Montenegro business environment

, Business Environment

Montenegro’s economy is mostly service-based, with tourism being one of its most significant contributors. With its hilly landscape and lack of raw materials, the country doesn’t have many industrial developments. However, this hasn’t been all negative, as it turned the country into an ecotourism hot spot.

After its independence, the country quickly saw a ton of Russian and British FDI in the tourism and real estate sectors, which also brought a significant expat community to the country. That influx of investment has continued to rise as the government continues its pro-business and privatization turn.

The government has sought to reform the economy because of its EU aspirations, as the country must become a country attractive for a higher influx of FDI. This has led the country to lower the tax burden, simplify tax procedures, reducing and simplifying the process for opening a business and obtaining construction permits, and reducing business regulations. What has been the result? An increase in competitiveness, a robust 4.7 % GDP growth, and a substantial and sustained FDI increase.

The country’s GDP has grown in every quarter since 2013. Wages have increased by 20 % since 2015, and inflation has always been under 3 %. The only grand economic issue Montenegro hasn’t seemed to be able to solve is unemployment. It reached a 22 % peak in 2017 and has only decreased recently to 15 %, which is still high.

Still, such a friendly business environment with so many tax optimization opportunities are rare in Europe. Likewise, there’s a lot to do in tourism and financial services investment, which means that those that get there early may reap significant benefits.

Main business opportunities:

  • Real estate projects, as citizenship by investment requires acquiring residential/touristic real estate, which is leading to an increase in the market
  • Land that was formerly owned by the government and is being sold for tourism
  • Government infrastructure projects, such as railways and highways
  • Sustainable energy investment as the country has a ton of untapped potential

tourism is the driver of the economy and the sector with the most substantial growth. Even as it’s been one of the most developed areas of the country, even before its independence, it hasn’t reached its full potential, and it’s an unknown tourist destination for many. However, according to the World Travel and Tourism Council, Montenegro will be one of the fastest-growing tourist destinations of this decade.

The country was the first in the world to be declared an ecological state in 1991. It has a beautiful mountainous landscape, fabulous beaches in the Adriatic Sea, and plenty of virgin nature. The South Coast has seen the most development in tourism and has been a yachting and cruiser hub, and the CBI program aims to develop the tourism sector in the Northern region, which has small ski resorts, and most of the country’s national parks.

Moreover, with an ideal climate, clean water, and plenty of arable lands, agriculture is a resource with extraordinary potential that hasn’t been exploited. It’s a mostly informal business, as official stats indicate that only 1.6 % of employees work in the industry, but if we include informal workers, the number rises to around 30 %. However, most of that are family farms that sell their products at local markets, but there are little industrialization and exports. But the potential is there: olives and citrus fruits in the Southern coast, vegetables and tobacco in the Central Region, and livestock in the North.

As we said before, the energetic business is another industry with mostly untapped potential. The energy market of the country hasn’t been fully liberalized, but the government has taken steps towards that. As the country has plenty of water resources and a small population, there’s significant potential for selling clean hydroelectric and wind power to its neighbors.

Why is Montenegro an attractive investment hub? Firstly, there is a pro-business government that has progressively reduced the government’s role in the economy and provided a better legal frame for investors. Likewise, Montenegro is, by far, the most stable country in the Balkans, and the only one whose territory didn’t have any battles of the bloody wars in the 90s.

Furthermore, it is surprisingly easy to open a business in Montenegro. You need three documents: a founding decision, the bylaws of the company, and the registration form. The process takes only four days, and all the main procedures (tax registration, VAT, excise, and customs code) are conducted in the same place, the Central Register of the Commercial Court.

However, the top reason is clear and well-known: Montenegro has one of the most attractive tax regimes in Europe. It has a 9 % flat corporate tax rate and an income tax rate that goes from 9 to 11 % (you read that correctly), with plenty of exemptions. Withholding tax on dividends, interests, and royalties paid to non-resident companies are the exact same rate, which is significantly lower than in most Europe, except for jurisdictions such as Cyprus, that have specific exemptions for foreign investors.

Moreover, Montenegro has the most yacht-friendly legislation in the Mediterranean region, which brings plenty of nautical tax benefits, such as a 7 % over marine and tourist services, and no VAT on vessel charters and fuel, meaning that fuel is almost 50 % cheaper than retail costs. That has made the maritime industry one of the most attractive markets in the country.

Montenegro has a strong network of more than 40 double tax treaties to protect its tax residents, and the list continues to grow in time.

Likewise, the country has incredible upside, and investment is seeing fantastic returns in the wonderfully stable environment of Montenegro. Just to name one example: the investment return of real estate is around 4 and 8 %, which is incredibly high in Europe. This is especially true comparing it to other European countries where there are an excess of houses and no one to buy them, rent controls, crazy prices, and a ton of regulations.

As you’ve probably heard, Montenegro is the new kid on the block of the CBI programs. The government has set up a program to sell citizenship to 3,000 investors in the next three years. The first passports were granted to an Egyptian family in February 2020, and there are plenty of other applications. That means that if everything goes right, the CBI will bring hundreds of millions of euros in fresh investment for the country, both in the underdeveloped Northern region and in the touristic South.

 

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