Is Montenegro the next big destination for investors in Europe?
Driven by a strong desire for independence, the rich history of Montenegro has played a key role in its growing presence on the international stage. This history has not only shaped the country’s national identity but also laid the foundation for its ongoing economic development. As it works toward European Union membership, Montenegro is actively modernizing its legal system to attract foreign investments.
Rich History of the Newly Independent Country
Montenegro has a rich history shaped by independence, foreign rule, and cultural changes. The land was originally part of the Roman Empire, before emerging as center for the Serbian Orthodox Church during the Middle Ages. In the 19th century, Montenegro declared independence from the Ottoman Empire. After a difficult 20th century marked by post-World War governance, Montenegro regained its independence in 2006 through a referendum. This led to Montenegro’s separation from the State Union of Serbia, driven by a desire for autonomy. Coupled with conflicts at the turn of the century, this has shaped a solid national identity rooted in sovereignty.
“Montenegro,” and its local name “Crna Gora” both mean “Black Mountain,” referencing Mount Lovćen.
Reforms to Attract Foreign Investment
The legal system of Montenegro is deeply rooted in civil law traditions, with influences from Serbian and other civil law practices. Following the Napoleonic Wars, many countries in Europe, including those in the Balkans, adopted elements of the French legal system. This influence continues to shape Montenegro’s legal codes. Since its initial application in 2008 and as it moves closer to European Union membership, the country has been implementing ongoing reforms aiming to align its legal system with EU standards.
The country has made significant progress in modernizing its legal system to attract foreign investment. The country offers flexible company formation options and a variety of financial incentives to make business operations easier. However, these efforts have had limited success so far, as Montenegro still depends heavily on tourism, which officially makes up about 25% of its GDP. Analysts estimate that when the informal economy is taken into account, the actual contribution of tourism could exceed one third of GDP.
Montenegro adopted the Euro in 2002, shortly after declaring the German mark as its sole currency. This move helped stabilize the economy post-independence. The Central Bank of Montenegro and the stock exchange play key roles in maintaining a stable financial sector that supports the country’s growth ambitions.
Montenegro’s Competitive Tax Structure
Montenegro’s tax regime is one of the most attractive financial incentive of its jurisdiction. With an (almost) flat rate of 15%, the country has implemented a series of tax reforms aimed at creating a business-friendly environment. Key elements include:
| Corporate Tax | Rates |
| Up to €100,000 | 9% |
| €100,000 to €1.5 million | 12% |
| Over €1.5 million | 15% |
| Income Tax | Rates |
| Salary €700 to €1,000 | 9% |
| Salary over €1,000 | 15% |
| Other Income (Property, Interest etc.) | 15% |
The 15% tax rate also applies to income derived from property, interest, sporting activities, intellectual property rights, and other income, regardless of the amount of gross income received.
| Capital Gain | 15% |
Montenegro has established over 40 double tax treaties to make the country more attractive to foreign investors. These agreements offer incentives such as tax reductions, exemptions, and credits to help make international business easier.
In its annual White Book on the national investment climate, Montenegro actively promotes the use of taxation for economic development objective. This involves both tax rates and legal regulations. The report does outline the challenges faced by the country, including inefficiencies in the Tax Administration, frequent and unclear changes to tax rates, and a shortage of skilled workers. These issues hinder effective tax law implementation, even when laws are well-drafted. As a result, the country struggles with relatively low ratings for compliance with international standards and ease of doing business. Factors such as constant legislative changes, perceived inefficiencies, and a poor communication between decision-makers and businesses contribute to these ratings.
Paving the Way Forward
The ongoing reforms of Montenegro reflect its dedication to growing its economy and integrating internationally. The country now has stable legal and financial systems supporting its efforts to attract foreign investments. With its strategic location, Montenegro aims to create a business-friendly environment that preserves its unique cultural identity while positioning itself as a competitive player on the European stage.
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Cover Image: Flag of Montenegro (2004)
