Montenegro, Kotor an Old Town
GENERAL INFORMATION
Montenegro is located in Southeastern Europe, between the Adriatic Sea and Serbia with border countries as follows: Albania 186 km, Bosnia and Herzegovina 242 km, Croatia 19 km, Kosovo 76 km, Serbia 157 km. Highest population density is concentrated in the south, southwest; the extreme eastern border is the least populated area. For a country of just 650,000 people with 2,000 military personnel and an area smaller than Connecticut, Montenegro has strategic value out of proportion to its size. Its dramatic Adriatic coastline of 293.5km, the source of its appeal to tourists, is also attractive in strategic terms because of its easy access to the Mediterranean.
TAX REGIME
Income Tax Rates 2016
The 2016 individual income tax in Montenegro is flat, 9%.
A 11% tax rate applies to salary exceeding EUR 720.
Exemptions are granted to taxpayers with specific types of income.
Individual Income Tax
Income from employment is withheld and paid by the employer, monthly, reduced by any personal deductions.
- Individual, who is a “permanent resident” of Montenegro, pays tax on his income earned in Montenegro and overseas.
- A foreign resident pays tax only on his income earned in Montenegro. A resident has right to personal deductions for each dependent family member in the amount of 120 Euro a year (10 Euro per month).
A resident is any individual who resides on the territory of Montenegro for at least 183 consecutive days in a tax year, or a person who has a center of his/her business activities or life interests.
Investment income of interest and dividends is taxed at 9%.
Corporate Tax in Montenegro
The 2016 corporate tax rate in Montenegro is 9% for domestic and foreign companies.
POLITICAL CONTEXT
The use of the name Crna Gora or Black Mountain (Montenegro) began in the 13th century in reference to a highland region in the Serbian province of Zeta. The later medieval state of Zeta maintained its existence until 1496 when Montenegro finally fell under Ottoman rule. Over subsequent centuries, Montenegro managed to maintain a level of autonomy within the Ottoman Empire. From the 16th to 19th centuries, Montenegro was a theocracy ruled by a series of bishop princes.
After World War I, during which Montenegro fought on the side of the Allies, Montenegro was absorbed by the Kingdom of Serbs, Croats, and Slovenes, which became the Kingdom of Yugoslavia in 1929; at the conclusion of World War II, it became a constituent republic of the Socialist Federal Republic of Yugoslavia. When the latter dissolved in 1992, Montenegro federated with Serbia, creating the Federal Republic of Yugoslavia and, after 2003, shifting to a looser State Union of Serbia and Montenegro. In May 2006, Montenegro invoked independence from the state union. The vote for severing ties with Serbia barely exceeded 55% – the threshold set by the EU – allowing Montenegro to formally restore its independence on 3 June 2006.
Montenegro on June 5 formally became NATO’s 29th member.
Montenegro started negotiations with the EU in June 2012 and strives to join by 2020, ahead of the other countries in the Western Balkans.
WHY YOU SHOULD CHOOSE TO INVEST IN MONTENEGRO
Strong Points
Montenegro, Kotor Old Town Montenegro attracts a lot of foreign investors for the following reasons:
– foreign companies have the same rights as national companies;
– the tax system is one of the most competitive in Europe (rate of 9%);
– the workforce is qualified and wages are relatively low;
– the Euro is the national currency;
– formalities for creating a company are simple and quick (four days are enough to create a company);
– it is a stable democratic country.
Weak Points
Montenegro’s weak points are
– Deficit of the balance of current transactions;
– Considerable foreign debt;
– Problems in corruption;
– Regulations in the subject of intellectual property are almost non-existent.
Government Measures to Motivate or Restrict FDI
The government’s privatization policy has attracted many foreign investors. In addition, there is a real equal treatment between Montenegrin and foreign investors in the country. The government has established customs and fiscal incentive measures:
– the amount of tax can be reduced up to 25% of the amount invested in shares and bonds for the fiscal period concerned.
– legal entities newly established in a municipality and who are active in the field of production can be exempted from tax on profits during their first three years of activity.
ECONOMIC OVERVIEW
Montenegro’s economy is transitioning to a market system. From the beginning of the privatization process in 1999 through 2015, around 90% of Montenegrin state-owned companies have been privatized, including 100% of banking, telecommunications, and oil distribution.
Montenegro uses the euro as its domestic currency, though it is not an official member of the euro zone. In January 2007, Montenegro joined the World Bank and IMF, and in December 2011, the WTO which is to support Montenegro on the path of more sustainable and inclusive growth with a particular focus on creating employment and economic opportunities and restoring fiscal balance in order to accelerate long-term inclusive growth.
Montenegro first instituted a value-added tax (VAT) in April 2003, and introduced differentiated VAT rates of 17% and 7% (for tourism) in January 2006. In May 2013, the Montenegrin Government raised the higher level VAT rate to 19%.
The economy is expected to grow by an average of 2.8% in 2017–19 on large public investments and personal consumption.
The fiscal deficit is projected to expand to above 6% in 2017–18 and then come down to around 4% of GDP by 2019. Poverty (measured at US$5/ day in 2005 PPP) is estimated to decline slowly to 11.5% in 2017, subject to an employment rebound, including in construction and tourism.
BUSINESS OPPORTUNITIES
TOURISM
As already mentioned, tourism is very important branch in Montenegro’s economy. There are also several new luxury tourism complexes in various stages of development along the coast, and a number are being offered in connection with nearby boating and yachting facilities. Yet, after entering NATO, all this will come under question mark, since the Russia was the major investor.
ENERGY AND AGRICULTURE
In addition to tourism, energy and agriculture are considered two distinct pillars of the economy. Only 20% of Montenegro’s hydropower potential is utilized. Montenegro plans to become a net energy exporter, and the construction of an underwater cable to Italy, which will be completed by 2018, will help meet its goal.
Regarding agriculture and MIDAS –Montenegro Institutional Development and Agriculture Strengthening Project- in September 2016, the World Bank approved an additional financing loan in the amount of €3.0 million to further strengthen rural areas and increase the country’s preparedness for EU accession requirements. This additional financing will allow for an expansion of the institutional capacity building achieved to date in order to manage public funds dedicated to agricultural support.
FOREIGN INVESTORS
The government recognizes the need to remove impediments in order to remain competitive and open the economy to foreign investors. The biggest foreign investors in Montenegro are Russia, Italy, Cyprus, Denmark, Hungary and Serbia. Net foreign direct investment in 2016 reached $755 million and investment per capita is one of the highest in Europe.
TRANSPORTATION SYSTEM
Montenegro is currently planning major overhauls of its road and rail networks, and possible expansions of its air transportation system. In 2014, the Government of Montenegro selected two Chinese companies to construct a 41 km-long section of the country’s highway system. Construction will cost around $1.1 billion.