Company in Montenegro: The Definitive Guide [2021 Update]
This is a complete guide to company formation in Montenegro.
In this in-depth guide you will learn:
- How to choose the right business type
What information and documents are needed for the Montenegro Company Register
How to obtain a residence permit in Montenegro
- What the next steps are once the company is established
- Why you need to appoint an accountant and what his responsibilities are
So if you are excited to start your company in Montenegro, this guide is for you.
Let’s dive right in.
Chapter 1: How to choose the right business type
In this chapter I am going to help you get a handle on the fundamentals.
So if you have never started your own company before, or want to make sure you are on the right track, you’ll love this chapter.
Then, in later chapters, we are going more into detail with Montenegro-specific information.
But for now, let’s cover the basics of starting a company in Montenegro.
What is a company?
A company is a legal construct established by one or more individuals ,or other legal entities, in order to operate a business. The company type can have different forms for tax and financial liability purposes, mostly depending on the specific country situation of its jurisdiction.
Just as a natural person, a company can have many of the same legal rights and responsibilities. For example, a company can borrow money, pay taxes, own assets, and even hire employees.
The benefits of starting a company include:
- income diversification for its shareholders,
- liability and asset protection
- easy transfer of ownership in the form of company shares
- more favorable taxation
- expansion potential
- flexibility.
What business types are there in Montenegro?
The most common business type in Montenegro is the Limited Liability Company followed by the Sole Entrepreneur and the Joint Stock Company.
Limited Liability Company (D.O.O.)
With local and foreign business people alike, the business type of a Limited Liability Company (D.O.O. in Montenegro) has been the single most popular by a landslide. Well, it is easy to set up, gives you full asset and liability protection, and asks for just a few minimum requirements. This makes it equivocally a great choice for largely-staffed businesses and smaller-scale companies or even one-man startups. Let’s straight away have a look at all the advantages:
- The company’s share capital is divisible proportionally to the shareholders stake in the company; the minimum startup capital is just 1,00€
- You can start your Limited Liability Company in Montenegro with just 1 shareholder and just one director (who can also be the same person as the shareholder.)
- Both foreign natural or legal persons can start a D.O.O. in Montenegro
- Requires the director to have a residence permit in Montenegro. We also offer this service in-house or can recommend you to an immigration lawyer if desired.
Note: More than 95% of our clients choose the Limited Liability Company; you can skip to the next chapter if you think the D.O.O. is also your best fit. Alternatively keep on reading.
Sole Proprietorship (Preduzetnik)
A sole proprietorship in Montenegro is a single-member business that’s not formally incorporated and does not create a separate business entity from its owner.
To put it differently, the identity of the owner or the sole proprietor is equal to the business entity. Due to this, the business owner is fully liable for any incurring business debts.
The sole proprietorship is popular among small businesses, freelancers, and individuals that pursue a craft or a trade. What starts as a sole proprietorship can later be transformed into another, more complex business structure, such as a Limited Liability Company.
Sole proprietorship pros and cons include that It’s a little bit easier to set up (no need for a corporate Statute and Articles of Association), but there’s no distinction between the business entity and yourself as the owner and no liability protection. Thus Sole proprietorships minimize startup costs by a bit but won’t help you limit your personal liability. Let’s see what some of the the attributes are:
- Establishing your business as a Sole Entrepreneur requires no minimum capital.
- However, the Sole Entrepreneur is personally liable for all business debt which is a huge downside and should be taken carefully into consideration.
- Might make sense for the establishment of certain crafts and trades such as carpenter, tailor, etc
Joint Stock Company (A.D.)
A Joint Stock Company is a business owned by shareholders, with each investor owning a share based on the amount of owned stock in the company.
Joint Stock Companies are often formed with the goal of financing big business plans that are too expensive for an individual or even a government to fund. The owners of a JSC are compensated by sharing the realized profits.
- The minimum capital requirement to form a Join Stock Company in Montenegro is 25,000€.
- The JSC must have at least 2 shareholders.
- Shareholders owns shares in the company
- Shareholders are not personally liable for business debt; their liability is limited by the shares they own in the company.
- The founding of a Stock Company is much more complex than starting a Limited Liability Company and statuary founding documents must entail the Foundation Agreement, the Charter, a list with all names of the board members and managers, and the approval of Montenegro’s Securities Commission.
- JSC’s require auditing by a licensed auditor
General Partnership (GP)
A General Partnership (GP) is a business arrangement between partners to establish and run a business together with shared assets, profits, and liabilities. This essentially means that there is no liability protection which can lead to the loss of all partner’s assets in the case of bankruptcy. Partners can also be sued for the business’s debts.
- No minimum startup capital requirement.
- Requires at least 2 or more natural or legal partners.
- Each partner shares profits, assets, but also unlimited personal and legal liability for business debts.
The advantages of a GP are that it is relatively easy to set up, but has the above-mentioned downsides in regards to liability.
Limited Partnership (LP)
A Limited Partnership is characterized by two or more partners going into a business relationship together, in which the limited partners are only liable up to their investment amount. Besides the limited partner(s), there is a general partner, with unlimited liability.
- The Limited Partnership has no minimum capital requirement.
- The Limited Partnership must have at least one limited partner and at least one general partner.
- The limited partners have no management authority and they are not personally responsible for the partnerships’s incurring business debt. They are the company’s investors and are only liable inside the limits of their share holdings.
- The general partners have management authority as well as personal liability/responsibility for their roles in the company
Part of a foreign company or Branch or Subsidiary
If you already run a multinational company and want to expand into South-East Europe, setting up a foreign subsidiary in Montenegro might an amazing idea.
The question for companies considering international expansion outside of their country of origin. is HOW TO GET THE JOB DONE MOST EFFICIENTLY —and that’s no easy task. The trick is to maximize revenue potential and market dynamics and minimize operational and bureaucratic challenges at the same time.
One option to evaluate is a foreign subsidiary. What is a foreign subsidiary?
A foreign subsidiary is a company that is part of a larger foreign-based company, often known as a parent company. Companies primarily establish foreign subsidiaries/branches to increase corporate revenues, generate tax benefits and diversify company assets and risks by separating legal entities. Losses incurred by a subsidiary do not automatically transfer to the parent company.
Structurally, a foreign subsidiary operates as a legally separate and independent company and is responsible for its own assets and liabilities. Further, it operates in another jurisdiction with its own laws and distinct regulatory oversight.
The ownership in the daughter company must be at least 51%; if the ownership stake is 100%, the foreign subsidiary is known as a wholly-owned subsidiary.
- If a foreign company wants to operate in Montenegro under its own brand name, it needs to register a branch/subsidiary of the multinational company with the Montenegro Central Registry.
- The parent company can be liable for the activity of its branch.
- Forming a branch is similar to establishing a regular company in Montenegro. However, there is additional due diligence needed in the form of certificates and financial reports of the parent company.
Chapter 2: Company Founding Documentation and Process
Once you have chosen a business type, it is time to decide on a name for your new business. The business name needs to be unique enough in order to be easily distinguishable from other businesses operating in Montenegro. You can send us a list with two or three name ideas and we will check with the Montenegro Company Register if those are still available.
If your new company is a Limited Liability Company take note that it will have the shortening “D.O.O.” following the company name. So if your name idea is something like “Amazing Company Ltd”, the company will have both the “Ltd” and the “D.O.O.” in its name. We think it is better to just keep the local “D.O.O.” -suffix to have it easier for daily correspondence.
Besides the name, Montenegro’s Company Register does ask for some additional personal background information (address, e-mail address and phone number) for all people that will have a role in the company such as the shareholders and the company director.
Note: We can start your company in Montenegro by Power of Attorney that needs to be signed, certified, apostilled, and sent via DHL or Fedex to our office. Alternatively you can come personally to Montenegro and sign the Power of Attorney in front of a local notary.
We got all the info from you and now what? Now it is time to starting your company in Montenegro.
Our legal team will prepare and draft all needed company documents prior to filing the company with the Registry. The main documents for the Limited Liability Company are the Articles of Incorporation and the Corporate Statute that both regulate the workings of your company from start-up till liquidation and include:
- list of all shareholders and directors(s) with their respective personal and contact information
- the company’s main business activity code(s)
- amount of shares issued, its corresponding value, and later profit distribution
- legal representation scheme of the company and responsible persons
- reserving the name of the company
The registration of a company is mandatory in Montenegro.
How long does it take to start a company in Montenegro?
We know that time is precious and try to have your company set up within 4 business days!
However, please note that a registered company is only the first step since you would be needing a corporate bank account and an individual bank account in order to receive a mandatory (minimum) salary in Montenegro. The opening of corporate bank accounts has become tougher, that is why we highly recommend that you take our introducing bank account service as well. One of our agents will accompany you to our banking partners to make the process of getting a bank account for your business effortless. Personal presence of the company director is necessary.
Chapter 3: Obtaining a Residence Permit
Now that you have the company established and the bank accounts open, you very likely also need to think about getting a residence permit in Montenegro. Reason for this is that Montenegrin corporate law dictates that each employee, including each company director, needs to be a resident of Montenegro. What that means if you come from another country is that you need to also obtain a residence permit on the basis of employment in Montenegro.
The residence permit is officially called a “temporary work and residency permit” due to the fact that it allows you to work and reside in Montenegro for one year before you need to renew it.
Here is a list of what is needed for the residence permit in Montenegro:
- Passport needs to be valid for more than 15 months
- Criminal Record from the country where you are a citizen – not older than 6 months and in original (no digital printout); need to have a stamp or signature of the Ministry of Justice or Police Body of your home country
- Educational Diploma with list of grades and subjects (not needed in all municipalities; consult with us beforehand)
- Mandatory Health Certificate (issued on the grounds in Montenegro)
- Insurance Policy covering 30 days (issued in Montenegro)
- Residential Rental Contract over a period of one year ( we can help you with that)
- Work contract
- If coming from a country that requires a visa for entering Montenegro, you would also need a Visa-D (business visa) before applying for the residence permit
Residency applications are done in Montenegro and if you choose our services, we will accompany you to the immigration office and make sure that everything goes as smoothly as possible. After 2-3 weeks the permit is granted and comes in the form of a plastic ID card. Personal presence is required both at the application date and when picking it up from the immigration office.
Chapter 4: Registering with Tax- and Social Security Authorities
All of your employees, including yourself, need to be registered with the Tax- and Social Security Authorities in Montenegro AFTER they have obtained their respective residence permits. The registration is done in the municipality where the company has its registered seat. Each employee must receive a monthly salary from his employer, and part of this monthly payment goes to the government in the form of social contributions.
In its purest and most minimal form you have to pay 36,00 in monthly contributions to the government; the monthly cash-flow stream out of your company towards each employee (including yourself as the director) would be:
- 91,50€ of which 55,50€ end up in your personal bank account
- 36,00€ goes to the government
This is calculated on the basis of a work contract over 10h per week at minimum salary which is possible at the time of this writing.
As a contributor to the Social Security System in Montenegro, you will also have a Health ID which you can use to go to the hospital or to medical doctors.
If you want to keep and renew your temporary residence permit and work towards a permanent residence permit in Montenegro, it is essential to know that you need to keep paying these contributions to the government very seriously.
Only by paying them on a regular basis, you can reap the benefits of your residency such as the low taxation of worldwide income at the rate of just 9%.
Paying these contributions falls into the scope of monthly payroll accounting that is best done by your accountant to make sure that you keep up to date with current regulations and procedures.
Chapter 5: Taxes in Montenegro
If you think that Montenegro is an offshore tax haven, you have been mistaken. What is true though that taxes on business (and individual) income are among the lowest worldwide.
The standard corporate income tax rate in Montenegro is 9% flat and the standard VAT rate is 21%.
Even capital gains, and income derived from interest, royalties, and dividends are taxed at the rate of 9% which makes the Montenegrin corporate tax code efficient and straightforward. Corporate taxes should be paid by March 31st each year; the tax year is the calendar year.
Besides the standard 21% VAT rate, a tax rate of 7% is levied on essential goods such as books, milk, bread, medicine, and a tax rate of 0% on exports, supply of gasoline to boats and yachts.
If your annual revenue is below 30,000€, you can opt not to register your business for VAT. Businesses in Montenegro declare VAT on a monthly basis, and you need to file VAT returns within 15 days with the tax office.
Chapter 6: Accounting and Due Diligence
We strongly advise you to get an accountant from day one for your Montenegro-based company. An accountant will help you keep all statuary records in order and up-to-date with recent regulations and will take care of the mandatory monthly payroll accounting. So, even if you do not plan on having any revenue for the first few months, you should still have an accountant take care of the monthly obligations to avoid penalties.
There are also few peculiarities in Montenegro when it comes to invoicing, banking, and dealing with the tax office. It will be too overwhelming to deal with all of this yourself (especially as a non-native that does not have good command over the local language). Further, the accounting software used in Montenegro that complies with changes in the tax regulations is only available in local language and requires a purchased license in order to use it.
The monthly fees for accounting services are also not that expensive in Montenegro and start at 60,00€.
Here is a short overview what an accountant usually does for you:
- keeps records to comply with state and local municipal regulations
- monthly payroll accounting
- monthly VAT accounting
- prepares and transmits financial statements to the tax office; ensures that taxes are paid properly and on time
- invoicing
- solves issues with the bank in regards to incoming or outgoing transactions
- help you obtain needed business permits and licenses
- evaluate financial operations and recommend best practices
- interpret financial statements and strategize solutions