Olga Šipka and Dušan Đurić (Kinstellar) authored this publication

Western Balkan jurisdictions (Albania, Bosnia and Herzegovina - BH, Kosovo, Montenegro, North Macedonia and Serbia) do not have a foreign investment screening regime comparable the regimes shaped by the European Union ("EU") regulations. As a result, foreign investments are allowed in most sectors without prior approval.

However, to safeguard national interests, most of these jurisdictions have established basic standards for inspecting certain sector-specific investments. This applies to sectors that are generally considered more sensitive, such as defense, banking, energy, media, real estate, and utilities. These sectors are regulated by special state laws that stipulate certain limitations for these types of foreign direct investments ("FDIs").

Despite these limitations, the Western Balkan countries promote themselves as an open and investment-friendly environment, with the aim of attracting more inbound investments from foreign investors. Nevertheless, as these countries are in the EU accession process, it is likely that comprehensive investment screening mechanisms will be implemented by these jurisdictions in the (near) future.

Summary of major changes in 2023

• Kosovo is the first jurisdiction in the Western Balkans to initiate the process of aligning its rules with a new FDI screening regime alike to the one existing in the EU. This screening regime, however, is discretionary and limited to FDIs that are likely to affect public order or national security and at the moment the bill on the new FDI screening is awaiting further approvals prior to it being put in place.
• Some of the Western Balkan's countries have initiated the "Open Balkan" concept with the aim of regional economic integration. The concept has been introduced in 2021, with one of its purposes being attracting new foreign investments and showing unity. After the Berlin Process Summit in 2023 the integration aims to further prioritize foreign investments in research, transport infrastructure and sustainable mining practices in the region.

Who files?

Depending on the relevant sectoral regulation the foreign investor is obliged to notify its investment and procure the approval from the relevant sectoral government or regulatory body prior to investing in the relevant jurisdiction. The relevant governmental body to which applications are filed is usually the state's ministry.

Types of deals reviewed

As previously mentioned, the review of FDI applications are required by sectoral regulation usually in sensitive sectors. For instance, prior approval is necessary for investments in the defense sector (i.e. investments in the production of arms and military equipment) in jurisdictions such as Serbia, North Macedonia, Montenegro, and BH. Screening mechanisms are also in place in the media sector in BH and in the health care sector in the North Macedonia.

Additionally, ownership threshold limitations apply to certain sectors. In Montenegro, there is a limit on the total share ownership in the defense sector for FDIs. Similarly, in Albania, this limit applies to the aircraft and ship ownership sector. Furthermore, governmental bodies in the Western Balkan countries carry out additional screening or due diligence for statistical purposes. The National Bank of Serbia conducts investment screening for statistical purposes.

In Western Balkan jurisdictions, foreign and domestic investors are mostly treated equally. Therefore, when an operating license is required, it applies to both domestic and foreign investors. However, certain sectors may prohibit foreign direct investment. For example, in Serbia and Albania, foreign investors are generally prohibited from buying agricultural land in the country, with only a few exceptions.

Scope of the review

When required, the relevant body will review the most important aspects of the investor and their investment. This scope includes data on the investor, the value of the investment, the planned production program and the volume of production. In the defense sector, the request may be rejected if the foreign investment could have harmful consequences for defense, national and public security, or the protection of human health and the environment.

Additionally, there is often an overlap between FDI screening and other general licensing procedures, which applies to both foreign and domestic investors. Therefore, it is advisable to seek advice before investing in the Western Balkan region in the regulated sector to determine if such licensing procedure is required and whether foreign entities are entitled to such licenses, or establishing a local presence is necessary.

Review process timeline

Review process timelines vary depending on the jurisdiction. For instance, in Serbia, upon receipt of the request (by the Ministry of Defense), the Government must issue its decision (which will be based on a proposal of the Ministry of Defense) within 120 days from the date of receipt of the request. In Kosovo, the review process is approximately three months.

How foreign investors can protect themselves

The Western Balkans jurisdictions are working on promoting and welcoming foreign investors and their rights are generally well protected. Special government organizations, such as the Development Agency of Serbia, the Investment Development Agency of Albania have been stablished to support the implementation of FDI projects and assist in this process.

Several jurisdictions have established economic free zones to attract foreign investors. These zones cater to various sectors, such as logistics, industrial, or IT.

Additionally, the Western Balkan countries have implemented various investment laws aimed at encouraging economic growth, with special privileges granted to projects considered strategic investments. These investments typically include energy, infrastructure, IT, manufacturing, and similar sectors, but requirements vary across the Western Balkans.

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