OVERVIEW of Small and Medium-Sized Enterprises in Montenegro

Foreign legal and natural persons have the right to establish a company in Montenegro under the same conditions as nationals. The most common forms of companies are:

1. a) limited liability company (LLC);
2. b) joint stock company (JSC).

All regulations regarding the establishment, operation and taxation system are compliant with European standards with benefits for foreign investors. The deadline for registration with the Commercial Court is a maximum of 4 days, while other duties (statistics – company registration number, entry into the tax records, opening a current account, registration in customs records) are completed within a maximum of 3 days.

The process of establishing a limited liability company (LLC) is defined by the Law on Business Organizations (http://www.mipa.co.me/en/legislation/) When registering an LLC, it is necessary to download and submit the following to the Central Registry of Business Entities (http://www.crps.me/):

• Step 1. Develop Articles of Incorporation of the company, download an example of articles of incorporation for a single-member company (if the company is founded by one founder);
• Step 1.1. Download an example of Articles of Incorporation for a multi-member company (if the company is established by several founders);
• Step 2. Draw up a Decision on the establishment of the company (if the company is established by one founder), download an example of the Decision on the Establishment;
• Step 2.1. Develop an incorporation agreement (if the company is established by several founders), download an example of the incorporation agreement;
• Step 3. Pay 00 euro into the account of the Tax Administration, account number: 832-3161-26, payment purpose: registration of LLC. Payment slip example on the website of CRBE;
• Step 4. Pay 00 euro into the account of the Official Gazette of MNE, account number: 520-941100-57, payment purpose: registration of LLC. Payment slip example on the website of CRBE;
• Step 5. Certify the decision/agreement in 2 copies at the court, or by a notary;
• Step 6. Extract from the Central Depository Agency. When taking over the extract, it is needed to submit a copy of the identity card of the founder or a certified copy of the passport if the founder is a foreigner and a payment slip in the amount of €5.08 paid to the bank account of CDA: 510-8092-14, payment purpose: extract fee. Payment slip example on the website of CRBE;
• Step 7. A copy of the identity card (if the founder is a Montenegrin national) or a certified copy of passport (if the founder is a foreign national). Certify at the court or by a notary;
• Step 8. Fill in the application of the company to start registration, download the registration form – PS 01; Tariff number – if the company wants to import and export products, when filling in the PS-01 form, it is necessary to mark the column numbered 15.4. Customs Register on the back page, in order for the company to be registered at the Customs Administration, on the occasion of which a tariff number is received;
• Step 9.0. If the company wants to apply for registration of taxpayers for value added tax (VAT), the PR VAT – 1 form will be filled in and submitted together with other documents required for setting up a businesses;
• Step 9.1. If the company wants to apply for registration into the register of excise duty payers, the AKC – P form will be filled in and submitted together with other documents required for setting up a businesses;
• Step 10: Submit the collected and certified documents (Articles of Incorporation, certified decisions/agreements in 2 copies, CDA’s decision, copy of the ID or certified passport in 2 copies, payment slips and the application for registration, form pr pdv-1/akc-p) to the Central Registry of Tax Administration, Marka Miljanova 54, 81000 Podgorica, Tel: +382 (0) 20 230 858, e-mail: crps@t-com.me, working hours 08:30 – 12:00;
• When submitting documents, a certificate will be issued including the number of the decision, to be presented together with an identification document upon the collecting the certificate of registration, seven days from the date of filing the application.

After obtaining the company registration certificate, it is necessary to do the following:

• make a seal;
• open a bank account;
• register workers at the Tax Administration.

The incorporation agreement states the founding stake (which may be in cash, goods and rights), as well as the percentage ratio of the founders in the management and distribution of profits. The founding stake for the establishment of an LLC is at least €1.00.

The process of establishing a joint-stock company (JSC) is defined in the Law on Business Organisations (http://www.mipa.co.me/en/legislation/). When registering a joint-stock company, it is necessary to download and submit the following to the Central Registry of Business Entities (http://www.crps.me/):

• Step 1. Develop Articles of Incorporation of the company, download articles of incorporation for a joint-stock company;
• Step 2. Develop a founding act of the joint stock company and certify it at the court, or by a notary. Download an example on the incorporation agreement of the joint-stock company;
• Step 3. Develop a decision on the appointment of the Board of Directors, auditors, secretary and executive director;
• Step 4. Take out a decision of the Securities Commission (minimum founding stake is €25,000.00);
• Step 5. Pay to the account of the Tax Administration 50.00 euro, bank account: 832-3161-26;
• Step 6. Pay to the account of the Official Gazette of MNE 12.00 euro, bank account: 520-941100-57;
• Step 7. Fill in the registration form PS01, download an example of the PS01 form;
• Step 8. Submit the collected and certified documents (Articles of Incorporation, certified decisions/agreements in 2 copies, certified copies of the ID or passport, application for registration in 2 copies, decision of the Securities Commission, founding act, payment slips) to the Central Registry of the Commercial Court, Marka Miljanova 54, 81000 Podgorica, Tel: +382 (0) 20 230 858, e-mail: crps@t-com.me, working hours 08:30 – 12:00;
• When submitting documents, a certificate will be issued including the number of the decision, to be presented upon the collecting the certificate of registration, seven days from the date of filing the application.

After obtaining the company registration certificate, it is necessary to do the following:

1. make a seal;
2. open a bank account;
3. register workers at the Tax Administration.

Note:

• If the company wants to apply for registration as a payer of value added tax (VAT), the PR PDV-1 form will be filled in, and then submitted together with other documents required for registration;
• If the company wants to apply for entry into the register of excise duty payers, the AKC-P form will be filled in, and then submitted together with other documents required for registration.

The founding stake for the establishment of a JSC is at least €25,000.00 and these funds are deposited by the founders with a commercial bank until the establishment of the company. After establishment of the company the funds are used for the company’s operations.

A limited liability company can be transformed into a joint-stock company.

To enhance utilization of major resources and bring in new investments, the tax reform policy introduced fiscal incentives for the investments in the following sectors: high-end tourism – hotels with 5 or more stars; food production, except primary agricultural production, and capital investments in the energy sector.

The Law on VAT stipulates zero VAT rate on the delivery of products and services for the construction and furnishing of any hospitality establishment with 5 or more stars, construction of energy-generation facilities with more than 10 MW installed capacity or of food production plants categorized within sector C group 10 under the Law on Business Activity Classification (Official Gazette of MNE 18/11), if the investment exceeds €500,000.

With the aim to eliminate business barriers and incentivize high-end tourism, the Law Amending the Law on Real Estate Tax allows local governments to set a higher tax rate of 2%-5.5% of the market value of the real estate for the hospitality establishments with up to 3 stars situated at priority tourism sites, depending on the category of the establishment; local governments are also allowed to lower the tax rate for the hospitality establishments that operate throughout the year by up to 30% for the  4-star ones and up to 70% for those with more than 4 stars.

Tax system

The tax system in Montenegro includes:

• Corporate Income Tax;
• Personal Income Tax;
• Value Added Tax (VAT);
• Real Estate Transfer Tax;
• Social security contributions;
• Excise duties;
• Fees;
• Customs duties.

The tax system for foreign investors is the same as for local business entities.

Corporate income tax amounts to 9%. The tax rate on personal income is 9% i.e. 11% on gross wages higher than € 720. Upon payment of corporate income tax, business entities operating in Montenegro have the possibility to transfer funds to their accounts abroad at the end of the year.

Two positive VAT rates are applied, namely the standard rate of 19% and the reduced rate of 7% (for basic foodstuffs, such as milk, bread, lard, cooking oil and sugar; medicines and some medical devices; books, textbooks and teaching aids; potable water; feed; fertilizers and breeding livestock; plant protection products and propagation material; some services, such as: accommodation; food and beverage services in the hotels with at least 4 stars in the northern region and at least 5 stars in the central or coastal regions (becomes effective as of 1 Jan 2018);

public passenger transport; public hygiene; funeral services; copyright and services from the field of education, literature or art; use of sports facilities for non-profit causes;  copyright in science or related to artefacts, collections and antiquities, and some of the services which involve charging of tickets for cultural or sports events).

The zero rate applies to export transactions and delivery of medicines and medical devices that are funded by the National Health Insurance Fund.

Real estate transfer tax rate is proportional and amounts to 3% of the tax base.

Foreign companies in Montenegro are guaranteed equal legal treatment as local ones. Foreign investor can operate in Montenegro either as a legal entity or as a natural person. The term “foreign investor” applies to a company that has been set up in Montenegro by a foreigner, or foreign legal entity, whose share of investment capital is higher than 25% of total capital invested.

There is no limit on the amount of capital invested in Montenegro. Foreign investors are encouraged to invest freely within any industry and to transfer all assets, including profits and dividends. Foreign investors can acquire rights to real estate, such as commercial property, office space, residential space or land for construction. All major insurance companies around the globe insure investment projects in Montenegro.

The rate of corporate income tax is 9% and it is one of the lowest in Europe, while the personal income tax rate is 9% and 11% (applicable on gross monthly wages above €751). Value Added Tax (VAT) standard rate is 21%, while the reduced rate is 7%.

As at 1 January 2018, Montenegro has 44 effective double taxation conventions on income and capital.

In economically underdeveloped municipalities in Montenegro, whose development index is below 75, the Law on Corporate Income Tax provides that a newly established legal entity does not pay corporate income tax for the first eight years of operation. Also, the Law on Personal Income Tax stipulates that the tax calculated on the taxpayer’s personal income for the first eight years of operation is reduced by 100%.

Tax exemption does not apply to taxpayers operating in the sector of primary production of agricultural products, transport or shipyards, fisheries and steel. These laws defined the tax relief for investors, in the form of exemption from taxes if their total amount does not exceed the amount of €200,000 for the first eight years of operation.

Where the amount of tax liability (output tax) in the VAT period is less than the amount of input VAT which may be deducted by the taxpayer in the same VAT period, the difference is recognized as a tax credit for the following VAT period, or refunded upon request within 60 days from the date of filing the VAT return.

The VAT difference is refunded to taxpayers who mainly export goods and to taxpayers that indicate a surplus of input VAT in more than three successive VAT returns, within 30 days from the date of filing the VAT return. If the taxpayer’s deadline for the payment of other taxes has expired, the difference by virtue of VAT shall be reduced by the amount of the tax debt.