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Employer of Record - Montenegro

Employer of Record - Montenegro

Skuad’s Montenegro EOR (Employer of Record) solution allows your organization to expand into Montenegro without having to go through the hassle of setting up a local entity. To democratize opportunities and provide remote work opportunities, Skuad’s global HR platform enables the hiring of top talent from anywhere in the world and helps manage their onboarding process, payroll and benefits. Your business can use Skuad to identify great individuals and create remote teams and skip the trouble of ensuring compliance with local labor and tax laws.

Montenegro at a glance

Montenegro is a Balkan country located on the Adriatic coast. The official language is Montenegrin and the capital city is Podgorica which is also the largest city. It is a small nation with a population of just over 620,000 and a GDP of USD 5.4 billion. The country’s economy is mostly made up of the services sector and the currency in use is the Euro. Book a demo with Skuad to learn more about Montenegro.

Employment in Montenegro

Montenegro’s labor law was passed in 2008 and updated in 2020. Any employee must be at least 15 years of age although those under the age of 18 need written consent from parents/guardians and certification from a health authority that he/she is capable of performing the job. To understand employment in Montenegro better, get in touch with Skuad.

Employment Contract

The employment contract must be made in writing before the start of work and must include the following information -

  • Name of Employer and address of registered office
  • Employee’s name and address (whether permanent or temporary)
  • Unique identification number for Montenegro citizens or the number of an identification document if a foreign citizen
  • Job title and description of work to be performed
  • Minimum necessary education qualification for the role and education level of the new employee
  • Place of work
  • Type of employment - definite or indefinite. A definite or fixed-term contract can be for a maximum duration of 36 months. If the employee continues to work after the expiry of the period stipulated, then the type of employment is transformed into indefinite employment with the consent of the employee. The contract can also be written to terminate once a specific task has been performed or service delivered as opposed to being written for a time duration. If no mention is made of the type of employment, then it is considered to be indefinite employment.
  • Start date of the job
  • Working hours - Average working time per week is 40 hours though it can be shortened under the terms of a collective bargaining agreement. Part-time work must be for a duration of at least one-fourth of that of full-time employment i.e. 10 hours. Employees who are under the age of 18 can work for only a maximum of 35 hours a week. A maximum of 10 hours of overtime work, per week, and 250 hours, annually, is permissible. Employees who have to work at night are eligible for regular medical checkups. Notification of overtime work and night work must be given to the labor inspector and employee. If for any reason, written notification of overtime work cannot be given to the employee beforehand, it must be given no later than five days from when overtime is worked. Employees in hazardous jobs can only work for 36 hours a week and are not allowed to work overtime.
  • Breaks - Generally, the employer sets the schedule for breaks in a day. Full-time employees are eligible for a minimum of 30 minutes break time in a day, those working between 4 and 6 hours must get at least 15 minutes of break time and employees working for over 10 hours a day are entitled to a break time of at least 45 minutes.
  • Income - basic salary, allowances, performance-related bonuses must be disclosed. The minimum wage is generally 30% of the average wage in Montenegro and it was pegged at EUR 222 per month in 2019. The wages can also be negotiated by collective bargaining.
  • Holidays and leaves - Employees have the right to a minimum of 20 days’ leave in a calendar year and this is increased to 30 working days for those in hazardous jobs where they are allowed to work for only 36 hours a week. Those with 6 working days in a week are eligible for a minimum of 24 working days leave. It is important to note that annual leave cannot be replaced by compensation except in case of termination of employment. Public holidays in Montenegro are -
    1. Labor Day
    2. Independence Day
    3. Statehood Day
    4. New Year’s Day
    5. Orthodox Christmas Eve
    6. Orthodox Christmas
    7. Orthodox Good Friday
    8. Orthodox Easter Monday
  • Maternity and Parental leave - Expecting mothers are entitled to 28 days leave before the birth of the child and 70 days leave after it. After this, 365 days of parental leave is provided to which both parents are entitled an equal share. A parent who has started using this leave can transfer it to the other parent after 30 days from the start. The parent who transferred the leave to the other parent is no longer eligible to use parental leave.
  • Sick leave - If an employee cannot make it to work owing to sickness or injury, he/she must produce a medical certificate within three days of absence and submit any report that documents any inability to work within five days. While the law does not state any provisions for the number of sick leaves and remuneration during absence, employees can establish this through a collective bargaining agreement.
  • Probation period - The maximum permissible probation period is six months. An employee may or may not have a probationary period when hired.
  • Termination of Employment - An employee can be dismissed for justified reasons which are generally performance or behavior related. Employees in their probationary period must be given 5 days’ notice before termination. For other employees, a minimum notice period of 30 days must be provided. However, if an employer chooses to dismiss an employee, a written warning is first provided and the employee has the opportunity to respond to the warning. Upon reviewing the response, if the employer decides to proceed with termination, a notice must be provided explaining the grounds for dismissal. This warning is not necessary in extreme cases such as when the employee has provided false information or indulged in extreme misconduct in the workplace etc. An employee must provide 30 days’ notice to the employer before quitting. Employers cannot terminate an employee who is pregnant, on maternity leave or on parental leave.

Book a demo with Skuad to understand the rules regarding employment contracts in Montenegro.

Types of Visas in Montenegro

Montenegro issues two types of visas - short stay and long stay visas. The short stay is valid for a year and allows for multiple entries with a maximum stay duration of 90 days in 6 months. The long-stay visa or temporary residence permit is for those who enter the country to work or study and intend to stay for more than 90 days in a stretch. It is valid for a year and needs to be renewed. Documents required to obtain the temporary residence permit are -

  • a copy of the passport which will be valid until after the permit expires
  • Educational qualification
  • Clean criminal record
  • Proof of solvency
  • Place of residence
  • Offer of employment
  • Enrollment in a health insurance program

A work permit (also known as an employment permit) is required for all employees and the application process for the same must be handled by the employer. This can take anywhere between two to six weeks to process and must be planned in advance. The documents required are the same as for obtaining a temporary residence permit. There are two other types of permits that are issued. For seasonal work or work with a pre-defined duration, a standard permit is issued. A personal work permit places the holder on equal footing with a Montenegrin citizen in terms of employment rights and he/she has free access to the labor market. This is the only type of work permit that is issued without proof of employment. Learn more about the various types of visas in Montenegro at Skuad.

Payroll and Taxes in Montenegro

For both organizations and employees, residents ( a company that is registered in Montenegro or an individual that has lived in Montenegro for more than 6 months) are taxed on worldwide income while non-residents are taxed only on income from Montenegro operations.

Personal Income is taxed at 9% which is levied on the entire amount. For salaries exceeding the average annual pay in Montenegro, a tax of 11% is levied on the exceeding amount. In addition, a surtax of 13% is levied which is payable to the municipality where the employee resides. Social security contribution is 24% of the income with the split being 15% for pension and disability insurance, 8.5% for health insurance and 0.5% for unemployment insurance.

The standard corporate income tax rate is 9%. Withholding tax of 9% is charged on dividends, royalties and interests paid to non-resident entities. Social security contributions of the employer are 5.5% for pension and disability insurance, 2.3% for health insurance and 0.5% for unemployment insurance. On transfer of immovable property, a transfer tax of 3% needs to be paid.

The tax year is the calendar year and while organizations have to file tax returns within three months after year-end, only those employees receiving income from multiple sources need to file returns by April 30 of the following year.

Value Added Tax of 21% is charged on products in Montenegro, although certain essential supplies are taxed at a much lower rate of 7% while exports attract 0% tax.

Organizations that have very few employees in Montenegro can consider payroll outsourcing. This helps them save the effort and cost of having to hire additional employees to ensure appropriate payment, withholding tax, filing reports and other functions. This is advantageous since the local partner to whom payroll is outsourced will understand the nuances of the law and ensure compliance. However, the partner does not become the Employer of Record and only handles payroll and related tasks meaning that incorporation and other responsibilities of handling employees still lie with your organization.

Talk to Skuad to learn more about payroll and taxes in Montenegro.

Business Opportunities in Montenegro

Montenegro’s economy is largely dependent on tourism and there is great potential in the hospitality sector with resorts, hotels, restaurants and entertainment avenues for visitors. Real estate is also a profitable venture with an increasing demand for housing and land. Construction gets a fillip from these two sectors as luxury hotels, apartments and entertainment centers need to be designed and built. The renting of motorcycles, cars and even service apartments for foreigners who want to stay for a while and travel around the country are viable business opportunities in tourism. For those who are willing to invest a large amount of capital, mining for coal in the basin of Maoče is a potential investment opportunity.

Learn more about business opportunities in Montenegro at Skuad

Incorporating a holding company in Montenegro

Setting up a subsidiary in Montenegro is easy as the government is welcoming to investments and acts quickly on requests. It also limits the parent company’s liability and allows for expansion and diversification. Since the company will be registered in Montenegro, it will be treated as a domestic business even though the majority shareholder is a foreign entity. Corporations generally prefer to establish a private Limited Liability Corporation (LLC) since the minimum share capital required is 1 EUR and only one founder is required for registration. A private LLC can have a maximum of 30 shareholders. If the company’s share capital exceeds 25,000 EUR, it must be reorganized as a joint-stock company that is governed by a board of directors and audited.

Documents required to establish an entity in Montenegro are -

  • Address of parent entity
  • Industry/sector in which it intends to do business
  • Name and legal documents of the parent entity
  • Company’s articles of association
  • Balance sheet
  • Name and address of entity being established

The authorities will then issue a VAT number, a tax identification number and customs authorization. The company has to then open a bank account, create the company seal and register employees at the tax administration office.

Talk to us to evaluate your strategy for doing business in Montenegro.

Professional Employer Organization

Hiring professionals from a foreign country is a tedious and time-consuming process that can prove to be unnecessarily expensive if legal compliance is not ensured. A professional employer organization steps in by becoming the Employer of Record in the country, thereby assuming liability and handling the operations. These can include, withholding of taxes, payroll processing and employer payroll tax filing, health benefits, retirement vehicles, compensation in case of accidents, etc.

Conclusion

Skuad’s Employer of Record service allows you to not only hire employees but also discover great talent. Our tech-enriched HR platform enables you to provide a seamless onboarding experience from anywhere in the world. We allow your organization to focus on getting the best results and take care of the creation of local entities, compliance with labor and tax laws, etc. Book a demo with us to see how Skuad can benefit your organization and allow you to go global from the comfort of your desk. Book a demo today.

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