Our experience and longtime research on foreign investments confirm that Eastern European countries offer a wide variety of opportunities, especially for small and medium enterprises. Besides their strategic geographical position, the Balkans represent an economic bridge between Western and Eastern Europe: they benefit from very convenient tax and social security systems, with substantial tax breaks for investing enterprises and a very competitive cost of labor. Moreover, the establishment of companies is pursuant to European laws and regulations.
What follows is a summary of opportunities offered by Montenegro.
Montenegro has an area of 13,812 km², with a population of 631,490 inhabitants. Its capital is Podgorica and the official currency is the Euro. One of Montenegro’s appealing highlights is that foreign investors have the same rights and duties of a local investor, with no restrictions on repatriation of capitals. Starting from January 1st, 2014, Montenegro benefits from double taxation agreements with 40 countries, among which: Italy, Germany, the UK and several European Union countries. The Montenegro government has focused on substantial activities aimed at developing its financial market; the bank sector is almost entirely private, and there is a steady betterment of international standards regarding the management of businesses, along with an increased offer in terms of quality services to locally based companies.
Montenegro’s national tax system has undergone a recent reform and is nowadays pursuant to international standards. Value Added Tax is regulated by a VAT law (Montenegro Republic Official Gazette n. 65/01, 12/02, 38/02, 72/02, 21/03, 76/05, 4/06) with a rate of 17%; a reduced VAT rate of 7% for some tourist services will be introduced shortly.
The Law on company profits tax (Montenegro Republic Official Gazette n.65/01e 80/04, and 40/08, 86/09, 14/12) establishes a flat tax with a fixed rate of 9%, Europe’s most competitive tax. Interests, dividends and royalties are also taxed with a fixed rate of 9%. Particularly convenient for foreign investors is the opportunity to avoid double taxation, and have access to a very competitive customs system, if compared to neighboring countries.
There are fiscal incentives too: the law on company profits tax offers reduced rates for companies with long term foreign investments (such as mechanical equipments and machineries), following said law’s conditions and duration of incentives.
In June 2004, Montenegro approved a Trade Zone regulation, offering advantages to enterprises and exemptions from customs duties, general taxes and other levies. The Bar Harbor is currently the only free trade zone in Montenegro. All Bar Harbor clients have access to all infrastructure, handling and telecommunication services. Equal treatment for foreign investors is guaranteed with regard to property rights and the organization of economical activities within the free trade zone.
The following individual incomes are subject to taxation (Montenegro Republic Official Gazette n. 65/01, 37/04 and 78/06):
– personal earnings;
– private sector activities;
– property and property rights;
The income tax rate was lowered from 15% in 2008 to 12% in 2009,and further to 9% in 2010.
Cost of Labor
The guaranteed minimum wage is 288 Euros per month, and the average monthly wage is 330 Euros net. The Montenegrin social security is mandatory and it is regulated by special laws:
- Law on Pensions and Disabilities (Montenegro Republic Official Gazette n. 54/03, 39/04, 79/04 and 81/04);
- Law on Medical Insurance (Montenegro Republic Official Gazette n. 39/04);
- Law on Social Security Contributions (Montenegro Republic Official Gazette n. 23/93, n. 45/98 );
Employment benefits are due both by the employer and by the employee, with the following rates:
- 9,8% is due by the employee (5,5% retirement fund; 3,8% medical; 0,5% unemployment fund)
- 24% is due by the employer (15% retirement fund; 8,5% medical; 0,5%unemployment).
European Funds and Tax Relieves
Montenegro offers several tax relieves for foreign investors, among which: customs duties exemption on equipments, and exemption from income tax for three years for investments regarding production located in less developed cities. The new law on the free trade zone is also an attractive advantage for foreign investors.
Moreover, there are two specific tools for Italian enterprises: the Balkan Fund and the Yugoslavia fund. These revolving funds are aimed at sustaining Italian enterprises and are operated through FINEST (for the Veneto, Trentino and Friuli regions) and SIMEST: these public companies acquire quotas of the risk capital in enterprises established, or to be established in Balkan countries. The Yugoslavia fund does not have value limits, while in terms of duration the acquired quotas must be sold within 8 years.
ESTABLISHING A COMPANY
The reference law to establish a company is the “Enterprise Law”, Montenegro Republic Official Gazette n.6/2002,17/2007/, 80/2008. All kinds of enterprises are established through a written agreement, registered as an act of incorporation. It is then necessary to proceed with its registration at the Commercial Court Central Registry.
Non-resident shareholders do not need permits to hold capital shares in Montenegro, while non-resident administrators need a work permit in order to be appointed.
Following are some of the main company types, and the required documentation in order to be registered at the Commercial Court Central Registry.
1. Limited liability company (D.O.O): the law mandates that this type of enterprise must not exceed 30 shareholders, and the minimum stock capital is € 1. There is the obligation to appoint an Executive Director, while the board of shareholders and the Steering Committee are not mandatory.
Necessary documentation to be registered is the following:
– Articles of Association;
– Act of Incorporation (in case there is only one founding member);
– Agreement on the decision to establish a company (in case there is more than one founding member);
– Official documentation proving said registration.
Registration fees amount to € 10 approximately.
2. Joint stock company (A.D): this type of company is established by natural or legal persons, whether resident or not in Montenegro, and may comprise of one or more shareholders. The minimum stock capital is € 25,000, and capital injection may only be in cash. Mandatory bodies are: the Board of Shareholders; the Steering Committee; the Executive Director; the Secretary; an independent Auditor in charge of checking the company’s balance sheets.
Necessary registered documentation is the following:
– Articles of Association;
– Bank statement of issued company shares;
– Act of Incorporation;
– List of administrators and directors;
– Personal data of the Executive Director, the Auditor, and the Secretary;
– Statement of the agreement on company operations;
– Resolution of the “Security Commission Board” approving the public offer of shares;
– Filled-in documentation. – Registration fees amount to € 10 approximately.
3. General partnership company (O.D.): it must comprise of a minimum of two shareholders, who have unlimited and joint responsibility. There is no minimum stock capital, which can be issued in cash or in kind. Shareholders can be either a natural or a legal person.
Necessary registered documentationfor a General partnership company is the following:
– Official registered documentation, including the “General partnership” specification, shareholders personal data and addresses;
– Act of Incorporation (if existing);
– Registration tax, € 10 approximately.
4. Limited partnership company (k.d.): a limited partnership may comprise of one or more shareholders, to be distinguished in: limited partner (liable for company’s obligations within the limits of the issued quota; cannot act as an administrator, nor mandate operations and services); general partner (company administrator), who has unlimited and joint responsibility on company obligations. There is no requirement for a minimum stock capital.
Necessary registered documentation for a Limited partnership company is the following:
– Act of Incorporation with notarized signature of members;
– Shareholders personal data;
– Registration fee, € 10 approximately.
5. Local branch of a foreign company: it is the branch of a company established and registered abroad, which manages an economic activity in Montenegro. The branch of a foreign company operates only within Montenegro’s laws and regulations. Foreign companies opening a branch in Montenegro must provide the following information at the Commercial Court Central Registry, upon 30 days from initiation of operations:
– Address of the branch;
– Branch activities;
– Personal data and role of legal representatives of foreign parent company, including appropriate documentation justifying their opening in Montenegro;
– Notarized copy of parent foreign company Act of Incorporation, including a translation in Montenegrin;
– Copy of parent foreign company’s registration certificate, or similar notarized document confirming its registration in the country of origin;
– Names and addresses of the person or persons authorized to represent the parent company with third parties and in legal procedures;
– Names and addresses of one or more persons residing in Montenegro, who are authorized to receive legal services on behalf of the company, and any other notification to be communicated to said company;
– The latest parent company balance sheet.