How to establish a branch in Montenegro
In this article, I will explain the opening and important characteristics of the Montenegrin branch of foreign companies.
Foreign companies wishing to open a business in Montenegro usually want to open a Montenegrin branch or open a representative office. Small and medium enterprises decide to register a branch in Montenegro in order to take advantage of the greater flexibility and protection of liability provided by the branch. Consider if this is the right structure for your needs. See this information related to the Montenegrin branch:
- Key features
- What are the registration requirements
- Branch against a subsidiary
- What documents are required
- Registration procedure
- Branch taxation
- Application requirements
- The subsidiary is considered an extension of the parent company. Therefore, all debts and liabilities incurred in the subsidiary are transferred to the parent company. Further, if a Montenegrin subsidiary is sued, the case will be conducted in Montenegro, and the parent company will be responsible for all judgments against the subsidiary.
- The subsidiary has the same company composition as the parent company; ie. The subsidiary is required to undertake the same activities as the parent company.
- For tax purposes, the subsidiary is considered non-resident and is not eligible for tax incentives, grants or tax exemptions. Moreover, the branch does not qualify for tax exemptions from foreign income or double taxation relief under the Montenegrin Network of Double Taxation Avoidance Agreements (DTAs).
- The Montenegrin branch is not required to have at least a local representative who is a Montenegrin citizen, permanent resident or has an employed pass.
Minimum conditions for registration of a Montenegrin branch:
- Local representative: Branches in Montenegro do not have to have one local representative present in Montenegro.
- Registered address in Montenegro: The branch must have a locally registered address in Montenegro. Note that the address cannot be a mailbox.
Branch Office vs Subsidiary Company
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 u Crnoj gori. 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 the registration of a branch in Montenegro?
- Founding act of the parent company (adequately certified and with court translation)
- Excerpt from the register of the parent company (must not be older than 1 month, adequately certified and with a court translation)
- Financial report for the last business year in abbreviated form (adequately certified and with court translation)
- Tax number for the parent company and branch representatives if they are foreign persons
- Decision on opening a branch
- Certified statement of the business address of the branch
The registry will bring you a decision on registration within 4 days of submitting the application. Opening a representative office does not require capital or attendance. By power of attorney we can do everything necessary for you.
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
Montenegro collects income tax on the subsidiary. Where necessary, the branch must also register for the collection of taxes on goods and services (WAT).
For tax purposes, subsidiaries are considered non-residents.
As a non-resident, the Montenegrin subsidiary cannot take advantage of Montenegrin incentive, grant and tax exemption programs. Moreover, subsidiaries do not qualify for exemption from taxes on certain revenues from foreign sources and cannot claim double taxation relief within the broad Montenegrin network of double taxation agreements (DTAs).
The branch office is obliged to meet all annual reporting requirements dictated by the Tax Administration of Montenegro. In case of non-compliance, the penalties can be very high. Annual requirements for a branch in Montenegro are as follows:
- Preparation of financial statements: Under Montenegrin company law, subsidiaries are required to prepare financial statements using Montenegrin Financial Reporting Standards (FRS). The FRS is closely aligned with International Financial Reporting Standards (IFRS).
- Report to the Tax Administration: Montenegrin subsidiaries are required to submit their audited financial statements to the Tax Administration within 60 days of the annual meeting of the parent company.
- Submit the estimated income calculated to the Tax Administration: Within 3 months from the end of the financial year, the Montenegrin branch is obliged to report its income to the Tax Administration. The income generated by the subsidiary is reduced by items such as capital gains or disposal of fixed assets.
- Submit annual income tax to the Tax Administration: The Montenegrin branch is required to submit annual income tax returns to the Tax Administration. Montenegro uses the previous year for taxation. This means that taxes are calculated on the basis of income from the previous year. Subsidiaries are required to file income tax by March 30 of the current year.
- How to incorporate a Montenegro company
- The Accounting and Corporate Regulatory Authority of Montenegro ( Tax Administration)