Land rights for foreign investors in Serbia
1) Can a foreign company/foreigner acquire land in the host country, and what forms are permitted: ownership, long-term lease, sublease, servitude?
Foreign individuals and companies can acquire property in Serbia if, first of all, primary condition is met, and that is the principle of reciprocity. Serbian citizens and companies must be able to acquire property in the buyer's home country under similar conditions. This can be based on a bilateral agreement or factual reciprocity.
Foreign individuals can generally acquire ownership of apartments, houses, and commercial properties.There are limitations on the acquisition of land. Foreign individuals who are not engaged in business activities in Serbia cannot acquire ownership of other types of land, except for the land on which a residential building or apartment they are purchasing is located, or land necessary for the regular use of that property.
A foreign-owned company registered in Serbia can acquire real estate, including land, as long as the purchase is necessary for conducting its registered business activities. The acquisition of agricultural land by foreign individuals and companies is strictly regulated.
For other forms that are permitted, long-term lease is permitted for foreign investors who cannot directly purchase certain types of property. Sublease is also permitted, if the main lease agreement permits it. Servitude is another option that is permitted, particularly in cases of infrastructure projects (e.g., pipelines, roads) where the right of servitude is established to use a portion of private land for public or private interest.
2) Are there restrictions on land categories (agricultural/non-agricultural, border areas, strategic plots, coastal zones) and on size/duration of ownership/use?
In Serbia there are restrictions on land categories, which are a major factor in determining what a foreigner can acquire in Serbia, but there are generally no restrictions on the duration of ownership for foreigners once they legally acquire a property.
The Serbian Law on Agricultural Land explicitly prohibits foreign individuals and legal entities from owning agricultural land. There is an exception for citizens and companies from EU member states, they can, in theory, acquire agricultural land, but the conditions are very restrictive.
For Non Agricultural Land (Construction Land, Forest Land, etc.), foreign individuals who are not engaged in business activities in Serbia generally cannot acquire separate, undeveloped plots of land, unless it's necessary for their registered business activities.Foreign companies that have a registered business in Serbia can acquire ownership of land and buildings that are necessary for their professional or business activities.Other types of land, such as forest land, are also subject to restrictions.
Serbian law places a general ban on the acquisition of real estate in certain border areas and "protected zones" by foreigners, such as military zones, or other areas deemed to be of strategic national importance.
As for size there are generally no explicit size limitations on property acquisition for foreigners, provided the acquisition is in line with the legal requirements. Duration of ownership is not limited, and use such as long term lease can be for a significant period (e.g., up to 30 years for agricultural land from state funds), and they provide a secure right of use without the complexities of ownership.
3) What is the best way to structure the transaction: purchase of shares in a local landholding company, direct land acquisition, long-term lease through an SPV, concession, or PPP?
The best way depends on the type of land, the intended use, and the level of control the investor desires. The most common and effective structure for transactions involving agricultural land or other restricted plots is the purchase of shares in a local landholding company (a Special Purpose Vehicle, or SPV). For non-agricultural property, like residential or commercial buildings, direct land acquisition is a viable option for foreigners from countries with a reciprocity agreement with Serbia. Long-term leases are also a secure alternative, especially for projects on state-owned land. Concessions and Public-Private Partnerships (PPPs) are specific and primarily used for large, strategic projects with the government.
4) What approvals and permits are required (government, municipality, land commission, antimonopoly authority), and how long does the process usually take?
A mandatory first step in the land acquisition process is to verify the legal status of the property in the cadastre. This confirms ownership, the type of land (e.g., agricultural, construction), and any existing encumbrances (e.g., mortgages, legal disputes). After the sales contract is notarized, the notary is responsible for electronically submitting the application for registration of ownership to the cadastre.
The Public notary plays a crucial role as a public authority responsible for authenticating real estate contracts. This is a mandatory step for any property transaction.Notarization can only happen once all necessary documents (e.g., proof of identity, ownership documents) are prepared, and notary also conducts a preliminary check of the property's legal status in the cadastre and ensures all parties have the legal capacity to enter into the agreement.
Local municipalities are responsible for urban planning and issuing construction-related permits. They are responsible for land use change, or for building permits.
The Serbian Commission for Protection of Competition reviews transactions that could affect market competition, and approval is required for any merger or acquisition of a landholding company if the transaction meets certain turnover thresholds.
There could be other approvals, so the company must prove the purchase is for its registered business activities, in case of agricultural land. for transactions involving land near border areas or military installations, approval from the Ministry of Defense may be required.The local tax authority issues decisions on property transfer tax and other fees, that can also step in final registration.
The total time for a land acquisition in Serbia can vary, depending on the type of acquisition, from a few weeks in case of simple transactions, to few months and more in case of more complicated transactions.
5) How is land due diligence conducted: boundaries, cadastre, encumbrances, servitudes, disputes, mortgages, designated use, environmental and urban planning restrictions?
Due diligence involves a thorough check of legal, physical, and planning aspects of the property. First step is cadastral and title due diligence, due diligence begins by obtaining information from the cadastre for the specific cadastral parcel. This includes ownership, boundaries and size , encumbrances and servitudes with all registered rights and burdens on the property, such as mortgages, servitudes , disputes. Due diligence also includes checking for any tax or utility debts linked to the property, which can be done through local tax authorities and utility companies.
Another step includes checks depending on the intended use of the land which is determined by local urban and spatial plans.The urban plan for the specific municipality where the land is located dictates designated use, building parameters and restrictions. In some cases it also includes analysis of the feasibility and cost of a land use change procedure.
For larger projects (e.g., industrial plants, major infrastructure) a formal Environmental Impact Assessment (EIA) could be required with potential impact of environmental regulations on the project. For protected zones it is important to check for any national or local protection regimes related to the land.
Finally, a significant number of properties in Serbia were built without the necessary permits. Due diligence must verify that any existing buildings on the land are legally registered and have either a construction permit, an occupancy permit, or a final "legalization decision." If not, due diligence must include checking the legalization process.
6) Is it possible to change the designated use of land (re-zoning) for the project, what is the process, timing, risks of refusal, and possible appeals?
The process is primarily governed by the Law on Planning and Construction and involves the municipality where the land is located. The process can be initiated by the landowner.
The first step is to obtain "urbanistic information" from the local municipality. This step is essential to confirm whether a re-zoning is even feasible under the current municipal and regional plans. A geodetic study of the plot is necessary to accurately define its boundaries and confirm its size. The investor must prepare a detailed project proposal that justifies the need for the change of use. This proposal should be aligned with the municipality's long-term development goals.
The formal request for a change of designated use is submitted to the local municipality's urban planning department.If the land is agricultural and the change is to construction land, a mandatory fee must be paid.
The most significant step is the formal process of amending the local urban plan (e.g., General Urban Plan or Detailed Regulation Plan). This is a public process that may involve public hearings and a review by various commissions and stakeholders.The decision to change the urban plan is typically made by the local municipal assembly.
The timeframe for a re-zoning process can be highly variable and can be from a few months to over a year or more.
The most common reasons for refusal include incompatibility with urban plans, lack of infrastructure, public opposition…
If a re-zoning request is denied, the applicant has legal recourse: Administrative appeal with a higher administrative body, or the applicant can file a lawsuit with the Administrative Court of Serbia.
7) What mechanisms exist to protect rights: registration of title, title insurance (if available), contractual penalties, international arbitration, investment agreements/stabilization clauses?
The Serbian legal system has its own layers of protection, but foreign investors can also leverage international instruments and contractual clauses to provide extra security.
The key mechanisms for protecting rights in Serbia are:
Registration of Title (Cadastre). Registration in the cadastre provides legal certainty and a public record of ownership. It protects against conflicting claims from third parties. A property is not considered legally acquired until it is registered in the buyer's name.
Contractual Penalties, a contractual penalty clause, under the Serbian Law on Obligations, specifies a fixed sum or other material benefit that a party owes if they fail to fulfill their obligation .
International arbitration offers a neutral and highly effective dispute resolution mechanism.This is a key protection for foreign investors, as it provides a predictable and impartial forum for dispute resolution, protecting them from the potential risks and delays of a local court system.
There are also Investment Agreements that often include Stabilization Clauses, and Bilateral Investment Treaties (BITs), as forms of protection for foreign investments.
Title Insurance is becoming more available through international and local insurance companies, particularly for foreign buyers. It covers financial losses from a defect in the title that was not discovered during the initial due diligence.
8) What are the tax and payment aspects: land tax, lease payments/indexation, VAT/profit tax on disposal, incentives for priority investment projects, transfer pricing in land transactions?
The tax regime in Serbia is generally considered favorable for foreign investors, and the most important aspects are:
Land Tax (Property Tax). The legal owner of the property pays this tax. If the property is leased, the payment obligation can be shifted to the tenant through the lease agreement.The tax rate is set by local municipalities and can be up to 0.4% of the property's market value. It is paid annually.
Lease Payments and their amount and frequency are determined by the lease agreement between the parties.It is a common practice to include an indexation clause in long-term lease agreements.
VAT is generally applied to the first transfer of a newly constructed property from a developer. For residential properties the VAT rate is 10% and for commercial properties the VAT rate is 20%. VAT does not apply to the sale of old (second-hand) buildings or land. Instead, a Property Transfer Tax is charged.
Property Transfer Tax (PTT) is paid on the transfer of ownership of any real estate not subject to VAT. This includes agricultural land, undeveloped construction land, and all second-hand properties.The rate is 2.5% of the property's market value, in practice it is almost always agreed that the buyer pays this tax.
Capital gains tax is levied on the profit generated from the sale of real estate. For legal entities, capital gains are taxed as part of their corporate income at a rate of 15%. For non-residents, the capital gains tax rate is 20%, unless a Double Taxation Treaty (DTT) provides a different rate.
There are incentives for Priority Investment Projects. The government, through the Development Agency of Serbia (RAS), offers financial cash grants for investments in manufacturing and services. For large investments (e.g., more than EUR 8.5 million and 100+ new employees), a 10-year corporate profit tax holiday can be granted.For new hires, employers can receive a significant reduction in payroll taxes and contributions for a period of time.
Transfer Pricing in Land Transactions is a crucial tax consideration for transactions between related parties.Serbian tax law, requires that all related-party transactions (including the sale or lease of land) be conducted at "arm's length," meaning the price should be what would have been agreed upon between unrelated parties. It is required to prepare and submit detailed transfer pricing documentation. This documentation must justify that the transaction was conducted at market prices. If the tax authorities find that the price was not at “arm's length”, they can adjust the tax base and impose penalties, which can be significant.
Author: Medo Zornić.
