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Unlike in most European jurisdictions, land plots and buildings aren’t considered uniform real estate objects in Russia, and as a result there are situations where a building and the land plot under it have different owners. In many cases, the State owns the land, while individuals own the buildings or other constructions thereon. As a result, privatization of land plots in Russia remains on the agenda mainly in this context.   

The question of how to determine the price of a privatized land plot has become especially pertinent now because, after July 1, 2012, the ability to apply for preferential price at privatization is only rarely available, though before that date it was a matter of right. 

Current legislation determines that the cadastral value of a land plot can be established either as a result of carrying out the state cadastral appraisal or upon the resolution of a dispute regarding the  determination of cadastral value. Cadastral value is relevant as the basis for calculation of land tax, rent payment rates, land privatization rate, and other payments collected by the State acting as the owner of land.

The basis for carrying out a state cadastral appraisal is a decision made by a relevant regional executive authority of the Russian Federation – or, where so authorized by legislation of the Russian Federation, by local government. The appraisal is carried out en masse, rather than on particular land plots – so particularities of specific plots of land are not taken into account – and the results are approved by the State authority which initiated the appraisal.

Cases often arise in which the re-established cadastral value of the land plot is several times higher than its real market price. Market price is determined by the results of an independent appraisal and – unlike the cadastral appraisal – is established not en masse, but individually for the specific land plot.

The owner applying for privatization of a land plot has the ability to challenge the declared repurchasing price of the land plot when he believes that the basis for establishing  the repurchasing price (100% of cadastral value) was incorrect. To do so he must obtain the market cost of a corresponding site by means of carrying out an independent appraisal, and then he may appeal to the court or to the commission tasked with considering disputes regarding determinations of cadastral value at the territorial administration of the Russian State Register. Within any of these procedures the establishment of cadastral value of a land plot equal to its market cost is imposed.

As establishment of market value of a land plot is almost the only instrument for defining a fair repurchasing price of a land plot now, currently a large number of claims are raised before the court challenging the cadastral value of land plots – and that number continues to increase, as a majority of cases succeed, causing the cadastral value of land plots to decrease. Thus it should be noted that within consideration of similar affairs questions may arise on which there haven’t yet been decisive precedents. For example, whether the tenant planning to redeem the land plot can challenge cadastral value. Generally tenants are refused in their claims, but several recent judgments have sustained the claims of tenants of land plots regarding the determination of cadastral value proceeding from their market costs.

Thus, contestation of the cadastral value of land plots (as bases for calculation of the repurchasing price of a site during privatization) in most cases is quite successful, but the process itself takes a lot of time. Quite often after a successful contestation of the cadastral value a competent authority initiates a new revaluation within an administrative procedure that eventually ends with return to the original cadastral value after all. Modification of the legislation regulating the state cadastral assessment is planned now to limit the use of such revaluations in administrative proceedings, and also to increase the term of contestation of determination results of cadastral value in the commission and to establish obligatory pre-judicial consideration of the corresponding disputes in the commission.      

By Sergey Patrakeev, Partner, and Irina Dyubina, Associate, Lidings

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It appears that, after many delays in Parliament and a rejection by the President, Romania should soon have a new PPP law.   

If it is passed in the form of the current draft, the proposed law would replace the existing 2010 PPP Law in its entirety. As such, the proposed law should be a step forward in general, in providing a single coherent (and, hopefully, stable) legal framework for PPP projects, notwithstanding that there is political debate over some points of detail.

It should however be noted that the proposed new law appears to be limited in scope and that it will not regulate all PPP projects. The new law is apparently intended to regulate specifically only those PPP projects in which the revenue of the private partner will primarily depend upon payments from the public partner, such as the provision of prisons, public hospitals, and defense facilities. PPP projects in which the private partner’s revenue will be derived mostly or entirely from payments from users appear to fall outside the scope of the new law and will presumably continue to be covered by the existing legislation on the concession and operation of public assets. Classic models of such projects would be toll roads and bridges. It will be interesting to see whether the Romanian government regards projects which depend partly on shadow tolls and partly on actual tolls as falling within the scope of the existing concession regime or under the proposed new law.

As is the case with many pieces of Romanian legislation, it is expected that the implementation of the proposed new PPP law will depend upon detailed subordinate legislation (norms). At the time of writing no draft of the norms was available and it is understood that they are still being worked on, which may explain the apparent lack of progress of the proposed law itself since March 2014.  The new law envisages that the norms will be approved by a Government decision within 90 days of the new law itself entering into force. As Romania is in competition with other countries for funding for PPP projects, it is to be hoped that the passing of the new law and the issue of the norms will be coordinated, so that potential private PPP partners and investors can consider them as a coherent whole. I would certainly not expect any potential PPP investors to make any decision about investing in Romania until both the new law and the norms are available.  Legislative instability is also the curse of investors and it is to be hoped that the Government will take time to ensure that the new law and the norms do form a single coherent and stable package which will not require changes to be made by Emergency Ordinance, as was the case with the existing 2010 PPP Law.

In conclusion, the new law is unlikely to be successful unless it recognizes that the risk in a PPP project where the revenue flow is derived from the state is primarily borne by the private partners, particularly the finance providers. Many models of PPP projects work in other EU countries in which it has been recognized that in order to be bankable, the project must commit the public partner to pay for the asset or service over an extended period. Private partners and their bankers need to be convinced their revenue stream is assured over the full payback period, regardless of which political parties are in power from time to time over that period.      

By Neil McGregor, Managing Partner, McGregor & Partners

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

After long-term unfavorable results and inefficiency in tax collection – in particular value added tax (VAT) – the Slovak government has commenced a fight against tax evasion. As a result of this initiative, the Ministry of Finance of the Slovak Republic has taken a number of measures to increase the effectiveness of tax collection and to move towards at least the average of other European Union member states.  

Prior to the amendment, the transfer of a shareholding interest in a limited company was effective between the parties at the moment of contract (unless agreed otherwise between the parties). The actual registration of a change of shareholder in the Commercial Register had only declaratory effect. These rules corresponded with  common business practice, which provided for the immediate transfer of a shareholding interest between the transferor and the transferee. Also for this reason, a limited company was the most popular legal form when starting a business in Slovakia or in any project transactions preferring a quick and informal transfer of assets in the form of a share deal. The relative informality and flexibility in the transfer of a shareholding interest in a limited company predestined it for wide use in business in Slovakia as well as abroad. However, since the amendment has come into effect, transfers of majority shareholding interests in limited companies become effective only when they are entered into the Commercial Register. 

The most important issue seems to be that without the consent of the Tax Authority or without the written declaration of the foreign entity in those transactions not involving Slovak taxpayers, the Commercial Register will not register the transfer of a majority of a shareholding interest, and thus the effects of the transfer will not occur. This needs to be borne in mind with all M&A transactions involving the transfer of a majority shareholding interest in a limited company, and, accordingly, this risk should be acknowledged in the Share Purchase Agreement and Escrow Agreement, if it is part of the deal. 

As per the amendment, the actual effect of such transactions is extended by approximately two weeks, which constitutes the time for obtaining the approval of the Tax Authority (five business days) and the term in which the Commercial Register registers the change (which is two business days from the submission of the application). However, in practice, due to the high work load of clerk it often occurs that the Commercial Register does not keep to the prescribed period, which can lead to additional delays in M&A transactions. 

Currently, the Slovak government is considering another change in legislation related to limited liability companies as part of a package of tax reforms related to the limited companies. Preliminary information suggests that in addition to changes related to the amount of share capital, the payment of profit and other capital funds to individual shareholders will be tightly regulated considering the regulated amount of equity to liabilities of a limited company.      

By Jana Togelova, Junior Partner and Michal Hulena, Senior Associate, Ruzicka Csekes in association with members of CMS

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

When it comes to distressed M&A transactions, the Austrian market – like many other markets in the region – has increased in recent years, both in terms of volume and the number of deals being done. Not surprisingly, time is key, and transaction documents are usually prepared, negotiated, and signed within a very short period of time. Due diligence (of the legal kind) is limited to what is feasible given the tight deadline.

The liability regime in Austria is perhaps particularly complex, and investors should be aware of the various options and challenges to ensure that the transaction will be carried out successfully.  

Asset deals vs Share deals 

Any purchaser of assets in a distressed M&A deal will be keenly interested in not assuming any liabilities associated with the company it is purchasing – obviously one of the main advantages over a share deal. 

Austria is fairly unique in the region in that it has wide-reaching provisions which impose successor liability on purchasers in asset deals for pre-existing liabilities of the sold business. Hence, it is not always so easy to achieve this result through an asset deal in Austria.

Besides successor liability provisions in tax and social security law, both the Austrian Civil Code (ABGB) and the Company Act (UGB) contain provisions on purchaser liability for M&A deals which apply cumulatively. It is thus key for purchasers to be aware of the implications and interplay between these two liability successor regimes. 

Section 1409 of the Austrian Civil Code 

Under Section 1409 of the Civil Code (ABGB), a purchaser in an asset deal – generally speaking – is jointly and severally liable with the seller vis-à-vis the seller’s creditors for any pre-existing liabilities of the acquired business. The purchaser’s liability, however, is limited in amount to the value of the assets actually acquired. 

To trigger successor liability, the assets sold must represent either substantially all of the assets of the seller or at least be a separable business unit. Otherwise creditors would be better off by enforcing claims against a seller where the seller has not yet turned the assets into cash.

Further, the law assumes that the purchaser must have known or should have known of the pre-existing liabilities at the time of the purchase. In order to minimise the purchaser’s exposure, it is therefore highly recommended to perform detailed due diligence instead of relying only upon the seller’s reps and warranties. 

However, if the purchaser has agreed with the seller that the purchase price funds are to be used to pay off the seller’s debt, liability is reduced on a euro-for-euro basis. 

Importantly, successor liability may also apply to a share deal (!) if the shares sold represent substantially all the assets of the seller. Section 1409 ABGB will however not apply if a company or assets are acquired by way of a mandatory reorganisation or insolvency proceedings, or if the debtor is being supervised by a trustee of the creditors. 

This is justified by pointing out that in contrast to the acquisition of assets in non-distressed scenarios, company reorganisations in insolvency obviously only work if the purchaser is not liable for past liabilities. Further, the claims of unsecured creditors are limited to what is referred to as the insolvency quota in insolvency proceedings.

Section 38 of the Company Act (UGB)

In contrast to Section 1409 ABGB, Section 38 of the UGB provides for liability that is not limited to the value of the assets acquired by the purchaser. Moreover, the purchaser’s liability may not be reduced by an agreement between the purchaser and the seller that the purchase price funds will be used to pay off the debt of the business sold.

In practice, however, the purchaser and the seller may entirely exclude the purchaser’s liability vis-à-vis third party creditors if: (i) the agreement is entered into the commercial register at the time of the asset transfer; (ii) a public announcement is made that is customary in the market; or (iii) third party creditors are individually notified. 

Contractual relationships relating to the sold business are transferred by operation of law to the purchaser unless a third party objects within three months of receiving notice of the transfer. Since a third party need not justify its objection, the latter is at times used by creditors to exercise pressure, primarily in distressed deals.

Just as with Section 1409 ABGB, Section 38 UGB – including its successor liability provisions – does not apply in mandatory reorganisations  or insolvency proceedings, or the supervision of the debtor by a trustee of the creditors.

All reasons enough to start looking for a good attorney in Austria.      

By Thomas Trettnak, Partner, CHSH Cerha Hempel Spiegelfeld Hlawati

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Despite the country’s deep political crisis, particularly in the Crimea and the eastern regions of the country, Ukraine still offers tremendous investment potential. Recently Ukraine has signed the Deep and Comprehensive Free Trade Agreement, as well as the broader EU Association Agreement with the European Union. Both agreements could move Ukraine towards a more open and transparent trade regime and improve the country’s investment climate. Currently the global investment community is closely scrutinising the steps that the new Ukrainian President and Government are taking, evaluating the risks perceived by industry leaders, bankers and investors.  

As a result, for a number of reasons, compliance issues are currently high on the list of priorities for all multinational companies doing business in Ukraine. First, there is the perception that the problem of corruption in Ukraine is significant, underpinned by the 2013 Transparency International Corruption Perceptions Index, which ranks Ukraine 144th (out of 177 countries). Second, new anti-corruption legislation was introduced in Ukraine in July 2011 (the “Anti-Corruption Law”), making it necessary for multinational companies to take another look at their compliance policies and procedures. Finally, these developments have been occurring against the backdrop of the introduction of the United Kingdom’s Bribery Act, the enhanced enforcement in the U.S. of the Foreign Corrupt Practices Act, and the increasing level of cooperation between enforcement authorities across the U.S. and Western Europe in terms of the oversight and regulation of the business conduct of their companies overseas, particularly in high-risk emerging markets.

The Anti-Corruption Law sets forth the main principles for combating corruption. In addition, four laws were adopted between April and May of 2013 in order to enhance the government’s ability to combat corruption and address Ukraine’s commitments to the European Union and the Group of States Against Corruption. The new legislation includes, among other provisions, corporate criminal liability for certain corruption offences, asset forfeiture as a penalty for certain corruption offences, and whistleblower protection laws. 

The Anti-Corruption Law defines corruption misconduct as an intentional act that has the features of corruption, and is performed by a covered person (as defined below) who is subject to criminal, administrative, civil and/or disciplinary liability. The following persons, among others, are now subject to liability for corruption: (i) Ukrainian civil servants; (ii) foreign civil servants; (iii) officers of international organisations; (iv) officers of legal entities; and (iv) “public service providers,” i.e., persons who provide public service even though they are not civil servants, such as auditors, notaries, experts, evaluators and arbitrators. The law introducing criminal corporate liability for certain corruption offences will take effect in September 2014.

The Anti-Corruption Law prohibits a covered person from receiving any gifts other than in accordance with the generally recognised acceptance of hospitalities and within the expressly allowed limits. At any one time, the value of a gift may not exceed half of the statutory minimum monthly salary (approximately USD 60). Within a calendar year, a covered person is not allowed to receive gifts from one source with a value of more than one statutory minimum monthly salary established as of the first of January of the current year. In 2014 the total value of gifts received from one source may not exceed approximately USD 120. 

The Anti-Corruption Law expressly requires that a state official take active measures to prevent any conflict of interests. In addition, information about a state official’s property, income, expenses, and financial obligations must be declared and is subject to public disclosure. State officials are not allowed to have any income in addition to their salaries, apart from income received from medical or sports judging practice or artistic or scientific activity. Also, for one year after the resignation, former state officials are prohibited from occupying certain positions and roles within the companies that they have monitored prior to their resignations.

Any losses and/or damages caused by corruption misconduct must be duly compensated to the state and/or to the other injured party. Moreover, decisions of a state body related to alleged corruption offences may be challenged in court. The Anti-Corruption Law does not indicate any mandatory or recommended actions that could reduce the risk of violations or would mitigate sanctions or other negative consequences. However, the precautions that would protect a company from being penalized under US or European anti-corruption legislation (e.g., adoption of policies, monitoring, and investigation) can also be implemented in Ukraine. 

Conducting an “anti-corruption due diligence investigation” of potential business partners and intermediaries before engaging in business activity with them is certainly recommended. Despite the difficult operating environment, some investors are finding opportunities in Ukraine. For their part, officials at regional and local levels are increasingly looking to attract investment and create jobs in their regions who become willing partners for investors in need of land or permits, which frequently are controlled below the national levels.      

By Serhiy Piontkovsky, Partner, Baker & McKenzie

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Throughout the last couple of years, the Romanian government has initiated various tax measures meant to attract foreign investors and encourage their long term operations in Romania. Although this has always been the ultimate goal, none of the recent Romanian governments have had a coherent strategy to insure conditions for economic development while achieving budgetary balance at the same time. Moreover, a large majority of the tax measures initiated during this period have led to an increase of the tax and bureaucratic burden on all Romanian taxpayers.  

Among these, perhaps the biggest challenges which foreign investors face in Romania is the overall instability and unpredictability of Romanian tax legislation. In fact, recent analysis I conducted revealed that in the past 10 years alone the Romanian Tax Code and Tax Procedure Code have been modified in more than 220 significant ways, while budgetary revenues remained at approximately 28 – 29% GDP. Therefore, we can say that with an average of over 20 changes per year to its two most important pieces of tax legislation, Romania cannot secure the legislative stability and predictability which any investor would seek. This is one of the main aspects which the Romanian government needs to improve in the future.

Another important aspect which needs improvement pertains to the regulation of the tax consolidation in the Tax Code, which has not yet been drafted, despite all the requests pouring in from the Romanian business environment. Essentially, a mother company cannot act in a unitary manner from a taxation point of view at the level of the entire holding, so that it can use the profits obtained by some of the companies within the group to offset them against tax losses obtained by other companies within the group.

Yet another significant issue affecting taxation in Romania regards the poor efficiency of its tax administration system. The best indicator is the huge delay in receiving advance tax rulings or advance pricing agreements taxpayers request from the Romanian Tax Authorities.    

In addition to the overall lack of stability and predictability of Romania’s tax legislation, it is quite often inconsistent with Romania’s macroeconomic objectives. In this regard, it is worth mentioning two  substantial inconsistent legislative changes: 

First, the VAT rate increased from 19% to 24%, starting July 1, 2010, which deepened the economic crisis, and led both to a decrease in consumption (Romania being the only EU Member State where consumption has decreased within the past 6 years) and to an increase in tax evasion.

Second, the tax on constructions, introduced on January 1, 2014, quantified as 1.5% from the net book value of the constructions for which no building tax is due. Its strongest impact will be in agriculture, telecom, and energy, domains where the infrastructure used in operational activity has the largest costs incurred and registered. Overall, the impact of this measure on the macro-economy will be the decrease of investments. This measure was intended to be later balanced by a new profit tax exemption for the profit reinvested for the acquisition or production of new equipment. 

On the other hand, recent amendments regarding the taxation of dividends and capital gains have put Romania on the map of the European countries with the most favorable holding legislation, along with the Netherlands, Cyprus, and Luxembourg.

These positive changes are also backed up by the 16% corporate income tax rate, one the most competitive in EU, and by the very large number of DTTs concluded with countries throughout the globe. It is also worth mentioning that at this moment there are also intense discussions regarding a potential decrease of the social security contribution by 5%.

To conclude, even if the latest changes to the holding tax legislation do not entirely compensate for the  shortcomings of the Romanian tax regime, investors may want to keep their eyes on Romania. The country shows high potential to become an important regional hub for foreign investments, considering latest amendments, its importance within Eastern Europe, and expected future legislative changes which will propel Romania towards full compliance with reasonable investor expectations for a European Union member.      

By Gabriel Biris, Partner, and Ioana Cartite, Senior Tax Consultant, Biris Goran

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

There can be no doubt that the economic crisis in Europe has been felt especially acutely in Greece. With estimates of EUR 100 billion having been erased from its economy, record youth unemployment and a relentless roll-out of austerity policies, the country has had a particularly rough ride in recent years. Unsurprisingly, foreign direct investment (“FDI”) has suffered badly, with total FDI falling from approximately EUR 3 billion in 2008 to approximately EUR 250 million in 2010. And the country’s economy continued to contract in the first quarter of 2014. Nevertheless, after six continuous years of painful recession, there may be signs that Greece is on its way to a (slow) recovery – export performance is rising, Greece is back in the debt markets, and foreign investors are starting to reconsider FDI in Greece.  

Traditionally, investors in Greece have been keen to take advantage of the opportunities afforded by turquoise seas and sunny skies, and while investor confidence has no doubt been battered by the financial crunch, tourists have been amongst the quickest to return, with revenues from the tourist industry expected to rise by 13% (to a record EUR 13 billion) in 2014. European investors are still treading with caution, while others have been quick to seize the new opportunities that have presented themselves on the back of the downturn. A recent example from October 2013 is the acquisition of the Astir Hotel complex in Southern Athens which commanded a price in excess of EUR 440 million from backers of Jermyn Real Estate originating in Abu Dhabi, Kuwait and Turkey.

Potential for FDI has also been noticed by investors further afield with The Fosun Group of China reportedly investing alongside Lamda Development of Greece and Al Maabar Real Estate Group of Abu Dhabi for the EUR 915 million acquisition of the Hellinikon area in Southern Athens. The project, which is set to turn the former Athens airport into a thriving tourist complex, is predicted to contribute 1.2% of the Greek GDP in years to come. However, aside from the return of FDI to tourism and real estate markets, new roles for foreign investors in Greece are also envisaged in the energy sector. The EU has arguably set its sights on Athens to relieve dependence on Russian gas (which is currently transported through the Ukraine and amounts to roughly 15% of total EU demand). The Trans Adriatic Pipeline, expected to be functional in 2019, is intended to transport natural gas from the Caspian Sea to the Greek border, through Albania and the Adriatic Sea to Italy and further into Western Europe, is one of a number of initiatives stirring the industry. New legal frameworks relating to the exploitation of hydrocarbons have also been put in place, demonstrating the Greek government’s commitment to developing the sector and further increasing investor confidence. 

The push in the energy sector has further been backed by recent interest in the Greek shipping market and, while merchant shipping has always been a major part of the Greek economy, levels of foreign interest have soared in recent months. In May, the shipping world welcomed the “Athens Declaration”, under which marine policy for the EU was outlined for the coming years. The Declaration, conducted under Greek chairmanship, was also applauded by representatives of the European Community Shipowners’ Association. In addition, recent Greek legal developments have expedited the port and terminal development in Piraeus. Relations with China have proven to be of paramount importance to the Greek State’s privatization program, and COSCO, already possessing a 35-year concession to run Piraeus’ container piers II and III, is beginning to transform the capital’s port into a distribution centre for Chinese goods into Europe. Plans have also been mooted for a further twelve ports around the country.

During the Chinese Premier’s visit to Athens in June, financing deals reportedly worth EUR 6.5 billion were concluded and a funding arrangement between the China Development Bank and Greek container shipping company Costamare (reportedly worth USD 1.5 billion) took center stage. 

Cooperation between China and Greece is expected to strengthen over the coming years with further Chinese plans for investment revealed in relation to the Greek rail network with linkage between Thessaloniki’s port (the second largest in Greece) and the national network expected to be functional in 2015. Through the eyes of post-recession optimism, the opportunities seem rife with a planned integrated distribution hub, comprising of cargo handling facilities and inter-rail networks, having the possibility to shorten Chinese export time to Europe by up to eleven days.

What remains to be seen is whether further foreign investors will be buoyed by Chinese confidence to stray outside the traditional tourism opportunities in a country only just emerging from crisis. While the road to recovery will be long, there certainly seems to be cause for optimism, and Greece may have finally turned a corner.      

By Jasel Chauhan, Partner, Holman Fenwick Willan

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Investing in Bosnia and Herzegovina (BH) may be summarized in a simple but contemplative Latin proverb:fortis fortuna adiuvat – i.e. fortune favors the bold. We suppose Cicero did not have BH in mind when leaving this written treasure in the legacy of Humanity. However, given the country’s current investment climate, there is no better way to describe it in fewer words.   

On one side, BH is placed at an ideal geo-strategic position that made it popular among conquerors in past centuries (i.e., the Austro-Hungarian Empire and the Ottoman Empire), with outstanding natural resources (i.e. water, timber, energy), qualified and hard-working human potential, outstanding agriculture, and much more. Its industrial and tourism opportunities are therefore developing fast, with an economy evidently crying out for investments. On the other side, BH still has a number of issues to resolve when it comes to foreign investment. One of the most prominent ones, besides obviously the relatively small nature of the country and market (51,209 square kilometers of territory, 3.8 million inhabitants, and a per capita GDP of approximately EUR 3,500.00), is the complex and heavily-divided administrative and legislative environment. The nation properly consists of two entities: the Federation of BH (“F BH”) and the Republic of Srpska), one district (Brcko District), and ten cantons within the F BH. The total number of legislative authorities, on different issues, eventually amounts to fourteen. There are over 135 ministries, which create an almost-intolerable bureaucracy causing slow movement in obtaining any kind of license, from Corporate, Immigration, to Real Estate, or Environment. The significant political tension is an additional issue, used for masking the corruption and theft of the country’s resources (e.g. the country imports water while at the same time it is one of the main export potentials). 

However, the fact is that the negatives (i.e., the burdensome administration) can be changed, while the positives (i.e. the geo-strategic positioning, the unexploited natural resources, etc.) are quite constant. The best showcase of how prudent investors see BH is the UK energy company EFT Group, which initiated a tremendous investment project of EUR 600 million related to the Thermal Plant Stanari mine and power plant project in the RS (which is financed through the credit line of the China Development Bank). While advising the EFT Group we witnessed the willingness of the government administration to even change the legislative environment so it would fit the needs of the transaction. There are also number of foreign investors (predominantly coming from Austria, Serbia, Croatia, Slovenia, Russia, Germany, Switzerland, the Netherlands, and Turkey, among others) who, following our advice, looked beyond the challenges and proved that the hardships are worth enduring to get to the benefits. 

Ultimately, even though the prolonged process of incorporating a company or the requirement to obtain residence and work permits for key personnel can make one want to leave before even truly entering the market, and through litigation can take several years – and enforcement of judgments over a year or more – can make one tempted to take the first plane out; still, business goes on and a predominant number of investors make a profit. The legislative framework is in fact becoming more harmonized with EU principles and practices, the implementation of it is improving each day, and bold investors are most generously rewarded for their endurance and prudence. 

The most prominent investment opportunity in BH at the moment relates to the incomplete privatization process. Unlike most of the surrounding countries and Europe in general, BH still has a number of state-owned companies to be privatized, as well as other smaller state-owned companies in the energy, postal services, and telecommunication sectors, among others. There are no highways or other significant roads or railway infrastructure; energy potential is mostly unexploited, especially when it comes to renewable energy sources, and well as tourism, agricultural, and timber potential all remain high. BH has also shown significant potential when it comes to semi-finished products and partial industrial production (automotive industry, energy, wood, etc.), however, there are also examples of imports of unfinished goods for production process completion in BH, with final products exported without triggering any tax or customs issues.    

Finally, given that most of the foreign investors are still here and reinvesting, the question that emerges would be: If they are able to generate profit in this unfavorable investment climate, can you imagine the growth of their businesses once the inevitable and ongoing transitioning processes are finally completed, and most of the hardships resolved? 

Therefore, to all bold investors, all we can say is: “Welcome aboard!”      

By Emina Saracevic and Adis Gazibegovic, Managing Partners, SGL Saracevic & Gazibegovic Lawyers

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Investing in Kosovo can certainly be a challenge. Yet, if equipped with advance knowledge of what to expect on the ground and with adequate local technical support, investing in Kosovo can  be lucrative and rewarding.  

Still, Kosovo, like many of the countries in the region, is plagued by some issues that have prevented serious foreign investors from trying it as their next frontier. Political and institutional instability, a weak rule of law, die-hard communist habits of the state bureaucracy, and unresolved political issues with its northern neighbor all can make Kosovo a challenging market for domestic and foreign investors alike.

Polls show that the most discouraging factor for foreign investors in Kosovo is the weak justice system. Unfortunately, while business legislation is comparable to that in developed countries, its implementation leaves much to desire. Moreover, the judicial system remains dysfunctional and inefficient due to its lack of human resources and low professionalism. This has created in most courts a huge backlog of cases which take years to reach a conclusion. And until now, that has been only half the battle, as enforcement of judgments was a true nightmare. And finally – the Balkans’ favorite – organized crime and corruption is more or less rampant in Kosovo, with its greatest presence in public procurement, as despite Kosovo’s numerous attempts, it has been unable to battle it effectively.  Until recently, all these factors made doing business in Kosovo  unfavorable to domestic and foreign investors.  

However, the picture is not completely bleak for Kosovo and Kosovo-bound foreign investors. Some indicators show that Kosovo indeed may be becoming more favorable to FDI, despite its recent business-unfriendly history. The Central Bank of Kosovo reports an increase of foreign direct investment (“FDI”) in Kosovo in 2013, as compared to prior years. In 2013, Kosovo received EUR 260 million in FDI, which is a 13% increase over 2012. The greatest investments came primarily in the real estate, construction and development, and financial sectors, while the lowest FDI was recorded in the energy, production, and trade sectors.  

This increase in FDI may be the initial result of some groundbreaking reforms, primarily by the now-outgoing Minister of Trade and Industry, with regard to improving the overall business environment in Kosovo. Foreign investment legislation has been revamped in an attempt to increase foreign investor confidence. The new Law on Foreign Investments that came into force in January 2014 provides serious assurances for foreign investors, including the prevention of any public or private interference in their business activities, the guarantee of equal treatment for foreign investors, and Kosovo’s pledge to subject itself to international investment dispute settlement mechanisms. The Business Registration Agency has been completely restructured, and in that process has opened up one-stop-shop registration centers in all municipalities in Kosovo. Moreover, with the assistance of the US Government, Kosovo has set up two ADR tribunals, one functioning within the Kosovo Chamber of Commerce and the other within the purview of the American Chamber of Commerce in Kosovo. Furthermore, a newly constructed private enforcement mechanism has just recently come into play in Kosovo ( in June 2014), and has shown some promising preliminary results with regard to enforcement of judgments and other enforceable instruments. A noteworthy 2013 accomplishment, thanks mainly to the assistance of the Swiss Government, has been the installation of a public notary system in Kosovo, which has lightened the load on the court system by transferring some non-judicial functions to public notaries. Finally, the local legal, accounting, business, and financial services providers in Kosovo, although not great in numbers, if carefully selected, can provide services commensurate to those found in the EU or the USA.    

With regard to its global or regional positioning as an attractive FDI environment, Kosovo is certainly not where it should be. But it is in a much better place than it was only a few years ago, and fortunately it is showing a positive trend.  Kosovo remains an attractive place to a certain type of foreign investor, who does not mind a good fight in order to get the top prize and the benefit of the first entrant advantage in many of Kosovo’s unexplored sectors, such as telecommunications, energy, agriculture, tourism, and so on.      

By Korab R. Sejdiu, Founder and Managing Director, Sejdiu & Qerkin

This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.