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Montenegro - Challenging Country for Investment

Briefings
Typography

Montenegro is located in the Western Balkans, with a population of only just over 600,000. Once it was part of former Yugoslavia and today it is a country that has independently done a lot on its European integration path.

In 2012, Montenegro has formally opened accession negotiations with the EU and with recently opened chapters 14 and 15, on transport and energy, it has now opened 22 of the 35 chapters of the acquis. For the last ten years period, Montenegrin government has adopted an investment framework that in principle encourages growth, employment and exports. In this field, a number of reforms, have been undertaken to increase its attractiveness as a destination for foreign direct investments (FDI). Important for Montenegro to continue on its reform path is the invitation, which has arrived on December 2nd 2015, to start accession talks to become the 29th member of the NATO Alliance

With regards to reforms, „Doing Business“ in a Report, implemented from June 2014 to June 2015, has noted the following two improvements in the ease of doing business in Montenegro: paying taxes and dealing with construction permits. Namely, paying taxes has been made easier for companies by introducing an electronic system for filling and paying labor taxes and application of the „crisis tax“ has been extended for an indefinite period on income exceeding €720 a month.  dealing with construction permits has been made easier, by reducing the time needed to issue building permits („one-stop-shop“, 30-day time limit for issuing building permits). With regard to the business regulatory environment, Montenegro has been ranked 46th in the Ease of doing business ranking, with 71.85 DTF score1

There is no doubt that energy is the main incentive to overall economic. Therefore, Montenegro has recently enforced the new Energy Law, with high level of compliance with the relevant Directives of the European Union (EU) from this domain, which significantly contributes to a higher level of protection of end customers. In principal, the above-mentioned Energy Law has defined the possibility for supplier, who is coming from from either the Member state of the European Union or Member State from the Energy Community and thus meets the requirements in the country where they have been registered, to carry out the supply activity with power or gas in Montenegro.

Aiming to attract more direct foreign investments, over the next 10-year period, the Government of Montenegro has adopted the Decree on Fostering Direct Investments in order to improve the business environment and facilitate faster economic growth. Hence, a number of stimulating measures are to be implemented with the purpose to develop new tourist facilities, i.e. construction of dozens of high-class hotel facilities of various types and capacities. For example, the amendments to the Law on Spatial Planning and Construction abolishes utility contribution payment for the construction of 4 and 5 star hotels, and the amendments to the Law on Property Tax have defined the reduction of annual property tax of up to 30% for 4-star hotels and up to 70% for 5-star hotel. Furthermore, the amendments to the Law on Value Added Tax abolishe the obligation to pay import VAT for the delivery of products and services for the construction of 5-stars hotels2

Worth mentioning on this occasion is the data on Foreign Direct Investments in Montenegro. Namely, in the period January-November 2015, net FDI inflow continued to grow in relation to the corresponding period of the previous year. During the first eleven months of 2015, net FDI inflow amounted to 573.4 million euros, or 79.7% more than in the corresponding period of 2014. The significant increase of inflow based on investments in domestic companies and banks, as well as smaller outflow of foreign investments contributed to the increase of net FDI inflow in relation to 2014. Total FDI inflow amounted to 670.8 million euros, while at the same time there was an outflow of 97.4 million euros3

Montenegro has been recognized as a country with favorable investment environment and as a leader in number of registered foreign companies in the region4, with the potential to continue economic growth in the years to come. The strategic priorities of Montenegro’s development are tourism, energy, agriculture and rural development. Hence, the most important investments that are expected in 2016 refer to further investments in transport - first section of the Bar-Boljari Highway, investments in tourism, energy and industry.

By Jelena Vujisic, Partner, Law Office Vujacic

1 - „Doing Business 2016“, 13th edition. 
2 - http://www.gov.me/en/News/151161/Government-introduced-incentives-and-credit-support-of-the-IDF-in-the-field-of-tourism.html, on February 8, 2016.
3 - Central Bank of Montenegro, „Bulletin of Central Bank of Montenegro“, December 2015.
4 - The Montenegrin Investment Promotion Agency (MIPA)

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