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Labor shortages have emerged as a pressing issue across CEE, prompting diverse responses from governments, businesses, and the public as they navigate the challenges of workforce gaps and economic sustainability.

CEE’s Labor Market Strains

“Employment has always been closely linked to a country’s socio-political and economic conditions and is therefore strongly affected by any changes in these areas,” Drakopoulos Partner Georgia Konstantinidou begins, explaining that “nowhere is this more evident than in Greece, where after a decade of deep economic recession and record high unemployment rates, the gradual return to growth has led to an almost unexpected labor shortage in several sectors.”

“Demographic challenges, the brain drain of the crisis years, and economic shifts have all contributed to this shortage, which threatens the country’s ability to sustain economic growth and meet the demands of industry,” Konstantinidou continues. “The working-age population is shrinking, resulting in fewer people available for employment in key sectors, as the Greek population is aging rapidly, while a large number of skilled and qualified workers are emigrating to other countries – especially to the EU and the UK.”

Similarly, Lalicic & Boskoski Partner Martin Boshkoski remarks that in North Macedonia, labor shortages have become a “critical issue,” worsened by “ongoing emigration of the country’s youth, who seek better opportunities abroad, leaving businesses unable to meet their staffing needs.”

ACI Partners Head of Labor Doina Doga reports that Moldova is also experiencing “an alarming rate of labor shortages affecting various sectors of the economy,” adding that beyond the shrinking workforce, “the decline in the working-age population, and the issue of undeclared work” are contributing factors.

The challenges are further underscored by supporting data. “According to data from the end of 2023, approximately two-thirds of Czech employers are facing staff shortages,” PRK Partners Partner and Head of Labor Jaroslav Skubal says. In Moldova, Doga highlights that “in 2021, 16% of employers reported shortages of employees,” and this figure “rose to 18% in 2022, and further escalated to 30% in 2023.” As a result, Doga notes that “approximately 10,500 job vacancies remained unfilled in 2023. The majority of these unfilled positions were located in Chisinau.”

Key Sectors Feeling the Pinch

Among the affected sectors in CEE, there are several common trends, with construction, trade, IT, hospitality, and agriculture leading the list. “The largest shortage of employees is recorded in the trade and services sector, followed by the construction, transport, IT, and energy sectors,” Skubal emphasizes when discussing the Czech Republic. “In a nutshell, we believe that nearly all employers who have open positions are facing problems in finding suitable candidates to be hired.”

As for Moldova, Doga highlights that “the sectors most impacted by labor shortages include wholesale and retail trade with a 19% shortage, maintenance and repair of motor vehicles and motorcycles with a 19% shortage, public administration and defense with a 15% shortage, manufacturing with a 14% shortage, and health and social work with a 7% shortage.”

Turning to Poland, Wolf Theiss Poland Head of Employment Agnieszka Nowak-Blaszczak notes that, among others, “the tech industry is struggling with a shortage of programmers, developers, and IT specialists.” Additionally, Poland “lacks sufficient doctors, nurses, and caregivers, especially in rural areas,” with seasonal labor shortages being “particularly acute.”

“A shortage of labor is a significant issue affecting most sectors in Slovenia,” Ketler & Partners Head of Employment Sasa Orazem adds, pointing to sectors such as construction, hospitality, healthcare, social care, IT, education, transport, and warehousing as “experiencing labor shortages for several years.”

As for Hungary, the healthcare sector is particularly impacted, with “a significant shortage of nurses,” according to Nagy & Trocsanyi Managing Partner Balazs Karsai. Moreover, there is a “decreasing availability to work in some industries in Hungary, such as for example in hospitality and agriculture.”

In Lithuania, Widen Associate Partner and Head of Migration Law Svetlana Naumcik reports that there is a shortage of skilled professionals, including “insulators, welders, wide profile builders, electricians, pipeline installers, brick masons, and other professionals.”

Konstantinidou also highlights the challenges of seasonal work, explaining that “positions such as hotel staff, restaurant workers, cleaners and seasonal workers in tourist resorts are particularly difficult to fill. The seasonal nature of the work and the poor working conditions offered make it difficult to attract and retain workers.” Agriculture faces similar difficulties: “The steady flow of young people to the big cities has deprived agriculture of seasonal workers,” especially “in labor-intensive sectors such as olive harvesting, fruit picking, and vegetable growing.” Additionally, she says that “as one of Greece’s largest industries, shipping is also facing labor shortages, particularly for shipboard positions such as engineers and officers, where younger generations are reportedly less interested or motivated to pursue maritime careers than in the past.”

Rising to the Challenge

Several measures have been implemented across countries to address labor shortages, with improving working conditions being a top priority for both businesses and legislative bodies. “From the perspective of employers, the most common tool to attract (new) employees is offering very competitive wages and other forms of variable financial compensation as well as various benefits such as work-from-home or flexible working hours,” Skubal explains.

Doga highlights the importance of family-friendly policies in Moldova: “The Moldovan Government has implemented programs to support employees with family obligations. Notably, individuals with children under the age of three are now eligible for new childcare services aimed at encouraging greater workforce participation. The majority of these reforms focus on providing support to specific categories of employees, including individuals with young children, pregnant and breastfeeding women, women who have recently given birth, and individuals with particular family responsibilities. Flexible working arrangements have been introduced to accommodate these groups.”

In addition, reskilling programs have been emphasized in several countries. “Multiple government programs are available for Hungarian companies to train and integrate job seekers and to supplement their remuneration,” Karsai says. In Greece, Konstantinidou points to “training programs to attract new workers, as well as vocational training programs to reskill or upskill existing workers. In addition, to attract younger workers into the labor market, there has been an expansion of paid apprenticeship and internship programs to provide young people with opportunities to enter industries such as construction, tourism, and IT.”

Efforts to reverse the brain drain are also underway in both Greece and Moldova. According to Doga, “the National Program for Stimulating the Return to Moldova and Facilitating the Reintegration of Citizens for 2023-2027” was adopted in 2023. Konstantinidou adds that, in Greece, there are incentives for skilled professionals who emigrated during the financial crisis to return, “particularly in high-demand fields such as healthcare, engineering and IT. Incentives include tax breaks, competitive salaries, and improved work-life balance opportunities.”

Another strategy for addressing labor shortages is digitalization, as outlined by Skubal: “Employers are also trying to overcome the shortage of employees by, for example, greater involvement of AI at work and the digitalization and robotization of the workplace, if possible.”

Opening Doors: Immigration Policies as a Strategy

One natural solution among these countries to address the labor shortage appears to be immigration. In Hungary, “a new immigration act was adopted,” Karsai notes. “This act introduced multiple types of possibilities for obtaining a residence permit in Hungary. Some of these possibilities are linked to the real estate industry (purchase of real estate, or purchase of an investment fund share issued by a real estate fund, etc.) and, accordingly, in the past few months, we already observed increased interest from real estate market players.”

Similarly, Greece has been “easing visa requirements for foreign workers, especially from non-EU countries such as Pakistan and Egypt, and concluding bilateral agreements between Greece and these countries to bring in seasonal workers, especially in sectors such as agriculture, construction, and tourism, where there are alarming labor shortages,” according to Konstantinidou. “A significant part of these procedures is also being digitized, making the process easier.” Additionally, Konstantinidou draws attention to the law enforced in earlier 2024, in which “key changes include a reduction in the number of residence permit types from 50 to 19, simplifying the process for both applicants and authorities.”

As for the Czech Republic, “the government has expanded the list of countries whose citizens are not required to have a residency permit, such as an employee card, intra-corporate transferee card, or blue card,” Skubal notes. “Even though they still need a work permit, this change has considerably simplified the process of recruiting foreigners from non-EU countries. These include citizens of Australia, Japan, Canada, South Korea, New Zealand, the UK and the US.”

Naumcik points out that “the list of in-demand professions in Lithuania is approved by the Director of the Employment Service of Lithuania each year, based on monitoring of the labor market carried out by the employment service, and assessment of, and forecast of changes in, the labor market situation.” For 2024, quotas allow the employment of “up to 40,250 foreigners whose profession is included in the list of in-demand professions in Lithuania: 25,100 workers in the department of service, 5,050 industry workers, 9,800 construction workers, and 300 agriculture workers,” she says.

The impact of foreign workers in Poland has been significant. According to Nowak-Blaszczak, they “added approximately 2.3% to Poland’s GDP growth during the 2015-2023 period, averaging an annual increase of 0.24 percentage points.” She adds that “in the last three years, the number of foreigners with work permits in Poland nearly doubled, reaching over 1.5 million in the fourth quarter of 2023.” According to Nowak-Blaszczak nationals from Ukraine, Belarus, and Georgia were among the most represented. Additionally, she states that “Poland actively recruits foreign workers, particularly from countries such as the Philippines, Nepal, Bangladesh, and India.”

Slovenia is also addressing labor shortages by “entering into bilateral agreements with Bosnia and Herzegovina and the Republic of Serbia,” Orazem says, adding that “these agreements provide a streamlined process for the employment of Bosnian and Serbian workers in Slovenia.” Additionally, “the Slovenian government is seeking to diversify the source countries for foreign workers, extending beyond the Western Balkans region, to ensure a sustainable supply of adequate labor in the future. In anticipation of the forthcoming bilateral agreement, a Slovenian consulate has already been established in the Philippines.”

Still a Conundrum

On one side, there seems to be a disconnect between employer associations and their representatives and the wider public.

In Poland, “employer associations are advocating for more liberal and streamlined immigration policies to address labor shortages,” Nowak-Blaszczak explains, emphasizing that “employers are pushing for simplified and faster immigration procedures to attract more foreign workers. This includes reducing bureaucratic hurdles and processing times for work permits and visas.”

“The Lithuanian Confederation of Employers, the Lithuanian Confederation of Industrialists, and the Lithuanian Transport and Logistics Alliance suggested opposing the amendments to the Migration Law,” Naumcik says, noting “every 10,000 employees contribute a minimum of EUR 60 million per year to the Lithuanian budget in the form of wage-related taxes, and that they are consumers in the Lithuanian market, thus contributing to the country’s economic growth.”

Likewise, Doga highlights that “employers face significant challenges related to labor shortages and the lack of qualified specialists,” and “to address these challenges, employers advocate for policies that address the impact of migration on their businesses in Moldova.”

Not by All Means: The Tensions of Immigration

Even though there is a clear demand for foreign workers, public resistance remains strong. “The debate around immigration in North Macedonia remains polarized,” Boshkoski notes, with “many still arguing that allowing more immigrants would threaten local jobs, particularly for low-skilled workers. This sentiment resonates with some parts of the electorate, making immigration a politically sensitive issue.” This, according to Boshkoski, happens despite the fact that some businesses “might argue that without foreign workers, they will not be able to meet their operational needs, let alone grow.”

Skubal also points to a similar worry in the Czech Republic. “Despite the shortage of workers in almost all sectors, there is a tendency on the part of trade union representatives to argue that massive immigration may lead to falling wages and worsening working conditions for local workers.”

In Lithuania, steps have been taken to regulate the flow of foreign labor more strictly. Naumcik explains that amendments made at the end of June 2024 “aim to more effectively regulate labor immigration flows to the country, by limiting ‘cheap labor’ and encouraging highly-qualified worker immigration.” Among others, “the amendments will tighten the conditions for the employment of foreigners in Lithuania.” For instance, Naumcik says that “employers must make sure that the foreigner has documents confirming their qualifications and that they have at least one year’s relevant work experience in the last three years, or confirm that the foreigner will be paid a monthly salary which is at least equal to the last published average monthly gross salary for the calendar year.” Additionally, according to her, “from January 1, 2025, a strict quota for non-highly qualified foreign nationals arriving on the basis of work will be set.”

Similarly, Orazem shares that tighter rules have been introduced in Slovenia, particularly regarding the extension of temporary residence permits. “With applications submitted from November 1, 2024, onward, a certificate demonstrating proficiency in the Slovenian language at a survival level will be required,” and for those seeking a permanent residence permit, “it is necessary to have passed the A2 level of the Slovenian language exam.”

Immigration has become a central topic of political discussion. “The Czech Republic, like many European states, is grappling with complex debates surrounding immigration and labor policies,” Skubal notes, adding that “these debates often intersect with broader societal and economic concerns, such as populism and anti-immigration sentiment (xenophobia). It cannot be ruled out that immigration will be one of the most contentious issues in the next elections to the lower house of parliament – i.e., the most important political elections in the country, which will take place in October 2025.”

In Poland, despite a pressing labor shortage, there is “also a strong debate about the social integration of these immigrants,” Nowak-Blaszczak adds. “Ensuring that newcomers can integrate smoothly into Polish society, including learning the language and understanding cultural norms, is a major concern.”

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In The Corner Office, we ask Managing Partners at law firms across Central and Eastern Europe about their backgrounds, strategies, and responsibilities. As sunny days recede, the fall conference season is upon us, so we asked: How do you determine which Partner attends which events?

Pal Jalsovszky, Jalsovszky, Hungary: While we are just in a transition phase, from next year each Partner will have a budget that they can allocate for international events. It will therefore fall within the competence of each Partner to decide which conference suits best the interest of their practice group. The Partner can attend the conference themselves or send other members of their group.

The choice of the most suitable conference is crucial. European conferences are more attractive – partly due to the geographical distance, partly due to the circle of attendees (for instance, we did not attend this year’s IBA conference in Mexico). We also prefer 1-2-day conferences focusing on a narrower area (private equity, arbitration, etc.) to global conferences with a huge number of delegates. Finally, we share our resources between IBA and AIJA events, the latter being a more practical option for our young talents.

Vaclav Bily, PRK Partners, Czech Republic: At PRK Partners, the decision to select the Partner who will be attending a particular conference is primarily driven by the specific legal area in which the Partner specializes. We focus on aligning conference attendance with the Partner’s field of expertise to ensure that their participation contributes to their professional growth and brings added value to our clients. This approach helps our Partners stay informed about the latest legal developments in their respective fields.

When it comes to the process, we do not follow a formal internal system where Partners must justify their attendance. Instead, the decision is typically made by the Partner responsible for that particular practice area. They assess the relevance of the conference based on its content, networking potential, and the strategic value it may offer in terms of client development and the firm’s overall positioning.

Several key factors influence our decision in selecting the Partner who will be attending a conference, including the relevance to a practice area – we prioritize conferences that focus on legal updates in the Partner’s area of expertise; strategic importance – conferences that offer substantial networking opportunities, thought leadership or business development often take precedence; firm representation – we also consider the need for the firm to be visibly represented at key industry events; Partner availability and workload – practical considerations such as the Partner’s availability and ongoing client commitments play a role.

This approach allows us to make thoughtful decisions about conference attendance, ensuring that it benefits both the Partner’s professional growth and the firm’s overall presence in the legal market.

Alex Teodorescu, Teodorescu Partners, Romania: In our case, the first question when analyzing an event is whether attending it is an opportunity for business development or for professional development for that team member.

Usually, for business development conferences, the decision tends to gravitate toward the more senior lawyers, with the possibility to also bring junior team members along as a way for them to acquire skills pertaining to networking, client and referral management, and active listening.

Another big factor here is the personality of the team member. The more extroverted types can be really good conversationalists, while the more introverted types are usually the ones that drive the conversation deeper, to maybe a technical level, while also having the capability to deeply empathize with the issues that the potential client is facing.

When making these decisions we also take into consideration the audience of the event. At Teodorescu Partners we are focused on entrepreneurs so we seek conferences addressed to this demographic.

Octavian Popescu, Popescu & Asociatii, Romania: Conferences play an important role, both in the legal and business sectors, serving as opportunities for professional development and relationship building.

In the fast-paced world we live in, remaining informed and updated about the latest industry trends, regulatory changes, and emerging challenges is essential for providing high-standard services. Thus, relevant events offer the perfect occasions for legal professionals to meet peers, company leaders, local entrepreneurs, and potential clients, fostering connections that can lead to new business collaborations.

We participate depending on every Partner’s practice area. The process of determining which Partner attends a specific conference is strategic and involves a collaborative effort. Each decision is driven by the goal of maximizing the firm’s impact and aligning with our client’s needs, depending also on the specialty area of the Partner.

At the same time, Partners propose conferences by highlighting the event’s relevance to their practice areas, client engagement potential, and how the subjects align with the firm’s major goals. This way of selecting the right events ensures that each presence is valuable.

Ultimately, attending conferences is not just about attendance, but about strategically positioning oneself and the whole team Popescu & Asociatii within the broader professional community.

Kostadin Sirleshtov, CMS, Bulgaria: Managing law firms is a very informal process, as all Partners are both owners of the business and fee generators (the famous producer/manager dilemma). Individual Partners are “owners” of certain parts of the marketing budget and as they are rewarded for the clients that they bring to the business, each Partner decides how to spend their allocated budget.

Furthermore, very often Partners fund their marketing spend and invest in new relationships by attending conferences. In my experience, there are various types of conferences and we like to be both speakers/attendees at those that will not charge for your attendance thus the only expenses are the traveling and accommodation costs.

The main factor for me is “sustainability” – we have established strong relationships with key conference organizers and we apply the 80/20 rule – most of the events are the ones that we have attended and spoken at for decades.

Bernhard Hager, Eversheds Sutherland, Slovakia: There are two main reasons for attending a conference. Either to acquire know-how and increase excellence or to network and meet potential clients or candidates for lateral hiring. In many cases, both reasons are given. We do not have a set system for attendance at conferences, so we decide on an ad hoc basis. Decisive factors are the potential for new clients, the quality of the conference, costs, and time of absence from work.

Ivana Ruzicic, PR Legal, Serbia: In PR Legal, we determine which team members attend each event based on their specializations and interests. We match our team members’ expertise with the topics of the conferences and encourage them to suggest events that align with their professional goals and interests.

Staying informed about developments in the legal field is essential. Attending these events helps us stay current with industry trends, share best practices, and further our knowledge and skills. We actively support team members in their pursuit of professional growth and networking opportunities, ensuring that our firm remains competitive and well-informed. This approach not only aligns with our strategic goals but also enhances our overall expertise and effectiveness in the legal sector.

Istvan Szatmary, Oppenheim, Hungary: At Oppenheim, our approach to conferences is multi-fold. These events can be sources of knowledge that we can use in our day-to-day advice, but they can also be forums for our people to demonstrate their knowledge of a particular area of law as speakers or panelists in roundtable discussions. Whether sponsored by us or not, conferences can be excellent marketing tools, allowing the firm to showcase its services to an audience. Last, but not least, they are also important networking opportunities for our colleagues.

We believe in a diverse approach: there is no one-size-fits-all approach to deciding who should attend which conferences. At Oppenheim, senior fee earners (and in exceptional cases even juniors) can attend conferences as both speakers and guests. The decision-making process therefore allows not only Partners but also all other fee earners to be involved in these activities. A separate budget is available to cover these types of costs, which we see more as an investment in the future of the firm. The process is slightly different for Partners and other fee earners, but as a rule of thumb, it is management who decides on applications. Candidates are expected to present a robust case based on pre-defined criteria. This ensures that the decision is always based on objective grounds.

Pavel Hristov, Hristov & Partners, Bulgaria: Our firm specializes in M&A and corporate mandates. All our lawyers practice in those areas. We agreed that the objectives of attending an event are, by and large: (a) demonstrating our expertise, where feasible as a speaker, a moderator, or a panelist, (b) networking, and (c) getting up-to-date with area’s or industry’s current developments and innovations. The other criteria include theme/topics, geography (domestic or international; we mostly attend events in Europe), cost, event organizers, announced speakers, and attendees. We search for and select the relevant events accordingly.

Every Partner/Counsel can propose an event that meets the objectives and ask to attend. We decide together, informally, who could achieve our goals at that particular event. Normally one Partner/Counsel per event, but depending on workload and availability, we encourage more Partners to participate.

Milos Velimirovic, Kinstellar, Serbia: Attendance at conferences is integrated into the strategic planning process of our law firm. Determining which Partner will participate in each event is carefully defined and included in the firm’s annual business plan.

Several factors guide our selection process, including event importance and scale, matching a Partner’s expertise to an event focus, ongoing client matters, and networking opportunities presented by the event. Timing, location, and workload balance are also considered to ensure efficient engagement.

We emphasize Partners’ participation in industry groups and sector specialization. Client relationships are key – Partners with established relationships with clients are not just their legal support but also business partners. By assigning the right Partner to a suitable event, we strengthen our presence in key industries, cultivate essential relationships, and ensure our clients receive relevant and timely legal support.

In collaboration with Partners, our marketing and business development team is instrumental in researching and gathering information that is crucial to making these decisions. They evaluate which events offer the best potential for business development, relationship-building, and industry trend insights.

Ultimately, our approach focuses on coordinating presence at international conferences in cooperation with other Kinstellar firm-wide Partners.

Vedran Lalicic, Lalicic & Boskoski, North Macedonia: We recognize the importance of carefully selecting which Partners attend conferences to ensure that our client’s needs are best served and that our firm continues to grow and strengthen its expertise. The process for deciding which Partner attends a particular event is both structured and collaborative. Each decision is made based on the specific expertise required by the event’s focus, aligning with our goal to offer specialized and targeted representation.

While we do not have a formal process where Partners must build an internal case for their attendance, we ensure that the decision is driven by practicality and strategic fit. The Partner in charge of the relevant practice area usually makes the final decision, considering who has the most relevant experience and best represents the firm’s capabilities in that domain. Factors such as expertise, the potential for networking, and the Partner’s ability to translate the event’s benefits into actionable strategies for the firm are key considerations.

This approach ensures that our Partners are not only equipped to maximize the value of each event but also enable the distribution of cases to the right team members with the necessary skills and knowledge to handle each legal matter effectively.

Nenad Cvjeticanin, Cvjeticanin & Partners, Serbia: Our methodology for determining which Partner will attend a conference is a strategic and structured process, ensuring alignment with our firm’s goals and client needs.

We begin by matching the conference’s focus with the expertise of our Partners. For example, if the conference centers on intellectual property, the Partner leading that practice area is considered first. We also evaluate whether key clients are attending or if the conference aligns with their interests, potentially selecting a Partner who manages those relationships.

Partners interested in attending submit a brief proposal to the Partner in charge of the relevant practice area. This proposal outlines the conference’s relevance, expected benefits (networking, knowledge acquisition, client engagement), and how attendance aligns with our firm’s strategic goals. After that initial step, the relevant practice area head reviews these proposals, considering the firm’s overall strategy, budget, and client priorities. In the following days, the Partner provides a detailed report or presentation to the firm, sharing key insights, contacts made, and potential business opportunities. We also organize internal sessions where the attending Partner shares acquired knowledge with other Partners and associates, ensuring the entire firm benefits.

At the recent ECTA conference in Antwerp, one of our Partners had the opportunity to engage in meaningful discussions on the latest developments in intellectual property law. The event provided valuable insights into current trends, and it allowed our firm to strengthen relationships with key international clients. Additionally, the Partner gained firsthand knowledge of cutting-edge strategies in IP protection, which will further enhance our practice and client service.

Finally, at the end of each year, we review the outcomes of conference attendance to assess if goals were met and whether our process requires adjustment.

Christoph Mager, DLA Piper, Austria: We have a structured and well-established internal process in place that is used to select which Partner of the firm shall take part in which specialist event of lawyers or business events. All, the relevance of the respective conference for the respective specialist area and the Partner’s individual expertise and background as well as his client and/or sector focus are taken into account. In addition, the geographical distribution of clients of the relevant Partner and the firm’s growth objectives play an important role in the decision as well.

In some cases, there is a formal process in which Partners need to justify their participation, emphasizing their role in the specific area or sector as well as describing the networking potential and business development, all of which shall be in line with the firm’s strategic goals. In the following, the respective Practice Group Leader, who is responsible for the particular area of expertise and wants to ensure the greatest added value for the firm and its clients, decides on who shall attend at which conference or event.

Through this structured approach, we ensure within DLA Piper Austria that our Partners are represented at the most important events and conferences for us and by that have the chance to actively contribute to and drive the further development of our firm.

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Popescu & Asociatii Partner Loredana Popescu and Avellum Partner Maksym Maksymenko look at the current status of agribusiness in their countries – both traditional powerhouses in the sector – highlighting how they are managing to show resilience despite tough years.

New Challenges, Old Strength

Agribusiness, which has historically thrived in both Romania and Ukraine, has managed to stay resilient despite facing recent challenges. “The severe impact of Russia’s large-scale invasion, including damage to seaports and silos from shelling,” as well as “unfavorable weather conditions in 2024 that have impacted the grain and oilseed harvest,” have left a mark on Ukraine’s agribusiness, according to Maksymenko. Despite these setbacks, “Ukraine continues to be a global leader in the export of oilseeds and grains, particularly wheat and corn, approaching pre-war export levels in these critical categories.”

Romania has similarly demonstrated resilience in its agricultural sector, according to Popescu. “Eurostat figures show that in 2023, Romania was in the top 5 producers of wheat and corn in the EU, being the largest exporter of corn in the 2022-2023 season and the second-largest exporter of wheat.” For 2024, the prognosis is promising for Romania, as Popescu indicates that “Romania is forecast to remain the fourth largest cereals producer in the EU after France, Germany, and Poland, with a total production estimated at around 22-23 million tons.” This strong performance is supported by the fact that Romania has “more than 9 million hectares of arable land, placing it at the top of the agricultural areas in Europe,” she notes. At the same time, “crop production amounted to EUR 14.5 billion in 2022 and livestock production to EUR 7.1 billion,” she says, highlighting that “Egypt is the main recipient of Romanian wheat, with significant exports to countries such as Algeria, Saudi Arabia, and Jordan.”

Four Years of Multiple Crises

Still, there have been some challenges. For Ukraine, logistics chains have seen significant disruptions. “The complete blockade of seaports was a significant obstacle, eventually forcing Ukraine to create the maritime corridor unilaterally and partially relocate export routes to Ukraine’s western borders,” Maksymenko notes. “Early in 2024, non-marine routes also experienced disruptions when Ukrainian trucks were temporarily blocked due to protests at the Polish border.”

In addition to these logistical hurdles, Maksymenko highlights “rocket attacks, which have targeted grain storage facilities, food warehouses, ports, and civilian cargo vessels, resulting in regular losses and damage. The war has also led to a reduction in arable land due to mining and pollution, the destruction of storage facilities and machinery, and rising prices for fertilizers, fuel, and plant protection products.”

The outlook in Romania is complex too. “2024 is a standby year for most Romanian companies, coming after four years of multiple crises, inflation, and logistical problems,” Popescu notes. As an example, “the division of agricultural areas and the lack of an agricultural cadaster are among the biggest problems facing Romania at the moment. This is also happening because Romania has the most fragmented agricultural area in the EU with almost 3.8 million farms in 2010, representing 31% of the EU total, due to the result of the property restitution policy made after the fall of the communist regime in 1989.”

“Without strategic planning, restructuring of operations, and leadership capable of anticipating market developments, many Romanian companies, especially in the SME sector, risk disappearing,” she adds. “In the new economic reality, the outlook has to also consider a myriad of factors, from the ever-increasing pace of innovation to the field of artificial intelligence and changing consumer habits.”

Finding a Way Forward

In light of these factors, there have been some positive developments in addressing the issues from both legislative and business perspectives. “The Ukrainian government rapidly introduced measures, including automatically extending land leases to maintain the 2022 sowing campaign, simplifying land allocation and designation change procedures for businesses relocating from the front and pre-front lines, and providing land tax exemptions for land plots in temporarily occupied territories,” Maksymenko points out. “The government also moved forward with the second phase of opening the agricultural land market, allowing Ukrainian legal entities to purchase agricultural land starting January 1, 2024, regardless of some NGOs suggesting a delay. Another key political decision to ensure safe harvesting was the priority reservation of agricultural workers from mobilization.”

To stabilize the market, driven by “high inflation, rising fertilizer, and diesel costs, and a labor shortage,” the government also “implemented minimum export prices for key products such as honey, soybeans, wheat, corn, and oil,” Maksymenko explains. “Additionally, agricultural producers can access preferential loans of up to EUR 2 million through the Affordable Loans 5-7-9% national program.” The Ukrainian government, according to him, also operates “the State Agrarian Register – an online platform where individuals can apply for various support programs funded by the state budget and international aid. These programs support modernizing irrigation systems, farming in liberated areas, purchasing fertilizers and seeds, and cultivating specific crops.”

Additionally, “after Russia’s withdrawal from the Black Sea Grain Initiative, the Ukrainian authority, enlisting the help of international partners, has established a new maritime corridor for cargo ships,” Maksymenko says. “This corridor has demonstrated remarkable effectiveness due to the success of the Ukrainian military in the Black Sea over the Russian navy, additional air defense systems, and the introduction of a risk insurance mechanism. In addition, Ukrainian agrarians are developing alternative export routes, such as Danube ports, rail, and road transport.”

As for Romania, the country has benefited from “European funds through the Common Agricultural Policy (CAP), which supports farmers and promotes sustainable agricultural practices,” Popescu notes. “The new CAP for the period 2023-2027 emphasizes greening agriculture and supporting small farms.” On top of that, “the Romanian government provides subsidies for various crops and for rural development. These subsidies are essential to maintain the competitiveness of Romanian farmers on the European market.”

“Although we are among the top producers of wheat, for example, we do not process enough and still export raw materials, and this is either due to the lack of sufficient labor force or the lack of necessary technologies for production and processing,” Popescu adds. To address it, “national and European legislation on food safety, environmental protection, and workers’ rights influence the way farms are managed. Compliance with these regulations is crucial for access to the international market.”

What’s Next?

In terms of what to expect, the prognosis appears to be somewhat positive. Maksymenko believes that “the future of Ukraine’s agribusiness largely depends on the situation at the frontline and the potential for a ceasefire. Given the current conditions, the sector’s success will depend on its ability to adapt and remain flexible during wartime challenges.” Key factors, he notes, “will include strengthening air defense for agricultural infrastructure and seaports against missile and drone attacks, de-mining of the territories, enhancing the Black Sea and the Danube river corridors, and constructing dry ports near the borders with Poland, Hungary, Romania, Moldova, and Slovakia.”

Looking ahead, Popescu believes that “one of the most important opportunities is the automation and digitization of processes to enable farmers to optimize their production costs, be more profitable, and thus access credit at advantageous costs. Consolidation of the farm is another area of focus, along with its development by integrating more value-adding links into the business.”

“The strategic objectives of the Romanian plan are to develop a resilient and sustainable agricultural sector by increasing the economic viability of farms, reducing income disparities between farms, and increasing the market orientation and competitiveness of the agricultural sector,” Popescu concludes. “The plan will also support farmers who contribute to environmental protection, improve farm animal welfare, and ensure coherent socio-economic development of rural areas.” 

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Albania’s gambling industry has undergone significant transformations over the past decade, shifting from a thriving sector to one under stringent regulation. Lalaj & Partners Partner Sabina Lalaj explores the evolution of gambling in Albania, the impact of regulatory changes, its current status in the economy, and the future outlook of the industry.

Significance and Evolution of Gambling in Albania

“Albania’s gambling industry, once a prominent sector, is now relatively smaller compared to CEE countries such as Romania or the Czech Republic,” Lalaj begins. Historically, Albania had a high per capita gambling rate, especially in sports betting. “According to data from the Supervisory Authority of the Gambling Industry in 2018, there were 4,214 secondary points of activity for sports betting across the country, employing approximately 6,700 individuals. However, in terms of organization and regulation, Albania lagged behind other CEE countries with more structured gambling markets,” she reports.

“Gambling – particularly sports betting – gained significant popularity in the 2010s,” Lalaj says. “However, with the 2018 revisions to the Gambling Law, most forms of gambling, including sports betting and online platforms, were banned. Despite these measures, informal betting persisted in some areas, reflecting the ongoing public interest in gambling activities.”

Regulatory Impact

The 2018 legislative changes marked a turning point for Albania’s gambling sector.

According to Lalaj, the 2018 gambling ban had a profound effect on the industry, resulting in the closure of thousands of betting shops and an almost complete cessation of legal gambling activities. While the ban aimed to address social issues related to gambling, it also contributed to the growth of informal markets.

“Recently approved changes to the Gambling Law are set to reintroduce sports betting, but exclusively online and under strict regulations. Only ten licenses will be issued through a competitive process, with stringent requirements for operators, including capital adequacy, compliance with anti-money laundering laws, and relevant experience in EU or OECD countries,” Lalaj reports.

Moreover, Lalaj notes that “the revised law also introduces two significant developments: the creation of a Special Fund to support sports, culture, innovation, and technology, and the establishment of the Project Support Council, which will evaluate the projects funded by this Special Fund.” As she puts it, these initiatives “reflect the government’s intention to channel a portion of gambling revenues into sectors that can contribute positively to Albania’s social and economic development.”

Current Status and Future Outlook

In the aftermath of regulatory reforms, the gambling industry’s footprint in Albania’s economy has diminished considerably.

Lalaj reports that, currently, “Albania’s legal gambling sector is limited to a few casinos, with online sports betting set to be reintroduced under the amended law. The economic contribution of gambling has significantly shrunk since 2018, but the new regulations aim to balance market demand with government control.” She believes that the reintroduction of online betting could reduce the size of the informal market while generating additional tax revenue for the state.

Looking ahead, the Albanian gambling industry is on the cusp of a new era characterized by controlled growth and strict oversight. Lalaj believes that the gambling industry in the country is poised for growth in the area of online sports betting, governed by a tightly regulated framework soon to be detailed through the secondary legislation pending approval. “The limited number of licenses and strict compliance requirements will likely create a small but competitive market, dominated by experienced operators. If successfully implemented, this sector could positively impact the economy by reducing informal betting activities and aligning with international standards.” Still, Lalaj stresses in conclusion that “it remains to be seen whether the government will expand gambling options to include electronic games or track betting in the future, as its primary focus remains on mitigating the social impacts of gambling.” 

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Turkiye has recently witnessed a surge in initial public offerings. White & Case affiliate law firm GKC Partners’ Head of Capital Markets Practice Derin Altan and Kolcuoglu Demirkan Kocakli Partner Hasan Yasar explore this phenomenon and what it means for the wider market conditions.

Do More IPOs Point to a Stronger Market?

Turkiye’s economy seems to be booming with an increasing number of companies opting for IPOs. Is this a sign of market growth and success though?

Altan, for one, challenges the suggestion that it is. “Unfortunately, while this would be the fair and popular statement, I strongly disagree with this,” he says. “We all know the cliche of ‘quality over quantity.’ However, when it comes to our professional lives, this is less of a popular motto,” he argues. According to him, the increasing number of companies opting for IPOs is not a representation of a strong Turkish economy: “This is pretty evident from the 2004-2013 era when the Turkish economy went through its best decade. Albeit the fact that there was a huge government push for IPOs, the total number of IPOs in that decade was less than in 2022 alone.”

Chiming in, Yasar advises caution while also acknowledging the IPO uptick. “According to the Capital Markets Board of Turkiye – the authority regulating the IPOs – the CMB approved eight IPOs in 2020, 32 IPOs in 2021, 35 IPOs in 2022, and 39 IPOs in 2023. As of today, in 2024, 30 companies went public and many companies are awaiting approval, which indicates that a higher number of IPOs may be approved by the end of the year,” Yasar reports, providing a framework for further observation. “Accordingly, these numbers reflect a strong upward trend in IPO activity in Turkiye over the past few years. That said, an increase in the number of IPOs does not on its own mean a revival of the economy, and the broader economic indicators should also be taken into account,” he stresses.

Factors Driving the IPO Surge

To understand the reasons behind this surge, Altan and Yasar focus on challenges in private equity financing as influencing IPO’s popularity.

“Very low interest rates with a record-breaking hyperinflation created significant negative interest rates, and people flocked to other options for investment,” Altan says. “Some traded real estate, some traded automobiles, and some traded securities with IPOs being the most famous option. At some point, the number of retail investors in IPOs reached 8 million, which is lower than 1 million investors in recent IPOs,” he reports.

“The system created what I call ‘IPO-hopping’ where people invested in IPOs for very short periods of time with a goal to double the funds in two weeks. You can have a graph where you overlay the Central Bank interest rates over the BIST100 index in USD (not in TL, but USD), and you will be able to see what I mean,” Altan adds.

Yasar, on the other hand, sees multiple factors at play here. “Access to traditional financing (especially from banks) tightens as borrowing from the banks becomes more expensive due to high interest rates,” he explains. Moreover, he feels that strong retail investor participation has bolstered demand for new stocks during and after the COVID-19 pandemic and that the “presence of government policies that promote capital markets (e.g., tax incentives or sector-specific advantages in energy, chemical, agriculture, defense, and advanced technology industries)” was also beneficial.

Yasar also points to the struggles of the potential alternative for funding – private equity: “the challenges faced by private equity financing such as increased costs of private capital and stricter lending conditions in the private market make IPOs a more attractive route for companies seeking growth capital. In addition, currency volatility also adds pressure on private equity investors, who may prefer liquid markets.”

Market Impact Bottom Line

Exploring whether a high volume of IPOs reflects a healthy market, Yasar provides a nuanced perspective. “An increase in the number of IPOs certainly indicates economic growth as certain financial conditions are required to be met to go public.” That said, in addition to the number of IPOs, he again feels that broader economic indicators should be factored in. There are positive developments and regulatory efforts according to Yasar: “the number of IPOs successfully completed in Turkiye is very high in recent years, and companies going public have generally seen positive market reactions, even though some of these companies have faced struggles in post-IPO price stability.”

In this respect, he indicates that certain trends emerged in the country through decisions of the CMB and amendments made to the overall legislative framework. “For instance, the CMB requires higher turnover and asset size for IPOs so that only financially strong and stable companies go public. It is also worth noting, as sectoral trends, that technology, real estate, food, and energy companies are trending in the IPO market in recent years.”

As for Altan, he laconically points to recent market performance as the best indicator. “The IPO index of BIST is -20% in the past six months, whereas the BIST100 index is up 10% in the same period. Nothing else to comment.”

Ultimately, offering a general prognosis for the Turkish market, Yasar forecasts that, on the one hand, “in the short-term, IPO activity in Turkiye is likely to increase as companies leverage investor appetite and prefer obtaining financing in a regulated market.” On the other hand, he feels that “long-term prospects depend on various other global and local factors.”

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In September 2024, Turkiye applied for membership in the BRICS bloc of developing economies. ADMD Law Office Managing Partner Orhan Yavuz Mavioglu and Bicak Law Firm Founding Partner Vahit Bicak explore the key political, economic, and legal motivations behind Turkiye’s move.

Political Realignments

Turkiye’s primary motivations for seeking BRICS membership “can be understood through its economic, geopolitical, and diplomatic aspirations,” Mavioglu explains.

One key factor, Bicak believes, is the frustration with the EU. “Joining the EU has been a longstanding ambition,” he says. “While Turkiye has long been a member of NATO, accession talks for the EU membership have faced several obstacles since they began in 2005. Turkiye had formally applied to join the EU predecessor organization, the EEC, in 1987.”

Despite this, “Turkiye remains a significant partner of the EU and maintains its status as a candidate country,” Bicak continues, adding that after “16 negotiation chapters and the provisional closure of one, progress in accession talks has halted.” Turkiye’s trajectory, according to Bicak, “continues to diverge from the EU, with no reversal in the negative trend concerning reform, despite assertions of commitment to EU accession. The EU expresses grave concerns over Turkiye’s diminishing democratic standards, erosion of the rule of law, compromised judiciary independence, and disregard for fundamental rights, issues that remain unaddressed.” Consequently, he notes that “Turkiye is frustrated by the lack of progress in its membership talks with the EU.”

Similarly, Turkiye’s relationship with NATO has faced difficulties, according to Bicak: “disagreements over certain foreign policy issues, such as Syria and the purchase of military equipment outside NATO’s traditional suppliers, have led to tensions within the alliance.”

“Turkiye’s prolonged frustrations with its stalled EU membership application have impacted its decision to seek BRICS membership,” Mavioglu agrees. “After years of negotiations and unfulfilled promises, Turkiye has become increasingly disheartened by the EU accession process.”

Bicak highlights that tensions may arise due to Turkiye’s desire to maintain “NATO membership and its EU candidacy,” while also strengthening ties with BRICS, particularly Russia and China, which “could raise concerns among its Western allies.”  This could strain Turkiye’s relations with the West, Bicak says, “particularly on issues where BRICS and Western policies diverge, such as sanctions on Russia, trade relations with China, or military interventions in conflict zones.”

Still, politically, BRICS membership would “enhance Turkiye’s geopolitical leverage, providing a platform to influence global economic policies and balance its relationships with both Western and Eastern powers,” Mavioglu adds. “Given the strain in Turkiye’s relations with traditional Western allies like the EU and the US, BRICS could provide an alternative platform for political and economic support.”

Bicak agrees that Turkiye’s BRICS membership could be seen as “balancing relations with the West,” and “joining BRICS could allow Turkiye to position itself as a bridge between the West and the Global South, contributing to a multipolar world order.”

“As a NATO member, Turkiye’s BRICS membership could serve as a balancing act, offering greater strategic autonomy while maintaining its obligations to NATO,” Mavioglu points out. “Membership in BRICS could bolster Turkiye’s influence in global governance, giving it a platform to advocate for changes in international financial and trade systems and play a more active role in shaping global economic policies.”

Diversifying Beyond the West

A significant driving force behind Turkiye’s BRICS ambitions appears to be economic. “Economically, BRICS includes some of the world’s largest and fastest-growing economies, and joining this group would allow Turkiye to tap into these emerging markets, diversifying its trade partnerships and reducing reliance on traditional Western economies like the EU and the US,” Mavioglu notes. “BRICS countries, particularly China, also offer significant investment and infrastructure funding opportunities.”

Similarly, Bicak emphasizes that “one of Turkiye’s primary motivations for joining BRICS is to enhance its economic ties with some of the world’s largest emerging markets. This aligns with Turkiye’s broader strategy to diversify its economic relations beyond traditional Western markets, reduce its dependency on the EU, and foster stronger connections with economies in Asia, Africa, and Latin America.”

In particular, Mavioglu argues that BRICS membership could help “stabilize Turkiye’s economy by reducing exposure to dollar fluctuations and inflation.” The BRICS New Development Bank “could become a source of financing for Turkiye’s major projects, aligning with the country’s ongoing infrastructure goals,” Mavioglu says. “Additionally, one of BRICS’ long-term objectives is to reduce the dominance of the US dollar in global trade. Given Turkiye’s currency fluctuations and economic challenges partly tied to dollar dependency, BRICS membership could be seen as a path toward more stable financial partnerships and alternative currencies in trade.”

“After Russia became the most sanctioned nation in the world following the start of the war in Ukraine in 2022, the BRICS bloc began seriously pursuing the creation of a common currency to de-dollarize trade and circumvent Western sanctions,” Bicak agrees. “In the long run, these alternative financial mechanisms could help stabilize Turkiye’s currency, reduce inflationary pressures, and provide greater financial resilience.”

New Demands and Sector-Specific Growth

The timeline for Turkiye’s full BRICS membership may be lengthy. “The likely timeline includes short-term diplomatic processes of 1-2 years, medium-term approval and negotiations for 3-5 years, and long-term full integration – 5+ years,” Mavioglu notes. “The process is gradual, depending on BRICS’ consensus-building and Turkiye’s adaptation.”

Mavioglu believes that once Turkiye joins BRICS, several legal sectors will see increased demand. “International trade law would become more relevant as Turkiye expands its trade relations with BRICS members, requiring expertise in trade agreements, tariffs, and cross-border regulations,” he says.

“As FDI from BRICS countries into Turkiye increases, legal expertise will be required in managing regulatory approvals, particularly in sensitive sectors like defense, energy, and telecommunications,” Bicak adds.

Cross-border transactions are also expected to lead to a surge in dispute resolution services. “Among the key areas likely to experience heightened legal activity are the recognition and enforcement of court decisions, dispute resolution mechanisms (including mediation and arbitration), and broader legal services tied to cross-border trade, investment, and regulatory compliance.” In particular, Bicak draws attention to “the recognition and enforcement of foreign court decisions that are likely to become more significant. Business and commercial disputes arising from increased cross-border trade and investments may require a streamlined process for enforcing judgments across BRICS member countries.” Although Turkiye and BRICS countries “may have existing bilateral or multilateral treaties on the recognition and enforcement of court judgments, such as under the Hague Convention on the Recognition and Enforcement of Foreign Judgments),” Bicak says that “more specific agreements might be necessary to address unique challenges in each jurisdiction.”

In terms of specific sectors, both Mavioglu and Bicak emphasize energy. “In terms of energy security, countries like Russia and Brazil, as major energy producers, would provide Turkiye, a major energy consumer, with partnerships that could stabilize its energy supply and reduce costs,” Mavioglu says. Accordingly, “energy law, especially related to collaboration with energy-rich BRICS countries like Russia and Brazil would become crucial.” This, according to Bicak, is particularly notable with “Turkiye’s strategic location as an energy corridor between the Middle East, Europe, and Asia positions it as a crucial player in global energy markets.”

Bicak further adds that BRICS membership could enable Turkiye to collaborate on technological innovations with emerging economies like China and India, adding that “this could bolster Turkiye’s efforts to develop its technology sector, including advancements in renewable energy, artificial intelligence, and digital infrastructure.” As a result, “legal services related to intellectual property would also see growth, as increased technological collaboration would necessitate stronger protections for patents and trademarks,” Mavioglu concludes.

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An in-depth look at Emre Atayilmaz of AECO Law covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

• Denton Wilde Sapte (now Dentons)/Guner Law Office; Associate; 2002-2008;
• Denton Wilde Sapte (now Dentons)/Guner Law Office; Senior Associate; 2008-2010;
• SNR Denton (now Dentons)/Guner Law Office; Senior Associate; 2010-2010
• PAE Law Office; Founding Partner; 2010-2024;
• AECO Law; Founding Partner; 2024-Present

Education:

• Marmara University, Law Degree; 1998
• Tulane Law School; LL.M.; 2001

Favorites:

• Out-of-office activity: Travelling and history.
• Quote: Let the good times roll.
• Book: The Name of the Rose
• Movie: Eyes Wide Shut

Top 5 Projects:

• Advising Cigna on the redundancy of their personnel as a result of the winding down of their operations in their health and life subsidiary, Cigna Hayat. The project included face-to-face meetings with almost 60 employees as a part of their redundancy procedures.
• Advising Hyatt on their hotel projects in Izmir, Turkey. The project included the due diligence exercise as well as working on the relevant contracts and negotiating with the counterparty. 
• Advising RCI – a part of Wyndham Hotels and Resorts – a timeshare exchange company. The project was in relation to a big hotel operation located in Istanbul. Among others, the project included analyzing the applicable operation licenses and zoning requirements.
• Advising the well-known fashion brand Ralph Lauren on the dispute arising from their internal employment policy awarding rights to their employees.
• Advising Wizz Air on Turkish law requirements for airline companies. The advice included commercial law and administrative law requirements under Turkish law.

CEELM: What would you say was the most challenging project you ever worked on and why?

Atayilmaz: In my experience, the most challenging project was a real estate project in which we acted for an Eastern European individual. The project was purchasing two villas for approximately EUR 15 million in a resort in Bodrum, Turkiye. In the project, we carried out an extensive due diligence exercise and negotiated several contracts including the sale and purchase contract with the seller side. The negotiations were rather challenging due to the mismatch of the cultures. The expectations of the parties from each other and the way that they do business were totally different which caused inefficient negotiations and a series of misunderstandings.

CEELM: And what was your main takeaway from it?

Atayilmaz: My main takeaway was: “Never underestimate the cultural differences between the parties!” I realized that the parties’ backgrounds in a project go beyond business considerations and technicalities therein.

CEELM: What is one thing clients likely don’t know about you?

Atayilmaz: I am a pleasure-seeking person who is very much into traveling and wining and dining as much as business.

CEELM: Name one mentor who played a big role in your career and how they impacted you.

Atayilmaz: Paul Sheridan who was the Partner at legacy firm Denton Wilde Sapte (and later Dentons), hired me and initially played a big role in my career. He supported me greatly in my professional life and, at the same time, became a good friend over the years. Paul is currently based in Oman.

CEELM: Name one mentee, you are particularly proud of.

Atayilmaz: Omer Er was a remarkable mentee for me. I was his mentor at Denton Wilde Sapte. He was smart, hard-working, and also business-minded which is an amazing asset for lawyers. After his successful career at Dentons, Omer moved to the US. He is currently a Partner in New York-based Michelman & Robinson with expertise in cross-border disputes.

CEELM: What is the one piece of advice you’d give yourself fresh out of law school?

Atayilmaz: Always value the friendships you made in law school. The network of friends you make helps you a lot both professionally and socially.

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On December 7, 2023, Austria saw a significant shift in its tax regulations with the suspension of key provisions in the double taxation agreement (DTA) with Russia.

The change stems from Russia’s decision in August 2023 to unilaterally suspend the DTA, with Austria responding by also halting the application of key parts of the DTA. The suspension is not unusual in Europe. However, even before and much more so after the attack on Ukraine, Austria (especially Vienna) was already serving to a disproportionate extent in Europe as a place of residence for private individuals and companies having a cross-border link to the Russian Federation, which leads to much more practical questions on the suspension compared with other jurisdictions.

The core objective of the original agreement – to avoid double taxation of income between the two countries – will no longer be met. Particularly impacted are the allocation rules that allocate taxing rights for various types of income, such as corporate profits, dividends, and other forms of income (Articles 6 to 22 DTA). These allocation rules have ceased to function, allowing both Austria and Russia to tax this income under their domestic laws without any international agreement limiting their rights. Even though some parts of the agreement, such as residency determination (Articles 1 and 4 DTA), remain theoretically in effect, the suspension of the distribution rules means that income can no longer be taxed “according to this agreement.” This leaves Austria free to tax the income without being bound by the obligations it previously had under the DTA to either exempt the income or credit foreign taxes.

For example, before the suspension, if an Austrian resident received dividends from Russia, those dividends would typically be taxed in Russia with a source tax of up to 15%, and Austria would tax the dividends with 27.5% but credited the Russian tax. Now, both Austria and Russia can tax the dividends, resulting in a double tax burden. This represents a significant departure from the original purpose of the DTA, which was designed to prevent such situations. Despite this major change, Austrian taxpayers do have the option to apply for unilateral tax relief in Austria. This relief, however, is not automatic and depends on a formal request to the Austrian tax authorities. The authorities will assess whether genuine double taxation has occurred and whether granting relief is reasonable based on considerations of equity and expediency. One critical factor is the overall tax burden. For instance, if the Russian tax is relatively minor compared to the taxpayer’s total tax liability, the chances of obtaining relief may be reduced. However, there is no set (de minimis) threshold for what constitutes a “minor” tax burden, leaving the decision up to the discretion of the tax authorities.

The Austrian Ministry of Finance has also made it clear that no unilateral tax relief will be granted in cases involving individuals or companies subject to EU sanctions, or for those who are not residents of Austria. This position aligns with Austria’s broader goal of ensuring that EU sanctions against Russia are fully enforced in the tax context and that no special allowances are made for sanctioned parties or foreign taxpayers. Another challenge that could arise for taxpayers is the calculation of income earned from Russia, especially if the income spans both before and after the cutoff date of December 7, 2023. In such cases, the Ministry of Finance allows for a simplified approach, known as “formulaic apportionment,” where, according to the pro rata temporis principle, the income is divided proportionally across the months of the year. This approach helps taxpayers and authorities allocate income more easily between the periods when the DTA was in effect and after it was suspended.

In conclusion, the suspension of the DTA’s core provisions has created a complex tax landscape for Austrian taxpayers with income from Russia. Income received after December 7, 2023, is now subject to taxation in both Austria and Russia, potentially leading to double taxation. Taxpayers may seek unilateral relief through the Austrian tax authorities, but success is not guaranteed and will depend on the specifics of each case. Given the complexity of these new tax rules, it is essential for affected individuals and businesses to thoroughly review their tax situations and seek professional advice to ensure compliance and minimize potential tax burdens.

By Dimitar Hristov, Head of Tax, DLA Piper Austria

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As of December 14, 2022, the Tax Administration of the Republic of Serbia started passing temporary tax decisions imposing payment of individual income tax based on agreed remuneration for the copyright and related rights and agreed remuneration for performed work with contributions for mandatory social insurance. These decisions targeted both Serbian and foreign citizens who made a profit abroad and transferred it to bank accounts in the Republic of Serbia during 2017 and 2018. For the first time in the country’s tax practice, tax liability was assessed automatically by passing temporary tax decisions, without conducting tax proceedings.

The temporary tax decisions are aimed at the quick collection of taxes and contributions for mandatory social insurance when there is a risk of the statute of limitations expiring. Since the right of the tax administration to collect tax is limited to a period of five years from the year in which the tax should have been assessed, the tax administration passed in December 2022 the temporary tax decisions for 2017, and in December 2023, the temporary tax decisions for 2018.

A rush action of the tax administration and a lack of tax proceedings made it impossible to fully and rightfully establish the facts. As a result, even non-residents of the Republic of Serbia were found to be liable to pay the taxes mentioned above. The Law on Tax Procedure and Tax Administration and the Law on Administrative Procedure explicitly provide that a party must have an opportunity to participate in tax proceedings and adduce evidence aimed at annulling or reducing their tax liability. The fact that the temporary tax decisions were passed automatically (based on inflows from abroad that are recorded on bank accounts in Serbia) led to a bizarre situation. Tax residents of other countries were obliged to pay taxes even though they had paid taxes and contributions in their countries. Since those individuals did not participate in the tax proceedings, they were not able to adduce evidence proving that they were tax residents of other countries with which Serbia signed double taxation avoidance agreements. Instead, they had to initiate appeal proceedings. An appeal in tax proceedings does not have a suspensive effect, which means that tax interests accrue during these proceedings. Additionally, these individuals cannot get tax certificates on settled tax liability in Serbia, which may prevent them from exercising their other rights. Due to the thousands of appeals filed, second-instance decisions were additionally delayed (even before the tax administration started passing these temporary tax decisions, the average time for delivering second-instance decisions was two to three years). The second instance authority has still not decided upon the appeals filed against first-instance decisions passed in December 2022.

Additionally, many of the individuals who were obliged to pay these taxes were not able to appeal against the decisions because they were precluded from doing so. Namely, the tax decision shall be considered delivered after the expiry of 15 days from the day of its delivery to the post office. Those who do not reside in Serbia have never personally received these decisions. The decisions were automatically sent to the addresses registered with the Ministry of Interior, without anyone checking whether those individuals still lived in Serbia. Those affected become liable for taxes they did not even know existed.

The temporary tax decision unjustifiably included domestic and foreign citizens who worked abroad considering that the regulations on pension and disability insurance of the Republic of Serbia do not apply to persons working outside the Republic of Serbia for a foreign employer. Regarding this issue, the Ministry of Labor, Employment, Veterans and Social Affairs also expressed its opinion. In it, it took the clear stance that those individuals should not be considered taxpayers. Despite such an opinion, the tax administration wrongfully assessed the liability. As a result, new appeals were filed, while the previous ones were not yet processed.

This whole situation has affected the economic climate in Serbia and caused fear that persons who do business abroad and have paid taxes there will still be taxed unjustifiably due to the transfer of those funds to bank accounts in Serbia. We do expect that due to the pressures coming from the business environment, the tax administration will not repeat the same mistake for the third time this December, and that it will do its best to avoid unjust taxation.

By Natasa Saric, Head of Tax Practice, Zivkovic Samardzic

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

One of the sectors contributing the most to the Hungarian GDP is tourism, with nearly 16 million guests spending more than 41 million overnight stays in Hungary in 2023. According to the data of the Hungarian Central Statistical Office, foreign tourists spent 11,866,669 overnight stays in Hungary in 2023, of which 59.20% chose hotels, 32.36% stayed overnight in private and other accommodations, and 8.44% chose community accommodations.

Private and other accommodations in Hungary have always operated in a regulated environment. Currently, there are 30-35,000 such accommodations. A turbulent public discourse in June 2024 took place due to the sudden appearance of a large number of Airbnb accommodations. Currently, there are more than 14,000 such units nationwide, and there are districts in Budapest where most of the apartments sold will continue their lives as Airbnb apartments. Actually, this September a Budapest district decided to ban Airbnb-style short-term rentals.

The current regulation is unique even at a European level, with trends that can be tracked through an up-to-date database containing the mandatory daily data provision for private and other accommodations defined by law, and the legislature has also introduced a mandatory accommodation qualification. The Hungarian Tourism Quality Certification Board Nonprofit certifies accommodation as designated by the Hungarian government, as a task of national public interest, and the qualification procedure is carried out with the help of independent experts, taking into account a publicly available set of requirements. In addition, accommodation providers must declare their activities to the notary, but there is no authorization procedure. The accommodation provider must request an inspection and evaluation of the accommodation rating body prior to the notification of accommodation management activities. The procedure must also be repeated every three years after the initial certification in order to achieve a quality grade adapted to the requirements of the accommodation type. Depending on the grade, experts acting during this certification may inspect the criteria of cleanliness, maintenance, and accessibility, but depending on the grade, they can even check the regular cleaning of pillows.

In light of this unique regulation at a European level, it is questionable that further regulation is necessary. According to widespread reports in the news, one of the changes may affect the maximum annual opening hours of private and other accommodations – limiting them to 120-180 days per year, which caused an uproar among those affected, claiming that there is no reason for such restrictions in the tourism industry. It also raises issues on freedom of business and the violation of property rights.

What is known is that the Hungarian government has given the Minister for National Economy September 30, 2024, as a deadline to submit a proposal for amending legislation.

The question is how the amendment of the regulation may affect administrative and public burden-bearing obligations, which can already be considered extensive. These are: (1) a mandatory accommodation qualification as described above and compliance with it, which not only creates an administrative burden but also generates investment costs for the operator (renovation and maintenance costs); (2) daily data reporting obligation to the National Tourism Data Service Centre; (3) use of the Guest Information Closed Database; (4) hotels, private and other accommodation establishments operating in the form of companies pay tax equally, private operators are obliged to pay extra personal income tax; (5) public taxes are also included in the context of a tourist tax, a 4% tourism development contribution, a local building tax, and VAT. I note that the VAT on accommodation services has been reduced from 18% to 5%, but this has only reduced the burden of hotels, private and other accommodation operators, and individuals with tax numbers. Individual entrepreneurs are not subject to VAT; this way, the increase in burden for them can be identified in the 4% contribution payable on their income.

Several interest groups have made their voices heard in the context of the planned legislative amendment. All stakeholders agree that certain types of accommodation reach different clientele, so limiting Airbnb apartments would not necessarily mean an increase in hotel occupancy. Among the possible regulatory directions, many support the limitation of the rapidly growing number of new private and other accommodation facilities in such a way that (1) existing ones shall not be put at a disadvantage, (2) unlicensed provision of accommodation shall be cut down, and (3) in the case of hotels, payment of grey money to employees shall be precluded.

How the regulation will evolve is still fluid. However, I would like to raise one question: would a guest night spent by a foreign guest worker employed by a given company qualify as accommodation within the scope of the above public charges including tourist tax? If yes, is the guest worker actually staying permanently in the given accommodation? Should their place of stay be registered by the authority as an address? Currently, most local tax authorities consider this permanent stay to be overnight guest stays and oblige employers concerned to pay the tourist tax as accommodation providers. Whether this interpretation is legitimate may be answered by next summer.

By Orsolya Kovacs, Partner, Nagy es Trocsanyi

This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.