Montenegro’s economy is growing, with a focus on tourism, agriculture, and energy sectors. Many multinational corporations have set up subsidiaries in Montenegro to take advantage of the country’s strategic location, cheap taxes, and business-friendly environment.
Montenegro is currently ranked 50th out of 190 economies concerning ease of doing business, according to the latest annual ratings from the World Bank. Therefore, it can be said that setting up a subsidiary business in Montenegro is relatively easy.
The incorporation of a subsidiary of a foreign company in Montenegro might be a wise strategic choice for multinational corporations looking to expand their business operations in Southeast Europe. Montenegro provides a favorable business environment with low taxes, an easy tax system, and a quick registration process for foreign corporations.
This guide aims to provide comprehensive information on setting up a subsidiary business in Montenegro, covering everything you need to know to establish and operate your business in the country successfully.
What are the Types of Subsidiaries in Montenegro?
Foreign companies seeking to operate in Montenegro can choose from several legal structures, including private and public limited companies. Here are the types of subsidiaries in Montenegro:
Limited Liability Companies (LLCs)
Foreigners can own them and have between 1 and 30 founding shareholders. Non-resident-owned LLCs are tax-free. The process of incorporating an LLC in Montenegro involves following legal requirements. The new Companies Law in Montenegro applies to LLCs. A resolution or power of attorney of each shareholder’s board of directors or other is required to establish an LLC.
Joint-stock company (JSC)
Montenegro permits the establishment of joint-stock enterprises, which necessitate a minimum of €25,000 in initial capital and must adhere to strict regulations, such as appointing a board of directors. Non-domestic individuals and entities can create a joint-stock enterprise in Montenegro. The Montenegro Companies Law determines the procedures for creating and registering a company.
Foreign companies should know that local and foreign companies can operate through subsidiaries in Montenegro. To open a subsidiary in Montenegro, it is necessary to register a local company, choose a unique trade name that is independent of the parent company’s name, and obtain all necessary certificates and authorizations as required by law. The main checklist for incorporation of a foreign subsidiary in Montenegro is that it is treated as a local company and benefits from one of Europe’s lowest corporate tax rates (9%).
How to Set Up a Subsidiary in Montenegro?
Here are the steps for incorporation of a wholly-owned subsidiary in Montenegro:
- Choose a legal structure: The most popular legal structures for a subsidiary in Montenegro are limited liability companies, private or public.
- Prepare the necessary documents: The documents required for the incorporation of a company in Montenegro include the notarized memorandum of association and articles of association.
- Register the subsidiary: Once you have prepared the necessary documents, you can register your subsidiary in Montenegro. The registration process involves the creation of the necessary formation documents and filing them with the relevant authorities.
- Open a bank account: You must open a bank account in Montenegro to manage your company’s finances.
- Appoint a director: A company needs at least one director who does not need to be a Montenegro resident or citizen.
- Hire team members: Once you have a registered entity, you can hire and build your company.
- Ensure compliance: It is important to ensure laws and compliance for foreign subsidiaries in Montenegro. You can work with a consultant to help you meet the country’s laws.
Benefits of Setting Up Montenegro Subsidiary
With its strategic location, favorable tax system, and skilled workforce, Montenegro offers numerous benefits for setting up a subsidiary. Some advantages of a subsidiary business in Montenegro are:
- A subsidiary can operate independently, protecting the parent company from fines or litigation based on the subsidiary’s actions.
- Improved revenue and business expansion not attainable in the home country can result from entering a new market.
- Liability protections and favorable tax treatment are available for foreign companies operating in Montenegro.
- A subsidiary can hire team members and operate as an Employer of Record, allowing the parent company to focus on building the business.
Documents to Prepare When Opening a Subsidiary in Montenegro
A subsidiary system in Montenegro requires several documents:
- Power of Attorney: It is recommended to grant a Power of Attorney to a local lawyer or representative who can act on behalf of the subsidiary during the registration process in Montenegro.
- Company registration application: A company registration application must be completed and submitted to the Montenegro Business Register. This application includes the company name, address, share capital, and details about the company’s directors and shareholders.
- Memorandum and Articles of Association: This refers to the Articles of Association, which is a legal document that sets out the rules and regulations governing a subsidiary company in Montenegro.
- Identification documents: Identification documents such as passports or national identity cards must be provided for all company directors and shareholders.
- Proof of registered address: You must provide proof of your subsidiary’s registered address, such as a rental agreement or utility bill.
- Tax registration: You must complete and submit tax registration forms to the Montenegrin Tax Administration to obtain a tax identification number.
What Business Forms Can Montenegro Subsidiaries Take?
Montenegrin law permits the establishment of six types of companies: Entrepreneur, Limited Liability Company, Joint Stock Company, General partnership, Limited partnership, and Part of a foreign company. The most common business forms in Montenegro are the limited liability and the joint stock company.
A foreign company interested in establishing an office in Montenegro can establish a local limited liability company, known as a subsidiary company, a branch office, or a representative office.
The general partnership and the limited partnership are the two forms of partnership in Montenegro. Each business form requires at least two members to share the profits and participate in the company’s obligations.
Montenegro Subsidiary Laws
Montenegro has laws for registering subsidiaries, which are legal entities registered in Montenegro with a majority of capital or voting shares owned by a foreign company. To start a subsidiary in Montenegro, one should abide by these laws:
- Montenegro has subsidiary laws related to LLCs that foreign investors need to meet.
- Under the Montenegro Company Law, local and foreign companies interested in operating through branches and subsidiaries are subject to similar conditions for doing business.
- In Montenegro, each business form must adhere to a specific set of regulations and is subject to various conditions that must be met in order to operate legally.
- The liability of legal persons only arises where the offense was committed to obtaining a material benefit.
- The Law on Business Organisations regulates the incorporation of legal persons in Montenegro.
- The Central Business Registry contains information on legal persons’ setting up, nature, and activity.
- The new Montenegrin Law on Business Organisations recognizes the subsidiary as a special organizational unit of a company without the status of a legal entity that performs activities outside the company’s registered seat.
Montenegro has a business-friendly environment with short and easy-to-follow regulations. All Montenegro companies must comply with the Montenegro Financial Reporting Standards (SFRS), which is based on and is substantially similar to the International Financial Reporting Standards (IFRS).
Compliance rules for Montenegro-based companies are generally straightforward, logical, and designed to promote entrepreneurship and ease of doing business. Each Montenegro company must know about and comply with compliance requirements during its operational life cycle, including tax, employees, data protection, and licensing.
Taxes on Subsidiaries in Montenegro
In Montenegro, both branches and subsidiaries are taxed in the same way. Companies in Montenegro are subject to progressive corporate income tax (CIT). The tax rates on profits on the subsidiary system in Montenegro are represented in the following table:
Up to €100,000
€100,001 to €1,500,000
Resident taxpayers are taxed on their worldwide profit, while non-resident taxpayers are taxed on their Montenegrin-sourced income or income attributed to their Montenegrin permanent establishment. Non-residents are also subject to withholding tax (WHT) on income sourced in Montenegro. The WHT rate is 15% for individuals and companies, tax residents, and non-residents.
It is worth noting that a newly established company is exempt from CIT if they operate exclusively in the underdeveloped northern areas of Montenegro. Montenegrin companies collect a 21% value-added tax (VAT) on goods and services.
Tax Incentives for Businesses Setting Up a Subsidiary in Montenegro
There are several tax incentives for businesses, including a tax exemption for new subsidiary company formation in Montenegro, especially in underdeveloped municipalities. They are:
- An eight-year tax holiday is granted to companies engaged in production activities in an underdeveloped area. The tax holiday is proportional to the amount of profit generated by the business unit over the total profit for eight years from the establishment of the unit.
- The tax exemption is limited to EUR 200,000 over eight years.
- The tax incentive does not apply to a taxpayer operating in primary production of agricultural products, transport, shipbuilding, fishery, steel production, trade, and catering, except primary catering facilities.
- The applicable corporate income tax rate in Montenegro is progressive and varies from 9% to 15%, depending on the realized profit of taxpayers.
Other Important Considerations
In addition to the steps required to set up a subsidiary in Montenegro, there are other important considerations to keep in mind. These include the significant amount of time and money required to succeed in the subsidiary setup process. Taxation is also a key factor that foreign companies consider when establishing subsidiaries in Montenegro.
Understanding the distinctions between establishing a branch and a subsidiary in Montenegro is crucial because a branch cannot make significant decisions without consulting the parent company. After company registration, obtaining a corporate stamp and seal is necessary, as opening a business bank account and applying for work and business licenses is necessary.
How Multiplier’s Employer of Record Can Help You Hire & Expand in Montenegro?
If you are looking to hire and expand your business in Montenegro, using an Employer of Record (EOR) service like Multiplier can help you manage cross-border payments, taxes, benefits, and more without needing to set up a subsidiary in the country. Our services can help you easily hire, onboard, and pay talent in Montenegro and provide tailored expansion support with a fixed monthly fee that includes bonuses, commissions, and expenses.