Fitch expects a 10% drop in FDIs in Serbia this year

Although Serbia has had a record foreign direct investment (FDI) influx in recent years, the influx most likely will not remain at that level in the coming period.

In terms of domestic risk factors, future foreign investments will be negatively affected by the growth of wages in Serbia and energy prices, as well as the lack of certain categories of workers. Foreign factors include high-interest rates and tax cuts for companies in the European Union. That is why analysts and rating agencies expect that in the coming years, the share of foreign direct investments in Serbia’s GDP will slowly begin to fall.

As of this year, the minimum tax rate for multinational companies based in the EU is 15 percent. In previous years, those rates ranged from 22.5 percent in 2019 to an average of 21.7 percent in 2022.

“By reducing incentives for companies to shift profits to low-tax jurisdictions, the so-called ‘race to the bottom’ — the battle between countries to lower their corporate tax rates to attract investments — is curbed,” the European Commission said. The rules will apply to multinational companies and domestic EU firms with revenues of more than 750 million euros per year.

Dragoljub Rajić, a consultant from the Business Support Network, says that the goal of these tax measures is to encourage domestic companies to do business in the EU at a time when the economy is on the verge of recession.

“This is a consequence of the EU’s policy to increasingly support and finance companies from the EU to open companies on its territory. It is a countermeasure to the policy that exists in China, where that country supports its own companies with state funds to be competitive. The EU’s decision primarily refers to industries that relocated their operations to China to return to Europe,” says Rajić.

Professor Milojko Arsić of the Faculty of Economics says that the measure will affect the collection of profit tax in Serbia, so it is expected that companies will report their income to the EU. The country that makes the highest FDI in our country, apart from China, is the Netherlands. However, due to the tax treatment, many companies use the Netherlands as a destination from which they fund their investments in other countries, which means that a significant part of the FDI there in Serbia is not companies that actually work and come from the Netherlands.

The tax rate on capital gains in Serbia is 15 percent, and in the case of non-residents, 20 percent. This means that with the change in EU tax policy, Serbia has lost the comparative advantage it had before.

Fitch rating agency states that the FDI influx in Serbia will be less than last year’s 4.7 billion dollars (4.3 billion euros) and will fall to 4.2 billion dollars this year, which would be a 10.6 percent drop.

According to data collated by the National Bank of Serbia, the value of FDI that came to Serbia last year reached 4.52 billion euros, a two per cent growth compared to 2022.

As stated in the latest Macroeconomic Analysis and Trends newsletter, the net inflow of FDI in January this year amounted to 470.3 million euros, which is 304.2 million euros more than in the same month of the previous year, or as much as 183.2 percent more.

(Nova Ekonomija, 11.04.2024)

https://novaekonomija.rs/vesti-iz-zemlje/da-li-su-strane-investicije-u-srbiji-dostigle-vrhunac-fic-ove-godine-ocekuje-pad-od-106-odsto

This post is also available in: Italiano

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