What Are the Risks of Doing Business in Serbia for Foreign Investors?

In 2023, Serbia became a top destination for foreign entrepreneurs seeking to consolidate their business operations, register new companies, and establish branches of existing enterprises. This surge in activity is quite logical, as this country has a favorable location in Europe (although not a member of the EU), is developing its economy, and is not involved in current geopolitical debates.

In addition, foreign investors who choose Serbia can count on customs benefits in European Union countries, relatively low business maintenance costs, and access to the European market. However, there are always business risks associated with economic, political, and other aspects.

What kind of business can foreign non-residents open in Serbia?

Organizational and legal forms of business available for setting up in Serbia in 2023:

•  Individual entrepreneur (Pr) – form in which the business owner is fully liable for their debts. An individual entrepreneur can be registered in Serbia online through the centralized registration system of the Business Registers Agency.
• Partnership, which can be general or limited:
  • General partnership (DO) in Serbia – a legal entity where partners have equal rights and obligations.
  • Limited partnership (KD) in Serbia provides for the presence of a general partner (business founder) and a limited partner (participant). A general partner is liable for the debts of a partnership, while a participant has responsibility proportionate to their share of the authorized capital.
• Limited liability company (DOO) in Serbia can be founded by at least one person with a minimum share capital of 1 euro. LLC is suitable for small and medium-sized businesses, and registration is available online by the founder or their legal representative.
• Joint-stock company (AD) in Serbia – is suitable for large businesses and requires the presence of directors, shareholders, a secretary, an auditor, and a supervisory committee. The minimum share capital of a Serbian AD is RSD 3,000,000 (EUR 25,587), of which 25% must be deposited into the account at the time of entity formation. AD in Serbia can be public or closed.
• Branch or representative office of a foreign company.

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Risks of doing business in Serbia, according to entrepreneurs

It is unnecessary to explain the generally accepted risks for entrepreneurs in any country, as this is a well-known topic within business circles. However, let us focus on specific risks that exist in Serbia in 2023, noted by business communities based on surveys conducted.

Risk #1 – expenses

Nearly 90% of survey participants voted for risks associated with expenses, which include costs for labor, logistics and travel, raw materials, energy, and so on. According to Serbian entrepreneurs, these challenges represent a high threat to business compared to the previous year.

These concerns and increased costs are due to sharp inflation in the country, which reached 15.1% in 2022. As a result, there is a rise in consumer prices and expenses, which have consequently affected businesses.

Risks #2 and #3 – relations with the EU and a workforce

Both of these criteria have been identified as risks for Serbian businesses, with the following indicators:

• Shortage of workforce and qualified specialists in the country are risks for 53% of respondents. However, the Serbian government plans to simplify the employment of foreign migrants, which should solve the current problem.
• Deterioration of relations with the European Union is a risk for 47% of entrepreneurs surveyed. This topic is more political but also concerns the country’s economy and affects the interests of Serbian investors. Against the background of the conflict in Kosovo and the Serbian government’s failure to impose sanctions against Russia, European politicians may complicate Serbia’s accession to the EU and minimize investments coming to the country.

Note: Serbia offers favorable conditions for migrants who can enter the country without a visa, obtain a residence permit through a simplified procedure without minimum investment requirements, and subsequently obtain citizenship in this Balkan jurisdiction. You can consider such options for applying for a Serbia residence permit:

• Serbian Residence Permit and Serbian Tax Residency By Real Estate Investment
• Legal and Tax Residence in Serbia via Company Registration

Other risks for Serbian business and economy

Other risks that foreign and local entrepreneurs may face in Serbia include the following:

• decrease in consumer purchasing power
• debts and inability to collect them
• increase in interest rates
• decline in demand in the consumer market and reduction in private investments

corruption in the country.

All of these risks are mainly related to the uncertainty that Serbian business people are experiencing nowadays.

Note: The expectations of the business elite in Serbia are ambiguous, and most respondents are focused on improvement in all indicators.

International risk assessments for Serbian business and economy

According to international corporations’ research, the main macroeconomic indicators for Serbia in 2023 are as follows:

• GDP growth rate is 2.3%.
• Inflation (average annual value) is 9.5% (with a maximum of 12.2%).
• The GDP budget balance decreased by 2.7%.
• The government debt decreased to 55.5%.

The forecast and evaluation also include the country’s strong points:

• The agreement with the EU allows for the import of 93% of goods without customs duties.
• Reform of the public sector in coordination with the IMF.
• Natural resources such as coal, copper, zinc, lead, bauxite, gold, silver, and lithium.
• Significant production of grains, vegetables, and fruits.
• Growing automotive industry.

Negative aspects and risks of Serbia’s economy are highlighted in the following areas:

• The conflict in Kosovo and refusal to impose sanctions against Russia, which cause dissatisfaction among Western countries and, consequently, have a negative impact on Serbia’s economic performance.
• Slow judicial proceedings, harassment of customs, and corruption.
• Large informal economy sector: 20% of GDP in 2021 and 14% of employment in the third quarter of 2022.

However, these are only general assessments of risks for business and the economy of Serbia. If we consider other countries, including European ones, much worse indicators can be seen.

Discover our top articles about business and life in Serbia:

• Serbia: National Economy and Income Level in 2023
• What are the Taxes on LLCs in Serbia?
• What is the Best Business to Start in Serbia?
• Life in Serbia – Housing Costs and Expenses to Expect
• Real Estate in Serbia: Taxes and Additional Expenses Pre and Post Purchase

Summary

Despite the global crisis and strained relations with the EU, Serbia’s popularity among foreign investors remains intact. It is currently one of the few countries in Europe that maintain neutrality and friendly business contacts with almost all European and Asian regions.