Political turmoil and contentious policy changes could cloud the investment climate in Montenegro, but the economy is still performing well – primarily driven by the IT, energy, and tourism sectors – according to Pejovic Legal Partner Milena Roncevic Pejovic.
“Montenegro is currently in-between regular presidential and extraordinary parliamentary elections,” Roncevic Pejovic begins. “Following the most recent dissolution of parliament in April, and the collapse of two governments, we are looking at a snap election cycle this June.” As she reports, the country is experiencing such political turmoil that it has begun to affect the overall investment climate.
“The business community is feeling the effects of political instability and we have noticed a downturn in foreign investment inflows,” Roncevic Pejovic continues. “This has created market uncertainties for existing investments as well – no longer are the war in Ukraine and COVID-19 the dominant spoilsports for business in Montenegro.” However, she does expect that the situation will calm down somewhat after the June elections.
Still, Montenegro has been amending some of its policy endeavors, which could potentially reflect on investments as well. “The citizenship-by-investment program, which was based on investing in pre-approved tourism projects that would generate significant income for Montenegro, ended on December 31, 2022, following negative assessments from the EU,” Roncevic Pejovic reports. Additionally, starting in January 2024, the real estate tax in Montenegro will switch to a progressive rate, moving away from the flat 3% currently in force. “The new brackets will include the same 3% tax for properties up to EUR 150,000 in value, 5% for those up to EUR 500,000 in value, and a 6% tax on all properties that are valued more,” she explains. “These changes are not something that the real estate market will take to keenly, given how attractive the old status quo was for investors.”
Furthermore, Roncevic Pejovic reports there is a draft law on solidarity contributions that might also put investors off. “Companies with annual revenue over EUR 5 million will be required to pay an extra 33% in taxes for the next two years, with the money to go to social welfare spending. This might clash with the investor’s notion of a competitive and predictable tax policy.” According to her, Montenegro is at a turning point, with investors still intent to get involved, but requiring “the trust and support of the authorities.”
Outlining the most vibrant sectors in Montenegro, Roncevic Pejovic points to the IT sector. “A lot of IT companies were recently incorporated, which is developing the industry very fast. Given the flexibility of remote work, we have seen a high number of IT experts relocating here,” she reports. “Additionally, the energy sector is strong, renewables and green energy in particular; wind power is the key generator of growth here, with the government strongly supporting development.”
Finally, the traditionally successful tourism sector is also developing rapidly. “Montenegro might just become a winter destination soon, given the development of the Kolasin ski resort, which will boast 250 kilometers of ski slopes once complete," she says. "Moreover, a new cable car from the UNESCO world heritage site of Kotor to the Lovcen National Park – connecting mountain and seaside – will be completed soon, further adding to the country's tourism credentials,” she concludes.