Incentives for foreign investors
A stable or developing macroeconomic situation with low inflation, low unemployment and high GDP indicators, naturally attracts increasing numbers of investors to a region. In those CEE countries where the GDP rate is high, M&A activity is considerably higher.
Economic incentives
Economic incentives mainly consist of tax allowances and other sector, regional or project-based allowances offered by governments which all recognise their ‘investment generator’ impact.
Tax incentives in Serbia, for example, include a low rate of corporate income tax – 10% and even zero corporate income tax exists for new investments made in certain regions where the unemployment rate is high; a ten-year pro-rated corporate tax holiday for investments over EUR 7.5m and the employment of at least
100 new employees and tax credits for investing in fixed assets of up to 80% of the invested amount.
Sector or region-specific incentives are offered by countries such as Bulgaria – which has special state subsidies for investors in the agriculture sector, Russia – which has selected regions as special economic areas regulated by law. The law prescribes benefits, such as a reduction in customs duties, to companies located in these zones that are involved in scientific projects and industrial production.
In Croatia, companies operating in areas under special state care (war damaged) and investing in new companies have special lower tax treatments up to 0% of corporate tax.
Romania offers a wide variety of taxation incentives such as VAT payment exoneration, income tax deductions for investments in industrial scientific and technological parks and very specific incentives distinctively provided for micro-companies, SME, and individuals by case.
In addition to the macroeconomic considerations, Governments in the CEE countries are out to attract foreign direct investors with the introduction of specific incentives.
Non-economic incentives
Besides economic incentives, investors can receive beneficial treatment if, for example, they place emphasis on general environmental and development issues in target countries and remain sensitive towards issues affecting general political stability in corresponding countries.
Generally, investor confidence seems to correlate strongly with EU and NATO membership by target countries which, in turn, results in lower country risk and higher deal volumes. This has recently been observed in Bulgaria and Romania.
In addition, countries which have signed agreements on the mutual protection and promotion of foreign investments or which have other mutual treaties – The Generalised System of Preferences trade programme between Serbia and the US which provides a preferential duty-free regime for more than 4,650 products, for example, – are also more attractive to prospective external investors.
Other features, such as geographic location, infrastructural developments, the quality and cost of labour, and the harmonisation of national regulations with EU policies are key additional considerations for foreign investors. Bulgaria’s proximity to large non-EU markets such as Turkey, and the convenient transport infrastructure and channels (via land, river and sea) in Croatia, for example, represent important advantages for these countries.
Additionally, a reduced administrative burden and shortened procedures for new investors will attract more interest. This has been recognised by Bulgaria in setting up its Agency for Foreign Investments. Serbia also believes that through legal and economic reforms and/or harmonisation, it can offer a European-orientated, business-friendly, market economy and thus attract increasing foreign investment.
