Category: Montenegro

BDK Advokati has advised Fortenova and Mercator-CG on their acquisition of the Franca retail business in Montenegro from the Franca family. Komnenic & Associates advised the sellers.

The Fortenova Group is a food producer and retailer based in Zagreb. In April 2021, Mercator had become an integral part of the retail network of the Fortenova Group, which now owns 88.1% of Mercator. The move created one of the largest regional retail networks, with more than 50,000 employees, a significant employer in the region.

According to BDK Advokati, “the Franca retail chain consists of 67 retail outlets with over 900 employees across Montenegro. Through this acquisition, the Fortenova Group is strengthening its retail business on the markets in South-East Europe.”

The BDK Advokati team included Senior Partner Luka Popovic, Counsel Bisera Andrijasevic, Associate Sanja Dedovic, and Junior Associate Marija Ksenija Popovic.

Komnenic & Associates’ team included Managing Partner Milos Komnenic and Partner Nemanja Radovic.

The political landscape in Montenegro is dominated by the upcoming elections and the formation of a new government – sometimes leading to populist measures that may negatively affect certain industries – yet sectors like energy, tourism, and IT keep experiencing growth, according to BDK Advokati Senior Partner Luka Popovic.

“In general, politics has become inescapable in Montenegro due to the recent and upcoming elections,” Popovic says. “This constant pressure on politicians to win over voters often leads to adopting populist measures. For instance, the gaming industry requires a new, robust regulation but, instead, we have recently seen minor adjustments that add complexity without contributing to the sector’s improvement.”

Another such measure, according to Popovic, is the planned windfall tax, to be imposed on entities exceeding a threshold in revenue. “It is a kind of retroactive tax, and the need for it was the result of a budget deficit – which was itself largely the result of a populist measure,” he points out. “The Europe Now program, which abolished the health insurance contribution a while ago to increase salaries, resulted in a revenue shortfall for the healthcare system,” he adds. “This is why we are now facing tax increases, such as last year’s increase in personal and corporate income taxes and this year’s increase in real estate taxes.”

Consequently, Popovic says, “although Montenegro remains an appealing investment destination, we are starting to witness a lack of predictability in regulations, particularly in the area of taxation.” Still, he highlights that certain industries are staying busy: “In the first part of the year, there has been a surge of interest in the energy sector, with several renewable projects, such as solar and wind, receiving approval throughout the country,” he notes. “Furthermore, there are good signs in the tourism sector, with some major operators establishing a presence in Montenegro and attracting new players and investors. Lastly, the IT sector’s growth remains strong, with many local companies contributing to its expansion. Montenegro is becoming a regional hub for technology companies.”

Popovic emphasizes that some significant transactions have already taken place in Montenegro. “The most significant acquisition in Montenegro this year has recently been closed,” he says. “The Capital Plaza – a group of companies managing the largest residential and business complex in the country – has been sold to BIG from Israel, which is expanding in the region.”

“In terms of general trends, one issue that has arisen is that banks are becoming stricter towards companies with complex shareholder structures which do not align with their preferences,” Popovic adds. “This is due to anti-money laundering rules and, in some cases, banks opt to outright reject a client instead of properly conducting their KYC checks under AML regulations. This can pose challenges for companies attempting to relocate their offices and personnel to Montenegro, particularly from those countries impacted by the war. Banks view such situations as risky and prefer not to get involved.”

BDK Advokati has advised the Abu Dhabi Capital Group on its sale of The Capital Plaza in Podgorica to BIG Shopping Centers. Karanovic & Partners advised the buyer.

According to BDK Advokati, “The Capital Plaza is a premium business and residential complex in Podgorica, Montenegro.”

BDK Advokati’s team included Senior Partner Luka Popovic, Senior Associate Jelena Brajkovic, and Junior Associate Marija Ksenija Popovic.

The Karanovic & Partners team included Partner Ivan Nonkovic, Senior Associates Marko Culafic and Sandra Perisic, and Junior Associate Tamara Djukic.

Political turmoil and contentious policy changes could cloud the investment climate in Montenegro, but the economy is still performing well – primarily driven by the IT, energy, and tourism sectors – according to Pejovic Legal Partner Milena Roncevic Pejovic.

“Montenegro is currently in-between regular presidential and extraordinary parliamentary elections,” Roncevic Pejovic begins. “Following the most recent dissolution of parliament in April, and the collapse of two governments, we are looking at a snap election cycle this June.” As she reports, the country is experiencing such political turmoil that it has begun to affect the overall investment climate.

“The business community is feeling the effects of political instability and we have noticed a downturn in foreign investment inflows,” Roncevic Pejovic continues. “This has created market uncertainties for existing investments as well – no longer are the war in Ukraine and COVID-19 the dominant spoilsports for business in Montenegro.” However, she does expect that the situation will calm down somewhat after the June elections.

Still, Montenegro has been amending some of its policy endeavors, which could potentially reflect on investments as well. “The citizenship-by-investment program, which was based on investing in pre-approved tourism projects that would generate significant income for Montenegro, ended on December 31, 2022, following negative assessments from the EU,” Roncevic Pejovic reports. Additionally, starting in January 2024, the real estate tax in Montenegro will switch to a progressive rate, moving away from the flat 3% currently in force. “The new brackets will include the same 3% tax for properties up to EUR 150,000 in value, 5% for those up to EUR 500,000 in value, and a 6% tax on all properties that are valued more,” she explains. “These changes are not something that the real estate market will take to keenly, given how attractive the old status quo was for investors.”

Furthermore, Roncevic Pejovic reports there is a draft law on solidarity contributions that might also put investors off. “Companies with annual revenue over EUR 5 million will be required to pay an extra 33% in taxes for the next two years, with the money to go to social welfare spending. This might clash with the investor’s notion of a competitive and predictable tax policy.” According to her, Montenegro is at a turning point, with investors still intent to get involved, but requiring “the trust and support of the authorities.”

Outlining the most vibrant sectors in Montenegro, Roncevic Pejovic points to the IT sector. “A lot of IT companies were recently incorporated, which is developing the industry very fast. Given the flexibility of remote work, we have seen a high number of IT experts relocating here,” she reports. “Additionally, the energy sector is strong, renewables and green energy in particular; wind power is the key generator of growth here, with the government strongly supporting development.” 

Finally, the traditionally successful tourism sector is also developing rapidly. “Montenegro might just become a winter destination soon, given the development of the Kolasin ski resort, which will boast 250 kilometers of ski slopes once complete,” she says. “Moreover, a new cable car from the UNESCO world heritage site of Kotor to the Lovcen National Park – connecting mountain and seaside – will be completed soon, further adding to the country’s tourism credentials,” she concludes.

We are witnessing that there is a constant “hunger” for information in modern society and that the media are competing to be the first to publish exclusive news. The average reader is overwhelmed by a massive amount of information, and the media almost always publish articles and appealing photos to attract the reader’s attention.

Domestic media very often post such photos without the authors’ knowledge and, therefore, without their consent and payment of appropriate compensation. In this way, the photographer’s copyright is breached.

According to Art. 4 of the Law on Copyright and Related Rights (“Official Gazette of Montenegro” 53/2016 and 145/2021), a photo represents a copyrighted work. According to Art. 13 of the same law, the author has copyright, which includes moral rights, property rights and other rights of the author. Moral rights include, among others, the exclusive right of the author to be recognized as the author of their work in such a way that their name is indicated on the work and in connection with the work, as well as the right to respect the work, which implies that the author has the exclusive right to oppose any distortion, alteration or other breaches in connection with their work if such actions endanger or may endanger their honour or reputation.

On the other hand, property copyright protects the author’s economic interests. The author is entitled to royalties for any use of their work by another person or to fair compensation. The author also has the exclusive right to permit or prohibit the reproduction of their work on a material medium, the exclusive right to display their photographic work to the public with the help of technical devices, the exclusive right to publicly communicate their work, the exclusive right to make the work available to the public, the exclusive right to the processing of works and the like.

If their copyright – moral or material – has been violated, the author can seek the protection of their rights and compensation for damages before the court. The Commercial Court of Montenegro is competent to decide on copyright infringement lawsuits. The claim is usually aimed at establishing a violation of rights, prohibiting further violations and future violations, publishing a verdict for violation of rights and compensation for both material damages (in the usual amount of royalty or fair settlement) and non-material damages for emotional distress caused by the breach of moral rights of the author.

By Marija Zivkovic, Senior Associate, JPM Jankovic Popovic Mitic

At the extraordinary session of the Parliament of Montenegro held on February 28, 2023 a set of tax acts was adopted. The Parliamentary Committee for Economy, Finance and Budget of Montenegro has given its support for introducing aforementioned acts, which will result in higher budget revenues for the state through higher taxation and the introduction and change of excise duties on certain products.

At Official Gazette of Montenegro no. 27/23 on March 8, 2023 have been published:

• Amendments to the Law on Budget and Fiscal Responsibility ;
• Amendments to the Law on Prevention of Illegal Business Operations and
• Amendments to the Law on Excise.

At Official Gazette of Montenegro no. 28/23 on March 10, 2023 have been published:

• Amendments to the Law on Profit Tax of Legal Entities, and
• Amendments to the Real Estate Transfer Tax Law.

Under the Amendments to the Law on Prevention of Illegal Business, loans between legal entities or legal entities and entrepreneurs or individuals are conditioned under the obligation of previous settling of tax obligations.

One of the more notable changes includes Amendments to the Law on Income Tax of Legal Entities concerning taxation on income of non resident legal entities, which means stronger taxation in the form of withholding tax.

Amendments to the Real Estate Transfer Tax Law will be applicable from January 1, 2024. The property transfer tax rate will be progressive, and the rate of 3% will apply on the real estate with estimated market value less than €150,000, but for the property with estimated market value over € 150,000 the property transfer tax shall be calculated at the amount of € 4.500 plus 5% of the amount over € 150.001.

By Daniel Vujacic, Associate, Vujacic

The new General Collective Agreement („GCA“) has been published at the Official Gazette of Montenegro no. 150/22 on 30, December 2022 and will be valid for period of three years from 31, December 2022 when it came into legal force.

The new GCA is harmonized with the current Labor Law (Official Gazette of Montenegro no. 74/19, 8/21, 59/21, 68/21 and 145/21) and follows its’ legal solutions. It expands employees’ rights and establishes grounds for further activities which would guarantee more rights for employees.

The significant novelty of the new GCA is determination of parameters for the calculation of earnings, which stipulates that job complexity coefficients have been increased. Now they are ranged between 3.3 and 7 compared to the old GCA where the coefficients were ranged between 1.3 and 4.12.

The calculation value of the coefficient for an average of 174 hours on a monthly basis is determined in the amount of EUR 90.00 gross now.

Coefficients established by the new GCA can be detailed by Branch collective agreements and Collective agreements with employer but cannot not be less than the value determined by the new GCA.

Another type of expansion of employees’ rights is in the increase of the basic salary per hour by 80% for working on Sundays, which does not apply to employees who are in workplaces whose nature of work requires continuous work and employees in the hotel industry and public passenger transportation.

Increase of basic salary per hour by 10% on the basis of divided working hours and increase of basic salary per hour by 10% for every hour spent on standby is also predicted.

Another novelty compared to the old GCA is establishment of maximum allowed number of annual overtime hours, which is now limited to 250 hours. According to the Labor Law, maximum number of weekly working hours is set to 50 hours, provided, however that no employee can work more than 48 hours per week, including overtime, on average within the period of four months.

The elected union representatives are now obligated to inform the employer about the upcoming leave in accordance with the law.

Finally, branch collective agreements should be aligned with the new GCA within one year from its’ entry into legal force, and collective agreements with employers should be aligned with the GCA and branch collective agreements within six months from the date of adoption of branch collective agreements.

By Daniel Vujacic, Associate, Vujacic

Former Karanovic & Partners Partner Milena Roncevic Pejovic has established Pejovic Legal in Montenegro.

Specializing in corporate and M&A, banking and finance, employment, and real estate, Roncevic Pejovic was previously a Partner at Karanovic & Partners, where she spent over 11 years between 2011 and 2022. Earlier still, she was an Attorney-at-Law at Prelevic Law Firm from 2004 to 2011.

Pejovic Legal focuses on M&A, real estate, employment, commercial, to day-to-day legal support to clients’ businesses, with the firm also announcing it has established affiliations with independent law firms from Albania, Bosnia & Herzegovina, Croatia, Macedonia, Serbia, and Slovenia.

Komnenic & Associates Lawyer Nemanja Radovic has been promoted to a Partner position within the firm on January 1, 2023.

According to Komnenic & Associates, Radovic first joined the firm in 2017, “only two months after its establishment. His experience covers different matters of corporate, banking, real estate, and litigations.”

Most recently, Radovic advised on Seta Montenegro’s sale of HoldCo East to APS Holding (as reported by CEE Legal Matters on January 10, 2023).

Komnenic & Associates has advised both sides in the transaction that saw Appolo subsidiary Seta Montenegro sell the HoldCo East NPL company to APS Holding.

Closing is expected in the second quarter of 2023.

HoldCo East and Seta Montenegro are management consulting services companies.

APS is a distressed assets investment company and debt recovery platform. Its business consists of acquiring, advising, and servicing non-performing loan portfolios.

The Komnenic & Associates team included Partners Milos Komnenic and Nemanja Radovic as well as Junior Associate Marijana Radulovic.

Editor’s Note: On April 20, 2023, Komnenic & Associates announced the transaction had closed successfully.