Serbia Corruption Report

There is a high risk of corruption in Serbia’s land administration. Of all bribes paid by business, around ten percent go to land registry officers (UNODC 2013). Of all the convictions for the crime of passive bribery, a quarter is related to the construction sector (GLIS 2017). A third of Serbians believe the land administration is corrupt (UNDP 2015). Foreign investors enjoy full private property ownership rights, yet, have insufficient confidence in the protection of these rights in practice (ICS 2017, GCR 2017-2018). Serbia has an adequate body of laws for the protection of property rights, but enforcement of these rights can be extremely slow (ICS 2017). Restitution claims, unlicensed construction, limitations on property rights and title fraud, among other issues, may complicate property titles (ICS 2017). Companies are advised to thoroughly investigate any land issue before making an investment (ICS 2017). Any ‘right of use’ issued under the old socialist system may be converted into ownership rights after paying a market-rate fee (ICS 2017). In the case of expropriation, Serbian law requires compensation to be paid in the form of similar property or cash (ICS 2017). The number of steps and time required to register property in Serbia are in line with regional averages (DB 2017).

A recent case showing the extent of corruption in Serbia can be found in the “Svamala case”. In April 2016, local government officials, real estate developers, and the police colluded to close off a street and bulldoze the majority of private properties on the street in order to allow the construction of a government-backed private real-estate project (FitW 2017). Police illegally detained people in the area and refused to respond to calls from the area; showing the high levels of corruption in the country’s land sector (FitW 2017). The Police Directorate of the Ministry of Internal Affairs has completed its investigation into the case and has forwarded it to the prosecutor (B92, Jun. 2017).

Corruption risks in Serbia’s tax administration are high. Bribes and irregular payments when meeting with tax officials are fairly common (GCR 2015-2016). Business activities are hampered by frequent direct interactions with the public administration during tax inspections, exposing companies to extortion risks (UNODC 2013). Two out of five Serbians believe the tax administration is corrupt (UNDP 2015). Tax rates and regulations are mentioned by businesses as being among the most problematic factors for doing business (GCR 2017-2018). Deficiencies in the tax administration have enabled the informal economy which is estimated to be worth around 20-30% of GDP (EUPR 2016). The tax agency remains understaffed (EUPR 2016). Companies have to make thirty-three tax payments annually, which is double the regional average (DB 2017).

Serbia’s richest man, Miroslav Miskovic, was arrested on charges of abuse of office and tax evasion in 2013. He was convicted to a five-year prison sentence for aiding his son in evading USD 3 million worth of taxes (OCCRP, Jun. 2016). He was also fined an additional USD 73,000 and USD 45 million of his assets were frozen abroad (OCCRP, Jun. 2016).

There is a high risk of corruption in Serbia’s customs administration. Irregular payments when exporting or importing goods to/from Serbia are common (GETR 2016). Businesses report that considerable time is needed to clear goods at the border and the transparency of the customs process is poor (GETR 2016). Customs officials have a poor reputation among Serbian citizens; most survey respondents believe customs authorities are corrupt (UNDP 2015). However, perceptions of customs officers have been improving in recent years (UNDP 2015). The time and costs required to comply with import regulations are far below the regional average (DB 2017).

In April 2017, seventeen customs officers were arrested over alleged involvement in a scheme that allowed local companies to import goods without paying the required taxes, costing the Serbian state around EUR 11.5 million (Business Insider, Apr. 2017). The customs officers accepted fraudulent documentation indicating the goods were destined for embassies and international organization which are exempt from the taxes (Business Insider, Apr. 2017).

The risk of corruption in Serbia’s public procurement sector is high. Companies indicate that bribes and irregular payments are commonly made when obtaining a government contract (GCR 2015-2016). Diversion of public funds, as well as favoritism in decisions of government officials, is perceived by businesses to be common (GCR 2017-2018). Corruption is pervasive in the public procurement sector (ICS 2017). Foreign investors should note that even though they are welcome in Serbia’s privatization process and current investors find the investment climate acceptable, government treatment has at times favored domestic investors (UNODC 2013). However, the tender-issuing agency is required to pick a domestic party if the domestic party’s price is less than five percent higher than the foreign supplier’s price (ICS 2017). Serbia increased its procurement oversight capacity by hiring 958 new procurement officials in 2015, but public procurement oversight still lacks significant capacity and the sector remains vulnerable to corruption (EUPR 2016). Data shows that less than sixty percent of public procurement processes use the most transparent “open procedure”, the non-transparent “negotiation procedure” is often invoked because of “technical and artistic reasons” (SELDI 2014). The non-transparent procedure allows entities to directly hire a specific company, although other companies have eight days to appeal this decision; something most companies often seem to be unaware of (SELDI 2014).