Category: Montenegro

Montenegro is a small mountainous country located in Southeastern Europe, on the Balkan Peninsula, with a coastline on the Adriatic Sea, and with a specific real estate market that offers something for everyone’s pocket.

Montenegro belongs to the hottest and the sunniest tourism regions in Europe, and it is a very attractive tourism destination. After visiting and enjoying Montenegro, many tourists decide to buy some property, start their business here, or invest in real estate. Such decisions are easier to make when considering that, with buying property, foreigners are allowed to obtain residence permits.

There are no restrictions on foreigners buying property, except for land, which can only be purchased by foreigners through a company if it is agricultural land. Property tax rates are also attractive for foreigners, because the property transfer tax rate is 3%, and the annual property tax rate range is between 0,25% and 1% of the property’s market value. Montenegro has also signed double-taxation treaties on income and property with more than 40 countries.

The real estate market in Montenegro is very diverse, in terms of the type of real estate offered on it, and very favorable, in terms of real estate prices. In Montenegro you can find everything from simple apartments and townhouses all the way to luxurious, fabulous penthouses and stone villas with amazing sea views.

The Economic Citizenship Program, which started in January 2019, gives the opportunity to obtain a second passport through the investment in real estate, which can be acquired by a donation to the government plus the purchase of real estate in the country.

Investments range from EUR 350,000 to EUR 500,000, so this program results in attracting wealthier investors interested in Montenegro citizenship. The Government of Montenegro has extended the citizenship program until December 31, 2022.

There has also been a marked increase in the investments in real estate by entrepreneurs and foreigners that invest in small businesses, as well as by highly qualified foreign workers that moved to Montenegro.

The trends in the real estate market and prices in recent years stayed positive, despite the COVID-19 crisis which has not avoided Montenegro. Last year, the Montenegrin real estate market recorded a significant increase in demand and sales compared to 2020, when the market was in sharp decline due to the COVID-19 pandemic.

Although Montenegro is a small country, there is a significant difference in the price of properties depending on the region where they are located. We can split the real estate market into three regions: coastal, central, and northern. In the north of the country, properties can be bought for as little as EUR 500 per square meter. In Podgorica, the capital of Montenegro, prices range from EUR 1,000 to 2,000 per square meter, while at the seaside prices range from EUR 1,000 to 4,000 per square meter.

Property prices have seen a slow increase compared to a few years ago, but real estate prices in Montenegro are still some of the lowest in the region and the European Union. The price increase was influenced by the increase in the price of construction materials and, in 2021, property prices increased by between 10% and 25%.

We do not expect a considerable increase in prices on the real estate market in the next period. But, as we drive to join the European Union, now is a great time to buy real estate in Montenegro, as its value will increase significantly after joining the EU.

By Jelena Vujisic, Partner, Vujacic Law Offices

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On 18 May 2022, a Bill on Amendments to the Law on foreigners (hereinafter: “Bill”), was submitted to the Parliament, introducing legislative solutions for obtaining visas and residence permits for digital nomads.

JPM Partner in Montenegro provides detailed update. The bill introduces a definition of digital nomads as foreigners employed or performing tasks electronically for foreign companies not registered in Montenegro or an entrepreneur not performing tasks or providing services to employers or companies registered in Montenegro. The digital nomads shall be eligible for obtaining a long-term visa (Visa D- up to 180 days) and for obtaining a residence permit in Montenegro valid for two years, with the possibility of prolongation for another two years upon expiry.

After prolongation of the permit for additional two years (2+2), there should be a break of six months before applying for a new permit for digital nomads.

As a proof of justification of the request, a labor agreement shall be used, or other proof that tasks are performed electronically for a foreign company or, that it is an entrepreneur registered somewhere else other than in Montenegro.

In addition, a future digital nomad in Montenegro, wishing to apply for the residence permit, must fulfil all the other conditions established by the current Law on foreigners, which, among others, include 1) proof of sufficient funds; 2) secured accommodation; 3) proof that it has not been sentenced to a jail sentence for longer than six months in the country of origin.

By Lana Vukmirovic Misic, Managing Partner, and Dina Kardovic, Junior Associate, Vukmirovic Misic Law Firm, JPM Jankovic Popovic Mitic Partner in Montenegro

All the countries around the world regardless of whether they are big or small, wealthy or poor, developed or developing, are facing the consequences of the coronavirus crisis. The ongoing COVID-19 pandemic has revealed the fragility of healthcare systems, the instability of economic structures, and the vulnerability of society.

Given the strong impact of the COVID-19 pandemic on the economy of Montenegro over the past year, to improve the economic situation and living standards of the population, the Government of Montenegro adopted an ambitious economic plan – Europe Now. The reform aims to increase the living standards of all citizens, improve the business and investment environment, and reduce the grey economy in the labor market.

One of the key parts of the Plan was the changes in the tax legislation, as taxes are undoubtedly among the most important components of every state’s economy.

On December 29, 2021, the Assembly of Montenegro passed a series of laws that are part of the Europe Now plan. Among the most important changes were amendments to the Law on Personal Income Tax, the Law on Corporate Income Tax, and the Law on Mandatory Social Security Contributions. All changes to the relevant laws are in effect from January 1, 2022.

The starting points of the plan were the high tax burden of employees on the one side and the low level of the minimum wage on the other side. In addition, the plan has introduced a system of progressive taxation, as a more efficient model of taxation.

Amendments to the Law on Personal Income Tax have been introduced a non-taxable portion of earnings of EUR 700 on a gross basis, which implies an income tax rate of 0% on a gross wage of up to and including EUR 700. Furthermore, the amount of earnings between EUR 700 and EUR 1,000 is taxed at an income tax rate of 9%, while a gross basis above EUR 1,000 is taxed at an income tax rate of 15%. Reform measures also include the abolition of compulsory health insurance contributions borne by both employers and employees, which will reduce the tax burden by 18.4%.

The amounts of the tax rate on income from self-employment have also been changed so that now the amount of taxable income over EUR 8,400 to EUR 12,000 is taxed at a rate of 9%, while the amount of taxable income over EUR 12,000 is taxed at a rate of 15%.

Another important aspect of the tax reform relates to corporate income tax. Amendments to the Corporate Income Tax Law have abolished the proportional rate of 9% and a progressive taxation system is envisaged. The amount of taxable profit from up to EUR 100,000 is taxed at a rate of 9%. If the amount of taxable profit is between EUR 100,000 to EUR 1.5 million, the income tax will be calculated as EUR 9,000 plus a 12% rate on the amount over EUR 100,000. In addition, for taxable profits over EUR 1.5 million, the income tax will be calculated as EUR 177,000 plus a 15% rate applicable to the amount over EUR 1.5 million. The deductible tax has also been increased from 9% to 15%, based on gross income.

For all revenues generated from income from property, capital, capital gains, revenues from sports activities, copyrights, and related rights, patents, the tax rate has been increased from 9% to 15%.

The fact is that the Laffer curve indicates that tax revenues increase with the growth of the tax rate, but to a certain level. After that certain level, progressive taxation and the growth of the tax rate could have a disincentive effect on economic activity and affect the decline in tax revenues and tax evasion.

Therefore, the question is whether progressive taxation will lead to further stimulation of the grey economy or smart, sustainable, and inclusive economic growth.

By Igor Zivkovski, Partner, Zivkovic Samardzic

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.

Montenegro’s new economic plan, together with tax and insurance-related reforms, aligns with the country’s aspiration to become an attractive destination for foreign investors and digital nomads, according to Milena Roncevic Pejovic, Attorney at Law in cooperation with Karanovic & Partners.

“Focusing on attracting investors, the government of Montenegro is in the process of implementing a number of reforms,” begins Roncevic Pejovic. “In general, one of the major recent developments was the introduction of a new economic plan, referred to as the ‘Europe Now!’ project,” she says. “The plan focuses on tax reform. According to the plan, the corporate income tax will remain at 9% for companies whose profit does not exceed EUR 100,000. It will be beneficial for both new and existing investors to enter and operate on the local market.” Roncevic Pejovic points out that Montenegro has the lowest corporate income tax in the region, and the new law should contribute to the country having a unique position in the regional market.

Another major update, according to Roncevic Pejovic, is the adoption of the new Law on Innovation. “This law will enable innovative companies to be exempted from paying profit tax for the last five years,” she notes. “This is an additional way for the government to attract investments in the field of innovation. It also sends a good signal for young people to enter our market. Additionally, the minimum employee salary is increased to EUR 450, which might not be a significant number for many countries, but is a big step locally.”

“Recently, health insurance payments became the responsibility of the state,” Roncevic Pejovic adds. “Previously, it was the employers’ responsibility to provide such insurance.” According to her, this news will have a positive impact on the business sector, as their obligations will be relaxed on a monthly basis.

Overall, Montenegro is a touristic destination, and ensuring reforms in this area remains the priority of the government, Roncevic Pejovic says. “Investments in renewable energy, in particular wind and solar energy, are becoming increasingly popular,” she adds, noting that “the government also aims to promote Montenegro as a destination for digital nomads. That would be a great novelty, contributing to our country’s economy.”

“While the business environment is becoming more attractive, there is a great need for further reforms to promote the rule of law and to fight against corruption and the grey economy,” Roncevic Pejovic explains. “Definitely, those factors, in addition to the COVID-19 pandemic, the war in Ukraine, and the local government crisis, have a major influence on the development of the market and attracting new investors.”

The Government of Montenegro passed a Bill of the Law on Electronic Document („Bill“) which is now waiting to be passed by the Parliament of Montenegro. Among other things, the Covid-19 epidemic revealed the weaknesses of the public administration in terms of the digitalization of the public administration but also of the legal framework concerning the creation, usage and archiving of electronic documents both in the public administration as well as in private legal affairs, which makes the adoption of this Bill of great importance for the continuation of the digitalization process.

The Bill represents a more advanced legal solution in relation to the current regulatory framework, and below we have referenced certain novelties and possible challenges in their application in accordance with the current text of the Bill.

One of the purposes of the Bill is to align with the currently valid Law on Electronic Identification and Signature (“LEIS“), especially with regards to broadening the definition of an electronic signature to include simple electronic signature and qualified electronic signature, in addition to already defined advanced electronic signature, and introducing the electronic stamp as a part of the electronic document.

The electronic document which originated in electronic form and is signed by an electronic signature i.e., an electronic stamp is considered an original. The original of an electronic document as well as its copy in paper form, which is certified in accordance with the Bill, have the same legal validity and can be used equally in all proceedings and activities for which the use of documents is required in the original form or in the form of a certified copy. There is a certain inconsistency between LEIS and the Bill with regards to the meaning of the legal validity which might be taken into consideration. The LEIS determines that only a qualified electronic signature is acceptable as a proof in legal proceedings before state and local authorities, while the Bill determines that any electronic document (even those signed with a simple or advanced electronic signature) can be used equally in all proceedings and activities for which the use of documents is required in the original form or in the form of a certified copy.

The Bill introduces the institutes of a digitalization process and a digitalized document. The digitalization is defined as a process of converting a document from a non-electronic form to an electronic one, while digitalized document is defined as a document that is made in the process of digitization in a form that ensures machine readability and long-term storage.

The provisions of the Bill do not specify the process of digitalization of a document, but in any case, it is prescribed that a digitalized document is considered a copy of a document not originally created in electronic form.

The certification of a copy of an electronic document in paper form and the certification of a digitalized document is performed in accordance with the Law on Certification of Signatures, Manuscripts and Transcripts. Recently, the Government of Montenegro enacted the Bill of Amendments to the Law on Certification of Signatures, Manuscripts and Transcripts. The proposed amendments to this law are aimed at introducing the possibility of digital certification of signatures and manuscripts by notaries, courts, and municipal local authorities.

The Bill further stipulates that the certification of a copy of an electronic document and the certification of a digitalized document may also be performed by the competent authorities when a certified copy or a certified digitalized document is required in proceedings before those authorities. This provision is defined too broadly in a way that it can be interpreted that any public authority before which the administrative proceeding is initiated, can certify a copy of any electronic document or certify a digitalized document required for that procedure, which may lead to the legal uncertainty. This is especially since, upon fulfilling the requirements from the Bill, a certified copy of the electronic document has the same legal validity as the original. Currently, this kind of authority is within the competencies of notaries, courts, and municipal local authorities authorized for certification of true copies of documents in accordance with the Law on Certification of Signatures, Manuscripts and Transcripts. It would be desirable to specify this provision, perhaps in a sense that only a public authority that issues a certain electronic document can certify a copy of that electronic document in paper form or similar specification.

Article 15 of the Bill prescribes that digitalized document has the same legal validity as a document, which is not originally made in electronic form, upon fulfilling certain conditions. Bearing in mind the context of this provision it is likely that the proposer of the law has the intention of prescribing the conditions for the legal validity of the certified digitalized document and not a digitalized document since, as beforementioned, a digitalized document is considered a copy of a document not originally created in electronic form.  

The Bill further defines the time of dispatch and receipt, as well as the confirmation of receipt of the electronic document, the manner of delivery of electronic documents between the competent authorities and the parties and the manner of keeping the electronic document. 

In relation to the process of digitalization in Montenegro, it is important to mention the recent announcement of the Ministry of Public Administration, Digital Society and Media of Montenegro about the introduction of the possibility of electronic payment in the following weeks for administrative fees for certain services of public administration.

Evidently, Montenegro is moving steadily toward the main goal – full digitalization of all possible governmental services as well as the increased usage of the digitalization process in the private legal affairs, and the adoption of the Bill, with certain modifications made in the procedure before the Parliament, would certainly support this goal.

By Lana Vukmirovic Misic, Managing Partner, and Milica Komar, Senior Associate, JPM Montenegro Partner

Karanovic & Partners has advised BIG Shopping Centers on the EUR 95 million acquisition of Delta City Mall from Hystead Limited. CMS advised the seller.

Delta City Mall is located in Podgorica, Montenegro, and has 24,500 square meters of gross leasable area of commercial space. The property includes 1,000 parking spaces and has close to 100% occupancy rate.

Hystead Limited is a London-based company and investor in the Western Balkans.

BIG is an Israeli Stock Exchange-listed company, that operates and manages 26 shopping centers and malls in Israel and also has a presence in the United States, Serbia, and France.

“BIG continues to locate strategic assets in order to expand its commercial power which, in addition to the success achieved in Serbia, ranks BIG in the position of one of the leading commercial real estate companies in the Balkan Region,” Big Shopping Centers CEO Hy Galis commented. “Delta City Podgorica is the most powerful asset in the country and one of the most powerful commercial facilities in the Balkans.”

CMS previously advised Hystead Limited on its sale of the Delta City shopping mall in Serbia (as reported by CEE Legal Matters on December 17, 2021).

The Karanovic & Partners team included Partner Ivan Nonkovic and Senior Associate Marko Culafic.

The CMS team was led by Partners Maja Stepanovic and Milica Popovic and included Partner Ivan Gazdic and Attorney Tamara Samardzija.

When assisting our clients in the process of setting up a company in Montenegro, one of the first questions that come up is what the conditions are for a foreign national to be appointed as a managing director. In this article, we will provide a short overview of those conditions.

A managing director of a Montenegrin company must be employed with the company, based on a local employment contract. The employment contract of a foreign national must be tied to the length of the temporary residence and work permit (Permit), and obtaining the Permit is a condition for obtaining employment.

The main phases of the process for obtaining the Permit and establishing employment are the following: (1) applying for the Permit; (2) collecting the Permit; and (3) signing the employment contract and registering the employment status with the tax administration.

Before applying for the Permit, a foreign national must report their entry into Montenegro – within 24 hours. This can be done either through the hotel where they are staying, or they can report the fact themselves to the Tourist Bureau or the Ministry of the Interior.

After that, the following documents (original or certified copies) must be submitted by the foreign national, in person, to the Ministry of the Interior office in the reported municipality of residence in Montenegro: (1) written offer from the local company for their employment as managing director; (2) evidence of relevant qualifications (the recognition procedure for a foreign state diploma must be initiated at the Ministry of Education, Science, Culture and Sports); (3) evidence of an occupational health check by a certified Montenegrin health laboratory; (4) evidence of sufficient funds to cover the costs of living in Montenegro (e.g. either a salary that is higher than average or a statement by the company that it will cover their cost of living, etc.); (5) evidence of their accommodation in Montenegro (e.g. excerpt from the land registry proving ownership of real estate in Montenegro, lease contract for an apartment, etc.); (6) evidence of their health insurance coverage in Montenegro; (7) evidence that they have not been convicted of a criminal offence that is prosecuted ex officio and have not been unconditionally sentenced to imprisonment for longer than six months, or that the consequences of any past conviction no longer apply; (8) excerpt from the relevant Montenegrin registry proving that the company is duly incorporated and that they are registered as managing director; (9) copy of their passport; and (10) proof that the EUR 67 fee has been paid. In case the above-listed documents were issued by authorities abroad, their legalization by an apostille may also be necessary, depending on the country of origin, so this should be checked in advance.

If a certain document is missing or is deemed inadequate by the authorities, the foreign national must submit additional and/or adequate document(s), within ten days from the date of the initial filing. The Permit is issued within 15 days of submitting the complete application to the Ministry of the Interior, and the foreign national must collect it in person.

The employer is required to conclude the employment contract with the foreign national within 24 hours of the date the Permit is issued and to register the employment status with the tax administration. To receive a salary under the employment contract, the foreign national will need to open a bank account in Montenegro.

The Permit applies for one year and may be extended twice (each extension is on an annual term basis). A request to extend the Permit must be filed no later than 30 days before it expires. The same procedure applies to the extension as to the initial filing. However, the set of necessary documents differs slightly. Namely, all the above-listed documents must be submitted, except those under points (4), (5), (6), and (7).

Furthermore, when filing for an extension, one must submit a confirmation from the Montenegrin tax administration proving that all employment-related taxes have been duly paid. Once the conditions for the extension of the initial Permit no longer apply (i.e., three years after the first submission), a request for a new Permit must be submitted, so all the documents must be provided anew, including payment of another administrative fee.

By Dragana Bajic, Partner, CMS Belgrade and Tamara Samardzija, Attorney-at-law, CMS Podgorica

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Montenegro-based PLK Advokati has joined the Lexcellence legal alliance, a network of six law offices, focusing on the SEE region.

Former Karanovic & Partners attorneys Luka Prelevic, Stefan Lucic, and Djordje Kuzmanovic have opened PLK Advokati for business in Podgorica a year ago (as reported by CEE Legal Matters on February 24, 2021).

Prelevic specializes in corporate law, labor law, real estate law, and dispute resolution. He started his legal career with Jovovic, Mugosa & Vukovic in 2016 and joined Karanovic & Partners in 2018.

Lucic specializes in dispute resolution with a focus on commercial and civil litigation, restructuring and insolvency proceedings, and debt recovery. He had been with Karanovic & Partners since 2014, joining the firm after serving as the Head of Legal of Podgoricapromet. 

Kuzmanovic specializes in banking & finance with an emphasis on corporate restructurings, capital market operations, business transactions, financing, and securitization. Before joining Karanovic & Partners in 2018, he spent three years as a Legal Officer with Societe Generale.

In “Official Gazette of Montenegro” no. 145/21 and no. 146/21 on 31, December 2021, amendments of the series of laws were published, including Law on Tax Administration, Law on Personal Income Tax, Law on Corporate Income Tax, Law on Contributions for Compulsory Social Insurance, Law on Compulsory Health Insurance, Labor Law, Law on Companies.

The aim of these laws amendment is implementation of the Montenegrin Government Economic Plan “Europe Now”.

Significant improvement of the business environment has been made through abolition of the obligation to pay contributions for compulsory health insurance and introduction of non-taxable part of the salary.

Non-taxable part of salary (up to EUR 700) has been introduced by the amendment of Law on Personal Income Tax in order to reduce the tax burden while also implementing the dual taxation system depending on the source of income.

With these changes, Montenegro becomes the state with the highest level of non-taxable part of the salary in the region, while retaining a  low rate of income tax on the amount of earnings exceeding the amount of 700.00€.

Also, in order to stimulate development of innovation, non-resident persons who perform activities electronically with an employer who doesn’t perform activities in Montenegro are exempt from income tax.

With amendments on the Law on Corporate Income Tax, Montenegrin legislation was harmonised with EU directives. A progressive corporate tax rate has been introduced while Montenegro kept its competitive position.

Amendments on the Law on Companies will prevent of launching of court liquidation on official duty for those business entities who have failed to harmonise the organization with the Law and to register changes before deadline defined by the Law.

There are expectations that these regulation changes will support the increase the living standards of all citizens, improve the business and investment environment and reduce the grey economy in the labour market.

By Daniel Vujacic, Associate, Vujacic

Unprecedented times for the entire world, even more so for Montenegro. Apart from the pandemic that still firmly grips the globe, setting back the economies worldwide, Montenegro has witnessed a huge political shift, as the opposition came to power after narrowly winning the parliamentary election held last year. The victory was hailed by many as the beginning of a new era, expecting the new government to lead this Balkan country toward a more stable and prosperous future. Many changes have been announced, and the financial sector was one of the most talked-about topics.

Due to the negative effects of the pandemic, there has been an increase in public debt, unprecedented from the time of hyperinflation in 1993, while Montenegro was still a part of Yugoslavia. The lack of diversification of dominant business activities made the country even more vulnerable to the crisis, for when the dominant sector is affected, as was the case with tourism in Montenegro, the country’s entire economic stability is in peril.

The COVID-19 pandemic caused a significant strain on the medical system of Montenegro, as well as a drop in activities across all sectors, leading to the closing of numerous companies. The pandemic required constant attention and monitoring of the financial sector by the competent authorities.

The financial market of Montenegro is regulated by the Central Bank, the Insurance Supervision Agency, and the Capital Market Authority, while the Central Securities Depository and Clearing Company is the relevant body regarding trading on Montenegroberza, the only stock exchange in Montenegro.

The Central Bank of Montenegro, apart from its supervisory role, has a central role in the banking system and is tasked with maintaining and improving monetary and financial stability. Additionally, the Central Bank of Montenegro each year advises the government of Montenegro by recommending the necessary measures for improving the economic policy dictated by the government.

This year such advice is more valuable than ever, given the hardships brought on by the pandemic. Tourism, one of the priority sectors in the development of Montenegro and one of the key generators of growth and employment, has been severely impacted and hindered, thus requiring immediate reaction from the financial sector. The banking system, led by the Central Bank of Montenegro, as the dominant component of the financial sector, has to ensure that solvency and liquidity remain solid. This has been achieved through the implementation of measures aimed at mitigating the negative effects on the economy caused by the coronavirus pandemic.

The necessity for maintaining the liquidity and the stability of the banks was recognized and competent authorities took action in order to ensure that the risk exposure is maintained at prudent levels. Given the fact that the financial sector of Montenegro is comprised mostly of banks (over 90%), while insurance companies and monetary financial institutions come in distant second and third places, the importance of keeping all banks liquid was paramount. An increase in the credit potential of the banks was achieved by reducing the mandatory reserve requirement by 2 percentage points, increasing the liquidity of the banking sector by EUR 70 million, according to the data of the Central Bank of Montenegro. So far, the banking sector has proved resilient in spite of the COVID-19 crisis, with banks’ capital adequacy ratio comfortably above the regulatory minimum and the level of impaired loans stabilizing thanks to payment deferrals and loan restructurings. Despite the measures taken, it is realistic to expect an increase in bad loans in the coming period, as a result of the difficulties faced by the real estate sector. Nevertheless, it is not likely that the country’s financial stability would be jeopardized, as the banking system is liquid and solvent.

According to the World Bank’s latest projections, Montenegro’s GDP is expected to grow by 7.1% this year after shrinking by 15.2% last year. However, activity in this tourism-dependent economy will continue to be hampered by international travel restrictions. The government is optimistic and has announced an increase of minimum salaries by 17%. This should lead to minimum salaries amounting to EUR 700 by the end of the next year and, consequently, a considerable increase in the standard of living in Montenegro.

Montenegro continues to strive towards European Union membership, along with the rest of the Balkans, but many challenges still lie ahead. It remains to be seen whether the new government, with its fiscal policy, will improve the current state of the financial sector, and the economy as a whole.

By Igor Zivkovski, Partner at Zivkovic Samardzic Law Office

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.