Significant Economic Growth

The last few years have seen Montenegro’s economic performance improve dramatically through the adoption of the Euro as the legal tender and significant investment in the country’s infrastructure especially tourism, energy, water and transport links.

Young, Stable Democracy with an Open Economy

Montenegro’s unspoiled natural beauty and favourable economic and political climate have allowed the small country of approximately 650,000 citizens to emerge as one of the most attractive tourist destinations in Europe. The overall economic activity has been growing strongly with the tourism industry as the major vehicle, propelling investments in other sectors of the economy, creating €3.2 billion in total planned additional investment along the Montenegrin coast.

A Business Friendly Environment

Montenegro has one of the lowest corporate and capital gains tax rates in Europe (9%), low barriers to entry for new businesses, property rights, and a price-competitive, educated young labour force. It became a full member of the World Bank, IMF and EBRD in 2007, WTO in 2012, and progress toward NATO and EU membership will further guarantee political and economic stability.

Montenegro leads the World in Tourism Growth

According to the World Travel & Tourism Council and Oxford Economics (2014), Montenegro is likely to be the fastest-growing travel and tourism economy in the world over the next decade, surpassing Brazil, Russia, India and China. Montenegro has recently experienced an upsurge in the popularity it once enjoyed in the 1960s, then a haven for the European elite and film stars such as Sophia Loren, Elizabeth Taylor and Kirk Douglas.

Investment Basics

• Currency – Euro (EUR), even though Montenegro is not part of EU.
  Foreign Exchange Control – No
• Accounting principles/financial statements – International Accounting standards are applied. Financial statements must be filed annually.
• Principal business entities – these are the joint stock company, limited liability company, partnership, and brand of a foreign corporation.

Corporate Taxation

• Residence – a company that is registered in Montenegro or that has its management and control there is deemed to be resident for tax purposes.
• Basis – resident companies are taxed on worldwide income; nonresidents are taxed only on Montenegro-source income.
• Capital gains – capital gains are included in taxable income and are subject to the normal corporate tax rate of 9%. Capital gains are calculated in accordance with the tax rules and may be offset only against capital losses.
• Rate – the main rate of 9% applies to both domestic and foreign companies.

Nautical Taxes

• Montenegro’s simplified Law on Yachts is the most yacht-friendly legislation within the Mediterranean. It allows charter yachts to take advantage of a user-friendly vignette system enabling multiple entries and frequent changes to the passenger and crew manifest, as well as various nautical tax benefits.
• Tax on marine-related and tourist services is capped at 7%, whilst there is a 0% VAT on charters and tax and duty-free fuel, making fuel up to 45% cheaper than retail prices.

Withholding Tax

• Dividends – a 9% withholding tax is levied on dividends paid to a nonresident (unless the rate is reduced under a tax treaty) and on dividends paid to a resident.
• Interest – a 9% withholding tax is levied on interest paid to a nonresident entity, unless the rate is reduced under a tax treaty. Other taxes on corporations
• Real Property tax – annual property tax is levied on the ownership/use of property at rates ranging from 0.1% to 5%.
• Transfer tax – a transfer tax of 3% is levied on the transfer of immovable property.

Personal Taxation

• Inheritance/estate tax – a 3% tax is levied on the inheritance of real estate. An exemption is available for the transfer of property as a gift or inheritance to children, parents or a spouse.

Value Added Tax

• Rates – the standard rate is 19%. A reduced rate of 7% is levied on the supply of certain goods and services. Exports are zero-rated and exemptions exist for financial services, the sale of land and others.

Avoiding Double Taxation

• Montenegro has signed a treaty with over 40 countries for entities and individuals to avoid double taxation on personal, corporate and property income.

Macro

• Political and economic focus on the Tourism & Leisure sector – a wealth of preserved natural assets and historical pedigree.
• Trend economic growth at 3% p.a., driven by Tourism demand (trend > 5% p.a.).
• The Path to EU accession benefiting from significant EU Funding throughout the economy.
• A massive (EU funded) infrastructure investment and upgrade program is already underway – roads, airports, electricity, water.
• A very favourable tax regime (Corp tax at 9%).
• Euro currency.

Micro

• Re-Branding as a luxury destination (Porto Montenegro, Aman Resorts, Regent Hotels, One & Only Resorts, Chedi Hotels): undiscovered “Wild Beauty”.
• Creation of “Development Clusters” as the key driver of the niche, luxury growth model.
• Conservative Zoning & Planning framework, limiting overdevelopment.
• This has allowed Montenegro to escape the ravages of overdevelopment witnessed in other key competitor destinations.
• Structural advantage of a natural landscape that physically restricts the supply.
• Provides the current generation of “Lifestyle Developers” with a virtual blank architectural canvass.
• Demand–Supply dynamics (high-end product) create potential investment opportunities with attractive risk-adjusted returns

*Source: Deloitte, International Tax. Montenegro Highlights 2014