Serbia - 3-Legal RegimeSerbia - Legal Regime

Transparency of the Regulatory System

Serbia’s record on transparency of the regulatory system is mixed. Serbia is undertaking an extensive legislative amendment process aimed at domestic reforms and harmonizing its laws with those of the European Union’s acquis communautaire. As part of that process, Serbia has adopted new legislation and amended numerous existing laws and regulations. These changes have created a more favorable legal environment; however, Serbia still needs to address a number of problems with respect to transparency in the development, adoption, and implementation of regulations. The harmonization of Serbian law with the acquis communautaire has required intensive reforms and a high volume of adopted legislation, representing a challenge for the government, Parliament, the business sector, and society as whole.

Once a law has been proposed, the competent Ministry within the government establishes a working group, usually comprised of representatives of state authorities and organizations as well as experts in specific fields. These are mostly ad hoc bodies that review specific issues; provide proposals, opinions, and professional explanations.

At this stage in the legislative process, public discussion or debate is generally optional. However, if the proposed law would substantially change the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public, public debate is mandatory. In 2016, many laws were adopted through “urgent procedure,” which excludes parliamentary debate, and therefore reduces public debate.

The European Commission’s 2016 Progress Report for Serbia states that “Public and inter-ministerial consultations on proposals are often conducted formalistically and at too late a stage of the process, not enabling all interested parties to provide qualitative input.” The government’s Rulebook outlines the details and procedures regarding public debate. The government publishes laws and regulations undergoing public hearings here.

A minimum of 126 members of the National Assembly (NA or Parliament) must vote in favor of a law for its adoption, after which the law is sent to the President of Serbia. The President may promulgate the law or return it to Parliament for reconsideration.

Serbia’s budget information is publicly available and generally transparent. Publicly listed companies apply International Financial Reporting Standards. There are no informal regulatory processes managed by NGOs or private sector associations.

Several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors Council publishes an annual “White Book” on their website, NALED publishes a “Grey Book” on their website, and AmCham publishes similar materials on its website.

Serbia’s National Assembly website provides a list of adopted laws and those that have been proposed. In addition, individual ministries generally provide access to the relevant legislative framework under which the ministry operates on the ministry’s website.

The Business Entities Register is a centralized electronic database of business entities in Serbia and contains registration data.

Serbia has a system of official inspectorates charged with regulatory enforcement. Nationally there are currently 37 different inspectorates within 12 ministries that apply over 1,000 regulations. There is no overarching law to regulate inspections and there are shortcomings with regard to the coordination of inspections. There is an analysis of inspection capacities available here. Administrative courts are the legal entities which consider appeals to inspection decisions.

International Regulatory Considerations

Serbia is not a member of the World Trade Organization or the EU. However, under the National Program for Integration into the EU, Serbia is adopting the EU’s acquis communautaire. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations in January 2014. The modernization of Serbian legislation is expected to improve the investment climate.

Legal System and Judicial Independence

The legal system of Serbia is based on principles of both Roman law and continental civil law. It is composed of the Serbian Constitution and a system of laws. Contract law in Serbia is similar to contract law in the United States.

According to the Constitution, Serbia’s judicial system is legally independent of the executive branch, but in practice experts question judicial independence. Nevertheless, significant obstacles remain in the way of true judicial independence. The High Judicial Council proposes judges, which are elected by the National Assembly. Judicial office is permanent after an initial three-year term. However, in a January 2017 survey of elected judges, approximately 40 percent of those interviewed stated that they felt exposed to political pressure.

Serbia’s main court system handles most types of civil and criminal law, with specialized departments and judges to handle different types of cases. Basic Courts and High Courts are the courts of first instance, with appeals to Appellate Courts. There are also separate systems of Commercial, Administrative, and Misdemeanor Courts to handle specialized cases in those areas. The highest court of appeal for all these systems is the Supreme Court of Cassation.

The Constitutional Court is a separate institution that may assess the constitutionality of almost all legal acts. A constitutional appeal may be lodged against individual acts or actions of state bodies or organizations entrusted with public authority.

Laws and Regulations on Foreign Direct Investment

Significant laws for investment, business activities, and foreign companies in Serbia include the Law on Investments, the Law on Foreign Trade, the Law on Foreign Exchange Operations, the Law on Markets of Securities and other Financial Instruments, the Company Law, the Law on Registration of Commercial Entities, the Law on Banks and Other Financial Institutions, Regulations on Conditions for Establishing and Operation of Foreign Representative Offices in Serbia, the Law on Construction and Planning, the Law on Financial Leasing, the Law on Concessions, the Customs Law, and the Law on Privatization. These acts set out the basic rules foreign companies must follow if they wish to establish subsidiaries in Serbia, invest in local companies, open representative offices in Serbia, enter into agency agreements for representation by local companies, acquire concessions, or participate in a privatization process in Serbia.

Key tax legislation includes the Law on Value Added Tax, Law on Income Tax, Law on Corporate Profit Tax, Law on Real Estate Tax, and the Law on Mandatory Social Contributions.

Laws and regulations related to taxes can be found on the Finance Ministry’s website at http://www.mfin.gov.rs/pages/issue.php?id=1578.

Laws and regulations related to business operations can be found on the Economy Ministry’s website. 

Laws and regulations on portfolio investments are on the Securities Commission’s website.

Laws and regulations related to payment operations can be found on the National Bank of Serbia’s website.

Competition and Anti-Trust Laws

The National Assembly enacted the Law on Protection of Competition in 2009 and amended it in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and implements the law as an independent agency reporting directly to the National Assembly. In 2015, the Commission completed 76 proceedings for violations of competition rules, approved 101 mergers (and rejected two), and issued 174 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online. Laws and regulations related to market competition are available on the Republic of Serbia's Commission for Protection's website.

Expropriation and Compensation

Serbia’s Law on Expropriation authorizes expropriation (including eminent domain) for the following reasons: education, public health, social welfare, culture, water management, sports, transport, public utility infrastructure, national defense, local/national government needs, environmental protection, protection from weather-related damage, mineral exploration or exploitation, resettlement of persons holding mineral-rich lands, property required for certain joint ventures, and housing construction for the socially disadvantaged.

In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law sets forth various criteria for arriving at the amount of compensation applicable to different types of land (e.g. agricultural, vineyards or forests) or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually agreed resolution within two months of the expropriation order.

The Law on Investment provides safeguards against arbitrary government expropriation of investments. There have been no cases of expropriation of foreign investments in Serbia since the dissolution of the former Federal Republic of Yugoslavia in 2003. There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia, which was dissolved in 1992.

The 2011 Law on Restitution of Property and Compensation applies to property seized by the government since the end of World War II (March 9, 1945), and includes special coverage for victims of the Holocaust, who are authorized to reclaim property confiscated by Nazi occupation forces. Under the law, restitution should be in kind when possible, and otherwise in the form of state bonds. Many properties are exempt from in-kind restitution, including property previously owned by corporations. Heirless property left by victims of the Holocaust is subject to a separate law, which was approved in February 2016.

Under the 2011 law, Serbia committed itself under its restitution law to allocate EUR 2 billion, plus interest, for financial compensation in bonds. The restitution law caps the amount of compensation that any single claimant may receive at EUR 500,000 (approximately $540,000). The government postponed the issuance of these bonds from January 2015 to December 15, 2017. The bonds will be denominated in euros, carry a two-percent annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution has received over 74,000 property claims and the adjudication process is still ongoing. Information about the Agency for Restitution is available on its website.

Dispute Settlement

When negotiating contracts, the parties may agree on the manner in which to resolve disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil procedures. Under Serbian commercial law, contractual relations are regulated by the Law on Obligations (also known as the Law on Contracts and Torts). Contract-related disputes are governed by the Civil Procedure Law, Chapter 34 of which details the procedure in commercial disputes. Commercial Courts have jurisdiction over commercial disputes, and appeals are referred to the Higher Commercial Court.

Parties to a contract are free to decide which substantive law shall govern the contract, and the law of Serbia does not have to be the governing law of a contract entered into in Serbia.

Judgments of foreign courts are enforceable in Serbia only if they are recognized by Serbian courts. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. Procedures for recognition of foreign court decisions are regulated by the Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements. One condition is reciprocity.

Investor-State Dispute Settlement

Although Serbia is a signatory to many international treaties regarding international arbitration, enforcement of an arbitration award can be a slow and difficult process. Serbia’s Privatization Agency refused for five years (2007-2012) to recognize an International Chamber of Commerce/International Court of Arbitration award in favor of a U.S. investor. The dispute caused the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, to severely restrict its activities in Serbia. The U.S. Embassy facilitated a settlement agreement between the Serbian government and the investor, which took effect in January 2012. OPIC reinstated its programs for Serbia in February 2012, but in 2015 and early 2016 both a first instance and appellate Serbian court dismissed OPIC’s request for enforcement action to collect damages awarded to it by an international arbitration board in the same case. Serbia has no Bilateral Investment Treaty (BIT) with the United States. Over the past 10 years, two investment disputes have involved U.S. citizens.

International Commercial Arbitration and Foreign Courts

The Law on Arbitration authorizes the use of institutional and ad hoc arbitration in all disputes and regulates the enforcement of arbitration awards. The law is modeled after the United Nations Commission on International Trade Law (UNICTRAL Model Law).

Commercial contracts in which at least one contracting party is a foreign legal or natural person may incorporate arbitration clauses, invoking the jurisdiction of the Foreign Trade Court of Arbitration of the Serbian Chamber of Commerce, or any other foreign institutional arbitration body, including ad hoc arbitration bodies. Arbitration is voluntary. International arbitration is an accepted means for settling disputes between foreign investors and the state.

Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:

• 1923 Geneva Protocol on Arbitration Clauses
• 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions
• 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
• 1961 European Convention on International Business Arbitration
• 1965 International Centre for the Settlement of Investment Disputes (ICSID)

Serbia allows for mediation to resolve disputes between private parties. Mediation is a voluntary process and is conducted only when both parties agree. The Law on Mediation regulates mediation procedures in disputes in the following areas of law: property, commercial, family, labor, civil, administrative and in criminal procedures where the parties act freely, unless the law stipulates exclusive authority of a court or other relevant authority.

Mediators can be chosen from the list of the Serbian National Association of Mediators, or from an official registry within the Ministry of Justice. There are two types of mediation: court-annexed and private mediation. A person can also be referred to mediation by a court, advocate, local ombudsman, employees of municipal or state authorities, an employer, or the other party to the conflict.

Bankruptcy Regulations

The Bankruptcy Law, amended in 2014, brings Serbian bankruptcy procedures more in line with international standards. According to the law, the goal is to provide compensation to creditors via sale of the total assets of a debtor company. The law stipulates “automatic bankruptcy” for legal entities whose accounts have been blocked for more than three years, and allows debtors and creditors to initiate bankruptcy proceedings. The law ensured a faster and more equitable settlement of creditors’ claims, lowered costs, and clarified rules regarding the role of bankruptcy trustees and creditors’ councils.

Foreign creditors have the same rights as Serbian creditors with respect to initiating or participating in bankruptcy proceedings. Claims in foreign currency are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced. In 2012, Serbia amended its Criminal Code so that causing a bankruptcy and faking a bankruptcy are criminal acts.

The 2017 World Bank Doing Business Report ranked Serbia 47 out of 190 economies with regard to resolving insolvency, with an average of two years needed resolve insolvency and a cost of 20 percent of the estate. The recovery rate was estimated at 32.5 cents on the dollar by the World Bank Doing Business Report.