relevant programme, the requirements applicable to the applicant and the project, eligible costs, deadlines and the point at which individual activities may begin. Particular attention should be paid to the obligations the investor would assume and their ability to fulfil them throughout the entire period envisaged. Through its definition of the guaranteed investment and employment period, the Law already links incentives to obligations to maintain the value of fixed assets and the number of employees at the levels achieved, and to pay the agreed salaries. We therefore recommend assessing the expected benefit of incentives together with the obligations attached to them.
What documentation is already available, and what still needs to be obtained?
A brief project description, details of the participants, a financing plan, an indicative timetable and any existing draft agreements or letters of intent are useful for the initial discussion. Depending on the investment structure, we recommend then identifying which extracts from registers, evidence of authority to represent, corporate resolutions, powers of attorney and other documents need to be prepared, as well as whether translation, certification or an apostille is required for their intended use. It is also advisable to indicate in the document list who is responsible for obtaining each document.
Finally, we recommend drawing up a joint timetable. It should bring together the legal checks, negotiations, obtaining documentation, any approvals, financing and key business deadlines. Such an overview helps all participants understand what the next step depends on and which issues remain unresolved. For our law firm, it is a useful way to align our legal work with the actual progress of the project and the decisions the investor needs to make.
7. From the Legal Framework to Preparing a Specific Investment
The legal preparation of an investment begins with a clear understanding of what the investor wishes to achieve. Only once the participants, the subject matter of the investment, the financing arrangements, the location and the planned course of business operations have been defined is it possible to bring together the relevant legislation in a meaningful way and identify the issues requiring particular attention. We therefore recommend preparing an overview of the necessary checks, documentation and steps before the first significant business decisions are made, clearly distinguishing confirmed facts from the assumptions on which the business plan still rests.
Through this article, our law firm aims to introduce readers to the way of thinking needed for such preparation. An understanding of the basic concepts, interconnected sources of law and the roles of the competent institutions allows for a more substantive discussion of a specific project. This enables the investor to explain their intentions more precisely, ask relevant questions and, together with their advisers, determine the order in which those questions should be addressed.
In the next article, “Foreign Investment in Serbia - PART II: Investors’ Rights, Investment Protection and the Transfer of Funds”, we will focus on the rights associated with an investment, the conditions for their protection and matters concerning the disposal of funds in connection with the investment. In this way, we will move from the legal framework and project preparation to a more detailed examination of the investor’s legal position during the implementation of the investment and the protection of their interests.
Author: Kristijan Karan, Attorney-at-Law in Novi Sad, Serbia
Published on: 20. October 2026
