FDI in Serbia

Serbia, the officially known as Republic of Serbia, a country in Central and Southeastern Europe. FDI means Foreign Direct Investment. It is an investment made to acquire the interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of parent enterprise and a foreign affiliate, which will form transnational corporation. In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The FDI can be inward FDI or outward FDI.

The Inward FDI means it is foreign direct investment when foreign capital is invested in local resources. With respect of outward foreign direct investment means when local capital is is invested in foreign resources. The inward FDI is encouraged by tax, breaks, subsidies, low interest loans, grants etc. the increase of share of FDI of Serbia was contributed by the Mergers and Acquisitions and Greenfield investment.

FDI IN SERBIA Serbia attracted largest foreign investment in South East Europe and it is seconded next to Romania with the net inflow of $4.387 billion. During 2001 it is only $165 billion whereas in 2005 it was $1550 billion. During 2006 it was $4387 billion indicates the major increase. The following table indicates the FDI since 2001. It is noticed that inward foreign direct investment hit an all-time record high of $4,387 billion. The list of leading foreign investors is topped by the mobile phone operators Telenor and Mobilkom, Stada and international banks such as National Bank of Greece, OTP Bank and San Paolo IMI.

The country has attracted considerable interest in respect of foreign direct investment comparatively with other countries. During 2003, the foreign direct investment in Serbia and Montenegro amounted to around $1. 3billion. Leading investor nations in Serbia includes United States, Greece, Germany, Austria, Slovenia, Netherlands and Cyprus. It should also be noted the Serbia has enacted specific legislation in order to safeguard for foreign investors. The former Yugoslav Law on Foreign investments was amended and formally incorporated into Serbian Law, 2003.

The law eliminated previous investment restrictions and extended national treatment to foreign investors besides allowing the transfer of profits and dividends etc. for which the FDIs have been attracted. More or less, in order to promote investment an agency was established namely Serbian Investment and Export promotion Agency (SIEPA) which enable the direct assistance to investors in Serbia. The United States is the second ranked country in terms of foreign direct invests going to Serbia. The United States is the largest source of foreign direct investment in Serbia with total committed investments of over $1 billion.

During 2002, the United States ranked as the fifth largest source of foreign direct investment and continued through privatizations process. The companies such as The Philip Morris Corporation, U. S. Steel Galaxy Tire, Ball Corporation and the Coca Cola Company are major participants either in merger or acquisition. Foreign direct investment plays an extraordinary and growing role in global business. The center for Liberal Democratic studies made a report on Greenfield investment on Serbian industry, showing that foreign investment has hit new highs totaling € 7 billion.

According to 2007 projections, Serbia will attract € 471 per citizen of direct investment. Serbia is open to foreign direct investment is increasingly a priority for the government of Serbia. Serbia has a long history of international commerce, though it is under communism. In order to attract FDI, Serbia has developed a range of incentives for investors in 2006. The incentives including cash grants to investments, tax incentives, cuts in payroll contributions and reduced corporate tax rates. CONCLUSION

Over the past six years, Serbia has developed into a stable democratic country with a fast growing market economy, which was noticed by extensive political and economic reforms. The county is a full member of the International Monetary Fund (IMF), the World Bank (WB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Council of Europe, the Partnership for peach, and many other international institutions. Besides the international companies in Serbia are guaranteed equal legal treatment as local organizations.

They are allowed to invest in any industry in any industry and freely transfer all financial and other assets. Investment projects in the country are insured against non commercial risks by all major national and international investment and export insurance agencies like MIGA, OPIC, Hermes, COFACE, SACE, ECGD, Kontrolbank and other. The protection of foreign capital is further safeguarded by Bilateral Investment Treaties signed between Serbia and 34 other counties including the USA, UK, Germany, France, Austria, Italy and Greece.

Serbia’s strong FDI track record is substantiated by internationally recognized awards for local Greenfield investors. For the past three years, Greenfield projects in Serbia were awarded by the Organization for Economic Cooperation and Development (OECD) as the largest Greenfield investments in South East Europe. In order attract foreign direct investments in the area of Greenfield and Brownfield projects, Serbia granted financial incentives for all industries excepting trade, tourism, hospitality and agriculture.

All other industries are eligible those involved in manufacturing activities, internationally marketable services sector and other research and development. Not only this, Serbia provided various tax incentives for investors to reduce their overhead costs. The tax incentives are as follows: 1. A 10 –year corporate profit tax holiday for investment over €7. 5 million and 100 new employees 2. Corporate profit tax credits up to 80% of the fixed assets investment 3. Carrying forward of losses over a period up to 10 years 4. Accelerated depreciation of fixed assets

5. A 5-year corporate profit tax holiday for concessions 6. Salary tax base deduction in the fixed amount of €60 a month 7. Salary tax exemptions for employees under 30 and over 45 years 8. Annual income tax deductions up to 50% of the taxable income 9. Social insurance contributions exemptions for employees under 30 and over 45 years 10. Customs-free imports of equipment based on foreign investment. Besides, Serbia also offered incentive on corporate profit tax whereas corporate profit tax is paid at the rate of 10% in respect of all incomes. But in case of Non-residents are taxed only based on their income generated in Serbia. All these factors leaded to increase FDI in Serbia.

REFERENCE: 1. http://www. state. gov/e/eeb/ifd/2006/62379. htm 2. http://www. usip. org/events/2007/1022_serbia. html 3. http://belgrade. usembassy. gov/partnership/invest. html. 4. http://www. siepa. sr. gov. yu/site/en/home/1/investing_in_serbia/strong_fdi_figures/fdi_stock/ 5. http://www. fdi-kosovo. org/? id=30&sid=8 6. http://www. wikipediaondvd. com/nav/art/d/h. html 7. www. going-lobal. com/articles/understanding_foreign_direct_investment. htm

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