MFIC INVESTMENT GUIDE 2016 Why invest in Montenegro? What our members are investing in? Things you should know when starting a business Moving to Montenegro INTRODUCTION It is our pleasure to introduce to you the Montenegrin Foreign In- vestors Council (MFIC) Investment Guide. The guide focuses on the most attractive investment opportunities and provides practical information use- ful when starting and expanding your business in Montenegro. Since regaining its independence in 2006, Montenegro has been increasingly attractive to foreign investors. Its development is centered around attracting FDI through a competitive business environment, striving to become the business hub of South-East Europe. It offers many reward- ing investment opportunities and impressive natural potential along with continuous improvements in the business climate intended to attract for- eign investors. The Montenegrin Government is well aware of the importance of foreign direct investment for sustainable growth of the economy, which makes sense since, so far, the recorded increase in wealth has been driven primarily by large volumes of foreign investment. Its activities have mainly consisted of reforms directed at improvement of the investment climate in Montenegro. We have seen improvements in competitiveness, transpar- ency and business-friendliness. Nevertheless, there is still work to be done and challenges to be overcome. Having become a member of the WTO in April 2012 and due to the process of negotiations for its accession to the EU, as well as having received an official invitation to become a mem- ber of NATO, one can be optimistic about further improvements in the Montenegrin trade system and the general business climate in Montenegro. We are certain that it is developing into a reliable and investor-friendly business environment. The guide is intended to encourage foreign investment and provide relevant data about the legal and institutional framework. The guidelines and observations stated in this handbook have been acquired through the work of the Montenegrin Foreign Investors Council and research of its members. 4 WHY INVEST IN MONTENEGRO? “Montenegro’s economy is small but open, and focused on encouraging new businesses. It is recognized as an emerging economy with significant growth potential.” BUSINESS ENVIRONMENT Over the years Montenegro has committed itself to establishing a modern market economy and entering the European markets. It recorded the fast- est growing GDP in the region up until the decrease in the growth rate in 2009, which occurred largely due to the global economic crisis, but the country has since successfully recovered. The euro is used as Montenegrin legal tender, which is one of the reasons why it is favorable for businesses. Due to Montenegro’s EU membership aspirations, many reforms have already taken place. They were driven by the EU reform agenda and the goal of developing an investment-friendly environment. Changes that can be observed are, for instance, reduction of some taxes and social contribu- tions, simplification of tax procedures, improvements in the legal framework for bankruptcy procedures, a reduction of the cost and some modifications in the procedures for obtaining construction permits. Improvements in the regulatory environment proved to be necessary to ensure legal security and reducing the regulatory burden on businesses. There is a trend of significant trade liberalization and rising competitive- ness in the Montenegrin economy in general. In many reports issued by various international organizations from year to year Montenegro has been demonstrating constant improvement. For instance, Montenegro improved its position from 47th place in the Doing Business report to 46th for 2016. However, we are also expecting further progress and more developments in order to achieve even better rankings. There are several incentives contributing to the overall business environ- ment which are important when considering doing business in Montenegro (such as the tax system, labor market/human resources, market access and similar business preconditions). “Montenegro’s economy is small but open, and focused on encouraging new businesses. It is recognized as an emerging economy with significant growth potential.” The tax system in Montenegro underwent substantive reforms in order to create a business-friendly environment and attract foreign investors.1 As a result, there is a competitive overall tax rate compared to the other coun- tries in the region and Montenegro is recognized as a low-tax area among 1 Paying Taxes 2013 – The Global Picture, PwC / The World Bank, available at: http://www.pwc. com/gx/en/paying-taxes/assets/ 8 pwc-paying-taxes-2013-full-report.pdf. Podgorica foreign investors. However, we are expecting further reforms with regards to the predictability of taxes and equalization of municipal tax policies. Foreign investors in Montenegro are guaranteed equal treatment by law to locally owned ones. They have property rights on movable or immovable assets and inheritance rights identical to Montenegrin companies and they are taxed the same way as domestic investors. This encourages investment in any industry. Another aspect of the Montenegrin economy which is seen as beneficial for foreign investors is the use of the euro as the currency. The euro was adopted in Montenegro in 2002 and it has been used ever since. It has a positive impact on any foreign investors, since it significantly reduces the inherent foreign exchange risk as well as the inflation risk when conduct- ing business in Montenegro. Furthermore, the business-friendly environ- ment of Montenegro is emphasized in its free-trade economy. For example, Montenegro signed a free-trade agreement with the EFTA in 2014. Freely floating capital, as well as a commitment to free trade by the Government of Montenegro, provide foreign investors with more opportunities and im- prove the overall investment climate of Montenegro. 9 Qualified human resources and a flexible labor market are some of the other important prerequisites for starting a business. Developments in the efficiency of human resources and the education system that have occurred in the last few years are leading towards a more competitive workforce in Montenegro. Education represents a solid base for the future development of the country and shapes the country’s success in attracting FDI. Besides the growing diversity of education opportunities and mobility possibilities offered in Montenegro, one can observe the growth in the knowledge of languages (English, French, German, Russian and Italian are among the most studied languages). The quality of the labor environment is expected to improve with regards to the work ethic of the national workforce, as this was identified as being one of the most problematic factors for doing business in Montenegro. Numerous reforms have taken place in order to increase the flexibility of the labor market, therefore we are enthusiastic about some of the decisive changes in the coming period. Although the above stated reasons for investing in Montenegro are very important, it has been interesting to learn that most foreign businesspeople acknowledge the lifestyle in Montenegro as one of the reasons for finding opportunities to do business in Montenegro.2 The climate is advantageous for an active lifestyle and the openness of the society enables quick build- ing of a personal network of like-minded people. 2 Economic Opportunities in Montenegro, Export Chicago, December 2013. 10 INVESTMENT OPPORTUNITIES When presenting the opportunities for doing business in Montenegro, one should start with what is immediately evident – the strategic geographic location and natural potential of Montenegro. Being situated in South-East Europe in the Central Mediterranean area, Montenegro is certainly among the most interesting spots in the world. It has diverse climate features and diverse landscapes that offer so many different possibilities. Investment potential has so far been identified within several sectors: tour- ism, energy, infrastructure and agriculture (with tourism and energy singled out as key sectors of growth in the past year). TOURISM Montenegro is predominantly a service-driven economy, with a signific- ant portion of growth coming from tourism, as one of the main drivers of its development so far. But tourism is yet to reach its full potential and Montenegro is predicted to become one of the fastest growing tourist des- tinations in the next 10 years, according to the World Travel and Tourism Council.3 It has everything it needs to achieve that goal, such as diverse natural resources, unspoiled nature, beautiful beaches, a spectacular coast- line and a central location in the Mediterranean. Montenegro was the first country in the world to be declared an ecological state in 1991. All this was recognized by several of our prominent members who have already made investments of hundreds of millions of euros and are planning on committing much more. Up to this point, the coastal part of the country has been in the focus for development of tourism, enabling Montenegro to become one of the fastest growing tourist destinations in the world. This potential has certainly been recognized by our investors, members of the MFIC, who have already invested a large amount of money in greenfield and brownfield projects. Yet, there are still many outstanding opportunities for further development, especially in the area of yachting and cruiser tourism. The port of Kotor received 203 ships bringing more than 213,000 guests to Kotor and 788 yachts bringing 3,297 passengers up to August 2015. There is a need to make a complete offer to tourists coming from cruisers and yachts and motivate them to choose to stay in Montenegro for a longer period of time. 3 http://www.wttc.org/site_media/uploads/downloads/montenegro2013_2.pdf. 11 Although the coast has so far proved to be the main driver of the country’s tourist industry, Montenegro’s interior has great investment opportunities which have still not been explored and the region is quite unknown. Four of the country’s five national parks are located in the interior.