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INVESTMENTS OF FOREIGN CAPITAL IN SERBIA THROUGH CONCESSION
February 15, 2000

Bridge of European transport system - Yugoslav highway
Bridge of European transport system - Yugoslav highway
1. OPPORTUNITIES FOR FOREIGN CAPITAL INFLOW THROUGH GRANTING OF CONCESSIONS

2. CONCESSION LAW





1. OPPORTUNITIES FOR FOREIGN CAPITAL INFLOW THROUGH GRANTING OF CONCESSIONS

Belgrade, December 1999

One of the main prerequisites for an undisturbed development of a state is the functioning and development of its economy, which understands that the development of economy is conditioned by the state's being included into international exchange of goods and financial flows. This is the reason why it is only natural and understandable that our country strives to create, by passing a number of laws at the federal and republic levels, as favourable conditions as possible for cooperation with other countries, and to encourage interest in economic exchange and investment of foreign capital and thus secure more efficient functioning of the economy. A continual inflow of foreign capital, particularly from the private sector, is one of the key factors for securing a stable growth of the Yugoslav economy. In that respect, the laws passed in the last decade of the 20th century, such as the Foreign Investment Law, the Concession Law, the Law on Ownership transformation as well as physical plans as strategic documents supporting the development of the country and many other laws have even greater value today. The laws were made using the experiences of other European countries, and the solutions defined in the physical plans are completely in accordance with the corresponding documents of the neighboring countries, which integrated our country into the the Southeast Europian community. Also, the geostrategic position of Yugoslavia as one of the countries in the southeastern part of Europe through which the main European infrastructure corridors criss-cross on their way to the Near East, as well as the wealth of resources, represent a comparative advantage.

Foreign Investment

Back in 1967 conditions were created for foreign persons to invest into Yugoslaveconomz joint venture programs. At that time and for many years to come, Yugoslavia was the only socialist country which allowed foreign investment. Today, the Constitution of the FR of Yugoslavia and the Foreign Investment Law allow foreign investors to found their own companies under the condition of reciprocity in almost all of the economic sectors. Yugoslav law provisions that are based on internationally recognized and known solutions ensure a completely equal (i.e. national) treatment of foreign investors in business dealings in this country. Also, the Yugoslav laws provide investors with full transparency of the regulation and practice regarding the status and treatment of foreign investment and foreign investors. Foreign investors are guaranteed full protection of their property rights. The Constitution of the FR of Yugoslavia states that a foreign person acquires the right of property and the right to earn income in Yugoslavia provided the reciprocity condition is observed and the federal law abided by, that economic subjects (domestic and foreign) are self-reliable and can earn income under equal terms, and that the earning conditions are the same for everyone. Also, investors from some countries enjoy greater protection on the basis of interstate agreements on the protection and encouragement of investment, and they are not subject to double taxing thanks to the agreements on avoiding double taxation made with Yugoslavia.

The Foreign Investment Law and other laws govern foreign investment in Yugoslavia. This is, in principle, a liberal law which allows direct investment by foreign persons as well as various arrangements between nationals and foreign investors. The Foreign Investment Laws stipulates that a foreign person may found either alone or together with some other foreign or domestic person found an enterprise and invest into an enterprise and be granted a concession. Foreign persons may not found an enterprise either with majority or minority ownership that engages in the production of and trade in armaments and military equipment, public information and communications if this may imperil the unity of the system, or in any area deemed a restricted zone under federal law.

Conditions of investments and business operations of foreign persons in Yugoslavia, beside in the above listed laws,are also stipulated in the following: the Law on Foreign Exchange Operations, the Law on Tax System, the Republic Laws on Taxes, the Law on Credit Operations With Foreign Countries, the Concession law, the Customs Law, and the Accountancy Law, and other. All these laws form the grounds and framework for business operations of economic subjects so it is highly necessary to become acquainted and to comply with them.

For the purpose of attracting foreign capital to our economy, there are numerous legislation incentives for foreign persons:

  • foreign investment is subject to 5 year long exemption from profit tax, proportionally to the share of foreign capital in the total fixed assets of an enterprise;
  • free transfer of profit from Yugoslavia after payment of all legal obligations;
  • exemption from customs duty and other dues for the import of new equipment constituting a foreign person's investment;
  • free import of equipment, other fixed assets and materials for construction of a facility, representing a foreign person's investment;
  • liberal property laws stipulate that a foreign person may be a real estate owner;
  • procedures are simplified for foreign persons to obtain residential and work permits;
  • specific privileges for foreign investment exist in free zones.

Concessions as a Form of Foreign Investment

The Federal Law on Foreign Investment (published in Sluzbeni list SRJ No.74/94 and 29/96) defines a possibility for granting concessions as a form of foreign investment. The conditions, modality, and the procedure of concession granting are regulated by the Concession Law of the Republic of Serbia (published in "Sluzbeni glasnik RS, No. 20/97).

Concessions are very important for Yugoslavia, the same as for other countries in transition, since they present one of possible and verified forms of the investment of foreign capital. On the other hand Yugoslavia has a series of advantages that make it attractive to foreign investors, such as:

  1. a good geographical position
  2. undisputed natural wealth
  3. qualified and cheap manpower
  4. lower costs of living then in other countries
  5. the largest market when compared to other countries of the former SFRY
  6. a good and natural bridge for cooperation with the former Yugoslav republics, the countries of the Eastern Europe and the former USSR
  7. long experience in cooperation and business with market economies and international market institutions of multilateral, regional and national character, and the like.

The Concession Law of the Republic of Serbia

The Concession Law of the Republic of Serbia, together with other legal documents, rounds up the legal and economic ambience in the Republic of Serbia and contributes to favourable conditions for attracting private capital, foreign capital in particular. This Law provides for a general frame or common rules for a concessionary activity and applies to all kinds of concessions. Detailed conditions for and modality of pursuing a concessionary activity are dealt with in special laws such as the Law on Mining, the Law on Electric Power Industry, the Law on Railways, the Law on Roads and other.

The Concession Law of the Republic of Serbia understands, a concession to mean the right to exploit a natural resource or a good in general use, which is granted to a domestic or foreign person (the Concessionaire) by a competent state agency (the Conceder) under specially prescribed conditions and against a suitable compensation, as well as the issuance of licence for conducting business of general concern.

The Concession Law regulates the execution of projects on the basis of a B.O.T. system which is instituted to enable the construction and financing of structures, plants or industrial divisions, their operation and transfer to the Republic of Serbia.

A concession that includes the B.O.T. system projects may be granted for a period of up to 30 years.

Pursuant to the Concession Law, the subject matter of the concession can be:

  1. Prospecting for, or prospecting for and exploitation, or only exploitation of all kinds of mineral raw materials;
  2. Construction, maintenance and exploitation of water management facilities ( dams, water storages) and water supply systems and irrigation and drainage systems,
  3. Construction, maintenance and exploitation of roads, power supply facilities, construction of railways and other railway facilities, air transport facilities, airports, oil pipelines, gas pipelines;
  4. Construction, maintenance and exploitation of public utility facilities, for the purpose of providing public utility services
  5. Construction, maintenance and exploitation of telecommunications facilities or their remodelling, modernisation and exploitation;
  6. Development and exploitation of river banks and lake shores and construction of facilities for the purpose of conducting business;
  7. Construction of facilities, remodelling, modernisation and exploitation of in spas and localities having natural curative properties and other natural values, for the purpose of their exploitation,
  8. Remodelling, modernisation and exploitation of the existing facilities as those referred in Item 3 of this Article, for the purpose of conducting business
  9. Pursuing such lines of business as are designated by law as lines of business of general concern.

A foreign person cannot be granted a concession for activities in the pursuit of which, according tothe regulations governing foreign investment, he cannot be a founder of an enterprise with full or majority ownership (production and trade in armaments and military equipment, public information, and telecommunications) namely for the pursuit of an activity in an area which is deemed a restricted zone under federal law.

The recommendation for granting a concession is submitted to the Government of the Republic of Serbia by the Ministry in charge of the sector involved, and a competent local government agency (town and municipality) or an interested party through the Agency for Investment in Activities of Concern to the Republic. The Agency is established as a special organization for the performance of technical operations associated with concession granting and for checking the performance, monitoring the exercise of rights and duties by the Concessionaire and the Conceder, and extending technical assistance in the exercise of such rights and duties.

The Government of the Republic of Serbia renders a decision on granting a concession - the concession decree which is published in the Official Herald and includes the following:

  1. Reasons for which the concession should be granted; the necessary funds and other resources and the time limits for raising them;
  2. Anticipated income and expenditures associated with the concession involved in the whole period for which it is to be granted and the technological capacity for its utilisation;
  3. Particulars about the effect of the concessionary activity on the infrastructure and other economic sectors as well as on the uniformity of technical and technological systems and their efficient operation and rational management;
  4. Duration of concession;
  5. Modality of payment and issuance of guarantees or other sureties for the performance of concessionary duties and the amount to which the bid bond is to be made out;
  6. Appraisal of the environmental impact of a concessionary activity;
  7. Estimated number of employees for concession utilisation purposes and their qualification structure;
  8. Particulars about the necessity of dealing with property relations and other particulars concerning the peculiarities of the subject matter of concession.

Concession is granted in a public bidding procedure which is conducted in accordance with federal regulations. Only in exceptional cases when public bidding is not successful, concession may be granted by collecting quotations. The decision designating a Concessionaire is rendered by the Government of the Republic of Serbia. A Concession Agreement is concluded within 60 days after the date when the Concessionaire has been designated. The Agreement is concluded by the Government of the Republic of Serbia with the selected bidder - Concessionaire. When the subject matter of the concession is the construction of public utility facilities for the purpose of performing activities relating to public utilities, the concession agreement is concluded with the Concessionaire by a competent authority in the local government agency, upon the consent of the Government of the Republic. If the Concessionaire is a foreign person, the concession agreement is concluded pursuant to the regulations on foreign investment, i.e. the agreement is reported and registered in the manner provided by the federal law governing foreign investment. Any such agreement is also reported to the Agency for Investment into Activities of Concern to the Republic of Serbia which registers and monitors its implementation.

Within 60 days after a Concession Agreement has been concluded the Concessionare shall form a concessionary enterprise with the seat in the Republic of Serbia unless the Concessionaire concerned already has an enterprise registered for the same activity. A concessionary enterprise shall be founded, operated and organized in conformity with the Enterprise Act.

In the period for which the concession is granted i.e. the performance of the concessionary activity, the Concessionare shall be guaranteed all the rights stipulated in the law, in the Concession Agreement, in the contract on financing the product, and the foreign Concessionaire shall also be guaranteed the rights contracted in the international contracts on the encouragement and protection of foreign investment that have been concluded by the FR Yugoslavia or the Republic of Serbia with the Concessionaire's country. In the event of a change in the republic regulations on the grounds of which a Concession Agreement governing the relations set out in that agreement, has been concluded, the regulations which were in force on the date when the Concession Agreement was concluded will apply,or the new changed regulations will apply, should that be more favourable for the Concessionaire concerned.

Any dispute arising in the exercise of concessionary rights and duties, the subject matter of which is an immovable, will be settled by a competent court in the Republic. If the Concessionaire concerned is a foreign person then the competence of a foreign arbitration court may be stipulated for the settlement of any dispute arising in the exercise of other rights and duties.

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