Serbia: Business potential between East and West

By Peter Brügmann, Zurich

 

With its status as an EU accession candidate, Serbia is increasingly becoming the focus of potential investors from the logistics sector. Although there is still high unemployment and often bureaucratic obstacles on the credit side, there are also clear advantages in favour of the location. For example, a large part of EU legislation has already been implemented, for instance in contract law and tax law. The financial system is considered solid, which means that investments can now be classified as safe throughout. Another advantage is the high level of education of the population, English as a second language is widely spoken and Serbia's universities produce 43,000 graduates annually. With an average monthly income of around €500, companies can also calculate very competitively.

 

The integration of Serbia into large economic zones allows investors duty-free access to a market of 1 billion consumers. The preferential status in relation to the EU ensures duty-free access to around 500 million consumers. Other free trade and preferential status agreements with CEFTA, EFTA, Russia, Belarus and Turkey provide another half billion consumers with direct and duty-free access. Ultimately, even with a population of 7.5 million, the Serbian market is one of the largest in the region.

Consultants such as PricewaterhouseCoopers rank Serbia as the third most attractive production and seventh most attractive service location for foreign direct investment among the growth markets. Many companies have recognized the attractiveness of the location and have already taken advantage of it. Since 2000, $25 billion has already flowed into the country as direct investments.

 

Interesting general conditions for companies

The Serbian state has created an attractive environment for companies. For example, the establishment of companies has been significantly simplified. On average, it should only take 5 days for a newly founded company to be registered, registered and taxed. Building permits should also be issued in only 8 days.

However, there are still delays, as Roland Mentzer (www.serbia-invest.eu), an investment consultant based in Serbia, reports: "These regulations exist, but they have not yet been implemented everywhere. Especially if you move a little further away from Belgrade, there are still bureaucratic stumbling blocks on the ground. Setting up a company can take months and a building permit years if you are not familiar with the regional administrative structures"!

With the aim of promoting economic development, the Serbian state has created an attractive and simple tax system for entrepreneurs and employees. The characteristics:

20% VAT (or 8% on selected products and services)

15% Corporate income tax

20% withholding tax on dividends, royalties, interest income, etc.

10% income tax from self-employment

10% income tax for employees

In addition, there are support programmes that support the creation of jobs with 17-20% of the investment volume, depending on the volume of investment. A large number of regional, structural and situational support measures are also available. However, it is not always easy. Investment consultant Mentzer: "Budgets are available, but often eligibility criteria and decision-making structures are not very transparent.

 

Duty-free movement of goods and tax advantages in free trade zones

Its central location at the interface of EU countries with Eastern Europe, Southeastern Europe, Russia, Turkey and others makes Serbia a hub for international goods traffic and logistics services. The majority of deliveries to/from EU countries can be realised in a maximum of 72 hours.

Currently eight designated free trade zones (Pirot, Subotica, Zrenjanin, Kragujevac, Sabac, Novi Sad, Uzice, South, Smederevo, Krusevac, Svilajnac) are exempt from customs duties and VAT. In addition to the existing free trade zones, investors can also set up their own private free trade zones. 

According to the state development agency Siepa, there are also tax advantages: "In addition, the profits and revenues generated within a zone can be transferred to any country,... and no taxes, levies or fees are levied on them".

 

Good locations in great demand

Most foreign investors, mainly from Italy, Germany and Austria, have settled in the so-called "Corridor 10", i.e. on the north-south axis. In recent years there has been a clear upward price trend for attractive properties and real estate. Local experts therefore recommend a look at neighbouring regions. Investment consultant Roland Mentzer: "Especially in the border triangle Serbia-Hungary-Romania, many good location factors come together, while at the same time still offering attractive real estate prices and very low wage costs. Kinkinda, for example, is planned as a location for another free trade zone. There are still good opportunities here, just a few kilometres from the EU's external border."

 

As a result of the foreseeable accession to the EU and visible reform steps, interest in Serbia is generally increasing. And it is not for nothing that the country was able to improve by 32 places in the "World Bank Doing Business Report 2016" within two years.


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