The new Law on Foreign Investments

The Assembly of the Federal Republic of Yugoslavia has passed the new Law on Foreign Investments on January 16, 2002. In general, foreign investments in Yugoslavia are regulated by Article 70 of the FRY Constitution where it is stated that a foreign person (non-Yugoslav citizen) has the right to perform economic activities under the condition of reciprocity, and in accordance with federal Law.

The fundamental aim of the Federal Government is to create a friendly legal, political and economic environment for all foreign individuals and companies that would be interested to conduct business in Yugoslavia. One of the long-term goals is also to create a compatible legal system with the European Union legislation as a first step for future integration.

In the following text are presented some of the main legal characteristics of this Law.

A foreign investment, according to this Law is an investment in domestic enterprises through acquisition of stocks or a share in the basic capital of that enterprise and/or acquiring any other property right in an enterprise.

Foreign investments in insurance companies, banks, other financial organizations and free zones shall be made in accordance with the federal law that regulate these particular activities.

The definition of foreign investor has been changed. The previous law defined a foreign investor as a foreign legal and physical entity, a national who has lived abroad for more than one year and any legal entity established and registered in Yugoslavia whose owners are either foreign legal entities or both foreign and domestic legal entities, provided that the foreign legal entities posses more than 50% of the share capital. The new law has excluded the last two categories from the definition of a foreign person, and accepted the solution already present in some other legislation to the effect that any legal entity established in accordance with Yugoslav legislation and registered in Yugoslavia receives national treatment, regardless of the origin of its capital. In this way the new law resolves the legal contradiction that existed between various laws (particularly with the Law on Foreign currency operations).

A foreign investor can alone or together with foreign or domestic investors establish a company or purchase a share of an existing company. A concession may be granted to the foreign investor for using natural resources or goods in general use or performing activities of general interest. It can be granted for the foreign investor to build, operate and transfer certain projects, production plant or capacity as well as infrastructure or communication facilities.

The contribution of a foreign investor may be in the form of foreign currency, contributions in kind, intellectual property rights, securities, any other property right and/or in Dinars but only if the funds, in accordance with the foreign exchange operations regulations, may be transferred abroad, including reinvestment of the profit. The contribution of a foreign investor may no longer be made in the form of services, as was possible according to the previous Law.

A foreign investor may convert an established claim into equity i.e. shares of the company.

The contribution of a foreign legal or physical person has equal legal status as that of a domestic person, and a foreign investor has equal rights and obligations as the domestic legal or physical person in relation to his contribution.

The Law guarantees legal stability to the foreign investor. This means that if a change is made to the law under which an agreement was made after the investment agreement has been registered at the court, the provisions of the agreement, articles of associations and the law in force on the date of the registration of that agreement shall apply to the relations regulated by it. It is important to emphasize that a stake held by a foreign investor or a company with a foreign investment cannot be the subject of expropriation except when so required by public interest as established and determined by the law. Moreover, in case of expropriation, the foreign investor or the company with foreign investment is entitled to compensation that cannot be lower than its market price.The provisions related to expropriation are new in the Yugoslav legal system and coordinate issues related to foreign investment with provisions of bilateral contracts on the encouragement and protection of foreign investment.

A foreign investor may convert Dinars into a foreign exchange for any payment that is related with a foreign investment. Also, the company with a foreign stake may execute freely any payment to perform its international business relations.

A company with a foreign stake holding, besides an obligation to keep books and financial statements in accordance with the Yugoslav regulations, has the right to keep books and financial statements in accordance with internationally accepted accounting standards.

Once all outstanding commitments have been settled in Yugoslavia, it is possible to transfer the profit, the assets invested and the remainder of investment as well as any indemnity or the amounts received on the basis of decreasing of the initial capital of the company without any restrictions.

It is stipulated that the importation of equipment that represents the stake of the foreign investor is unrestricted, subject only to environmental protection regulations. Import of the equipment mentioned above is exempt from customs duty and other import charges, except for motor vehicles and gambling machines.

Any dispute related to foreign investment may be settled either in front of the Yugoslav court or in front of domestic or international arbitration as agreed between the parties.

The removal of the previous limitations on the establishment of a company wholly owned by a foreign person in the field of telecommunication and public information represents a significant departure. These companies were required under previous legislation to have the majority of capital owned by a domestic person. According to the new Law, foreign investors are blocked from establishing wholly-owned companies or companies in which they have a majority stake only in the field of production and trade of arms and military equipment and any other fields designated in the law as prohibited to foreigners.

Another important change is that the burdensome procedure for obtaining the approval from the Ministry for Foreign Economic relations for any foreign investment contract (whether establishing a company by a foreign person or for acquiring any part of an existing domestic company or any other form of foreign investment) is no longer required. All investments are to be registered only at the Register of enterprises using the procedure for the establishment of a new company or amendment of the Articles of Association of an existing company and the Registration Court will simply inform the competent federal ministry.

This Law shall apply to all foreign investments that have not yet been registered with the competent court on the date when this Law comes into force.