SERBIA IS A PARADISE FOR THE RICH: Foreign companies withdraw €4.3 billion from the country in 2024, many received state subsidies!

What do Serbia and the Cayman Islands have in common? The similarities are neither geographical nor cultural but fiscal, as both countries have been placed on the EU’s “gray list” of nations that turn a blind eye to tax manipulations and other advantages that enable a “socialism for the rich”—primarily through low corporate taxes that allow global companies to extract profits from Serbia instead of reinvesting them.

Serbia shares this status with Bosnia and Herzegovina, North Macedonia, Montenegro, Hong Kong, Switzerland, and Bermuda. The EU has instructed European countries to align their legislation with the Union’s standards, particularly in combating tax evasion. However, Brussels has not demanded measures to curb the outflow of profits from foreign companies, which have been welcomed with open arms through massive subsidies and investment incentives.

It has been left to local governments to address this issue, including in Serbia, which continues to overlook these unfair business practices. The question is whether this might change after a warning from Blagoje Paunović, President of Serbia’s Fiscal Council, at the Kopaonik Business Forum.

Massive Capital Outflow from Serbia

“In 2024, foreign direct investment (FDI) inflows totaled €6.6 billion, an 8% increase from 2023. However, during the same period, foreign companies withdrew €4.3 billion in profits from Serbia—two-thirds of the amount invested in 2024, marking a 40% increase compared to 2023. The moment is approaching when the net effect of FDI will reach zero, which could be very serious for the Serbian economy,” Paunović stated at the panel “Can We Reach High-Income Economies?”

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Foreign vs. Domestic Companies: Unequal Treatment

It is clear that domestic and foreign companies are not treated equally. Serbian firms, especially small and medium-sized enterprises (SMEs), lack tax relief and subsidies, which are mostly reserved for foreign investors under the pretext of job creation. This puts domestic companies at a significant disadvantage in competing with global corporations.

Since 2006, successive governments have poured taxpayer money into subsidies for foreign investors, regardless of which political party was in power. The process remains opaque, making it difficult to obtain precise data on the total amount of subsidies granted, how much of the profits are reinvested, and how much is taken out of Serbia. When such data does emerge, it is rarely publicized, as seen in the December issue of the Macro-Economic Analyses and Trends (MAT) journal.

According to MAT’s analysis, total primary income outflows due to FDI amounted to €3.15 billion, with:

€2.09 billion from dividend outflows,
€291.3 million from interest payments, and
€765 million from reinvested earnings, which represent retained profits in foreign-owned companies rather than payouts to owners.

Paunović also warned that the net effect of FDI could soon reach zero, posing a serious risk to Serbia’s economy.

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Serbia’s Declining Attractiveness for Investors

“What has attracted FDI to Serbia in past years? Cheap labor, low wages, easy access to natural resources, and low environmental standards. However, some of these factors are losing significance—particularly the availability of labor. This decline in FDI could negatively impact Serbia’s current account deficit, which stood at 6.4% of GDP at the end of last year,” Paunović explained.

Between 2017 and 2023, Serbia received €25 billion in FDI, but the majority went to traditional industries such as mining, agriculture, and metal production, rather than high-value, technology-driven sectors. The FDI share of Serbia’s GDP has been declining, from 7.4% in 2019 to 5.6% in 2024. An even greater concern is the end of the investment cycle, as foreign investors increasingly withdraw profits to reinvest elsewhere.

At the same time, they are also withdrawing money from Serbian taxpayers, who continue to fund their businesses through subsidies. Recent budget data shows that:

VAT and excise taxes contribute over 80% of Serbia’s total budget revenue (52% from VAT and 30% from excise taxes), while
Corporate income tax contributes only 9%, one of the lowest rates in Europe (15% in Serbia, compared to 32% in France, 31.5% in Portugal, and 29.9% in Germany).

Foreign Investors Face Minimal Obligations

In Serbia, foreign companies pay minimal taxes and are not required to reinvest profits. Each new investment is celebrated, as if it guarantees high wages for employees, while in reality, salaries often barely exceed the legal minimum wage.

According to Dragoljub Rajić of the Business Support Network, the Serbian economic and tax system favors large corporations while disadvantaging SMEs:

“For decades, small and medium-sized businesses in Serbia have felt that the state is more of an obstacle than a supporter, unlike in developed European economies. Large companies enjoy unconstitutional and economically illogical privileges. Until 2013, SMEs were allowed to offset corporate taxes with reinvestments in fixed assets. That right was revoked, while large companies earning over 1 billion dinars annually were allowed to deduct reinvested profits from their taxes. This has placed SMEs in a long-term disadvantage, especially after 2021, when inflation made borrowing more expensive. Foreign companies, on the other hand, are granted every possible benefit—including subsidies financed by Serbian taxpayers, which they later extract from the country,” Rajić told NIN.

Are State Subsidies the Only Lure for Foreign Investors?

While foreign investments are undeniably important, the question remains: Are massive state subsidies the only way to attract them?

Zoran Drakulić, former president of the Serbian Business Club “Privrednik” and owner of Point Group, told NIN that the business environment in Serbia favors foreign companies over domestic ones:

“Neither COVID-19 nor the war in Ukraine has taught us the importance of Serbia’s economic self-sufficiency. We have given too many subsidies and resources to foreign investors without proper analysis or regard for our national interests. Foreign investors’ goal is not to leave their profits in Serbia, but to take them elsewhere. Let me give an example—there is a company that uses 500,000 cubic meters of Serbian wood annually, paying a maximum of €20–25 million for it. However, in their home country, which has more abundant wood resources, they do not operate a similar production facility,” Drakulić stated.

If even part of these concerns is true, it is evident that Serbia treats foreign investors as a “mother” while acting as a “stepmother” to its domestic companies. As long as this practice continues, foreign firms will reinvest less in Serbia and extract more profits abroad. This is not their fault, but rather the result of decades of government policies that foster “socialism for the rich” for foreign investors and “capitalism for the poor” for Serbian businesses.