Recent corporate reforms, political and financial stability, as well as the involvement of the European Union, have all enhanced the investment climate in Serbia. Due to its advantageous position, skilled and economical workforce, facilitated commerce with important markets (EU), and accessibility of investment incentives, investors have considered Serbia as a vital trade point. To promote economic growth and lower unemployment, the Serbian government has made a commitment to luring and retaining investors (Tiosavljevi, 2011, Pg. 11). The reforms adopted by the Serbian legislative front, which address inspections, public procurement by MNCs, the labor law, and issuing of permits, have enhanced the business environment for foreign investors privatization process and granting of construction permit (Dolšak, 2013, Pg. 383). More investment incentives that have been set up to support investment in the country, hence investors have been called upon to keep an eye on the government implementation of the investment reforms and take advantage of the investment incentive programs offered by the government.
Policies and Factors Supporting Direct Foreign Investments in Serbia
Serbia implemented a new law to protect and prevent discrimination of foreign investors, to facilitate repatriation of dividends and profits, and to safeguard against expropriation. Also, the law to provide waivers on customs duty particularly for goods imported as capital in kind and gives an opportunity for foreign investors to apply and qualify for incentives provided by the government (Campos, & Kinoshita, 2010, Pg. 327). Serbia government has encouraged investment by MNCs through the Development Agency of Serbia which is an investment promotion authority, whose role is to support direct investments, to promote export and to facilitate investment projects implementation.
Serbia government has set up laws granting both foreign and domestic companies the right to set up and own their businesses in any part of the country as all entities have full private property ownership rights. Also, the firms have the freedom to engage in all types of remunerative activities. The only prohibition is on foreign entities against owning agricultural land in the country as citizens, and domestic firms are not allowed to sell farm land to foreigners Paunović, & Kosanović, 2011, Pg. 506). Foreign companies have set up a company as their subsidiary to buy the land on their behalf.
Serbia government has the shortest application procedure for establishing a foreign entity as compared with Europe and Central Asia. MNCs are required to have an account in Serbian dinars and in addition, they are free to maintain bank accounts in foreign currency. However, the government has placed restrictions on portfolio investment as Serbia citizens are prohibited from purchasing short-term securities from foreign companies, while foreigners are also restricted from buying short-term securities in Serbia, but no restrictions in place for the trade of long-term securities (Beslać, 2013, Pg. 224 ). During contract formation involving Serbia citizen and an MNC, the parties involved are free to choose the law to govern the contract. The law on bankruptcy gives foreign creditors the same rights as the domestic creditor to claim for compensation and to participate in bankruptcy proceedings (Arandarenko, 2012, Pg. 225).
Industrial Policies
As a way of attracting foreign investment, the government has set minimum requirements, terms and conditions to be fulfilled by MNC to acquire the government subsidies. An MNC with a capital investment of EUR 100,000 and a minimum of 10 employees in the devastated area qualify for state grants. The above requirements are set out on a declining scale based on the level of development in the location of operation in the country. When both domestic companies and MNCs creates a new job in the devastated area, its paid an equivalent of EUR 7,000, and EUR 3,000 for every job created in developed areas Nedovic-Budic, Zekovic, & Vujosevic, 2012, Pg. 306). Serbia government also offers additional incentives for the domestic companies and MNCs that undertake labor intensive projects employing more than 200 personnel. Subsidies are also available for any business that purchases fixed assets. The subsidiary amount is 30 percent of the purchased single asset situated in the devastated area and 10 percent for a fixed asset established in the developed areas (Graham Hollinshead, 2014, Pg. 37). In case a domestic or an MNC plans for the establishment of an investment project that will be of national importance, the government offers its support by selling the land at a below-market price.
New foreign and domestic investors are offered incentives under Serbia tax laws. Serbia offers the lowest corporate tax in the region which is 15 percent. Tax for foreign investors is only on income earned. In 2017, the government has set out RSD 400 Million for incentives to support domestic and foreign entities investing the country. In attracting foreign investors in the country, Serbia has maintained 14 customs free zones which currently provide tax-free areas to facilitate operations by the companies (Kalač, & Gračanin, 2011, Pg. 43). MNCs and local businesses that have managed to operate in these areas have benefited in the following ways; preferential customs treatment, duty-free imports and exports, and exclusion from value added tax. The Serbian government has not implemented any "forced localization" policy; hence it does not restrict foreign investors to incorporate domestic commodities and technology (Mijatovic, & Stokic, 2010, Pg. 533). Hence MNCs can continue operating in Serbia as long as they comply with rules, regulations, and laws.
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