Country report Montenegro

Economic overview

In 2023, economic policy will focus on mitigating the economic fallout caused by the war in Ukraine. The State Electricity Company (EPCG) has granted a 12.5% ​​discount on electricity bills for households for 2022, to mitigate the impact of rising cost of living in general. In January 2023, the country will receive a grant of €30 million from the EU’s energy support package for the Western Balkans.

The infrastructural system has considerable room for improvement, as Montenegro’s administrative and financial capacities for the implementation of important public investments remain limited. The Government will continue to seek funding for infrastructure projects, especially for the continuation of the Bar-Boljare highway. The first stretch of motorway was put into operation in July 2022. In November 2022, the EIB (European Investment Bank) granted a loan of 50 million euros to support the Montenegrin economy, in favor of initiatives concerning the green economy and climate change.

The Economic Program “Evropa sad” (Europe Now), which entered into force in January 2022, aims to stem the phenomenon of migration of young population abroad and to limit the shadow economy, as well as to improve the business environment. One of the measures of this program provides for the abolition of health contributions paid by workers, which previously amounted to 4% of GDP. Furthermore, in 2022 the Government reduced the excise duty on fuel by 50%. This measure is still in force.

Main sectors of economy

Although the economy of Montenegro was weakened by economic sanctions imposed by the United Nations on the Federal Republic of Yugoslavia in the 90s, today, thanks to a series of positive factors, there is strong growth in the economic field.

The strong currency, the Euro, and the rule of free trade, have contributed to greatly increase the Gross Domestic Product of the Republic of Montenegro.

The economy is mainly based on agriculture and pastoralism: among other things, cereals, tobacco, vegetables and olives are grown. The industrial sector exploits metallurgical resources and the shipbuilding sector is very important.

Tourism represents a fundamental resource for the country: it is a constantly growing sector, able to meet the needs of different types of tourism, all according to a “sustainable” and environmentally friendly conception.

The tourist who travels to this country can spend a daily amount of around 30 – 35 euros, as regards the stay in the hotel; if, on the other hand, one loves camping, the figure is decidedly more reasonable: 10 – 15 euros per day for food and overnight.

Taxation for businesses in Montenegro

Since the renewal of independence, Montenegro has pursued a competitive tax policy, with a lean tax system, characterized by low levels of tax rates and specifically aimed at attracting foreign capital. Corporate income tax can range from 9 to 15%. The personal income tax ranges from 9 to 15%. VAT amounts to 21% for most goods and services. For basic consumer goods, the VAT is 7%. With a view to EU membership, the rates could be raised in the future.

Montenegro, an independent republic since 2006, applied for membership of the European Union on 15 December 2008. The accession procedure is ongoing. Pursuant to article 142 of the Constitution approved in 2007, the sources of state funding derive from taxes, fees and other revenues, the establishment of which is governed by the principle of legality. The obligation to pay taxes is generalised.

The taxation of natural persons

Individuals permanently residing in Montenegro pay tax on both domestic and foreign income, while non-residents pay tax only on Montenegrin income. Persons who reside in the territory of Montenegro for at least 183 days in a year, who have a domicile in the country or who have the center of their business or interests in the state are considered residents.

The tax, with a single rate of 9%, is paid monthly for employees by the employer, who withholds the income paid and pays it, taking into account personal deductions, if any. From 2016, a rate increase from 9% to 11% is expected for the portion of gross salaries that exceeds the average monthly salary. Self-employed workers who start a business in some regions of the country are exempt from taxation for eight years, up to an income limit of 200,000 euros. This incentive does not apply to taxpayers engaged in agriculture, transport, shipbuilding, fishing and steel production.

The taxation of legal persons

Resident companies are taxed at a single rate of 9% on income produced everywhere, while non-resident companies only on income produced in the country or attributed to their permanent establishments.

A legal entity is considered to be a tax resident if it is incorporated in Montenegro. If established abroad, it can be considered resident if the effective management can be located in Montenegro. There are no explicit rules for determining the seat of management but it usually corresponds to the place where the most important managerial decisions are made or where the board of directors is located.

Taxable income is determined by adjusting the balance sheet profit (determined according to International Financial Reporting Standards [IFRS] and accounting legislation) in accordance with the provisions of internal regulations.

Investing in Montenegro

The energy market in Montenegro is characterized by the presence of a large producer, Elektroprivreda, from the National Electricity Transmission Company, Crnogorski Elektroprensosni Sistem (CGES), whose strategic partner is the Italian Terna. The annual electricity production is approximately 2847 GWh while the national consumption is around 4390 GWh. The disparity between production and consumption forces Montenegro to import about 40% of electricity from international markets to meet its needs. Only partially exploited the hydroelectric potential, two wind farms were put into operation in the locality of Mozura and Krnovo. The biomass energy sector remains unused.

Montenegro has enormous opportunities for investment in all sectors of the transport sector and its transversal importance affects the entire economy of the country (trade, tourism, etc.). The Port of Bar (Luka Bar) represents a regional hub for sea transport from Italy to the Western and Eastern Balkans. There are rail links and road corridors (need investment for restructuring) that connect Montenegro to the pan-European corridor. The most important strategic project is certainly represented by the Bar-Boljare motorway which will then extend up to Belgrade and is part of the so-called Pan-European Corridor XI or 4B – planned motorway which would connect Bari-Bar-Belgrade and Bucharest. The Montenegrin part will be 164 km long and the most expensive of all, around 2 billion euros, mainly due to the rough terrain and mountainous areas. In fact, the construction of 42 tunnels, 92 bridges and viaducts in total is planned.

The construction sector is a traditionally strong sector in Montenegro. Despite the global economic crisis, with the support of international and European financial instruments, the sector remains very dynamic. Numerous European projects financed through IPA funds or by the European Bank for Reconstruction and Development foresee interventions with the aim of modernizing all the infrastructures in Montenegro (transport, tourism, energy).

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