Opening a branch vs. a subsidiary in Montenegro
Opening a Branch vs. a Subsidiary in MontenegroUpdated on Thursday 23rd April 2020
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Montenegro is a fast developing European country that might be of great interest for foreign investors. Two accessible options for such investors are the opening of a branch in Montenegro or the establishment of a subsidiary. While the latter stands on its own as a separate legal entity, the former relies more on the parent company. The foreign companies which intend to extend their business in this country should call on a law firm in Montenegro for complete legal support and professional guidance.
Below, we have prepared a small guide on how to choose between a branch office and a subsidiary in Montenegro.
Our lawyers can offer the necessary support to those interested in setting up both branches and subsidiaries in Montenegro.
The branch and the subsidiary in Montenegro
The Montenegro Company Law provides for similar conditions for doing business for both local and foreign companies interested in operating through branches and subsidiaries. Each business form must follow a set of regulations and is imposed with various conditions in order to be operate legally in Montenegro.
The branch office is not considered a separate legal entity from the parent company; therefore, it will not be allowed to complete other activities than the ones falling in the foreign company’s business objectives. Compared to it, the subsidiary can take the form of a limited liability company (most of the times) and can complete the activities of the parent company, as well as follow other independent objectives.
Another important difference between the Montenegrin branch and subsidiary resides in the liability of the parent company towards the obligations of the chosen business form. In the case of the branch office, the parent company will be liable for all the obligations and debts of its branch, while in the case of the subsidiary, no liability will be incurred on the parent company.
Choosing between a branch office and a subsidiary should be done based on a thorough research and competent legal advice you can find with our Montenegro law firm.
The main features of a branch office in Montenegro
When a company’s representatives must choose between opening a branch and a subsidiary in Montenegro and decide on the former option, here is what they need to know:
- the branch office will need to follow the operating conditions imposed by the parent company while respecting the Montenegro legislation;
- from an accounting point of view, both the branch and the parent company are required to submit annual financial statements;
- the branch office will be restricted to completing the same activities of the parent company, which is why it often employed by financial companies;
- the parent company will need to obtain the necessary licenses for the branch office with the authorities in Montenegro;
- the parent company must have a representative in Montenegro to represent the interests of the branch office.
As an advantage, it is useful to know that the branch office is less expensive and faster to register compared to the Montenegro subsidiary company.
We have also created a scheme with the main differences between branches and subsidiaries in Montenegro:
Steps for branch establishment in Montenegro
Although it has its own management, a branch cannot take the most important decisions without checking first with the parent company. This is one of the reasons for which in Montenegro, branches inherit in their name the original name of the main company to which it is added the ending branch.
In order to open a branch in Montenegro a decision of establishment should be elaborated and signed by the board of the parent company. Consequently, in maximum 30 days, branches will have to be registered in the Montenegrin Registry. Some of the documents which need to be prepared are:
- the name and the address of the newly established branch;
- the domain of activity;
- the name and line of business of the parent company;
- memorandum of association of the main company;
- the names of the legal representatives;
- balance sheet and financial evidence of the parent company.
These documents might require translation in as much as the foreign company will need an interpreter to deal with the authorities of the Montenegrin State. The simplest solution for the investor is to employ a law firm in Montenegro to elaborate the required documents and to make sure any eventual language barrier is overcome.
Opening a subsidiary in Montenegro
The foreign investor who intends to open a subsidiary in Montenegro must choose from the legal structures available in this country. For example for a subsidiary with a capital larger than EUR 25,000, the suitable option would be a joint stock company. For a lesser amount, one can form a limited liability company. If the investor is not very familiar with the Company Law in Montenegro then it would be advisable to work with our lawyers in Montenegro who can help you form the appropriate legal structure in accordance to your objectives and company values. Moreover they will help you prepare the mandatory documentation, and to obtain the required certificates and authorizations.
Opening a subsidiary in Montenegro implies registering a local company which will imply:
- selecting a unique trade name independently from the parent company’s name (verification for authenticity is required);
- drafting the subsidiary’s Memorandum and Articles of Association (which is not necessary for the branch office);
- opening a bank account with a local bank in which the share capital must be deposited (not necessary for the branch office);
- registering for tax and VAT purposes and obtaining an employer number with the Montenegro authorities;
- applying for the necessary licenses with the authorities, agencies or institutions required based on the activities to be undertaken.
The main advantage of the subsidiary is that being treated as a local company it will benefit from one of the smallest corporate tax rates in Europe (9%).
Our attorneys in Montenegro can help you establish a subsidiary in this country.
How to choose between a Montenegro branch and a subsidiary
Choosing between a branch office and a subsidiary can be easy once the foreign company has established its object of activity, the branch office being more suited for those seeking to complete the same activities as in their home country. However, taxation and licensing can represent an advantage for those setting up subsidiaries, however, the business start-up costs in this case are a little higher.
In terms of company registration, the steps and duration are almost the same no matter if an investor decides for a subsidiary or branch in Montenegro.
If you are interested in starting a business in Montenegro, here are a few interesting facts about its economy:
- 2017 was one of the most important years for Montenegro, as the economy increased by 4.7%;
- 2018 also brought an increase of 4.1% for the country’s Gross Domestic Product;
- for 2019, Montenegro’s annual real economic growth is expected to be of 2.8%;
- in 2020 and 2021 Montenegro is predicted to register a 2.3%, respectively 2.4% economic increase.
Don’t hesitate to contact our Montenegro lawyers for a simple and fast opening of a branch or a subsidiary in Montenegro.