SERBIA GUIDE

Serbia – The Economy

Serbia is located in the heart of Southeast Europe (SEE) – which is at the crossroads of Europe, the Middle East, and Africa. In this region, there are a number of emerging markets of varying sizes, all of which have economic development plans focusing on bringing their laws, educational and medical systems, infrastructures, and security/defense frameworks up to European standards.

In terms of market opportunity, Serbia combined with Bulgaria, Romania, Croatia, Hungary, North Macedonia, Moldova, Montenegro, Bosnia and Herzegovina, and Slovenia represent a market the size of Texas, with 60 million inhabitants and a GDP of around $500 billion. 

Despite its relatively small size, Serbia’s emerging economy creates significant opportunities for exports and investments across a wide range of sectors, particularly infrastructure, ICT, healthcare, agribusiness, energy, and environmental technologies.

Serbia is the largest and most prosperous economy in the Western Balkans, serving as a regional hub and springboard for companies to access the larger regional market. 

The economy of Serbia is a service-based, upper middle economy, which functions on the principals of the free market. The strongest sectors of Serbia’s economy are energy, manufacturing (most popular in the automotive and machinery industries), mining, and agriculture.

Trade plays a major role in Serbian economic output, with its main trading partners being Germany, Italy, Russia, China, and the neighboring Balkan countries. The country’s leading trade exports are automobiles, base metals, furniture, food processing, machinery, chemicals, sugar, tires, clothes, and pharmaceuticals.

Neighboring Balkan countries are highly active in Serbia, focusing on procurements, investments, trade liberalization, and infrastructure. Serbia is also Europe’s fourth-biggest recipient of Chinese investment, particularly in greenfield projects, and participates in China’s Belt & Road Initiative. U.S. firms have invested around $4 billion into Serbia and continue to play an active role in the Serbian economy. Certain segments of the Serbian economy remain highly price-sensitive, but rising prosperity among business and government presents a window in which they can afford Western brands of high quality, to modernize and focus on purchases with the best return on investment. Key challenges remain in public procurement, bureaucratic burden, corruption, and inefficient commercial courts.

Small and Medium-Sized Companies

In Serbia, SMEs have a considerable impact on the country’s economy. SMEs currently make up 99.8% of the number of businesses in the country. They generate about 2/3 of employment, a turnover of 54.1% of GDP and account for 43.2% of total exports.

80% of the total workforce in Serbia works in the SME sector. Concerning market innovation, 83% of Serbian entrepreneurs are highly educated, 97% of them implemented some kind of innovation in their business.

SMEs businesses are primarily in the sectors of agribusiness, production, and IT.

Compliance Highlights

• The Serbian Tax Administration – Forming part of the Ministry of Finance of The Republic of Serbia, the Tax Administration is the government administration authority, which carries out the assessment, audit, and collection of public revenues.
  
• The Ministry of Labor, Employment, Veterans’ Affairs and Social Affairs – this government entity performs state administrative tasks that are related the system in the field of labor relations and labor rights in all forms of work except in state bodies and bodies of local self-government and autonomous provinces, public agencies, and public services.
  
  They also work on Safety and Health issues at work, carry out inspection supervision in the field of labor relations and safety and health at work, and trade union organization – amongst other projects including labor and employment.

Labor Contracts Law

In Serbia, general considerations applying to all contracts include:

• The Labor Law (2005) stipulates that an agreed contract must be concluded in writing before the employee starts work.
• The contract must give full names and addresses of both parties; place of work, job title and description of role; start date of employment; salary and payment schedule; working hours; whether the contract is indefinite or fixed-term, with end date for fixed-term; any benefits.
• If the contract does not specify either indefinite / open-ended or fixed term it is automatically deemed open-ended. Where an employee is asked to work for more than five days after the end of a fixed-term contract, the contract becomes indefinite.
• Unless covered by contract, notice periods range between eight and 30 days, depending on the employee’s contributions to the pension insurance fund.
• Employees should ask for the contract to be translated into their native language so they can fully understand the terms.
• Apart from the specific terms, employees must be given their formal written contract no later than the first day of employment.
• The contract should be in a language fully understood by all involved parties, whatever their nationality, although it may be drawn up in the local language. English is frequently used in employment contracts. 
• Mandatory information required for all contracts includes identities and addresses of all parties, employment start date, place, and type of work, working hours, annual leave, notice periods, type of contract and any trial period contract.

The main types of employment contracts are:

1. Open-ended, Permanent, Indefinite Employment Contracts: The typical contract form that can be terminated mutually, or by either party with or without notice by following the correct procedures prescribed by the Labor Law and the Employment Rights Act.
2. Fixed-term Employment Contracts: The fixed-term agreement specifies an end date or a specific project or set of circumstances. Generally, they cannot exceed 24 months, although in certain circumstances can be extended to 36 months, for example if it is tied to the duration of a foreign employee’s work permit. If a contract does not specify fixed-term it is automatically indefinite; if an employee is asked to work more than five days after completing the fixed-term agreement, the contract becomes indefinite. If an employer fails to sign a fixed-term contract it is deemed to be indefinite.
3. Probation Periods: These cannot exceed six months and either party can terminate during the trial period with five days’ notice.
4. Other Employment Contracts: The Labor Law allows for contracts for temporary or occasional work and for service contracts. Temporary contracts cannot exceed 120 days in a calendar year and are aimed primarily at the unemployed, part-time workers or individuals drawing a pension. Service contracts are to provide services not covered by the employer’s usual activities.
5. Collective Bargaining Agreements (CBAs): In Serbia these are individual, industrial, or general agreements. Individual agreements are between employers and relevant trade unions; industrial agreements apply to all employers and employees in a particular sector; general agreements would be applied at state level, although these are rarely in place.

Payroll – Tax Contributions and Benefits

Income Tax: Liability depends on residence and types of income. Persons are considered tax residents if Serbia is their place of economic and personal interest, and they live there for at least 183 days in a 12-month period. They are taxed on their worldwide income. Non-residents are those who do not fit those criteria and they are taxed on income earned in Serbia.