“The word that best describes recent times in Montenegro is uncertainty,” according to BDK Advokati Partner Luka Popovic.
That uncertainty, Popovic says, “is not just on account of the pandemic. There has been some political turmoil in the country – a most peculiar situation where the government does not have the clear support of the parliamentary majority.” Popovic reports that this has led to a major legislative slowdown in 2021, with the pace being picked up only by the end of the year.
“The final days of 2021 saw a comprehensive tax reform taking place,” he says. “The government issued a new program called Europe – Now, that sought to increase the net wage in Montenegro.” The new minimum wage, Popovic says, is EUR 450, but the funds for this came directly by cutting taxes: “Healthcare contributions are no longer an obligation for employers. Instead, healthcare will be funded directly from the budget, and the tax cut difference that employers got will be funnelled towards their employees.”
Also, an untaxable part of one’s earnings has been introduced and the country swapped its proportional taxation system to a progressive one. “This means that businesses no longer have a flat 9% tax rate, but are facing a bracketed one – of 9%, 12%, and 15% – based on their income.” Popovic feels this is a most sensitive area to be regulated, seeing how it could affect Montenegro's allure as an investor-friendly destination.
“The state has lost a major source of revenue – so it will now have to find the money elsewhere to fund the healthcare system,” Popovic continues. “It will be great if the government's prediction is right and the revenue from other sources proves sufficient to offset this loss.” If that does not work, Popovic says that the country might have to go deeper into debt or increase taxes. “If further tax reform shuffles the tax rates some more – that will only lead to a greater sense of unpredictability, which is not good for business.”
The government has decided to extend the program of economic citizenship, set to expire by the end of 2021, for another year, according to Popovic. “This enables foreign citizens to apply for a Montenegrin citizenship, based on an investment in a pre-approved tourism project,” he says. “The program is yet to justify expectations in terms of the number of applicants, most likely due to the ongoing pandemic – so extending it is a good thing.” Popovic reports that the EU does not see this program in a fair light, “mostly due to previous experiences with Cyprus and Malta, but it should not damage the relations between Montenegro and the Union.”
The pandemic, Popovic says, highlighted the fact that “Montenegro does not have a well-diversified economy. Still, tourism aside, I think the energy sector might prove rather fruitful in the upcoming period.” He says the government repeatedly stated that renewable energy was a major goal, but that more effort from their side is required: “Preparation of tender procedures, urban-planning documentation, and other preparatory activities for such projects must be more efficient. There are several potentially valuable projects and the only thing needed right now is government action. Investors are ready to move in, but they cannot do all the heavy lifting themselves.”
Finally, Popovic says Montenegro could potentially become more welcoming for digital nomads. “All of those who have the option of remote work could be a valuable source of income for the country,” he says. “This is something which has already been realized in Croatia – with the country banking on its Adriatic coast being inviting for many – and is a credible path forward for Montenegro as well.”