Montenegro

GDP (US$ Billion)

4.76 (2017)

World Ranking 155/192

GDP Per Capita (US$)

7,647 (2017)

World Ranking 81/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(59.11%)
Industry
(15.89%)
Agriculture
(6.85%)

External Trade (% of GDP)

103.4 (2016)

Currency (Period Average)

Euro

0.89 per US$ (2017)

Political System

Multiparty republic

Overview

Montenegro is a small, open economy aspiring to join the European Union (EU) by 2020. Alongside the ongoing EU accession negotiations that began in June 2012, Montenegro has concluded free trade agreements (FTAs) with the EU, the European Free Trade Association (EFTA), the Central European Free Trade Agreement (CEFTA) countries and Russia. After a protracted period of consolidation following the global financial crisis of 2008-2009, the economy is growing, bolstered by large investment projects.

Sources: World Bank, IMF

Major Economic/Political Events and Upcoming Elections

November 2016

Dusko Markovic took over as prime minister from his Democratic Party of Socialists colleague Milo Djukanovic after the party lost seats in the October election but remained in power owing to an opposition boycott of parliament.

June 2017

Montenegro joined the North Atlantic Treaty Organization (NATO).

January 2019

Montenegro launched a programme offering citizenship to up to 2,000 foreigners in return for investment of EUR100,000-450,000 over the next three years.

Autumn 2020

The next scheduled parliamentary elections will be held.

Sources: BBC Country Profile – Timeline, Reuters

Major Economic Indicators
Graph: Montenegro real GDP and inflation
Graph: Montenegro real GDP and inflation
Graph: Montenegro GDP by sector (2017)
Graph: Montenegro GDP by sector (2017)
Graph: Montenegro unemployment rate
Graph: Montenegro unemployment rate
Graph: Montenegro current account balance
Graph: Montenegro current account balance

e = estimate, f = forecast

Sources: IMF, World Bank, Fitch Solutions

Date last reviewed: March 22, 2019

External Trade

4.1 Merchandise Trade

Graph: Montenegro merchandise trade
Graph: Montenegro merchandise trade

Source: WTO

Date last reviewed: March 22, 2019

Graph: Montenegro major export commodities (2017)
Graph: Montenegro major export commodities (2017)
Graph: Montenegro major export markets (2017)
Note: In 2017 Area N.E.S accounted for 9.4% of exports
Graph: Montenegro major export markets (2017)
Note: In 2017 Area N.E.S accounted for 9.4% of exports
Graph: Montenegro major import commodities (2017)
Graph: Montenegro major import commodities (2017)
Graph: Montenegro major import markets (2017)
Graph: Montenegro major import markets (2017)

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 22, 2019

4.2 Trade in Services

Graph: Montenegro trade in services
Graph: Montenegro trade in services

Source: WTO

Date last reviewed: March 22, 2019

Trade Policies
  • On January 18, 2007, Montenegro joined the World Bank and the IMF. Montenegro signed a Stabilisation and Association Agreement with the EU in October 2007, came entered into force on May 1, 2010. On June 5, 2017, Montenegro became a member of the NATO.


  • Montenegro joined the World Trade Organisation (WTO) on April 29, 2012, when it became its 154th member. The country implemented significant trade policy reforms, bringing its practices in line with WTO requirements and those of the EU. Reforms included the elimination of import quotas, the reduction of import licensing requirements and prohibitions, streamlining customs procedures, and a reduction of tariff and non-tariff barriers. Montenegro is an official EU candidate country.


  • Montenegro’s Foreign Trade Law lowers the barriers for doing business and executing foreign trade transactions in accordance with WTO agreements. The law still provides for some restrictive measures, such as quotas, and discretionary government intervention in a small number of areas.


  • The Foreign Trade Law also provides Montenegro's government with the authority to implement temporary measures to regulate trade. In almost all cases, the government has phased out quantitative restrictions, but certain goods still require a license from the government. New laws are being promulgated to improve custom and trade regimes.


  • There are no export duties in Montenegro, nor is it forbidden to export any goods. The Montenegrin government can impose quantity limitation of exports only in case of critical shortage of certain goods or for the purpose of protection of non-renewable natural resources, under certain conditions.


  • For imports, customs duties are paid on goods imported into the customs territory of Montenegro in accordance with the rates and tariffs set forth in the customs tariff, which is in line with the harmonised system of tariff codes prescribed by the WTO.


  • Customs duties can be levied in two manners: as ad valorem or specific duty per unit of goods. Ad valorem duties are prescribed within the scope from 0% to 30%. For agricultural and alimentary products, a combined duty has been determined – both ad valorem and specific duty are charged simultaneously.


  • Customs rates stipulated by international agreements are only applied to goods of preferential origin from countries covered by such agreements. The most important FTAs that Montenegro has signed are with the EU, the EFTA, the CEFTA states, Turkey and Ukraine. Discussions are ongoing with Russia, Kazakhstan and Belarus, which have a customs union.


  • Montenegro has signed 25 bilateral investment treaties and 42 treaties with various countries – most of which are in force – to regulate double taxation.

Sources: WTO – Trade Policy Review, PwC, Fitch Solutions, UNCTAD, Montenegrin Investment Promotion Agency

Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. The CEFTA: This FTA – between Albania, Bosnia and Herzegovina, Serbia, Moldova, Montenegro, North Macedonia and UNMIK/Kosovo – came into force on May 1, 2007. CEFTA helps to increase trade between regional counterparts and fosters non-EU bilateral relations.


  2. Montenegro–EFTA: Switzerland, Norway, Iceland and Liechtenstein are the four member states of EFTA. The main focus of the EFTA’s agreement with Montenegro, which came into force on September 1, 2012, is on the liberalisation of trade in goods.


  3. Montenegro–EU FTA and Economic Integration Agreement: This agreement came into force on January 1, 2008, for the trade in goods and on May 1, 2010, for the trade in services. The agreements stimulate Montenegro's already large export and import volumes with EU member states, including Germany, Italy and Greece.


  4. Montenegro–Turkey FTA: This bilateral FTA covers trade in goods and entered into force on March 1, 2010.


  5. Montenegro–Ukraine FTA: This bilateral FTA covers trade in goods and services and entered into force on January 1, 2013.

Source: WTO Regional Trade Agreements database

Investment Policy

7.1 Foreign Direct Investment

Graph: Montenegro FDI stock
Graph: Montenegro FDI stock
Graph: Montenegro FDI flow
Graph: Montenegro FDI flow

Source: UNCTAD

Date last reviewed: March 22, 2019

7.2 Foreign Direct Investment Policy

  1. Montenegro gained its independence in 2006; since then the country has adopted an investment framework that, in principle, encourages growth, employment and exports. However, Montenegro is still in the process of establishing a liberal business climate that fosters foreign investment and local production. The country remains dependent on imports from neighbouring countries, despite its significant potential in some areas of agriculture and food production.


  2. In general, there are no distinctions made between domestic and foreign-owned companies. Foreign companies can own 100% of a domestic company, and profits and dividends can be repatriated without limitations or restrictions.


  3. Newly established production companies located in underdeveloped municipalities are entitled to an eight-year tax exemption. The maximum amount of tax exemption for the eight-year period is limited to EUR200,000.


  4. The 'tax exemption for newly established businesses in underdeveloped municipalities' incentive is applicable to companies whose business units are established in regions the government is trying to develop. The tax holiday is proportional to the amount of profit generated by such a unit for the period of eight years from the establishment of the unit. The tax incentive is not applicable to a taxpayer operating in the sectors of primary production of agricultural products, transport, shipbuilding, fishery, steel production, trade or catering – except primary catering facilities.


  5. Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realised in that country. This tax credit is equal to the tax paid in another country, but may not exceed the amount of the tax that would have been paid in Montenegro.


  6. The main principles of Montenegrin VAT are in line with the EU Sixth Directive guidelines. Taxable supplies are subject to a general 21% VAT rate; however, certain supplies are taxed at a reduced 7% rate (for example, bread, milk, medicines, books and computers) and some at a 0% rate (for example, the export of goods and the supply of gasoline for vessels used in international traffic). Porto Montenegro claims to have become the ultimate superyacht sanctuary along the Adriatic coast.


  7. Foreign investors can participate in local privatisation processes and can own land in Montenegro, generally on the same terms as locals. Expropriation of property can only occur for a 'compelling public purpose' and compensation must be made at fair market value. There has been no known expropriation of foreign investments in Montenegro. International arbitration is allowed in commercial disputes involving foreign investors.


  8. Montenegro has enacted specific legislation outlining guarantees and safeguards for foreign investors. Montenegro has also adopted more than 20 other business-related laws, all in accordance with EU standards. The main laws that regulate foreign investment in Montenegro are the Foreign Investment Law, the Foreign Trade Law, the Trademark Law, the Concesssions Law, the Labour Law, the Law on Business Organisations, the Law on Business Insolvency, the Law on Fiduciary Transfer of Property Rights, the Accounting Law, the Law on Capital and Current Transactions, the Customs Law, the Law on Free Zones, the Labour Law (which is undergoing amendment to make personnel decisions more efficient), the Securities Law, and the set of laws regulating tax policy.


  9. To better promote investment and foster economic development, the government established the Montenegrin Investment Promotion Agency in mid-2005. It seeks to promote Montenegro as a competitive investment destination by actively facilitating investment projects in the country.

Sources: WTO – Trade Policy Review, Government websites, Fitch Solutions, Montenegrin Investment Promotion Agency

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
The Port of Bar is currently the only free trade zone (FTZ) in MontenegroAll free zones users have many benefits provided by the law and other regulations including (but not limited to):



- Exemption from customs duties;



- Exemptions from customs fees and VAT;



- Storage of goods in a duty free regime for an unlimited period of time;



- Low corporate tax;



- Simplified procedures;



- Ability to benefit from the use of infrastructure, port handling services, and telecommunication services.

Sources: US Department of Commerce, Fitch Solutions, Agency for Foreign Investments and Reconstruction of the Economy of Montenegro

Taxation – 2019
  • Value Added Tax: 21%
  • Corporate Income Tax: 9%

Source: Department of Public Revenues, Montenegro

8.1 Important Updates to Taxation Information

VAT Law and the Rulebook on the application of VAT Law have been amended. The most important change relates to an increase of the standard VAT rate to 21%.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income TaxEntities operating in Montenegro, whether domestic or foreign, are subject to a 9% corporate profit tax (CPT). Non-residents are also subject to withholding tax (WHT) on income sourced in Montenegro.
Capital GainsCapital gains realised by the sale or transfer of real estate or other property rights, as well as shares and securities, are subject to the 9% CPT rate.
Social security contributions (paid by both employers and employees)- 10.3% by the employer and 24% by the employee

- Employers contribute 5.5% (pension and disability), 4.3% (health) and 0.5% (unemployment)

- Employees contribute 15% (pensions and disability), 8.5% (health) and 0.5% (unemployment)

- Pension and disability insurance contributions are subject to a specific annual cap
VAT/GST (standard)

- 21%: standard rate

- 7%: applies to bread, milk, medicines, books and computers

- 0%: exports of goods and the supply of gasoline for vessels in international traffic

- VAT registration is mandatory for an entity with a turnover exceeding the EUR18,000 threshold in any 12-month period
Property TaxRanges from 0.25% to 1% on the market value of assets as of January 1 each year
Property Transfer TaxTransfer tax of 3% is payable on the acquisition of ownership rights over immovable property. The taxable base is the market value of the property.
WHTThe rate for non-residents is 9% each on dividend income, royalties and interest.

Source: Department of Public Revenues, Montenegro

Date last reviewed: March 22, 2019

Foreign Worker Requirements

9.1 Localisation Requirements

Montenegro has improved and liberalised its business environment owing to amendments to the Foreigners Law, which regulates the conditions under which a foreign person may enter, move and live in Montenegro with a valid foreign travel document, visa and work and residence permit. Work permits, of which there are three types (issued for a limited time, for a period of three months up to one year, extendable to two more years), are issued by the Employment Bureau of Montenegro, following which a resident permit can be obtained from the Ministry for Interior Affairs. According to revisions to the law, businesses no longer need to prove that there are no local citizens of the required vocational profile available for a particular job before the company decides to hire a foreigner.

9.2 Labour Quotas

The government does not use 'forced localisation', the policy in which foreign investors must use domestic content in goods or technology. The only exception is an agreement with a Chinese company that is constructing the country's first national highway. The agreement for this project, which is currently the largest infrastructure project in Montenegro, requires that 30% of the labour contract be engaged locally.

Sources: Ministry of Foreign Affairs of Montenegro, European Commission EURAXESS, Law on Employment and Work of Foreigners, Ministry of Labour and Social Welfare, Fitch Solutions

Risks

10.1 Sovereign Credit Ratings



Rating (Outlook)Rating Date
Moody's

B1 (Positive)21/09/2018
Standard & Poor'sB+ (Stable)

14/11/2014
Fitch Ratings

N/AN/A

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators



World Ranking

201720182019
Ease of Doing Business Index

51/19042/19050/190
Ease of Paying Taxes Index

57/19070/19068/190
Logistics Performance Index

N/A77/160N/A
Corruption Perception Index

64/18067/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices



World Ranking
201720182019
Economic Risk Index RankN/A119/20297/202
Short-Term Economic Risk Score48.144.845.6
Long-Term Economic Risk Score45.849.052.7
Political Risk Index RankN/A68/20270/202
Short-Term Political Risk Score60.460.460.4
Long-Term Political Risk Score70.370.370.3
Operational Risk Index RankN/A65/20166/201
Operational Risk Score56.756.856.7

Source: Fitch Solutions

Date last reviewed: March 22, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK

Montenegro's economy has recovered from recession over the past couple of years, but the growth trend is likely to remain well below pre-crisis levels, along with a protracted period of fiscal austerity and still sluggish growth across the broader eurozone. EU accession commands broad support across the country's political spectrum, and Montenegro is likely to continue progressing towards membership. The economy's convergence with the more developed states of Western Europe is likely to continue apace over the long term, but a failure to reform sufficiently could significantly undermine foreign investors' perceptions of the country.

OPERATIONAL RISK

In terms of industry, manufacturing remains the dominant sector in Montenegro, including the production of basic metals, food and beverages, and the tobacco and chemical industries. On the back of Montenegro's fertile and unpolluted land and pure water quality, agriculture has become an increasingly strategic area of the country's economic development. Montenegro has privatised its large aluminium complex, which is its dominant industry, as well as most of its financial sector. It has also begun to attract foreign direct investment in the tourism sector. Montenegro has began accession talks with the EU and these negotiations will provide a major stabilising force for the Balkan country, because the bloc acts as a firm policy anchor for reform. Since the end of the war in Yugoslavia, Montenegro has attracted considerable interest from foreign investors, particularly in the areas of financial services and tourism. The Montenegrin government is open to foreign investment and has taken significant steps to improve the country's business environment. The government's desire to undertake additional political and economic reforms will further benefit the country's business environment.

Source: Fitch Solutions

Date last reviewed: March 18, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Montenegro short term political risk index
Graph: Montenegro short term political risk index
Graph: Montenegro long term political risk index
Graph: Montenegro long term political risk index
Graph: Montenegro short term economic risk index
Graph: Montenegro short term economic risk index
Graph: Montenegro long term economic risk index
Graph: Montenegro long term economic risk index

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Economic and Political Risk Indices

Date last reviewed: March 22, 2019

10.6 Fitch Solutions Operational Risk Index



Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Montenegro Score56.752.8

58.1

56.6

59.3

Southeast Europe Average57.6

52.858.859.559.4
Southeast Europe Position (out of 12)7

7

9

8

6

Emerging Europe Average55.953.857.757.0

55.2
Emerging Europe Position (out of 31)15

17

19

15

10

Global Average49.6

49.749.949.049.8
Global Position (out of 201)66

77

73

65

71

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: Montenegro vs global and regional averages
Graph: Montenegro vs global and regional averages
Country

Operational Risk Index

Labour Market Risk Index

Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Slovenia

68.654.0

63.473.583.4
Croatia64.151.9

56.671.376.7
Romania62.457.161.063.068.5
Cyprus62.355.164.261.368.8
Bulgaria

60.255.564.160.161.1
Serbia

57.258.560.757.052.5
Montenegro

56.752.858.156.659.3
North Macedonia56.247.264.156.257.3

Turkey

54.852.060.464.942.0
Kosovo51.555.258.352.040.7
Albania51.149.049.149.756.8
Bosnia and Herzegovina46.645.546.348.545.9
Regional Averages57.652.858.859.559.4
Emerging Markets Averages46.748.045.547.446.0
Global Markets Averages49.649.749.949.049.8


100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 22, 2019

Hong Kong Connection

11.1 Hong Kong’s Trade with Montenegro

Graph: Major export commodities to Montenegro (2018)
Graph: Major export commodities to Montenegro (2018)
Graph: Major import commodities from Montenegro (2018)
Graph: Major import commodities from Montenegro (2018)

Note: Graph shows the main Hong Kong exports to/imports from Montenegro (by consignment)

Graph: Merchandise exports to Montenegro
Graph: Merchandise exports to Montenegro
Graph: Merchandise imports from Montenegro
Graph: Merchandise imports from Montenegro

Note: Graph shows Hong Kong exports to/imports from Montenegro (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Source: Hong Kong Census and Statistics Department

Date last reviewed: March 22, 2019



2017

Growth rate (%)
Number of Montenegrin residents visiting Hong Kong56

-10.0

Source: Hong Kong Tourism Board



2017

Growth rate (%)
Number of emerging Europe citizens residing in Hong Kong89

1.13

Source: Hong Kong Tourism Board

Date last reviewed: March 22, 2019

11.2 Commercial Presence in Hong Kong



2018

Growth rate (%)

Number of EU companies in Hong KongN/A

N/A
- Regional headquarters
- Regional offices
- Local offices



11.3 Treaties and Agreements between Hong Kong and Montenegro

An agreement between China, Serbia and Montenegro for the Avoidance of Double Taxation with respect to taxes on income and on capital entered into force on January 1, 1998.

Source: Chinatax.gov

11.4 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa for Montenegro for a stay of up to 90 days.

Source: Hong Kong Immigration Department

Date last reviewed: March 22, 2019

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