Setting Up a Branch Office in Montenegro
This article provides an overview of the registration requirements, taxation and compliance for Montenegro branch offices of foreign companies.
Foreign companies that wish to conduct business in Montenegro typically set up a Montenegro subsidiary company or open a branch office. Most small to medium-sized companies choose to register a subsidiary company in Montenegro in order to take advantage of the greater flexibility and liability protection that such a structure provides over a branch office. Therefore, before you decide to set up a branch office, you should carefully consider if it is the right structure for your needs. This guide provides information about the following topics related to a Montenegro branch office:
- Key Facts
- Registration Requirements
- Branch Office vs Subsidiary Company
- Required Documents
- Registration Procedure
- Taxation of Branch Office
- Filing Requirements
- A branch office is considered an extension of the parent company. Therefore, all debts and liabilities accrued by the branch office are passed on to the parent company. Furthermore, if a Montenegro branch office is sued, the case will be heard in Montenegro and the parent company will be liable for any judgements against the branch office.
- A branch office has the same company constitution as the parent company; i.e., the branch office is required to undertake the same activities as the parent company.
- For tax purposes, a branch office is considered a non-resident and is ineligible for tax incentives, grants or tax exemptions. Furthermore, a branch office does not qualify for tax exemptions on foreign-sourced income or double taxation relief under Montenegro’s network of Avoidance of Double Taxation Agreements (DTAs).
- A Montenegro branch must have at least 1 local representative who is a Montenegro citizen, permanent resident, or Employment Pass holder.
To register a branch office in Montenegro, foreign companies must engage the services of a registered filing agent, typically a corporate services provider. The following provides the minimum requirements to register a Montenegro branch office:
- Local representative:Branch offices are required to have at least one local representative present in Montenegro. The local representative must be at least 18 years old and can be either a Montenegro citizen, a permanent resident of Montenegro or an Employment Pass holder.
- Registered address in Montenegro:A branch office must have a local registered address in Montenegro. Note that the address cannot be a PO box.
Branch Office vs Subsidiary Company
To incorporate in Montenegro, foreign companies generally choose to set up either a branch office or a subsidiary company.
With a branch office, a foreign company is not required to have a local director or a company secretary. However, a branch office has several drawbacks that must be considered:
- A branch office is not a separate legal entity, but rather an extension of the parent company. Therefore, the debts and liabilities of the branch office pass directly to the parent company.
- As a non-resident for tax purposes, branch offices cannot take advantage of Montenegro’s generous tax incentives, grants and exemptions.
- A branch office has the same company constitution of the parent company and therefore must conduct the same activities of the parent company.
Conversely, a Montenegro subsidiary provides more flexibility and liability protection for foreign companies that wish to establish a presence in Montenegro:
- As a separate legal entity, a Montenegro subsidiary’s debts and liabilities do not extend to the foreign parent company
- Montenegro subsidiaries are tax-residents of Montenegro and qualify for tax incentives, exemptions and grants available in Montenegro.
- A Montenegro subsidiary has its own company constitution and therefore it has the freedom to conduct different business activities than those of the parent company.
What documents are required for branch office registration in Montenegro?
1.The founding act of the parent company (adequately certified and with court translation)
- Excerpt from the register of the parent company (it must not be older than 1 month, adequately certified and with court translation)
- Financial report for the last business year in a shortened form (adequately certified and with a court translation)
- Tax number for the parent company and representatives of the branch office if they are foreign persons
- Decision on opening a branch office
- A certified statement from the owner of the business address of the branch office
The Registry will issue you a registration decision within 4 days of filing. Opening a representative office does not require capital or arrival. We can do everything necessary for you on a power of attorney.
The registration procedure consists of 2 steps–name approval and entity registration:
- Name approval:The branch office must have the same name as the parent company. Typically, the name will be approved within an hour. Note that the name cannot be identical to an existing company in Montenegro or be vulgar in nature.
- Entity registration:Once all the documents have been provided to the filing agent, the branch office can be registered with register. If the filing agent has all of the documents completed in time, the registration process can take as little as 4 dey.
Taxation of Branch Office
A branch office is required to comply with all annual filing requirements dictated by Tax Administration and the tax authority of Montenegro known as Tax Administration. Any failure to comply may result in penalties or fines. The annual filing requirements for a Montenegro branch office are as follows:
- Prepare Financial Statements:According to Montenegro Company law, branch offices are required to prepare financial statements using Montenegro Financial Reporting Standards (FRS). FRS closely aligns with International Financial Reporting Standards (IFRS).
- File with Tax Administration:Montenegro branch offices are required to submit their audited financial statements to ACRA within 60 days of the parent company’s annual general meeting.
- File estimated chargeable income (ECI) with Tax Administration :Within 3 months of its financial year end, a Montenegro branch office is required to declare its revenue and ECI with Tax Administration. ECI refers to the revenue generated by the branch minus items such as capital gains or disposal of fixed assets.
- File annual income taxes with Tax Administration:A Montenegro branch office is required to file annual income tax returns with Tax Administration . Montenegro uses a preceding year basis for taxation. This means taxes are calculated using the income from the previous year. Branch offices are required to file income taxes with IRAS by November 30 for paper filing or by December 15 for electronic filing.
- How to incorporate a Montenegro company
- The Accounting and Corporate Regulatory Authority of Montenegro ( Tax Administration)