PART 2. Recommendations for Improving the Law on Foreigners.

As a follow-up on previous articles, we would like to share our recommendations to further strengthen the ongoing efforts to modernize Montenegro’s migration framework through the proposed amendments to the Law on Foreigners. We recognize these reforms are strategically important as Montenegro moves toward EU accession and aims to align its migration, economic, and investment policies with European standards, while protecting national interests.

The intention behind the amendments—strengthening control mechanisms, preventing misuse of company- and property-based residence routes, and ensuring genuine economic activity—is legitimate and widely supported by the business community. A predictable and well-regulated system benefits both Montenegro and the local and foreign investors who contribute to economic growth, tax revenues, and long-term development.

After reviewing the Provisions of the Law on Foreigners and the latest amendments, and based on extensive experience advising foreign investors, entrepreneurs, company owners, and property holders across Montenegro, we respectfully provide several observations and recommendations aimed at achieving the law’s objectives without creating unintended negative economic effects or legal uncertainty.

This document has not been reviewed, discussed, or coordinated with any ministry, governmental body, parliamentary committee, or public institution in Montenegro. It does not reflect any official government position, nor does it contain any confirmed or adopted legislative changes. The content represents an independent expert opinion intended solely to support public dialogue and provide constructive recommendations based on professional experience and comparative international practice. All interpretations and proposals herein are non-binding and serve informational purposes only.

1. Company Owners (Amendment II)

The amendment requires that every foreign company owner who holds more than 51% of shares or serves as executive director must employ three full-time staff—of which two must be Montenegrin citizens—in order to renew temporary residence.

Implications of the Mandatory 3-Employee Rule

This proposal introduces immediate economic and practical challenges. Thousands of legitimate foreign-owned Montenegrin companies operate with:

• seasonal or irregular cash flows
• project-based work systems
• part-time or flexible staffing needs
• remote or international teams
• modest turnover during early years
• specialized functions requiring only one professional
• technological and automation efficiencies

For many of these businesses, a mandatory 3-employee threshold is financially unrealistic and often economically irrational. Furthermore, there are identified risks involved:

• closure of early-stage companies
• migration of entrepreneurship to neighboring countries (e.g., Serbia, Albania, Croatia)
• decline in foreign direct investment (FDI)
• reduction of VAT, corporate income tax, and payroll tax revenues
• contraction in property demand and tourism-linked services
• loss of competitiveness relative to jurisdictions such as Cyprus, Malta, Portugal, Greece, and EU member states that rely on economic substance criteria rather than fixed employment quotas
• artificial or nominal employment arrangements
• salary-circulation schemes without substantive work
• increased difficulty for labor inspection to verify genuine activity

Modern, EU-Aligned Alternatives

Most European jurisdictions base business-residence eligibility on economic contribution, not fixed employee numbers. Montenegro can adopt a modern, flexible model that preserves economic substance while supporting existing and future SMEs, startups, freelancers, seasonal companies, and innovative structures.

Recommendation: Alternative Temporary Residence Prolongation Rules

Implement a 3-year renewable temporary residence regime where a company and residence prolongation for the Managing Director qualifies by meeting one of the following economic substance tests (all figures are illustrational):

1. Revenue Threshold (sector-based)

• €40,000 annual revenue for service sectors
• €50,000 for trade/retail
• €XYZ for sector-specific activities

2. Payroll / Taxes Paid

• A minimum amount of annual payroll tax paid (e.g., equivalent to one full-time employee or multiple part-time positions).

3. Investment Thresholds

• €50,000 in business investment, or
• €100,000 in commercial property for operations, or
• €XYZ in verified economic transactions

4. Local Economic Footprint (any two)

• one Montenegrin employee (full- or part-time)
• €10,000 annual spending on local suppliers
• notarized business premises lease
• physical presence of the director 90/180 days per year

Recommendation: Alternative Permanent Residence Rules

Permanent residence should encourage long-term integration while remaining realistic and economically meaningful.

Standard (5 years)

Uninterrupted temporary residence applicants should meet three of four criteria:

• two Montenegrin FTE equivalents over 5 years to a minimum amount of annual payroll tax paid
• minimum €100,000 average annual turnover over 5 years
• physical stay in Montenegro (max. 10 months abroad in 5 years)
• property or business investment of €200,000+

Strategic Fast-Track (3 years)

• five Montenegrin FTE equivalents over 3 years to a minimum amount of annual payroll tax paid +
• €500,000 average annual turnover, or
• €1,000,000+ investment in approved projects

2. Property Holders (Amendment I)

Temporary residence for property owners is restricted to properties valued at least €200,000 exclusively according to municipal property tax valuation.

The 5 main issues with the €200,000 threshold are:

A. Municipal valuations are not market-based. Valuations often reflect outdated cadastral pricing and may be 20–60% below actual market value, causing applicants who paid €200,000–€400,000 to be unfairly rejected.

B. Geographic inequality. Podgorica, Tivat, Kolašin, Budva, and Herceg Novi use different valuation methodologies, causing inconsistent outcomes.

C. Newly built properties lack accurate valuations. Investors in large developments are affected because official valuations may not be updated for years.

D. Exclusion of appraiser reports or purchase price. EU states generally rely on:

• purchase price
• certified appraiser valuation
• bank appraisal
• notary-verified documents

Montenegro’s reliance on only one method is economically rigid and unpredictable.

E. No combining of multiple properties. This contradicts European standards and discourages investment in smaller units.

Recommendation: Alternatives to ensure legal certainty and investor protection.

• accept purchase price and notarial contract as primary evidence of value
• allow multiple properties to be combined
• recognize certified appraiser valuations (ovlašćeni procjenitelji) and bank appraisals
• count renovation or construction investments if supported by invoices and fiscal evidence

Annual renewal should remain simple, requiring only: 1) proof of ownership, 2) proof of paid property tax, 3) ental-compliance documentation (if applicable).

This system would be predictable, transparent, and aligned with EU practice.

Existing Property Owners

The amendment currently grants only one extra year to those who no longer meet the new threshold.

This approach:

• violates legitimate expectations of thousands of foreign homeowners
• undermines legal certainty and proportionality
• risks reputational damage
• creates economic instability in real estate, tourism, and construction sectors

Recommendation: Full Grandfathering

All existing property-based residents should retain prolongation rights indefinitely under previous rules, provided they:

• continue to own the property, and
• meet general residency requirements (insurance, criminal record, tax payments).
• A transitional clause could state:

“Individuals who obtained temporary residence based on property ownership before the entry into force of this amendment retain the right to renew their residence under the previous conditions, provided they continue to own the property and fulfil general legal requirements.”

3. Transitional Regime (Amendment III)

Existing property-based residents are given only one additional year; company owners must comply within 180 days.

This contains:

• lack of legal predictability
• contradiction to EU principles of gradual implementation
• risk of economic instability
• no published economic impact assessment
• Avoiding retroactive application is essential for Montenegro’s EU-accession credibility and investor confidence.

Recommendation: Introduce a 24–36 month transitional regime with staged compliance and realistic deadlines.

Disclaimer

This document provides general policy observations and recommendations based on publicly available draft legislation, professional experience, and comparative EU practices. It does not constitute legal advice, tax advice, or an official interpretation of Montenegrin law. Legislative texts may change, and practical implementation may differ from the current proposals. Individuals and companies should seek personalized legal advice before making decisions related to residency, investment, or business structuring in Montenegro. The authors do not accept responsibility for any actions taken based on the information contained herein.