Business Environment in Montenegro 35

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February 2011

Business Environment in Montenegro Overall, business in 2010 was pretty difficult for most businesses in Montenegro. The problems they encountered arose as a result of the economic crisis influenced the entire economy. Most of the problems were related to a lack of liquidity which dominated the Montenegrin economy in 2010. Intercompany debts created a lot of problems and this issue was characteristic during the whole year. Additionally, banks were not very active in agreeing loans for businesses so there was not enough ‘fresh’ money to feed the Montenegrin economy. The final days Montenegro. It

of

2010

were characterized by changes in the

Government

of

will be interesting to see how it will affect the current situation,

primarily regarding any steps that the new government might take to enhance the business environment.

The

last quarter was also characterized by the adoption of

certain laws that will have an influence on the business environment in

Montenegro.

Business Environment Macroeconomic Outlook Capital Markets Banking Sector Privatization and Investments Economic Freedom Business News In the Spotlight Coming up... Business Statistics and Data Business Registration Statistics

(Number of registered companies in Montenegro as of 1st of January, 2011)

Joint Stock Company

The Law on Excise was adopted in order to bring European standards into the area of excise. In this amendment to the law, increases were made to the levels of duty on cigarettes and beer. With this change, the budget of Montenegro is expected to receive more income and the amount of duty paid will be closer to the standard EU level. The Law on Financing of Local Governments was adopted in order to change the source of income for local governments. It is interesting for the business sector that some taxes that were paid at a local level have now been abolished, so businesses will be relieved of paying these in the future. These taxes are primarily taxes paid on a name of a company (the level ranged from €50 to €500 on an annual level), tax on consumption and tax on game on chance.

It is expected that the removal of these taxes will positively affect the business environment. Also changes were made in the area of property tax. Instead of tax being charged at a level between 0.08% and 0.8%, the new tax will be charged between 0.1% and 1%. It is expected that this will bring in additional money to enhance local budgets. Municipalities will also receive a higher portion of any funds resulting from concession fees in their territory.

The Labor Law was supposed to be amended during the last quarter of 2010 but it didn’t happen. The main reason for changing the law was the need to adjust ILO conventions regarding the protection of expectant mothers and youths. However, there were some intentions to change the complete sense of the law by eliminating certain benefits for employing or firing workers.

364

Limited Liability Company

24,080

Part of a Foreign Company

429

General Partnership

62

NGO

288

Limited Partnership

442

Entrepreneur

16,873

Institution

1,053

Other

109

Total

43,700 Tax Rates 17%, 7% and 0%

Value Added Tax Corporate profit tax

9%

Personal income tax

9%

Source: Commercial Court

Economy Statistics According to the present law, an employee can be engaged on either a fixed term or open ended contract. Most companies prefer to engage employees for a fixed term due to the rigidity of the law in the area of terminating employment. The new proposal is to eliminate this element and to introduce a simple labor contract with no fixed period. This would put more rigidity into the labor market and would lead to an increase in grey economy in the labor market. Hopefully, this will not happen as the business sector is pressuring the government to retain the current regulations regarding the Labor Law.

...

During the last quarter of 2010, changes were also made to the Law on Pensions and Invalid Care, primarily in the area of increasing the age of retirement to 67 years (both for men and women). This will happen gradually over a period of time until 2042. These changes are being made in order to eliminate problems that have occurred in the pension fund. The ratio between pensioners and active employees is really low and thus the whole system is endangered. In order to avoid this problem, it has been proposed that the retirement age should be increased and that was accepted by the Parliament.

...

The last quarter was characterized by changes in the system for calculation the minimum wage. Instead of the previous level of €55, the new minimum wage will be around €150, calculated according to the poverty rate in Montenegro. The new system for calculating wages and minimum wages will be described in the following issue of MBO.

Selected indicators Population Real GDP (billion) Real GDP growth Inflation rate average XI 2009/2008 XI 2010/ 2009 Unemployment rate IX 2010 II 2011 Net FDI (million) 2009/2010*

2009

2010

625,082 2.980

3.025

-5,7%

0.5%

1.5%

0.8%

9.05%

10.95% 12.41%

1070

692

*Montenegrin Investment Promotion Agency (MIPA) Official currency

Euro

Source: Ministry of Finance, Central Bank of Montenegro, Monstat

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