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- Draft Version -

(Unofficial translation of the Law on Foreign Investment)

This Law establishes guaranteed rights of foreign investors who invest in the economy of Federal Republic of Yugoslavia, and particularly: freedom of the foreign investment; equal legal treatment of the foreign investors and the national subjects of law; full legal security and protection of the foreign investors; the right of free transfer of profits and property abroad; implementation of the international agreements.

This Law promotes conditions for stimulating foreign investment in order to generate efficient development of Yugoslav economy, to strengthen its competitiveness, to establish a wider presence of Yugoslav economic entities in the international trade, to import new equipment and contemporary technologies, to modernise business and increase export volume, all for the purpose of achieving economic and social progress in Federal Republic of Yugoslavia.

This Law establishes legal framework of an administration open to foreign investments and accomplishes harmonisation of Yugoslav law on foreign investment with the corresponding laws of developed market economies.

I. BASIC PROVISIONS

Article 1. Scope of application

This Law regulates foreign investment into companies and other forms of business establishments (hereinafter referred to as: companies) in the Federal Republic of Yugoslavia.

Foreign investment in banks, other financial institutions, insurance companies and free zones as well as foreign investment into non-commercial activities is not regulated by this Law.

Foreign investment from paragraph 2 of this Article is regulated by special laws.

Article 2. Foreign investor

Foreign investor, within the scope of this Law, is:

1. A legal person established in compliance with a foreign law, whose principle place of business is abroad;

2. A foreign physical person;

3. A Yugoslav citizen having permanent residence abroad.

Article 3. Foreign Investment

Within the scope of this Law a foreign investment in Federal Republic of Yugoslavia is:

1. Foreign investment in a Yugoslav company by which investment the foreign investor acquires a stake or shares of the basic capital of the Yugoslav company;

2. Acquiring any other property rights of foreign investor by means of which the foreign investor realises his business interests in Federal Republic of Yugoslavia. These rights particularly include rights of foreign investor on fixed and movable assets (ownership, lease, collateral, concession, etc.), cash and non-money claims as well as registered and unregistered intellectual rights.

Article 4. Basic forms of foreign investment

A foreign investor may, on his own account or jointly with other foreign or domestic investors:

1. Establish a new company;

2. Make an acquisition of stake or shares of an existing company;

3. Conclude contracts with the view of acquiring property rights from Article 3 paragraph 2 of this Law.

Legal documents that regulate legal relations in regard to foreign investment are concluded in written form and according to the law.

Article 5. Special forms of foreign investment

A foreign investor may be granted a permit (concession) for exploitation of a natural resource, an asset in general exploitation or for performance of the activities of general interest, in compliance with the law.

A foreign investor may build, operate and transfer (B.O.T. - Build, Operate and Transfer) a specific facility, installation or plant, as well as infrastructure and communications facilities, in compliance with the law.

Article 6. Investment of a foreign investor

The investment of a foreign investor may be in a foreign convertible currency, in kind, intellectual property rights, securities and other property rights.

The investment of a foreign investor may be in dinars and may be transferred abroad according to the foreign currency regulations, wherein profit reinvestment is included.

A foreign investor may convert its established claim into a stake or shares of the debtor company.

Non-money investments must be expressed in monetary terms.

II. GUARANTEED RIGHTS OF FOREIGN INVESTORS

Article 7. Freedom of a foreign investment

Foreign investor may establish or invest into a company for performing all kinds of economic activities for profit purposes, unless this Law provides otherwise.

Article 8. National Treatment

Respecting his investment the foreign investor enjoys equal status, rights and duties, as domestic legal and physical persons unless provided otherwise by this Law.

Company with foreign investment enjoys equal legal status and carries on its business under equal conditions and in an equal manner as do Yugoslav companies without a foreign investment.

Article 9. Legal Security

A foreign investor enjoys full legal security and legal protection in respect of rights acquired by virtue of the investment.

Rights of foreign investor acquired in the moment of registration of the legal documents cannot be deteriorated by subsequent alteration of laws and other regulations.

Investment of a foreign investor and assets of the companies with a foreign investment cannot be expropriated, nationalized, or subject to other acts of State of equal effect, unless when the public interest is established by the law or based on the law, and against payment of a compensation.

Compensation from paragraph 3 of this Article must correspond to the market value that the investment has on the day of the act of expropriation, nationalisation, or other measure. The change in the investment value that may occur due to the fact that public has learned of the expropriation, nationalisation or other measure, shall not have impact on the investment's market value estimation carried out for the purpose of payment of the compensation.

Compensation from paragraph 3 of this Article must be paid without delay in convertible currency and the foreign investor may freely transfer it abroad. In the case of a delay of the payment of this compensation the foreign investor has the right to the statutory interest.

Article 10. Currency conversion and liberty of payment

The foreign investor may freely convert domestic currency into foreign convertible currency, in compliance with the law, as regards each payment related to the foreign investment.

A company with a foreign investment is free to perform payments in its international business relations, in compliance with the law.

A company with a foreign investment may keep foreign currency on a foreign currency account with an authorised bank and may freely dispose with those resources.

Article 11. Right of bookkeeping

A company with a foreign investment, apart from bookkeeping and financial reporting obligations in compliance with the domestic law, has the right of bookkeeping and making financial reports in compliance with the internationally recognised accounting and auditing standards.

Article 12. Right to transfer of profits and property

Upon settlement of the obligations according to the domestic law, a foreign investor may, freely and without a delay and in a convertible currency, transfer abroad all financial and other assets related to the foreign investment, and particularly:

1. Income derived from the foreign investment (profits, dividends, etc.);

2. Property belonging to him upon termination of the subject of the investment or based upon the termination of the investment agreement;

3. Amounts received from the sale of stake or shares of the company with a foreign investment;

4. Amounts acquired on basis of a decrease of the basic capital of a company with foreign investment;

5. Additional payments;

6. Compensation from Article 9 of this Law.

Article 13. Preferential treatment

Yugoslav law is applicable to foreign investments made on the territory of Federal Republic of Yugoslavia.

If an international or bilateral treaty, members of which are both the State of a foreign investor and Federal Republic of Yugoslavia, provides for the foreign investor or his investment a preferential treatment compared to the treatment provided for by this Law, such preferential treatment shall be applied.

III. FOREIGN INVESTMENT INCENTIVES

Article 14. Liberal import

Import of goods that represent the investment of a foreign investor is liberal, providing such goods satisfy environment protection laws.

Article 15. Tax and customs benefits

A foreign investor and a company with a foreign investment enjoy tax and customs benefits in compliance with the law.

Article 16. Customs Exemption

Importing (new) equipment on basis of the investment share of the foreign investor, except for motor vehicles, fun machines and lottery games, is exempt from customs and other import duties.

The right from paragraph 1 of this Article may be used according to the determined investment dynamics up to the time of the completion of the objects being built or a beginning of an activity into which the investment is being made or if the investment is being made on a basis of the profit reinvestment - throughout the temporal validity of the contract or the agreement.

Customs exemption from paragraph 1 of this Article may be also used by a company with a foreign investment to the limit of the foreign investment and for period of two years from the day of the registration of the foreign investment.

IV. DISPUTE SETTLEMENT

Article 17. Courts and arbitration

All disputes arising from foreign investments may be resolved before the competent courts in Yugoslavia or before mutually agreed domestic or international commercial arbitration.

V. SPECIAL PROVISIONS

Article 18. Environment protection

In performing his activities the foreign investor is always obliged to act in compliance with the environment protection laws.

Article 19. Right to minority shareholding in special fields and areas

A foreign investor may neither himself nor with another foreign investor establish in the Federal Republic of Yugoslavia a company in the field of manufacturing and trade of armaments, or in areas prescribed by the law as the restricted zones (national parks, border areas, and the like).

In these fields and areas foreign investor may establish a company jointly with a domestic entity or invest into a company, but may not acquire a majority shareholding in such company.

In a case described in paragraph 2 of this Article, the foreign investor is obliged to obtain an approval of the competent Ministry for the participation in establishing a company, or for the investment into a company.

In the approval procedure the Ministry from paragraph 3 of this Article especially takes into consideration the quality, type and extent of the foreign investment.

The Ministry from paragraph 3 of this Article is obliged to bring a decision upon the request within 30 days from the receipt of application. If within the said period no decision is brought upon the request, it will be deemed that the approval is granted.

In the case of a refusal the Ministry from paragraph 3 of this Article is obliged to render a justified decision.

Article 20. Acquisition of real property

Foreign natural and legal person, in capacity of a foreign investor, may acquire ownership of real property in compliance with the law.

VI. REGISTRATION AND EVIDENCE OF FOREIGN INVESTMENT

Article 21. Registration of foreign investment

Foreign investments within the meaning of Article 3 paragraph 1 are registered in the competent Court in compliance with the law regulating status of commercial companies.

Registration of foreign investment into other forms for conducting economic activities for profit purposes is performed in compliance with the laws regulating their status.

Foreign investor in the fields and areas prescribed by Article 19 must obtain the approval within the meaning of paragraphs 3 and 5 of that Article, for purposes of registration of foreign investment in the competent Court.

Article 22. Evidence of foreign investment

The Registry Court, by duty of office, informs the Ministry competent for Foreign Economic Relations, on registration of form of foreign investment, for evidence purposes.

Ministry from paragraph 1 of this Article by subordinate legislation regulates the procedure for keeping of evidence on foreign investment. In regulating and implementing the evidence procedure no additional requirements above those set by this Law may be imposed.

The Ministry from paragraph 1 of this Article dispatches to the Registry Court a list of States with whom reciprocity does not exist, for each calendar year in advance.

VII. TRANSITIONAL AND FINAL PROVISIONS

Article 23. Coming into effect

This law comes into effect on the eighth day from publication in the "Official Gazette of FR Yugoslavia".

Article 24. Subordinate legislation

Within 8 days from the day of coming into effect of this Law subordinate legislation related to the enforcement of this Law shall be adopted.

Article 25. Application of this Law

To legal relations related to the foreign investment which occurred before the coming into effect of this Law, and which are operative, this Law is applicable if it is preferential for the company with the foreign investment.

This Law is applicable to all foreign investments that before the day of coming into effect of this law have not been registered in the competent Court.

Article 26. Termination of validity of other regulations

As of the day of coming into effect of this Law, the Law on Foreign Investment (Official Gazette of the FR of Yugoslavia, no.79/94 and 29/96) is repealed.

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