Pursuant to the Law on Companies, the business in Montenegro can be performed either through the branch (in Montenegrin: dio stranog društva) or the company.
Branch. Branch does not have the status of a legal entity and represents an integral part of its founder. Due to this fact:
The branch must have at least one authorized representative with permanent residence in Montenegro, who is authorized to represent the branch in relations with third parties, including the state authorities.
Company. The company is established in one of the 4 legal forms: general partnership (in Montenegrin: ortačko društvo), limited partnership (in Montenegrin: komanditno društvo), limited liability company (“LLC”, in Montenegrin: društvo sa ograničenom odgovornošću) and joint stock company (in Montenegrin: akcionarsko društvo). General and limited partnerships are very rare in Montenegrin practice due to the unlimited responsibility of its members for company’s duties and obligations. On the other hand, incorporation procedure for joint stock companies is rather complex and time-consuming, which makes this organisational form rarely used in practice as well. For that reason, below is an overview of LLC’s characteristics, since this is the most flexible and commonly used vehicle for conducting business in Montenegro.
Incorporation requirements (registration, capital and management requirements)
Registration. A company is deemed incorporated and legally permitted to commence its business upon registration with the Central Registry of Companies (“CRC”). Documents required in the incorporation procedure:
All documents prepared in a foreign language must be translated by a certified translator in Montenegro before being submitted to the relevant authorities.
If all the required documentation is appropriately submitted, the CRC is obliged to register LLC within 4 days from the moment of the submission of the documentation. In most cases, the CRC complies with the prescribed deadline.
Capital and management requirements. LLC has a minimum of one and a maximum of 30 shareholders, whose contributions may be in money, or "in kind" such as equipment, goods, know-how etc. There is a minimum share capital requirement of symbolic EUR 1.00 (one Euro). The only mandatory body of an LLC is the executive director. Shareholders’ meeting and BoD are not mandatory bodies, but are frequent in the Montenegrin business practice.
Permitted activities. A company may engage only in those activities for which it is registered. Relevant regulations set forth an exhaustive list of business activities and the Articles of Association should specify its predominant activity and all of the other activities that the company will perform. The type and number of activities can subsequently be extended by additional registration. There are certain activities (e.g. financial services and insurance services), that may only be performed by an entity incorporated in a certain legal form (e.g. joint-stock company), and certain activities (e.g. trade in poisonous goods, medicines or weapons) that may be subject to licensing requirements.
The terms and conditions for the award of subsidies for new investments are prescribed by the Law on Foreign Investments and Decree on Fostering Direct Investments:
The only type of subsidies available for direct investments is direct cash subsidies. To be eligible for the subsidies interested investors have to satisfy multiple types of conditions, inter alia:
The amount of subsidies to be awarded to the eligible investor is assessed on the basis of criteria prescribed by the Decree. The amount of the subsidies may range from EUR 3.000 to EUR 10,000 per newly employed person. The amount of subsidies that may be awarded to a large business entity cannot exceed 50% of the total value of investment project, 60% for medium business entities and 70% for small business entities. Only for capital investments subsidies amounting to up to 17% of the total value of the investment project may be awarded without conducting mandatory project scoring procedure. In the light of the subject law, capital investment means investments of at least 10 million euros that provide job creation for at least 50 new employees within the time specified in the agreement on the use of financial subsidies signed with the Government of Montenegro.
The criteria for the award of subsidies are the following:
The law particularly privileges investors that have:
When applying for the subsidies the Investor is obliged to submit bank guarantee for the application in favour of the Government in the amount of EUR 5,000, payable at first call and issued by a commercial bank, with a validity of 180 days from the date of opening of applications.
The payment of subsidies is executed at the disbursement request of the investor in instalments equal to one third of the overall amount awarded, as follows:
Together with each disbursement request the investor is required to submit an unconditional bank performance guarantee in favour of the Government, payable at first call, without protest, and issued by a commercial bank registered in Montenegro. Bank performance guarantee submitted for the first and second instalments is equal to the amount to be granted by the first and second instalments, with a validity of three years from the date of issue. For disbursement of the last instalment, the investor is required to submit the bank performance guarantee for the overall amount awarded, with a validity of three years and six months from the date of issue. Together with the bank performance guarantee issued for the first instalment, the investor is required to deliver blank bills of exchange with the bills of exchange authorization, for the purpose of payment of statutory default interest in the case of default and activation of the bank performance guarantee under the agreement.
The investor is obliged to report on the implementation of the investment project. In course of the investment project implementation, the investor submits yearly independent auditor’s reports that contain information on investors operations, value of investment; and number of employees.
After the completion of the investment project, the investor is required to provide the Government with independent auditor’s report on the completion of the project and on the fulfilment of investment and employment commitments, in accordance with the Direct Investment Subsidy Agreement and the Decree.
Relevant authority for capital markets operations in Montenegro is the Capital Market Commission (the “Commission”). The operations of the Commission are regulated under the Law on Capital Market (“Official Gazette of Montenegro” no. 01/18, “Capital Market Law”). The Commission is an independent authority responsible to the Parliament of Montenegro. The Commission provides for the orderly and lawfully functioning of the capital market, enhancing investor protection and ensuring integrity, efficiency and transparency of the market. In addition, the Commission maintain supervision over the participants in capital market in Montenegro (e.g. market operators, investment companies, authorized banks, etc.).
Insider trading rules
Insider trading rules under the Capital Market Law include the following information:
The law bans legal and natural persons to:
The curiosity is that the Capital Market Law does not void transactions that were entered into by using insider information.
The Capital Market Law provides for misdemeanor liability for unlawful using of insider information with fine up to EUR 40,000 for legal person and fine up to EUR 4,000 for responsible person in such legal entity.
For use, disclosure and recommendation of inside information, a person might be sentenced for a criminal act with a monetary fine or imprisonment of up to ten years.
Market manipulation activities under the Capital Market Law are considered to be:
Market manipulation also include:
For market manipulation in any form a person might be sentenced for a criminal act with a imprisonment of up to ten years and monetary fine.
Foreign investment notification requirements
Under the Law on Current and Capital Cross Border Transactions (“Official Gazette of Republic of Montenegro” no. 45/2005 and Official Gazette of Montenegro nos. 62/2008 and 70/2017, “FX Law”) and Decision on Keeping the Separate Records on Current and Capital Cross Border Transactions and Submitting of such Records (“Official Gazette of Montenegro”, no. 8/2017, “Decision”), obligors must notify Central bank of Montenegro on direct investments abroad. Obligors are all legal entities where non-resident owns more than 10% of voting rights.
Obligors must notify Central bank quarterly at the latest on 25th day after the end of the quarter and annually at the latest on 15th April for previous year.
The Montenegrin Law on Contracts and Torts envisages institute of agency through the commercial agency and related activities.
Participants in the commercial agency are agent and principal, and they are obliged to conclude written agreement regulating their mutual rights and obligations. An agent is obliged to permanently take care that third parties enter into agreements with his principal, as well as to conclude agreements with third parties on behalf of a principal, given that prior authorization has been obtained. The agent has the right to receive compensation for services performed for the principal, in amount agreed with the parties.
Principal is entitled to engage more than one agent for the same type of business on the same territory. On the other side, agent is not allowed to represent more than one principal on the same territory for the same type of business, without a prior consent of its principal.
Agent has to act with the attention of a good businessman in performance of its activities. If not agreed otherwise, agent will not be responsible to the principal for execution of the obligations arising from the agreements concluded as the result of agent’s activities. In order to secure its receivables towards the principal, the agent has right of pledge on the collected payments on behalf of principal or pledge on principal’s things in the agent’s possession.
Termination of the agreement on commercial agency is subject to the following specifics:
The Law on Obligations provides two more types of agency: commission business and intermediation. However, these two types do not match to the common law interpretation of the term agency. Commission business refers to the representation of a client by a commission agent in its own name and for the client’s account. On the other side, intermediary refers to the representation of principal by an intermediary in order to find and make connections between its principal and third party with the aim of negotiation on the conclusion of a particular agreement between these parties.
It is important to note that agreements on commercial agency must be always reviewed from the perspective of the local competition law.
Distribution agreements. The Montenegrin law does not regulate distribution agreements, but the general principles of contract law would be applicable on these agreements. There are no specific requirements regarding the mandatory form of a distribution agreement, as well as regarding the manner of regulation of contractual relations between the parties.
Distribution agreements have certain common characteristics with agency agreements, however distribution agreements differ from the agency agreements due to fact that distributor acts in its own name and on its own account.
There are no specific rules regarding termination of the distribution agreements, but the general rules of the contract law apply.
Distribution agreements should be always subject to the review from the perspective of the local competition law, since certain provisions in distribution agreements may amount to restrictive agreements governed under the local competition law.
In terms of expectations and protection of foreign investors, there are more than 20 Bilateral Investment Treaties that Montenegro signed (“BITs”). BITs give additional protection to the investors and they are signed with the following countries: Austria, Azerbaijan, BLEU (Belgium-Luxembourg Economic Union, signed, not in force) Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, India (signed, not in force), Israel, Lithuania, The former Yugoslav Republic of Macedonia, Malta, Moldova, Netherlands, Nigeria, Poland, Qatar, Romania, Russian Federation, Serbia, Slovakia, Spain, Switzerland, Turkey (signed, not in force) and United Arab Emirates. Additionally, they all prescribe several levels of possible solutions for potential dispute resolution. The first level implies an attempt for amicable solution (usually through negotiations, if necessary by seeking expert advice, or by conciliation between the Contracting Parties through diplomatic channels).
In the absence of amicable settlement, the dispute shall be submitted, at the option of the investor, either to the competent jurisdiction of the contracting party where the investment was made, or to the arbitration as an alternative dispute resolution forum. Most of the BITs contain an option for the investor to address the following forums:
Dispute resolution options – arbitration vs state court. In terms of resolving the commercial disputes between foreign investors and their contractual partners, the foreign investors may choose to stipulate in their agreements whether their disputes will be resolved by the state courts or arbitration.
Arbitration proceedings in Montenegro today are governed by the Law on Arbitration (Official Gazette No 47/2015), adopted in 2015. The Law is fully compliant with the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration of 1985. Additionally, Montenegro is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (signed and ratified by 150 states) and it has fully implemented the convention with its Law on Arbitration.
Arbitration represents an alternative to resolving disputes before the state courts. Parties can agree to arbitrate a dispute arising out of a domestic or international business transaction, or any private law matters which the parties can freely dispose of, except for disputes that are reserved to the exclusive jurisdiction of the courts.
Given that the state courts where the arbitration is seated have jurisdiction for the proceedings for annulment of the award, the investor should consider what would be the most appropriate seat of arbitration they will choose. Award rendered in Montenegro has the power of final and enforceable court decision and does not need to go through the process of recognition, thus it is directly enforced as any court decision of the state courts.
Commercial court in Montenegro (which would be competent for commercial disputes between commercial entities), usually resolve the case in two or three years as of the initiation of the proceedings.
The choice of law is subject to autonomy of parties’ will. By choosing Montenegrin law as competent, investors may avoid potential unconsciousness of the fact that chosen law may not be applied, due to the fact that there are several situations where choosing the competent law other than Montenegrin can be forbidden (e.g. if the effects of the foreign law are contrary to the fundamentals of the social system established by the Constitution of Montenegro, or if the law of a foreign country which might be applicable was chosen just with the aim of evasion of application of Montenegrin law). If the parties choose the state court as a dispute resolution mechanism, we certainly would recommend the Montenegrin law as applicable, given that the judges are often reluctant to obtain the content of the foreign law and that application of the Montenegrin law by the local judge is a far more efficient option.
Enforcement of the decisions. According to the Law on Enforcement and Security (Official Gazette No 36/2011, 28/2014, 20/2015 and 22/2017), conducting the enforcement proceedings by public bailiffs affected the duration of the proceedings, so the entire enforcement can be performed in short period of time. Court decision rendered by Montenegrin courts is considered as the executive title if (i) it becomes final and (ii) the term for voluntarily fulfilment of the obligation has expired. Such executive title is used as a legal ground for initiation of the enforcement proceeding before the public bailiffs who complete the enforcement.
If the court decisions are rendered by foreign courts, the procedure of recognition of the foreign decision should be previously initiated with the competent court in Montenegro prior to enforcement procedure in order to have the foreign court judgment enforced in Montenegro. Specifically, the foreign decision will be recognized and enforced by the Montenegrin court if the following conditions are fulfilled:
The law which governs public procurement procedures in Montenegro is the Law on Public Procurements (“Official Gazette of Montenegro”, nos. 42/2011, 57/2014, 28/2015 and 42/2017) (“Procurement Law”).
Public procurement / Award Procedure.
The law which governs public procurement procedures in Montenegro is the Law on Public Procurements (“Official Gazette of Montenegro”, nos. 42/2011, 57/2014, 28/2015 and 42/2017) (“Procurement Law”).
The Procurement Law governs all relevant issues relating to the realization of public procurement procedures in Montenegro. It prescribes, amongst other, detailed rules on the types of these procedures, as well as on their course and awarding of a procurement contract to a winning bidder. The Procurement Law also prescribes special rules for conducting public procurement procedures in the fields of water management, energy, transport and postal services, and defence and security.
Relevant authorities for public procurement procedures are the following:
Under applicable legislation in Montenegro ordering parties of public procurement legislation are not only state and municipal bodies, companies conducting public services and other beneficiaries of the Budget.
In addition to these traditional obligors, there is a vast array of legal entities – companies or other forms or legal entities – which are under obligation to conduct any procurement in accordance with the laws regulating public procurement. These are the companies (i) that has a status of a legal entity, (ii) that are established for conducting public services and do not conduct industrial or commercial business, (iii) where the State of Montenegro or local municipality owns more than 50% share capital, or where the Sate of Montenegro or local municipality provides more of 50% of financing from the budget of state, local municipality or other public revenue or where more than 50% of management or supervisory bodies in such legal entities are comprised of persons representing the State in any capacity, and (iv) companies, legal entities and entrepreneurs conducting services in the areas of water management, energy, transport and postal traffic.
Ordering parties are not obliged to conduct procurements under the Procurement Law only in the exceptional cases explicitly governed by the law. Exempted procurements are, among others, concessions and privatization procedures, acquisition or lease of the land, existing buildings or other immovable assets or the rights deriving from them, certain types of legal services. In addition, procurements which are funded entirely by international organizations or international financial institutions are also exempt from reach of the law. These procurements are conducted pursuant to the rules of such international organizations or international financial institutions. Although in these exceptional cases procurements are not to be conducted in accordance with the Procurement Law, general principles envisaged by the law (such as ensuring competition, equal treatment of bidders, etc.) have to be observed.
As regards to language, ordering parties announce tenders in Montenegrin language (and in English when the tenders are internationally published), while the bids must be submitted in language specified in tender documents. Prices must be expressed in euros.
There are several types of public procurement procedures:
Public procurement procedures are applied when the ordering party procures (i) goods and services, whose estimated value amounts or exceeds EUR 15,000; and (ii) works, whose estimated value amounts or exceeds EUR 30,000. Public procurements whose value is below referred values are treated as “low value procurements” and conducted pursuant to the rules thereof. Moreover, the Procurement Law recognizes the category of “urgent procurements”, allowing this type of procedure to be conducted when (i) eliminating and preventing the risk of unforeseen events on which the ordering party could not or cannot have influence, and (ii) removing the consequences of such unforeseen events, endangering the health and life of citizens, if the ordering party is not able to conduct the public procurement procedure and act within the deadlines stipulated by the Procurement Law.
In general, a public procurement procedure is consisted of the following phases:
Bidders have a vast array of possibilities to challenge any decision or procedural act of the ordering party in the procurement procedure. Commission decides in appellate proceedings and their decisions are final. Bidders have the right to initiate administrative proceedings before Administrative court, however, challenging Commission`s decision before the court does not postpone procurement procedure.
The law which governs public procurement procedures in Montenegro is the Law on Privatization of Economy (“Official Gazette of Republic of Montenegro”, nos. 23/1996, 6/1999, 59/2000 and 42/2004) (“Privatization Law”).
As the Privatization Law was adopted as early as 1996 several amendments have been introduced in order to bring it up to date with changing economic climate and changes to constitutional regime of the state owned assets.
The Council drafts annual privatization plan which is adopted and confirmed by the Government. The plan envisages entities which are planned for privatization in a current year. The privatization plan is published on the Council`s website.
Enforcement of the plan is within confines of the Government and the Council. Tendering procedure is done in accordance with bylaws to the Privatization Law regulating various manners of sale of state owned assets such as sale of shares via public auction, or sale of shares via tender. The Council decides on a method of privatization and is competent for approving report of the tender commission, and recommending conclusion of the privatization contract to the authority competent for disposal with specific assets.
The methods of privatization are:
An entity which is a subject of the privatization initiates procedure on a basis of mandatory guidelines of the Council. Governing body of such entity renders decision determining method of privatization, which can be conducted either as an invitation for public tender, public auction or public offer in case of share deal, asset deal and issuance of new shares. Debt to equity swop and joint venture are provided for only exceptionally in case when other methods of privatization of the entity in question failed.
Issuance of shares to employees and replacement of shares for privatization vouchers as methods of privatization are remnants of transitional period of Montenegrin economy (and thus early versions of the Privatization Law). In such transitional period (early 2000s) every adult citizen was given a number of shares in previously publicly owned entities or vouchers which could be replaced for shares in such entities. Even though these two methods remain part of the Privatization Law, their use has significantly faded over time (particularly in case of vouchers), resulting in very low number of privatization since 2006 which have used this method of privatization.
Announcement of the call for privatization is done on the website of the entity in question, Council`s site, and domestic and reputable international newspapers.
After the Council recommends conclusion of privatization contract on a basis of previously conducted procedure, a competent authority for disposal with state assets in accordance with the Law on State Property (Official Gazette of Montenegro, no. 21/2009 – “SP Law”) renders decision approving privatization.
In accordance with the SP Law Government, Parliament and municipalities all have authority to dispose with state owned assets. Parliament is solely authorised to dispose with assets exciding value of EUR 150,000,000.00, while Government and municipalities are competent to dispose with other assets under their imperium, in accordance with SP Law which defines in details which assets are under imperium of municipality and which assets are under imperium of the Government.
Public-private partnerships are regulated by Law on Concessions (Official Gazette of Montenegro no. 8/2009 – “Concessions Law”) and Law on participation of private sector in performing public authority (Official Gazette of Republic Montenegro no. 20/2002 – “PPS Law”). At the time of drafting this information there is no specific PPP legislation in place in Montenegro, even though draft law on PPPs is in the pipeline.
For this reason PPPs are regulated as concessions until entry into force of the sector specific law, which is expected to be adopted first quarter of 2018.
Concessions are awarded on a basis of annual plan which is devised either by the Government or municipalities, depending on their right to dispose with assets in accordance with SP Law. Plans are published on websites of the Government or municipality.
The term of the concession may be 30 years for concession granted by the Government and municipalities or 60 years for concession granted by the Parliament. The term may be extended for a maximum period of one half of the originally awarded concession term.
An awarding authority initiates concession procedure by rendering concession act. Concession act comprises of, among others, information related to geographical location of the concession area, basic parameters for evaluation of the cost-effectiveness of the investment, technical documentation and list of approvals, permits, consents and licenses a prospective concessionaire must obtain prior to commencement of the concession activity, a list of financial and technical requirements a concessionaire must meet in order to be awarded concession rights, maximum or minimum term of the concession etc.
A concession may be awarded on a basis of tendering procedure, which may be conducted as:
In all of the above cases awarding authority forms tender committee which manages concession procedure and ranks the bidders. Bidders have the right to object to a decision of the tender committee, while the Concession Commission decides on objections in appellate proceedings.
An interested party may request initiation of the concession awarding procedure, even if the area of concession is not provided for in the concession plan. In case awarding authority finds request grounded, interested party must deposit funds required for rendering concession act, including rendering of tender documentation and draft concession contract, costs for the work of tender committee and the costs for carrying out a public debate. In case interested party is not awarded concession, deposited funds will be repaid, reduced for expenses for purchase of the concession act.
As regards to language, awarding parties announce concession acts in Montenegrin language (and in English when the tenders are internationally published), while the bids must be submitted in language specified in tender documents. Prices must be expressed in euros.
In accordance with the SP Law Government, Parliament and municipalities all have authority to dispose with state owned assets, i.e. to grant concessions. Parliament is solely authorised to dispose with assets exciding value of EUR 150,000,000.00, while Government and municipalities are competent to dispose with other assets under their imperium, in accordance with SP Law which defines in details which assets are under imperium of municipality and which assets are under imperium of the Government.
As in most of the CEE jurisdictions, consortia and joint ventures are not explicitly regulated, and such terms in Montenegro are used to describe a variety of the agreements between the collaborative parties pursuing particular joint business venture of financial transaction. For this reason, there are no major general restrictions applicable to consortia and joint ventures.
The parties will usually form a separate legal entity (i.e., joint vehicle) in Montenegro in order to pursue the joint business interest. In this case, the mutual rights and obligations of the parties will be regulated in most part by the Shareholders Agreement as this document is not made publicly available and is binding for the parties. The Shareholders Agreement will regulate in particular the management of the joint vehicle, profit distribution, future exit of the parties and associated drag-along and tag-along rights, etc. Also, one of the main reasons for using the joint vehicle structure is that it limits the liability of the parties and is interpreted as a serious commitment to the joint business interest.
The other form used in practice involves purely contractual relationship between the respective parties. Thus, there is no separate legal entity through which the joint venture is or will be conducted and the collaboration of the parties is subject solely to the contract at hand and general contract rules. Notwithstanding, in case consortia are intended for the purpose of participating in the procedure of awarding public contract in accordance with the Law on Concessions, certain additional requirements may be imposed by the competent authority. This relates in particular to the number of the parties, limitation to changes of structure, liability of the parties and merging or dissolving the consortia.
In any case, consortia and joint ventures, if certain conditions are met, could be considered as concentration on the market, and the rules governing the competition protection should be considered when planning the consortia and joint ventures.
The tax system in Montenegro is established so as that each main type of tax is regulated by separate piece of legislation and a number of bylaws issued based on them, including:
These laws primarily deal with substantial issues in their respective tax areas, provided that they also prescribe certain specific procedural rules.
The main characteristic of the Montenegrin tax system are low tax rates. The profit of resident legal entities is subject to corporate income tax at 9%, as well as income of individuals. The rates of social security contributions for employment income are rather high, as they are set in aggregate rate up to the 34.3 %.
The Montenegrin VAT system is modelled after the EU Sixth VAT Directive, and majority of general VAT principles applicable throughout the EU apply also in Montenegro. Montenegrin VAT is regulated by the Law on Value Added Tax (VAT Law), and a number of VAT regulations which prescribe detailed rules for implementation of general rules of the VAT Law. Naturally, given that Montenegro is not a member of the EU certain specific VAT rules applicable within the EU (such as rules related to intercommunity supplies and supplies with non-EU countries) do not apply in Montenegro.
The standard VAT rate is 21%. Certain goods and services (such as the supply of groceries, medicines, newspapers, utility services, etc.) are taxed at a reduced VAT rate of 7%.
Foreign entities are entitled for the refund of the VAT paid in Montenegro. However, the refund is limited to legal entities from very few countries under the reciprocity principle.
Personal Income Tax
Tax liabilities of natural persons in Montenegro are governed by the Law on Personal Income Tax Law (“PIT Law”). In addition, in cases in which Montenegro has concluded a double tax treaty with the foreign national's country of residence, rules of the double tax treaty will also be relevant for establishing the scope of his/hers tax liabilities in Montenegro.
Under the Montenegrin PIT Law, natural persons in Montenegro are required to pay personal income tax on salaries (including income from agreements which are deemed as income from employment under the PIT Law), business income, income from rent of immoveable property, royalties, income from capital and capital gains.
Personal income tax is levied at the flat 9% tax rate, irrespectively of the type and the amount of income.
Generally, personal income tax in Montenegro is payable on annual basis, so that Montenegrin taxpayers are required to file the annual income tax return at the end of the year in which they should declare their income from various sources and asses the tax due on such income.
Owners of the real property located in Montenegro are required to pay property tax to the municipality in which territory the real property is located. Applicable tax rates vary from 0.1% to 5.5% depending on the municipality where the property is located, as well as on the type of property. The tax base for corporate taxpayers is the market value of the real property. The amount of the property tax is established by the resolution of the local tax authority and is payable in two annual instalments.
Tax treaties network
International treaties are important part of Montenegrin legal system, including in the area of tax and social security contributions. Ratified international treaties (bilateral and multilateral) have supremacy over national legislation. Montenegro has extensive network of more than 35 treaties on avoidance of double taxation treaties (DTT), including DTTs with almost all EU countries, Russia, all regional countries and number of Asian countries. DTTs applicable in Montenegro are based on OECD Model Convention. Montenegro also ratified social security conventions with some countries, governing the rights and obligations in relation to social security of citizens of these countries in Montenegro and vice versa. Finally, important source of tax law in Montenegro are also international treaties governing other issues – primarily status of international organizations and financial institutions or development and financing of important infrastructural projects, which provide for specific tax rules in the areas covered by treaties. These rules are primarily related to various tax exemptions.
The only tax incentive available to Montenegrin companies is the tax exemption for newly established companies which is about to perform activities in economically underdeveloped municipalities. The calculated income tax for the first eight years of performance of such company is reduced in the amount of 100%, subject that the maximum amount of tax exemption for the period of eight years is limited to EUR 200,000.
In addition, NGOs (non-governmental organizations) registered for business activity are permitted to decrease the corporate tax base by EUR 4,000, with the condition that profit is used for realization of the main goals of an NGO.
In line with CIT law, a discount of 6%, which is applied on the amount of the calculated CIT liability, is available to taxpayers that settle their CIT liability by the prescribed deadline (i.e. by 31 March of the current year for the tax liability of the previous year).
Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realized in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro.
Taxation procedure and disputes
General rules governing the tax procedure, including the assessment and collection of tax, rights and obligations in relation to the tax system are governed by Law on Tax Procedure and Tax Administration. Since the tax procedures are essentially administrative procedures, they are also governed by the Law on General Administrative Procedure, in parts which are not covered by the Law on Tax Procedure, Tax Administration and separate tax laws.
The tax disputes are resolved in front of the Ministry of Finance as a second instance authority. The final instance for tax cases is the Administrative Court that resolves the cases in the administrative dispute process.
The tax returns for main taxes are filed electronically what reduces the costs and make the administration of the tax easier.
In general, foreign citizens are required to obtain visa in the nearest consular office or embassy of Montenegro in order to be able to enter Montenegro, unless specific non visa regime is applied to their country of origin. For example, non-visa regime applies to citizens of EU countries, Serbia etc. who may enter Montenegro freely without visa, with a valid passport and reside in it up to 90 days within 180 days period.
In case the foreigner intends to work in Montenegro, he/she should obtain the Residence and Work Permit or the Confirmation of Work Registration, depending on the planned period of works.
Residence and Work Permit (the “Permit”). In the case when foreigner intends to reside in Montenegro longer than 90 days due to work, he/she should obtain Permit. The Permit is issued for the purpose of local employment, seasonal works or secondment to Montenegro (secondment can be in relation to services provided in Montenegro or in relation to inter-company move of the seconded foreigner).
The Permit is one overall document issued by the Ministry of Internal Affairs, upon submission of certain documents, which, amongst other, prove that foreigner has sufficient assets for life, accommodation, health insurance and justified reason for residing in Montenegro (e.g. offer for employment/seasonal works, agreement on secondment etc.). The Ministry for Internal Affairs is supplemented with discretion right and may require any additional documents it deems necessary.
Once documents are submitted, the police will issue the Permit within approximately 20 days from the date of submitting the documents and the foreigner is obliged to take over the issued Permit within 5 days afterwards. If the foreigner fails to take the Permit in the mentioned deadline it will be considered that he/she has given up on the submitted application.
The Permit can be issued for no longer than one year, after which it can be prolonged for additional two years (the Permit for seasonal works is issued for up to 6 months within one year).
Upon obtaining the Permit the employer is required to conclude employment contract. Afterwards, the local employer is obliged to register the foreigner as its employee with the Montenegrin Tax Authority for mandatory social security insurance within 8 days from the conclusion of the employment agreement.
Note that in Montenegro there is a changeable annual quota for the Permits that may be issued within one calendar year. Once the quota is reached, no additional Permits can be issued – except for director registered in Montenegro or for managerial positions.
Confirmation of Work Registration (the “Confirmation”). In the case of foreigners who will work in Montenegro for less than 90 days within one calendar year should obtain the Confirmation instead of the Permit, if they will perform certain specified activities within this period of time including, amongst other: (i) founders, directors or auditors of the company; (ii) foreign employees who come to Montenegrin affiliate of their employer in order to provide or participate in additional training; or (iii) foreigners who perform delivery, installation or service of equipment or machinery, provided that their work does not exceed 30 days continuously or 3 months with interruptions.
The Confirmation is also issued by Montenegrin Ministry for Internal affairs. The documents necessary for Confirmation include, amongst other, evidence that support foreigner’s intention to work in Montenegro (i.e. agreement with local company or other proof of factual performing works in Montenegro)
The Ministry has the obligation to issue a Confirmation within seven days upon the application. Based on the issued Confirmation, foreigners can stay and work in Montenegro up to 90 days within a period of one year. In addition, foreigners can perform the works for the same employer across the entire territory of Montenegro.
Contract form requirements
Different formal requirements apply for employment contract and for out-of-employment contracts for work engagement, as follows:
Employment contract. Employer is obliged to enter into an employment contract with the employee before the commencement of work. Employment contract must be concluded in writing and should contain all the compulsory elements required by the Labor Law, such as: qualification of the employee, title and description of job, place of work, type of employment (definite/indefinite term), working hours (full time/part time), commencement date, monetary amount of basic salary and other legal payments (performance part of the salary, allowances, increased salary etc.).
Employment may be established for indefinite or fixed term. Fixed term employment (up to 24 months, with or without interruptions) may be established in case duration of employment is predetermined by objective reasons justified by deadline, performance of specific work, or occurrence of the event, during these needs. Exceptionally, fixed term employment may be established for a longer period in the case of: replacement of a temporarily absent employee; performance of seasonal jobs; and work on a project with predetermined duration.
In the case of foreigners who are employees, they need to obtain residence and work permit before establishing employment in Montenegro.
Contract must be in line with the Labour Law, General Collective Bargaining Agreement for Montenegro, applicable to all employers (the “CBA”) and any other lower level applicable collective bargaining agreement, if any (i.e. within the specific industry or within the employer).
Engagement of Director. The director or other legal representative of the company can be engaged only on the basis of employment agreement. Such agreement may be concluded either for indefinite term or for definite term – for the duration of his/her term of office. Director engaged through employment agreement is entitled to the same basic employment rights as all other employees – including the salary and all other mandatory payments, vacations and leaves, limited reasons for termination of employment etc.
Other types of work engagement. There is also option to engage staff based on out-of-employment contracts, which include:
These contracts must contain data on: works in question, terms for performance of works as well as data on compensation agreed.
Minimum employment terms and conditions
The Labour Law establishes a general framework for the legal regime applicable to labour relationships and a number of minimal employment rights and entitlements presented below.
Salary and other Compensations. It is not possible to determine a fixed amount of the salary, as the Labour Law provides for rather complex mandatory structure of the salary and numerous mandatory payments:
Additional mandatory payments include:
Working hours. Full-time working hours are set at 40 hours per week. Employees working more than 6 hours per day are entitled to paid daily break during the working hours in duration of minimum 30 minutes, which is calculated towards the working hours. Employees are also entitled to certain minimum daily (12 hours between two working days) and weekly resting periods (24 hours between two working week), without interruption.
The employer may request the employee to work overtime in very rare cases, when organization of work and existing work schedule cannot enable performance of unexpectedly increased volume of work (or in the cases of natural disasters and emergency situations). Overtime work cannot last longer than 10 hours per week. Prior to introducing the overtime work, the employer must issue a written decision setting out the reasons for overtime work and its duration (except in the cases of disasters and emergency). Each overtime work has to be paid at increased rate of 40% on the base salary. No exceptions are envisaged for managerial employment contracts.
Night work is work between 10 p.m. and 6 a.m. Night work is subject to certain statutory restrictions e.g. employee can work at night in the event that employee’s health could be harmed due to work at night. Night work has to be paid at increased rate of additional 40% on the basic salary.
Vacations and Leaves. Annual vacation: The employee is entitled to annual vacation of minimum 20 working days per calendar year, whereas employees younger than 18 years are entitled to 24 working days of annual vacation. The employee is entitled to proportional portion of annual leave (1/12 of annual vacation per month of work) in the calendar year when he/she commences employment or when he/she terminates employment.
The length of annual vacation is increased based on criteria determined by the employment contract or applicable collective bargaining agreements (e.g. having in mind years of service, health condition, status of single parent etc.). Annual vacation can be used in two parts – 10 consecutive days during the relevant calendar year and the remaining part up to the June 30th of the following year, at the latest. Employee is entitled to compensation for unused annual leave if, at the time of employment termination, he/she has unused annual leave due to employer’s fault.
Paid leave: Employee has the right to a paid leave for personal needs, for a maximum of 7 working days in total in a calendar year in certain cases prescribed in the applicable collective bargaining agreements (e.g. marriage, child birth (for the spouse), serious illness of an immediate family member, natural disasters, house move etc.). The employee is also entitled for an additional 7 working days of paid leave on top of the other leaves, in case of death of an immediate family member.
The Employee also has the right on a leave during non-working national holidays - there is a total of 4 non-working national holidays. In addition to the national holidays, employees are entitled not to work on certain personal religious holidays (only the employees members of the respective religion): e.g. Roman-Catholics and other Christians - on Christmas day and Easter holidays, members of Jewish community – on Pasha and Yom Kippur etc.
Maternity leave: Employees are also entitled to maternity leave and child care leave. Maternity and child care leave last for 365 days as of the childbirth. The maternity leave commences 28- 45 days prior to expected delivery date, based on the medical findings. Funds for these leaves are provided from the budget of Montenegro and employer is reimbursed for salary compensations it pays to employee during this period.
Sick leave - An employee is entitled to a sick leave every time there are appropriate medical grounds. Sick leave cannot be limited in time. During the sick leave, employee is entitled to compensation of the salary in amount of 70% of the salary in the case of work unrelated sickness or injury, and 100% of the salary in the case of work related sickness or injury (and in some additional exceptional cases – tissue donation, pregnancy etc.). Compensation is covered by the employer for the first 60 days of sick leave and thereafter by State Health Fund, save in case of pregnancy when it is covered by the State Health Fund as of the first day.
The employer and the employee may terminate employment relations in the manner and in cases prescribed by the Labour Law and the CBA. In general, employment can be terminated in the following cases: upon expiry of the agreed term; when the employee fulfils pension retirement conditions; by mutual consent of the employer and the employee; by dismissal (only in cases specified in the Law); upon death of the employee; at the request of parents or guardians of an under-aged employee and in other cases prescribed by the Labour Law (loss of working ability, official prohibition of further work activities, prison sentence, termination of employer's business activities). We present below in more details some of the termination reasons used more frequently in the practice:
Agreement on termination of employment: Procedure for termination of employment by way of mutual agreement is rather straightforward – once the parties have negotiated the terms of termination, the documents can be signed and the employment can be immediately terminated (unless the agreement provides for some notice period). The Agreement on Termination has to be prepared in a special written form required by the Law. In general, the agreement on termination does not entail the obligation of the employer to make the severance payment (unless otherwise provided by the applicable collective bargaining agreement or employment contract). However, depending on the exact circumstances, it is possible that employer would need to motivate the employee to accept the agreement by offering incentive severance payment, subject to free negotiations.
Retirement: The employer can unilaterally terminate the employment once the employee reaches 67years of age and at least 15 years of pensionable service. This is the only situation when the employee is obliged to retire. The employee may be also eligible for pension even earlier in line with pension regulations (e.g. early retirement). However, in these other cases for retirement, the employee is not obliged to retire and may freely decide whether he/she will retire or not once the conditions are met.
Unilateral dismissal: Employer may terminate employment agreement only if there is a justified reason related to employee’s work abilities or his/her behavior, as follows:
The CBA contains a list of few basic violations of work obligation but employment contract can provide for more comprehensive list of disciplinary misbehaviors. Also, the CBA contains detailed rules on the disciplinary procedure that has to be conducted in case of breach of work duty or disciplinary misconduct.
In order to effect a valid termination of the employment, the employer must observe a number of procedural issues that differently apply depending on the circumstances of the particular case: disciplinary process, prior written warning, period for the employee to reply, special delivery requirements, specific form of each document in termination procedure, redundancy related procedural issues, etc. As the Labour Law is still protective with respect to employees, it is of utmost importance, in order to ensure that no valid employees' claims with regard to dismissal procedure emerge, to strictly abide by the procedural requirements in each particular case.
For example, the main steps of the process of employment termination in the case of breach of work obligation includes conducting a disciplinary procedure before the local employer. This is rather complex procedure prescribed by the CBA, which resembles mini court process – the parties are called to testify, the evidences are being reviewed, minutes of the meetings are kept, lawyers may be present etc. If employee’s guilt is determined by the end of this formal process, his employment may be terminated. In this case, employment terminates on the date when the Resolution on Employment Termination is delivered to the employee, unless internal employment regulations of the specific employer provide for a notice period.
General time-bar for unilateral employment termination notice is 3 months as of information on the grounds for dismissal. In case of a criminal act as a ground for dismissal, termination notice may be executed at the latest until the expiry of the statute of limitation for this criminal act.
Notice period in all cases of employment termination is 30 days, except in the case of breach of work obligation or misconduct when no compulsory notice period is prescribed.
Severance pay is mandatory in the case of redundancy and also in case of dismissal due to refusal to execute annex which relates to salary change. The parameters for calculation of severance are very complex and depend on years of service of employee, in line with the Labour Law, applicable collective bargaining agreements and employment contracts.
Termination by the employee: The employee can terminate his/her employment in any time by a written statement. The employee is not obliged to justify the reasons for such termination, although he/she is free to do so. Employee has to obey the minimum 15 days’ notice period.
Local regulations enable certain restrictive covenants in the employment contract, the most important being non-competition clause.
Under the Labour Law, employment contract can provide for non-competition clause i.e. can provide for activities related to employer's business that the employee cannot perform on his/her behalf or behalf of someone else, without the employer’s consent during the term of employment. This prohibition can be provided only if the employment shall enable the employee to acquire (i) new, highly important technological knowledge, or (ii) wide circle of business partners, or (iii) exceptionally proprietary and confidential information and secrets of the employer.
Prohibition of competition can be valid also for up to two years upon termination of the employment. In this case, the employer has to undertake by the employment contract an obligation to pay to the employee certain agreed amount. The law does not provide anything regarding the amount which has to be paid, but based on some general principles of the law it has to be a just award. Regarding the choice between lump-sum payment and monthly payments, monthly payments are more practical, i.e. if the employee breaches the prohibition employer may cease with any further payments and minimize his damages.
Apart from the non-competition clause, local employment contracts often contain confidentiality clause during employment and some time following employment termination (usually unlimited), which prohibits disclosure of company’s business secret.
As for the non-solicitation clause, Montenegrin regulations do not regulate this type clause. It is sometimes seen in practice, especially in managerial agreements, but its application is still somewhat vague. Namely, due to the fact that it limits the right to work (of the individuals that cannot be recruited due to such clause) it is possible that court might find such clause illegal and contrary to the Constitution and therefore not applicable in practice.
Competent courts and authorities
In Montenegro there are no special labour courts, but labour disputes are dealt with by the regular civil courts – Basic Courts, Higher Court and the Supreme Court as the final court instance. The Supreme Court is in charge on deciding on extraordinary legal remedies against the rulings of the Higher Court. Employee who finds that his employment right was violated is entitled to submit a claim before the competent court within 15 days as of the receipt of the disputable resolution or as of the date when he/she finds out on the breach of right. Monetary claims deriving from employment are not subject to statute of limitation and can be submitted at any time.
Employees may choose to peacefully resolve their labour dispute by way of arbitrage before the Agency for Peaceful Settlement of Labour Disputes. The arbitrator is determined by the parties jointly and the arbitrage process is urgent. The arbitrator’s decision is final and binding for the parties. Arbitrage on individual labour disputes is quite rare in Montenegro, as employees usually refer to courts. This Agency for Peaceful Settlement of Labour Disputes also resolves collective disputes related to trade union relations with the employer – but in this case the role of the Agency is only to be mediator and does not provide for final and binding decision.
The Ministry of Labour supervises application of the labour regulations through the Labour Inspection, which often performs field controls – regular or extraordinary controls, based on an individual’s application (which can also be anonymous). If the labour inspection identifies certain failure of the employer to abide by the laws, it may initiate a misdemeanour procedure against the employer.
In addition, there are certain authorities whose field of activity may include some aspects of employment relations (though not exclusively), such as Ombudsman (for discrimination cases). Ombudsman does not have the power to enact binding decisions, but his recommendations are observed by the authorities.
In Montenegro, any natural or legal person is eligible to for the registration of a mark granting them trademark protection. Foreign applicants, except for the representative offices who pursuant to the relevant Company law are not eligible to apply for trademark protection, enjoy the same rights regarding trademark protection as domestic applicants, provided that such rights derive from international treaties or principles of reciprocity. Foreign applicants however need to be represented in proceedings before the IPO either by a professional representative such as a registered IP representative or a lawyer.
Under the Montenegrin Law on Trademarks, any mark that is used to distinguish goods and services in trade and that may be graphically presented can be granted trademark protection. Marks subject to protection may comprise the following: words, slogans, letters, numbers, images, drawings, combinations of colours, three-dimensional shapes, and combinations of such marks and of graphically presentable musical notes.
Trademark application procedure commences by filing of the application for trademark registration to the IPO, either via post office or directly at the IPO premises. Application, containing duly filled form, valid power of attorney (should it be filed via legal representative), graphic representation of the mark (if the application is for a mark with a figurative element), complete list of relevant goods and services under the Nice Classification of Goods and Services, and proof of payment of administrative fees, will be entered into the register of applications, where the note of a filing number, date and the time of the receipt will be given by the IPO. The filing date is also a priority date.
Benefits of registering a trademark are multiple, but the main benefit lies in the protection it grants. Thus, the trademark holder has the exclusive right to use the trademark for goods and/or services to which it relates, and to prohibit others from an unauthorized use of an identical or similar mark for marking identical or similar goods or services on the market, should such use be likely to cause confusion in commerce. Additionally, the Trademark Law specifically governs that, in the event of intentional infringement of a trademark, the injured party may, instead of simply being remunerated pecuniary damage, request from the infringing party compensation of up to three times the usual license fee it would have obtained for the use of the infringed trademark.
The trademark registration procedure, where a mark is not found to be in opposition to any other previously registered trademark, usually takes somewhere from two to six months, thereby comprising any potential examination reports rendered by the IPO leading to the extension of the procedure.
However, should there be a parallel court procedure initiated for the infringement involving a filed mark, the registration procedure might be extended to several years as the registration procedure would be suspended until the decision is rendered in the court proceedings.
The average total cost for the registration proceedings excluding any potential additional costs for responses to the examination report amounts to approximately EUR 177.
The examination report of the registration procedure consists solely of formal requirements for the trademark registration.
Formal examination consists of verifying the validity of the filed trademark application (consisting of the trademark application form, the mark claimed, list of goods and services to which the mark applies, and power of attorney, should the applicant be represented by someone). Should the examiner find that an application is improper, he/she will notify the applicant by dispatching an examination report to him specifying the irregularities noted and inviting the applicant to remedy the deficiencies within a 30-day time limit. If the applicant fails to remedy the deficiencies in the application within the time limit assigned, or if he/she fails to pay adequate administrative fee for remedying such deficiencies, the examiner will issue a procedural order rejecting the application.
Material examination is no longer performed ex officio by the IPO but only upon request of the interested parties.
The trademark lasts for 10 years as of the date of filing of the application for registration, and is indefinitely renewable for further 10-year periods upon payment of prescribed administrative fees.
Enforcement of IP rights and particularly trademarks are performed on several different levels.
On one hand, border control mechanisms are available via Customs Administration, allowing for trademark holders, applicants or exclusive license holders to file a demand for trademark protection at the state borders. Acting upon rights holders’ request, or ex officio, the authorities are empowered to temporally seize all goods that are either the object or means of an IP rights infringement, whenever there is prima facie evidence establishing that an IP right has been infringed. Following the seizures, the customs officers notify without delay the rights holders, the IPO (if it is necessary to obtain relevant information) and any other interested parties (if any such parties are known) about the measures taken.
The notification is crucial as it includes an invitation to the holder of the IP rights to initiate the proceedings for protection of its rights in the court proceedings and to inform the customs authorities about such proceedings or of the preliminary injunction issued by the court.
On the other, control of the internal markets is also at hand to the applicants or trademarks holders suspecting that their marks/trademarks are being infringed. Controls are performed via Market Inspectorate either upon holders request or ex officio, resulting in seizure of goods that are either the object or means of an IP rights infringement. The procedure itself is very similar to the one performed by the Customs Administration in is usually followed by court proceedings, unless out of court settlement was reach through the mechanisms of ADR.
Court proceedings, as the third means of enforcement, are initiated by filing a complaint with the competent court. The infringement complaint is usually filed with a demand for preliminary injunction. After receiving such a complaint, the court quickly decides on preliminary injunction. Furthermore, before rendering the final decision on the complaint, the court schedules a hearing to receive the statements of the parties. The judge will schedule as many hearings as is deemed necessary before rendering a decision.
Litigation costs depend on the value of the claim, length of the proceedings and number of hearings. In Montenegro, litigation costs comprise the costs of filing of the complaint, to which are added the costs of rendering the decision of the first instance court, and in case of appeal, for rendering the decision on the appellate level. As the range between cases can be very different, it is impossible to determine a typical range of costs in an infringement action.
The Montenegrin legal regime recognizes private ownership of real estate, including land and buildings. Montenegro’s 2007 Constitution, together with the Law on Proprietary Relations, the Law on Planning and Construction and other laws, uphold and protect the right to own private property. Publicly-owned property (property owned by the state, the autonomous province and municipalities) is subject to special regulation, the main source of law being the Law on State Property.
A foreign legal entity is allowed to purchase construction land and buildings in Montenegro necessary for its business operations, in accordance to the local laws or in accordance with the terms set out in a treaty between Montenegro and the country of the foreign entity. In addition, by the Stabilization and Association Agreement between Montenegro and the EU, which entered into force on 1 May 2010, Montenegro obliged to provide foreign natural persons the same rights as they are domestic citizens. If a foreign entity (natural or legal) establishes a subsidiary in Montenegro, such subsidiary is treated equally to any other local entity acquiring land and buildings, regardless of the origin of the founder or its controlling share. This means that foreign persons and entities may indirectly own real estate in Montenegro through their Montenegrin subsidiaries without any distinguishing limitations.
On a related note, property may be expropriated or ownership restricted if so required in the public interest, in accordance with the 2009 Law on Expropriation. The public interest for expropriation may be determined by the law or by a Government decree for specific development projects. In case of expropriation, market price compensation is payable to the person whose property is the subject of expropriation.
Real estate rights
Ownership is the most common form of Montenegro commercial real estate title. The right of use is still widespread in Montenegro on construction land within city boundaries. Persons/entities granted with the right of use over the public land under previous laws are entitled to convert such right of use into the ownership right.
Land may also be subject to various types of unregistered rights of access by public utilities, including rights of way, passage and easement over individual parcels, contiguous properties and watercourses in favour of such public utilities (in its capacity as a public utility acting in the public interest).
The easement right, as a sui generis right, provides narrower scope of rights than ownership title. The easement rights may be instituted based on an agreement or the law. The easements instituted based on the law usually include right of passage through the neighboring plot in ownership of another in order to access own plot. On the other hand, there are two types of easement rights which may be instituted based on an agreement:
Data on real properties is maintained in the publicly available Cadastral Registry. The Cadastral Registry contains both “technical” and “legal” data on immovable properties.
Ownership rights over land or buildings are obtained upon registration of the right in the Cadastral Registry. The ownership transfer document must be created in special form of a notarial deed before the notary public. In order to effectuate transfer, the document must contain explicit consent of the transferor that the acquirer may be registered as the owner (clausula intabulandi).
Buyer and seller liability
The buyer has only one liability\obligation arising from the real estate sale-purchase agreements – payment of the purchase price and payment of potential interests, if any. The seller is responsible for material and legal defects of the property. The Seller is liable to the buyer in case there are any claims of the third parties which may exclude, diminish or restrict rights of the buyer acquired from the seller. If such claims arise, the seller is obliged to protect the seller. Seller’s liability may be contractually restricted or excluded except in case when the seller was aware of the defect. The seller is liable for material defects in case for example that the property is not fit for regular use, or the property is not fit for the special purpose of which the seller was aware, or the property does not have the characteristics explicitly or implicitly agreed by the parties.
Banking and financing
There is no typical Montenegro-market model of real estate project financing. In general, a simple financing structure which is common in Montenegro would consist of a secured loan provided by a lender, typically a bank (the Lender) to the project company, i.e. the Borrower. The loan would be usually secured by (i) a security interest over the assets (including land) and the bank accounts of the Borrower; (ii) a pledge of the shares of the Borrower and possibly its parent company; and (iii) an assignment by way of security of the receivables under the construction contract and other transaction documents including the insurance and reinsurance policies.
Lease agreements for real estate property in Montenegro are executed in a free form. Written form, verified before public notary, is required only in the event the lessee desires to registered existence of the lease agreement in the cadastral records. Most usual provisions of the lease agreements include precise determination of the subject of lease, rent amount, manner of payment of rent amount, lease period (but there are lease agreements executed without lease period determined), sub-letting possibility, manner of use of the leased premises, possibility\restrictions to change one or both of the parties, securities (deposit amount, bank/corporate guarantees, promissory notes), indexation, reasons for early termination, etc.
Report for construction
The Law on Spatial Planning and Construction aims to simplify and compile spatial planning, boost the construction industry and deal with historical issues concerning the massive construction of illegal objects. It also aims to further centralize the decision-making processes in this industry.
In order to construct, an investor is required to prepare a Report for construction, an audited main design and other necessary documents. Upon the finalization of the construction, instead obtaining the usage permit, the new object should only be registered at the competent Land Registry.
The permitting regime still applies to the most complex construction projects, such as, for example, heavy industry and energy facilities.
Opening and maintaining the accounts is regulated by the Law on Payment Transactions (“Official Gazette of Montenegro”, no. 62/2013, the “Law on Payment Transactions”) and the Decision on Structure, Detailed Conditions and Manner of Opening, Maintaining and Closing Transactional Accounts (“Official Gazette of Montenegro”, nos. 48/2014, 24/2016 and 14/2017) enacted by the Central Bank of Montenegro (“CBM”), local financial regulatory authority. Accounts can be opened for performing national and international payment transactions, both by residents and non-residents. One natural person/legal entity may have more than one account opened with the same or several banks. Before opening an account, the bank is obliged to determine the identity of the client and adhere to KYC procedure, which includes determination of an ultimate beneficial owner of the client - legal entity.
Pursuant to the Law on Current and Capital Cross Border Transactions (“Official Gazette of the Republic of Montenegro”, no. 45/2005 and “Official Gazette of the Montenegro”, nos. 62/2008, 40/2011, 62/2013 and 70/2017, “FX Law”), a Montenegrin legal entity is obliged to keep separate records on the cross-border current and capital transactions in a manner determined by the CBM (including opening of the bank account abroad). In accordance with the Decision on Keeping the Separate Records on Current and Capital Cross Border Transactions and Submitting of such Records (“Official Gazette of Montenegro”, no. 8/2017, “Decision”), data from such records regarding the balance and turnover on abroad account have to be submitted in prescribed form to the CBM monthly no later than 10th date of the month for the previous month.
The Law on Prevention of Illegal Business (“Official Gazette of Montenegro”, nos. 29/2013 and 16/2016) provides for the obligation of legal entities and entrepreneurs to open bank account, and to maintain and perform all their business activities through the bank account, including payment of taxes, social contributions and salaries. Natural persons may also perform payments through bank accounts within banks, payment institutions and electronic money institutions in accordance with the provisions of the Law on Payment Transactions and accompanying bylaws.
Under general provisions of the Law on Banks („Official Gazette of Montenegro“, nos. 17/2008, 44/2010, 40/2011 and 73/2017, “Law on Banks”), only entity duly organized and licensed by CBM may provide loans in Montenegro. The Law on Banks recognizes three types of such entities: banks, microcredit financial institutions and credit unions.
Besides institutions captured by the Law on Banks, there is a possibility under the Law on Payment Transactions for a payment institution to grant a loan to the payment, but only if the following conditions are met: (i) a loan has been granted exclusively as an ancillary service for the execution of a payment transaction; (ii) the loan repayment period does not exceed 12 months; (iii) a loan has not been granted from the funds of payment service users received by a payment institution for the execution of payment transactions of these users; (iv) own funds of a payment institution are at all times appropriate to the total amount of the credits granted.
Cross-border loans fall under the scope of the FX Law and the Decision, which creates an obligation for Montenegrin legal entity to keep the records on cross-border loans and to submit such records to the CBM (i) quarterly no later than 25 days following the end of reporting quarter; and (ii) annually no later than 15 April of the current year for the previous year.
Payments and security
Payment operations between Montenegrin residents are regulated by the Law on Payment Transactions and relevant CBM bylaws, including all means of payment through banks, payment institutions and electronic money institutions without prescribing any specific requirement in that regard. Payment transactions between Montenegrin residents and non-residents are governed by the FX Law which upholds such transactions to the extent they are performed through CBM, commercial bank or other authorized provider of payment services.
Regarding the securities, establishment of securities is regulated by different rules depending of the type of security instrument (e.g. mortgage, registered pledge over share(s), movables, receivables, bills of exchange, guarantees, etc.). As a mutual obligation for almost all types of security instruments granted under the Montenegrin law, the respective regulations require registration with the relevant local registers (Pledge Registry or Real Estate Cadastre).
Montenegrin laws enable the establishment of security instruments in cross-border transactions, as the FX Law is highly liberalized and do not impose any legal restrictions in this regard.
The official currency of Montenegro is Euro. However, the FX Law explicitly allows residents and non-residents to freely possess, dispose with and perform transactions in currency other than Euro.
The CBM Decision on Detail Conditions and Manner of Conducting Exchange Business (“Official Gazette of Montenegro”, no. 27/2011) stipulates that only banks and authorised exchange offices can perform FX trades. There are no legal restrictions when it comes to type of foreign currency to be purchased and sold in the foreign exchange market. The banks are rather free to decide which foreign currencies will be subject of their foreign exchange business.
Registration. The company is considered to be stablished once CRC issues an incorporation certificate. Together with issuing of the incorporation certificate, CRC will assign a tax identification number (“TIN”) to the newly founded LLC. If requested, CRC will also issue a VAT and custom number to the LLC.
Post-registration procedure. The post-registration procedure includes the opening of a bank account, creation of a stamp and engaging the accountant.
Bank account. The company is obliged to open a bank account, and to maintain and perform all its business activities through the bank account, including payment of taxes, social contributions and salaries.
Stamp. Even though the stamp is not legally required, in practice all Montenegrin companies are using stamps in business transactions with third parties and communication with governmental authorities.
Accountant. The company should hire an accountant who will maintain financial accounts of the company and represent the company before relevant public authorities. This particularly relates to the submission of tax returns and annual financial reports to Montenegrin tax administration.
Liability of local managers. The duties of local managers (executive directors/members of the BoD) are:
Local managers, as responsible persons acting on behalf of the company, are personally liable for any misdemeanor or commercial offence committed by the company.
Employment. Executive director must be employed by the company. If executive director is a foreign person, she/he must obtain a residency and work permit before being appointed as executive director. Obtaining of a residence and work permit lasts approx. 20 days. For these reasons, from practical point of view, the procedure of incorporation is much more time-efficient if the appointed executive director is a resident of Montenegro. The most commonly used practical alternative is that a local resident is appointed as the executive director with very limited powers, whereas a foreigner appointed as an authorized representative, would then be fully authorized to represent the company individually, without limitations.
Apart from this, and save for some specific businesses (e.g. TV stations), there is no requirement to have a minimum number of other employees or to have employees with specific qualifications.
Social insurance. All natural persons who are employed with Montenegrin company, whether they are nationals of Montenegro or not, are subject to the obligation to pay social security contributions on their salaries.
The aggregate rate of social security contributions in Montenegro is 34.3%, and includes social security contributions due by the employer and by the employee. The social security contributions are paid by the Montenegrin company (employer) on withholding basis. The employer is required to calculate and withhold the prescribed amount of the social security contributions upon each payment of the salary to its employees.
Keeping records. A company is obliged to maintain various records in its registered office such as act on incorporation, Memorandum of Association, minutes from the General Assembly or BoD meeting, list of shareholders, executive directors, members of the BoD, agreements and other legal instruments.
Other compliance issues. Apart from the above general compliance requirements, please note that additional rules are imposed to entities established within the specific industry sectors (insurance, banking, agricultural, medicines and medical devices etc.).
The system of customs in Montenegro is governed by the Customs Law and the Law on Customs Tariffs, and a number of secondary regulations with customs laws governing the customs tariffs, customs procedures and payment of customs which have been issued on the basis of these laws.
In order to be placed on Montenegrin market, foreign goods have to be imported in Montenegro and go through customs import procedure. The goods have to be included in the customs declaration, on the form prescribed by the Montenegrin regulations. The declaration should contain sufficient information (type of goods, quantity, value, etc.) for calculation of customs duties. Information in the customs declaration have to be supported by appropriate documents, such as agreements, invoices, purchase orders, waybills, etc.
The importer on record may be only a Montenegrin entity. Foreign entities participating in the customs procedure have to appoint their representative in Montenegro.
Applicable customs rates are established by the Law on Customs Tariff, and depend on the type and purpose of the goods. The customs rates may be lower or eliminated on the basis of the free trade agreement between Montenegro and the country of origin of the goods which are being imported. Montenegro has several free trade agreements, including with the EU, regional countries (CEFTA) and Russia which provide for preferential treatment of goods originating from these countries.
Two main modalities of import regime in Montenegro are the permanent import and temporary import.
Permanently imported goods are granted the status of domestic goods and therefore may be placed on Montenegrin market. Importer on record is required to pay the full amount of customs duties and import VAT due on the import of goods under the general rules.
Temporary import is allowed for the goods which are brought in Montenegro with the intention to be exported in unchanged condition. The customs authorities decide about the duration of the temporary import, provided that it cannot exceed 24 months. As an exemption this deadline may be extended if necessary to realize the purpose of import.
Persons subject to the tax. Companies incorporated in Montenegro are Montenegrin tax residents. Legal persons, residents of Montenegro, are subject to corporate income tax on their world-wide income. Non-residents are subject to CIT if they have a permanent establishment in Montenegro. For CIT purposes, a resident is a legal entity which is incorporated, or whose place of real management and control is located in Montenegro. Montenegrin non-residents have to pay CIT only for the part of the income which is attributable to the activity of the permanent establishment constituted in Montenegro and on certain types of income deemed generated in Montenegro.
Tax Rate and Tax Base. Corporate income tax is levied at a 9% flat rate. Taxable profit of resident taxpayer is established on the basis of profit (expenses and revenues) declared by the taxpayer in his annual income statement (profit and loss account) in accordance with the Montenegrin accounting rules and International Accounting Standards (IAS), and adjusted in accordance with the rules of the Montenegrin Law on Corporate Income Tax (CIT Law).
Generally, an expense will be recognized for tax purposes if it is documented and incurred for business purposes.
Types of expenses which are not deductible for tax purposes include, inter alia, expenses which cannot be documented, expenses which incurred for non-business purposes, gifts to political parties, interest for late payment of taxes and social security contributions etc.
Deductibility of certain expenses is limited so as that the threshold for deductibility is set as percentage of taxpayer’s annual revenues.
Tax depreciation. For tax purposes, an asset may be depreciated (capitalized) if it is recognized as a fixed asset under relevant accounting laws and regulations, and subject to the condition that its useful life is longer than one year, and that its value exceeds EUR 300.
For purposes of tax depreciation, all assets are categorized in 5 depreciation groups with different rates and methods of depreciation. Depreciation rates range from 5% (immoveable assets) to 30%. Immoveable assets are depreciated under proportional method, and all other assets under the declining method.
Transfer pricing. Under general rules of the CIT Law, the taxpayer is required to disclose the value of expenses and revenues from transactions with related parties at agreed (transfer) prices and at arm’s length prices (prices which would have been charged had the same or similar transaction been executed between unrelated parties), and to include the difference in its taxable profit.
The definition of related parties is set in the relevant Montenegrin tax laws in a very broad (though somewhat unclear) manner: for purposes of transfer pricing rules, a party related to the taxpayer shall be deemed to be any entity (foreign or Montenegrin) which holds, directly or indirectly, more than 25% share in capital or voting rights in the taxpayer. Likewise, an entity shall be deemed to be related to a taxpayer if such entity is controlled, directly or indirectly, by the same entities which exercise control over the taxpayer by means of minimal 25% (direct or indirect) participation in their capital or voting rights.
Thin capitalization. Montenegrin CIT Law does not prescribe thin capitalization rules, so as that there is no prescribed loan-equity ratio which would impose limits on deductibility of expenses from related-party loans.
Capital Gains/Losses. For tax purposes, capital gains may result from disposal against consideration of immoveable assets, shares and IP rights. For these purposes, in transactions between related parties sales price of asset is market price established by the Tax Administration, if agreed price is lower than market price.
Tax Incentives and Tax Credits. The only tax incentive available to Montenegrin companies is the tax exemption for newly established companies which perform activities in economically underdeveloped municipalities. The calculated income tax for the first eight years of performance of such company is reduced in the amount of 100%, subject that the maximum amount of tax exemption for the period of eight years is limited to EUR 200,000.
In addition, NGOs (non-governmental organizations) registered for business activity are permitted to decrease the corporate tax base by EUR 4,000, with the condition that profit is used for realization of the main goals of an NGO.
In line with CIT law, a discount of 6%, which is applied on the amount of the calculated CIT liability, is available to taxpayers that settle their CIT liability by the prescribed deadline (i.e. by 31 March of the current year for the tax liability of the previous year).
Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realised in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro.
Administration and Payment of CIT. CIT is paid on the basis of the annual CIT return in which the taxpayer should declare the amount of its taxable profits and amount of tax due. The tax payer has to file the CIT return and to pay the CIT due within 3 months following the end of the year for which the tax is assessed.
Withholding Tax. The following types of income received by non-residents are subject to withholding tax (WHT) in Montenegro:
As an exception, dividends are subject to WHT even if payable to resident legal entities and individuals.
Taxable base for withholding tax is a gross income which incorporates withholding tax, whereas WHT is levied at the flat 9% tax rate applicable on the gross amount of income paid abroad.
Permanent establishment. PE is a permanent place of business through which a non-resident taxpayer conducts its business activity.
In the practice only recognized form of a PE is a branch of a foreign entity. In this respect, from taxation perspective, the company undertaking the project should establish a branch in Montenegro through which it will carry out the project. The establishment of the branch is also governed by practical reasons, as the company undertaking the project will not be able to effectively carry out the project without establishing some sort of registered presence in Montenegro (such as to import equipment necessary for the project, employ staff, acquire necessary permits and licenses and similar).
The branch is required to maintain the same financial reports as fully incorporated companies. Likewise, taxable profits of a branch are established in much the same manner as the taxable profit of a company.
Accounting standards: According to Accounting Law (Official Gazette of Montenegro No. 052/16) and Audit Law (Official Gazette of Montenegro No. 001/17), all legal entities are required to maintain business and accounting books, prepare, present and published financial statements in accordance with the local legislation and professional and internal regulations. Local legislation relies on IFRS framework.
Accounting report currency and language:
Reporting periods: Financial Statements must be submitted annually, reporting period is equal to calendar year. Financial statements consist of balance sheet, income statement and statistical annex for micro entities, while other entities are also preparing the management report.
Timeline of submission: Deadline for submission of the financial statements is 31 March of the following year, while consolidated financial statements have to be filed by 30 September of the following year.
Professional accountancy bodies: The Institute of Accountants and Auditors of Montenegro (IAAM)
Certification and auditing: According to the article 29 of the Audit Law, the audit of financial statements is obligatory for:
The audit is performed by an authorized auditor and auditing company. The large legal entity is required to have an internal auditor. Legal entities are obliged to submit audit report with relevant opinion in hard copy or electronic form to Central Register of Commercial Court till 30th of June current year for the previous financial year.
Classification by size:
Depending on the number of employees, total revenues and total assets Montenegrin Accounting Law recognize micro, small, medium and large companies.
Classification by size
1) Average number of employees: Up to 10 employees
2) Operating income: Up to EUR 700,000
3) Average value of total assets: Up to EUR 350,000
1) Average number of employees: 10 – 50 employees
2) Operating income: EUR 700,000 – 8,000,000
3) Average value of total assets: EUR 350,000 – 4,400,000
1) Average number of employees: 50 – 250 employees
2) Operating income: EUR 8,000,000 – 40,000,000
3) Average value of total assets: EUR 4,000,000 – 20,000,000
1) Average number of employees: Over 250 employees
2) Operating income: Over EUR 40,000,000
3) Average value of total assets: Over EUR 20,000,000
The newly established legal entities are classified on the basis of financial statements data of the current financial year and the number of months in business and a fortified data is used for the current and subsequent financial year.
Transfer pricing scope: A transfer price is considered as a price incurred in connection with the transaction of assets or the creation of liabilities between related parties.
Related party definition: A company or a person will be deemed as a related party if:
The difference between the transfer price and "arm length" price shall be included in a tax basis, so such a difference will be taxable as well.
Transfer pricing methods: The CUP method may be used, unless there are no direct comparable. Alternatively, the taxpayer may use the cost-plus or the resale price method.
Transfer pricing study: Transfer pricing study has to be prepared in local language.
Who is obliged to prepare: The taxpayer should in principle possess documentation to support transfer prices declared at the moment of request from the tax authorities.
Submission dates: Income and expenses generated from related party transactions during the year must be separately disclosed in the corporate profit tax return, while the taxpayer is not obliged to submit the transfer pricing study. At the event of tax audit, time may be granted for the preparation of documentation during the tax audit.
Thin capitalization rules: There are no particular thin capitalization rules (as long as the interest payable to non-resident is at market level).
Advance transfer Pricing Agreements (APA): Not applicable.BEPS Actions – Implementation timeline
No timeline has been announced.