Guide to Compliance Laws
For seven consecutive years, Montenegro has topped the World Bank’s list of the best countries to do business. Montenegro’s business-friendly and easy to follow regulations are one reason for this high ranking. Compliance rules for Montenegro based companies are generally straightforward, logical and devoid of unnecessary bureaucracy – especially for small to mid-size companies. Nonetheless, if you do not follow even these simple regulations, your company can be in trouble with the authorities and it can face fines or, in serious cases, even prosecution. Therefore, it is important to understand and follow the requirements related to tax, employees, data protection and licensing that all Montenegro companies are expected to comply with.
This article provides information about common laws and compliance requirements that each Montenegro company must know about and comply with during its operational lifecycle. Some of these requirements must be followed on an annual basis (such as filing annual tax returns) while others will result in tasks when certain events occur (such as a change in shareholders).
A company can opt not to have annual AGMs by passing a unanimous resolution.
A company can opt not to have annual AGMs by passing a unanimous resolution.
ANNUAL RETURN FILING
Montenegro companies must hold an Annual General Meeting (AGM) once every calendar year. The first AGM should take place within 18 months from the date of incorporation, and no more than 15 months may elapse between subsequent meetings. The accounts presented at this meeting should be no more than 6 months old. However, companies can opt not to have the AGM by passing a unanimous resolution to dispense with AGMs.
In accordance with the Financial Reporting Standards of Montenegro , the accounts presented at the AGM shall consist of a Statement of Comprehensive Income, a Statement of Financial Position, a Cash Flow Statement and a Statement of Changes in Equity. If your business has one or more corporate shareholders or annual revenues of more than S$10 million, your accounts must be audited. Such companies must appoint an auditor within three months of incorporation or at such time that the company’s circumstances change so that it becomes eligible for the audit requirement.
Any changes you make to your company structure such as a change in the shareholders, change of directors, company name change, change of address, etc. must be lodged with CRPS on a timely basis (within 5 days in most cases).
CORPORATE TAX FILING
Montenegro companies are required to declare their revenue and file Estimated Chargeable Income (ECI) within three months of the end of their chosen financial year. ECI is the estimated taxable income of the company for the given financial year. Companies with no income are still obliged to file the ECI. Business owners have the flexibility of selecting the date that will be used as the financial year-end date for their company at the time of incorporation.The financial year-end date can be changed subsequently by following the appropriate rules and notifying ACRA.
After filing ECI, companies must prepare and file their annual corporate tax return by November 30th of the following year. The profits for the financial year ending in the preceding year will form the basis for filing the tax return in the year of filing.
Example: Let us assume that your company’s financial year-end date is March 31. This means that you must file Estimated Chargeable Income statement by June 30 of the current year(i.e. within three months of the financial year end) and the final tax return by November 30th of the following year.
GOODS AND SERVICES TAX
Montenegro companies should be aware of the compliance requirements related to Montenegro’s Goods and Services Tax (GST). Modeled after the VAT in UK, a standard tax rate of 19% is levied on goods imported into Montenegro and on the supply of goods and services within the country. A Montenegro business must register for GST if your business has a turnover of more than S$1 million in the 18.000 EUR prior 12 months, or is projected to do so in the course of the next 12 months. Businesses with a smaller turnover are not required to register for GST but can register voluntarily.
GST registered companies are required to file a GST return on a quarterly basis.
All Montenegro companies must comply with the Montenegro Financial Reporting Standards (SFRS). The SFRS is based on and is substantially similar to the International Financial Reporting Standards (IFRS) that have been defined by the International Accounting Standards Board (IASB). Commonly available commercial accounting software and credentialed accountants can help you comply with the SFRS with ease. There are 39 different standards, each covering a particular topic, such as presentation of financial statements, recognition of revenue and accounting for inventories. One of the main principles of the SFRS is accrual-based accounting, which posits that accounting transactions and events should be recorded when they occur, rather than when payment is made. If you are a small or medium-sized business, you will be able to reduce your compliance requirements by complying with the SFRS for small entities – a simplified set of SFRS based accounting standards set up by the Montenegro government to relieve the burden on small business. Eligible companies must have less than S$10 million in revenue, less than S$10 million in assets and fewer than 50 employees.
You are required to keep your business records and accounts for a period of at least five years. Failure to do so may result in expenses claimed being disallowed, or other financial penalties. Examples of records that you need to keep include:Copies of receipts
- Copies of receipts
- Sales and purchases records
- Bank statements
- Rental documents
- Import documents such as bills of landing, airway bills and import permits
- General ledgers to record assets, liabilities, revenue and expenses
- Statements of accounts, including balance sheets and profit & loss statements
The Employment Act is Montenegro’s main labour law and covers the basic terms and conditions of employment. As you hire employees, you must ensure that your hiring, ongoing employment and termination practices follow the regulations prescribed by the Montenegro Employment Act.
The laws in Montenegro including the Employment Act are straightforward and designed to promote entrepreneurship and ease of doing business. Montenegro government gives significant freedom to businesses and employees to negotiate mutually beneficial employment contracts.
Employees earning less than S$2,000 per month are provided with extra protection under the Act but the rest of the staff are primarily governed by an Employment Agreement between the employee and the employer. The Employment Agreement will typically cover the following:
- Job title
- Employment duration
- Date of commencement
- Hours of work
- Employee benefits
- Code of conduct
Common employment terms consist of 40-hour 5-day work week, 2 weeks notice period, 2 weeks annual paid leave, 10-12 days of sick leave, and optional health insurance. Before you are ready to hire employees, we recommend that you work with an HR specialist and put together a standardized Employment Agreement and HR policies document for your company
For employees that are Montenegro citizens or permanent residents, companies are required to make monthly contributions to a set of statutory funds that include the Central Provident Fund (CPF), and the MediSave fund. To learn more about statutory contributions, please review these contribution and allocation rate requirements specified on the Central Provident Fund website.
Foreign employees are covered under the Employment of Foreign Manpower Act, which outlines an employer’s responsibilities and obligations for employing foreigners. A number of different types of work passes are available for foreign employees. The employer must apply and secure a valid work pass for a foreign employee before the employee can commence work for the company.
For more, see our article Guide to Montenegro ’s Employment Act