The new year brings new resolutions and opportunities for change. While some decide to put more effort into personal development, others consider entering the world of investments and starting their own IT startup. If you are still undecided and don’t know whether to invest in Montenegro or are thinking about starting a technology business, this blog is the right place for you, as it offers useful information and insights.
First of all, I want to emphasize that I am not from the IT world, but approach this topic from the perspective of law and statistics. In this text, we will explore the legal aspects and opportunities offered by Montenegro to potential investors in the IT sector. In addition, we will analyze relevant statistical data that shed light on the current situation in this area, as well as the challenges that investors may face.
Join me as we discover why Montenegro is increasingly recognized as an attractive destination for IT investments and how you can use the advantages this country offers. You will be provided with an overview of the legal framework and statistical information that may help you make an informed decision about your investment plans and strategies.
Establishment of a company, taxes and costs
In previous blogs, I dealt with topics related to the establishment of a company and taxes in Montenegro, so in this section I will only summarize the key information.
The costs for establishing a limited liability company (LLC) start from €450 and up, depending on whether accompanying expenses are included in the service. This investment represents the basic step toward starting a company. If you are a foreigner and want to be the company director, you must obtain both a work and a residence permit. The price for this service is usually around €600–700, depending on what is included in the fee.
It is important to note the amendments to the Law on Foreigners, which stipulate that foreign nationals’ temporary residence and work permits for entrepreneurs and executive directors (those who are sole owners or hold more than 51% of the capital) will be renewed only if they pay taxes and contributions in a minimum amount of €5,000 per year.
This obligation does not apply to citizens of the EU, Iceland, Liechtenstein, Norway, and Switzerland. The amendments also provide the possibility for IT specialists to receive temporary residence for three years, so they do not have to renew it annually.
The cost of gross earnings is 678.23 euros with a secondary education and 929.15 euros with a higher education. The total gross salary in the first case amounts to 678.23 euros, of which the net salary is 600 euros, which corresponds to a full-time application of 40 hours per week (SSS). Taxes and contributions paid to the state amount to 78.23 euros. In this case, the annual total cost for the worker is 7,200 euros net, while taxes and contributions are 938.76 euros per year. The average net salary in Montenegro is 1,000 euros, while salaries in the IT sector are generally above average. In any case, taxation is progressive, but it is by far the most favorable in the region — for example, on a net salary of €1,500 taxes and contributions amount to €490.
According to some research, the IT sector in Montenegro last year consisted of 715 companies that actively operate on the local and international market and employ 3,434 people (ICT over 6,000).
As far as corporate income tax is concerned, progressive rates apply. Corporate income tax rates are as follows:
- For profits up to EUR 100,000.00, the tax rate is 9%.
- For profits from EUR 100,000.01 to EUR 1,500,000.00, the tax is calculated as EUR 9,000.00 plus 12% on the amount exceeding EUR 100,000.01.
- For profits over EUR 1,500,000.01, the tax is calculated as EUR 177,000.00 plus 15% on the amount exceeding EUR 1,500,000.01.
Value added tax (VAT) is calculated at the time of delivery of the product or performance of the service. There are three tax rates in force in Montenegro:
- Standard rate of 21%
- Reduced rate of 15%
- Reduced rate of 7%
According to Article 25 of the Law on Value Added Tax, VAT is paid at a rate of 0% for certain services, which means that it is not paid on the turnover of services performed by representatives or other intermediaries on behalf and for the accounts of another person, if these services are part of the services listed in this article or are performed outside of Montenegro. This article is extremely important for companies that provide services abroad.
In order for the company to be active, it must calculate salaries and submit the final accounts, so you will need an agency that will do this for you. The initial price for accounting services ranges between 100 and 200 euros, depending on the municipality and activity.
Also, it is necessary to register a company at a certain address, which can also be a residential address. In addition to the residential address, it can also be the address of the business premises where the company carries out its activities. The price of renting business premises ranges from 10 to 25 euros per m², depending on the location. There is also space specially designed for the needs of freelancers, entrepreneurs, startups and digital nomads, such as mNEST in Podgorica, where the price ranges from 12 euros/day to 150-200 euros/month.
There is also the Science and Technology Park, which plays a significant role in supporting innovation and the development of technological solutions. Within this place, various resources and tools are available to help entrepreneurs and startups improve their business.
The Science and Technology Park offers rich content, including meeting rooms, multimedia rooms, a gym, a children’s playroom, and a restaurant that will be opened soon. In addition, members have access to an in coworking space that allows for flexibility and an inspiring work environment. The place also offers comprehensive support to members aimed at facilitating operations and accelerating development.
Benefits and tax reliefs in
Montenegro
The Law on Incentive Measures for the Development of Research and Innovation has indeed had a significant impact on the IT sector in recent years. It is aimed at supporting research and innovation activities, which contributes to the development of new technologies and the improvement of existing solutions. Through various incentives, such as financial resources and reliefs, companies are enabled to invest in research and development, directly affecting the growth and competitiveness of the IT sector.
The incentive measures from this law are designed to encourage economic growth and technological development. They focus on innovation and entrepreneurship, especially through the employment of young and highly qualified persons. The goal is also to strengthen existing innovative companies, as well as to create startups and spin-offs.
These measures encourage exports, particularly in the sectors of medium and high technologies and knowledge-based services, contributing to a more favorable environment for scientific research and innovation activities.
Beneficiaries of the incentive measures can be domestic and foreign legal and natural persons who perform scientific research and innovation activities in Montenegro, as well as other legal and natural persons who invest funds or are otherwise connected with these activities, in accordance with the conditions prescribed by this law and the law regulating state aid.
A legal entity that carries out innovative activities can acquire the status of beneficiary of incentive measures if it fulfills a number of conditions explained in more detail in the law. Legal and natural persons who meet the conditions from Article 7 of this law submit to the Ministry a request to acquire the status of beneficiary of incentive measures. The Ministry forms a Commission that reviews requests.
If the request is approved, various reliefs related to:
- Personal income tax and surtax;
- Contribution for compulsory social insurance;
- Corporate income tax;
- Fees for communal equipment of construction land;
- Use of state immovable property and/or land;
- Real estate tax.
It is important to note that the total amount of all these benefits for one legal or natural person cannot exceed 300,000 euros in a three-year period. Entities engaged in innovation can simultaneously use several incentive measures, but the total amount must not exceed the legally prescribed limit. Also, large companies, according to accounting standards, can only use the benefit related to the profit tax, and that exclusively for investments in other subjects of innovation activity.
Innovation activities include a set of activities of the state and local self-government, the business sector, the scientific and academic community, the civil sector and citizens. The main goals of innovation activities are:
- Modernization of the economy
- Development and application of product and process innovations
- Use of innovative production technologies
- Introduction of new business models
- Development of capacity and infrastructure for the above activities
The types of innovation are:
- product and service innovation, business process innovation, or their combination;
- technological or non-technological innovations;
- innovations in the economic sector, innovations in the public sector, and social innovations.
Innovative activities performed by the subjects of innovation activities in order to create innovations include:
- research and development;
- engineering, projecting, design and other creative activities;
- marketing and branding;
- activities related to the creation and protection of intellectual property;
- other activities to create innovations.
It is also useful to mention the possibility of investing profit tax in spinoffs and startups. You can view the Law on Innovation Activities as well as the Law on Incentive Measures for the Development of Research and Innovation below.
To invest or not to invest
As a conclusion, here is a SWOT analysis.
S – Montenegro offers favorable taxes, low rental and service costs, attractive incentive measures, and a strategic geographical location. These factors collectively create a favorable environment for starting and growing a tech business, with potential access to regional markets and resources.
W – There are notable challenges, including a shortage of qualified staff, slower administrative processes, and incomplete digitalization of public administration. These obstacles can slow project implementation and increase the burden of compliance and operations.
O – The IT sector in Montenegro is continuously developing and progressing, presenting numerous opportunities for innovation, growth, and collaboration. The ongoing momentum in technology and entrepreneurship supports a dynamic ecosystem for new ventures and scaling existing ones.
T – The local market remains limited in size, and rising rental prices for residential and office space can pose cost and scalability concerns. However, there is significant potential for international expansion and cross-border partnerships, which can mitigate domestic market constraints.
Overall, Montenegro stands out as an attractive destination for business, driven by favorable taxes, cost efficiency, and supportive incentive measures, enhanced by its strategic location. While there are challenges, the ongoing development of the IT sector and the country’s increasing investor interest suggest substantial opportunities for innovation and growth. With the right approach, Montenegro could evolve into a vibrant hub for technology and digital innovation, contributing positively to the national economy.