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03 January 2022

Cross-border mergers in Serbia: clash of laws postponed?

The Serbian Companies Act defines cross-border mergers as mergers of at least one commercial entity registered in Serbia and at least one commercial entity from EU Member States or states signatory to the EEA Agreement.

Carbon-copied from EU law, the concept itself is not new and, with drivers such as the need for portfolio diversification, high repatriation costs of overseas earnings, access to a favourable regulatory environment, scale efficiencies and cost synergies, cross-border M&A presents a compelling business case. However, its application is yet to be tested in Serbia. Although conceived and formally introduced in 2018, the relevant provisions were designed to stay dormant until their activation date, set for 1 January 2022. As this trigger date fast approaches, certain practical implications specific to the Serbian context are crystallising, prompting the government to propose last-minute amendments to the Companies Act which would push activation to 1 January 2025.

Why the delay?

The initial thinking behind the delayed effect of the cross-border merger provisions was to allow time for the general legal framework to acclimate to this new EU notion. Now, the looming deadline shines a spotlight on how little has in fact been done in terms of adjusting other legal acts. The cross-border merger provisions conflict with a string of Serbian laws, set to crack open gaping loopholes. Legal uncertainty would likely reign in the interim, but foreign investors scoping out this uncharted territory should find fertile ground for business opportunities. The Serbian legislature's solution in the race against the clock? Simply buy more time by changing the law.

Implications of cross-border provisions integration

For instance, unless the proposed amendments are passed, cross-border mergers could present a way to get around the restrictions imposed on cross-border payments under the Foreign Exchange Act. Traditionally, approval of the National Bank of Serbia (NBS) is required for most foreign financial operations (such as loans, credits or guarantees). The NBS pursues a rather restrictive policy towards any form of outbound payments from Serbia, principally with the aim of staving off new external debt.

While the regulator has yet to express its opinion on the implications of cross-border mergers, it appears that the NBS's hands would be tied once loan and credit agreements (or other sources of debt) become subject to cross-border universal succession. If, for example, a Serbian lender merges into an EU company, the foreign successor should by operation of law inherit the loan agreements and all other receivables of the transferring company towards its Serbian-resident debtors, thereby fully circumventing the NBS procedures and in effect generating foreign debt.

A similar scenario may be expected to arise in property law. Currently, foreign companies can purchase real estate in Serbia only if needed for performing their business and under the proviso of reciprocity, both of which call for a cumbersome confirmation procedure before the Ministry of Justice of Serbia. The restrictions are even more exacting under the Agricultural Land Act: out of all foreign entities, just those from the EU can own agricultural land, but even then, only under strict conditions such as minimum ten years of permanent business presence in Serbia. Clearly, universal succession under cross-border mergers would call these rules into question. It seems only natural that an acquiring EU entity would be able to succeed all real estate of its merging Serbian company.


The case of cross-border mergers shows how the Serbian legislature is struggling to synchronise the ambitious pace of integration across sectors and its far-reaching effects. Lawmakers will probably wait until the eleventh hour and then officially kick this can down the road, voting on New Year's Eve to delay beyond 2022 the entry into force of the rules on cross-border mergers. Yet, at this pace it seems unlikely that three more years would make much difference. Since the prospects of the business climate in Serbia are, and will for the foreseeable future remain, intermeshed with the EU accession process, the solution to the resulting clash of laws will probably have to be found in practice, be it from 1 January 2022 or 1 January 2025 onwards.


"The case of cross-border mergers shows how the Serbian legislature is struggling to synchronise the ambitious pace of integration across sectors and its far-reaching effects."

authors: Vojimir Kurtić and Jovana Rubežić

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