Conditions and methods of financing foreign business

Financing of foreign business in Serbia is most often realized in the following forms:

1. financing through direct investments (founders’ investments, subordinated loans and credits, additional payments, etc.)
2. foreign currency lending in the country
3. taking loans and borrowings from abroad
4. contracting factoring transactions.

Direct investments

By the Law on Foreign Currency Transactions (“Official Herald of the Republic of Serbia”, Nos. 62/2006, 31/2011, 119/2012, 139/2014 and 30/2018 – further: Law on Foreign Currency Transactions) capital investments were defined as transactions between residents and non-residents and the purpose of which is the transfer of capital. One of the capital investments regulated by the Law on Foreign Currency Transactions shall be direct investments.

Direct investments regulated by Article 2 paragraph 1 item 17) of the Law on Foreign Currency Transactions as investments into legal person abroad and non-resident’s investments into the legal person in the Republic to get included in the management of such legal person’s activities through:

1. incorporation of a legal person, branch or representative office
2. recapitalization of a legal entity
3. purchase of shares or stake in the capital of legal person
4. subordinated credit facilities and loans
5. any other form of investment whereby the investor acquires more than a 10% stake in share capital and/or more than 10% of voting rights.

Obligation to report to the National Bank of Serbia

In the case when a member of the company is a non-resident, the Law on Foreign Currency Transactions prescribes the obligation to report to the National Bank of Serbia on foreign direct investment, which regulates in more detail:

• Decision on the Obligation to Report on Foreign Business (“Official Gazette of RS”, No. 87/2009 and 40/2015 – other Decision) and
• Instructions for Implementing the Decision on the Obligation to Report on Foreign Business (“Official Gazette of RS”, No. 87/2009 and 40/2015 – other Decision).

According to the Decision on the Obligation to Report on Foreign Business (“Official Gazette of RS”, No. 87/2009 and 40/2015 – other Decision), the obligors of reporting, ie. Residents determined by the Law on Foreign Currency Transactions are obliged to submit to the National Bank of Serbia reports on foreign operations on several bases, including the balance and/or transactions based on direct investments of non-residents in the country. In that sense, when it comes to direct investments of non-residents in the Republic of Serbia, residents, in which non-residents have a share, are obliged to submit to the National Bank of Serbia Form DI-1, a quarterly report on foreign direct investments of non-residents in the country.

This continuous reporting obligation of the National Bank of Serbia has existed since the day of the first investment and refers to all changes related to the increase or decrease of non-resident direct investment and ends when the foreign direct investment is wholly withdrawn.

Additional payments of the founder

Additional payments are not subject to the Law on Foreign Currency Transactions, but they are stated in some other laws and the bylaws that regulate foreign currency transactions.

The Companies Act (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021) regulates the institute of additional payments. Additional payments can be:

• pecuniary only
• do not enter into the share capital
• are determined by the founding act or the Decision of the assembly (unanimously, unless the founding act provides for a second majority for the adoption of that Decision)
• they can be returned to the members of the company only if they are not necessary to cover the losses of the company or to settle the creditors of the company, but in no case can they be returned to the member of the company before the final payment of the agreed contribution to the company.

In addition to the Companies Act (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021), additional payments are regulated by the provisions of the Law on Investments (“Official Gazette of RS”, No. 89/2015 and 95/2018). According to the provisions of Article 9 of the Law on Investments (“Official Gazette of RS”, No. 89/2015 and 95/2018), an investor who is a foreign legal or natural person is entitled, in accordance with the law, after paying all tax and other duties that belong to public revenue, to freely transfer financial and other assets related to the investment.

Foreign currency lending in the country

By the provisions of Article 2 item (19) of the Law on Foreign Currency, Transactions were stated that credit facility operations, in terms of this law, shall be credit facility operations in the Republic Serbia and international credit facility operations. By item (20) of the same Article of the Law on Foreign Currency Transactions, credit facility operations in the Republic of Serbia shall be credit facilities that the bank approves to a resident in foreign currency.

In addition to Article 2, item (20) of Law on Foreign Currency Transactions, credit operations in the Republic of Serbia are regulated in more detail by Article 25 of this Law, which stipulates that Banks may approve to residents – legal entities and entrepreneurs credit facilities in foreign currency for the payment of import of goods and services from abroad, which, indisputably, is also a form of financing the regular business of business entities.

At the same time, Article 34 of the Law on Foreign Currency Transactions stipulates that payments, collection, and transfer between residents and non-residents in the Republic of Serbia are made in dinars. However, the same provision of the Law on Foreign Currency Transactions stipulates that, exceptionally, payments, collection and transfer in the Republic of Serbia may also be made in foreign currency on the grounds specified in paragraph 2 of that Article of the Law on Foreign Currency Transactions and on what bases is included foreign currency lending in the country for the purposes referred to in Article 25 of the Law on Foreign Currency Transactions.

Credit facilities indebtedness abroad

In accordance with Article 2 item (21) of the Law on Foreign Currency Transactions, International credit facility operations are credit facilities approved by a bank or a foreign bank, and loans between residents and non-residents, reported to the National Bank of Serbia by residents.

Financial credit facilities and loans in foreign currency are defined as credit facilities and loans that the creditor or lender approve to the debtor by (a) making the funds available by paying them to the debtor’s account, but financial loans and borrowings include (b) all forms of financing approved by banks, foreign banks and other foreign financial institutions, as well as (c) financing of trade of goods or provision of services in which the resident is not a contracting party in the trade and which shall be approved by the bank.

Financial credit facilities and loans in foreign currency from abroad can be taken by:

• residents – legal entities (in their name and for their account, as well as in their name and for someone else’s account)
• residents – entrepreneurs (in their name and for their account)
• residents – branches of foreign legal entities (with a repayment period of more than one year and only from its non-resident founder)
• as well as residents – natural persons (with a repayment period longer than one year and who use the payment of loan funds to the account of that resident with the bank).

According to the provisions of Article 21 of the Law on Foreign Currency Transactions, financial credit facilities taken from abroad may be used for the following purposes:

1. the payment of import of goods and services
2. financing of the performance of construction works abroad, concluded by residents within the scope of their activity
3. for the repayment of previously used external credit facilities (refinancing).

At the same time, the Law on Foreign Currency Transactions stipulates that residents may take financial credit facilities from abroad for purposes other than those previously mentioned, but in the manner and under the conditions determined by the National Bank of Serbia by adopting the Decision on Manners and Conditions of Using Financial Credit Facilities Taken from Abroad for purposes from Article 21, paragraph 2 of the Law on Foreign Currency Transactions (“Official Gazette of RS”, No. 6/2013, 74/2013, 32/2018 and 3/2021).

The said Decision stipulates that credit facilities taken from a non-resident with a registered office or residence in a Member State of the European Union may be repaid, i.e. its repayment may begin before the expiration of the deadlines prescribed by this Decision, which allows residents short-term borrowing by taking out financial credit facilities or loans, but only from the mentioned creditors.

In connection with the above, it is essential to know that there is a possibility of keeping foreign currency in an account with a bank abroad and based on the financial borrowing of residents abroad.

Namely, the Decision on the Conditions under which and the Manner how a Resident may Keep Foreign Currency in an Account with a Bank Abroad (“Official Gazette of RS”, No. 31/2012, 71/2013, 98/2013, 125/2014, 102/2015, 37/2018 and 13/2020) stipulates that a resident, with the approval of the National Bank of Serbia, may keep foreign currency in an account with a bank abroad, among other things, for the use of foreign financial credit facilities intended for payments abroad, if the benefit such a loan is conditioned by keeping funds with a foreign bank, based on a copy of the credit facilities agreement and a credit facilities indebtedness application registered with the National Bank of Serbia.

Credit facilities and loans in dinars approved by international financial organizations and development banks to residents

Credit facilities and loans in dinars, which, following the Law on Foreign Currency Transactions provisions, are approved by international financial organizations and development banks or financial institutions founded by foreign countries to residents, are also considered international credit facility operations.

Credit facilities and loans in dinars approved to residents by international financial organizations and development banks or financial institutions founded by foreign countries are regulated in more detail by the Decision on Conditions and Manner of Conducting International Credit Facilities Operations in Dinars (“Official Gazette of RS”, No. 98/2013), which stipulates that a resident-credit debtor for these transactions may be a bank, resident-legal entity or entrepreneur.

Therefore, in terms of the Law on Foreign Currency Transactions, credit facilities and loans in dinars cannot be taken by residents – branches of foreign legal entities and individuals.

The mentioned credit facilities and loans in dinars can be approved with a maturity of more than one year from the date of its use.

A credit facility in dinars intended to finance the purchase, processing and production of agricultural products or the export of goods and services may be approved to a resident-legal entity and entrepreneur with a minimum maturity of three months. Exceptionally, credit facility in dinars may be repaid before the expiration of the prescribed deadlines and in disproportionate instalments based on an act or agreement ratified in the Republic of Serbia, as well as a new credit facility in dinars, if the maturity of the new credit facility in dinars is the same or longer than prescribed by this Decision.

Factoring transactions

By Article 2 paragraph 1 item 1 of the Law on Factoring (“Official Herald of the Republic of Serbia”, Nos. 62/2013 and 30/2018), factoring transaction is defined as a financial service of buying and selling of existing non matured or future short-term monetary receivable, that arose from a contract of sale of goods or provision of services at home and abroad.

In terms of the Law on Factoring (“Official Herald of the Republic of Serbia”, Nos. 62/2013 and 30/2018) may differ:

• Domestic factoring, whose subject is the sale of receivables that arose in the sale of goods or provision of services between domestic persons in the internal market and
• International factoring, whose subject is the sale of receivables that arose in foreign trade of goods and services, in terms of the law governing foreign trade and which can be conducted in a one-factor system, when only one factor takes part in factoring, and in a two-factor system, when a factor headquartered in the Republic of Serbia, and a factor based abroad, participate in factoring.

Factoring may be done only based on a contract concluded in written or electronic form. The contract, whose subject has not been defined in accordance with the Law on Factoring (“Official Herald of the Republic of Serbia”, Nos. 62/2013 and 30/2018), shall not be considered a factoring contract in terms of the Law on Factoring (“Official Herald of the Republic of Serbia”, Nos. 62/2013 and 30/2018). A factoring contract shall not be considered a credit or loan contract, according to the regulations of the Republic of Serbia and business practices.

Read more:
Investor rights »
Reporting obligation to NBS in respecct of foreign operations »
Foreign trade in goods according to the provisions of Foreign Trade Act »