Branch or Subsidiary in Montenegro: What Actually Differs

A foreign company that wants a presence in Montenegro is usually told it has three options — a subsidiary, a branch, or a representative office. In Montenegro it has two.

Član 2 stav 1 of the Companies Act names the vehicles through which economic activity is carried on: a company, an entrepreneur, and a part of a foreign company. There is no general representative-office form; the word appears in the Act only in the provisions on the European Association. So the real choice for a foreign group is between incorporating a Montenegrin company — in practice a društvo sa ograničenom odgovornošću — and registering a part of the foreign company, which is what English-language practice calls a branch.

The differences between them are larger than the registration paperwork suggests, and they run in both directions. This note sets them out with the article numbers, from the Companies Act published in Sl. list CG 090/25 and the Corporate Income Tax Act as consolidated to Sl. list CG 088/24.

Is a branch a separate legal entity?

No, and the Act says so in two places rather than one.

Član 2 stav 2 defines a privredno društvo — a company — as a legal person that independently carries on economic activity. A part of a foreign company is listed in stav 1 as a vehicle for activity, but it is not brought within that definition. It has no legal personality of its own.

Član 543 stav 1 then states the practical consequence: in legal transactions, a part of a company appears under the business name of the company to which it belongs, with an indication that it is a part, the part's address, and the part's name where it has one. A branch does not contract in its own name. It contracts in the parent's name, and the parent is the contracting party.

Everything else follows from that single fact. The parent is liable for what the branch does, without limit and without any need to pierce anything, because there is no separate person to look behind. A subsidiary, by contrast, is a company under član 2 stav 2, and član 16 stav 3 provides that its members are not liable for its obligations except where the Act provides otherwise — the abuse rule in član 17 being the main exception, which we cover in our note on director duties and personal liability.

What a branch has to put on the public record

This is the difference most groups do not anticipate, and it is often decisive.

Under član 547 stav 1, a foreign company establishing a part in Montenegro must, within 30 days of its establishment, file with the CRPS: the decision establishing the part; the address of its seat in Montenegro; its activity; the register in which the foreign company is entered and its registration number; the name and form of the foreign company and of the part where different; a certified copy of the foreign company's statute with a court-interpreter's translation into Montenegrin; a copy of the registration certificate or a certified document confirming the validity of the registration in the home state; data on the owners or members of the foreign company; the names and addresses of the persons authorised to represent the company in Montenegro and the scope of that authority, individually or jointly; and the last balance sheet and profit and loss account, or the equivalent financial documents required in the home state.

Stav 2 then requires any change to those details to be filed within 20 days, together with notice of the parent entering liquidation or bankruptcy, the appointment of a liquidator or trustee and their powers, and the cessation of the part's activity. Under stav 3 the registrar makes that information publicly available through the system of interconnection of registers.

Read that list against the alternative. A Montenegrin subsidiary files its own accounts and its own ownership. A branch puts the foreign parent's accounts, statute and ownership onto a public Montenegrin register. For a privately held group, that is usually the point at which the branch stops being attractive.

Stav 4 carves out one category: the obligation to publish the financial statements does not apply to branches of credit institutions, financial institutions and insurance companies, which are subject to their own reporting rules.

The representative, and a trap worth knowing

Under član 546 stav 8, the registration of a part of a foreign company must include a representative of the part, who must satisfy the conditions the Act sets for appointment as a company director — the disqualification grounds in član 424, including convictions for offences against employment rights, intellectual property, payment operations and business, property or official duty.

Član 546 stav 9 adds a consequence that has no equivalent for a subsidiary: beyond the ordinary grounds for a part ceasing to exist, a part of a foreign company also ceases, by deletion from the CRPS, where it has no registered representative. A branch left without a representative does not merely lack a signatory; it loses its registration.

There is also a point about the scope of that person's authority that is easy to miss. For a part of a company, član 544 stav 4 provides that where the representative of the part is registered in the CRPS, that person is regarded as the representative of the whole company, with the effect of limitations on representation against third parties governed by član 36. The branch provisions in član 546 are expressly framed as particularities sitting on top of the general rules for a part of a company, so a group appointing a branch representative should assume the register presents that person as representing the company itself, and should set and register the limits on their authority deliberately rather than by default.

Name and disclosure obligations

Under član 546 stav 5, the business name of a part of a foreign company must clearly indicate the form of the company, but in a way that clearly distinguishes it from the forms of domestic companies. Stav 6 gives a useful concession: the foreign company may use its own name in Montenegro when registering a part even if that name is identical to another company's or would otherwise mislead as to identity, provided it is clearly indicated that this is a part of a foreign company.

Stav 7 sets out what must appear on all business letters, other business documentation and the website: the name of the registration authority and the number under which the part is registered; the business name, legal form and seat of the foreign company; the name of the part where different; the address of the part; and — the limb that catches groups in difficulty — a note that the foreign company is in liquidation or bankruptcy, with details of the liquidator or trustee.

The tax layer, which is where most of the decision sits

A branch is a permanent establishment by definition

Član 4 stav 4 of the Corporate Income Tax Act defines a permanent establishment as a fixed place of business through which a legal person wholly or partly conducts its business, organised in one of the following forms: a place of management, a branch (filijala), an office, a factory, a workshop, a mine, an oil or gas well, a quarry, or any other place where natural resources are extracted. A building site or assembly project constitutes a permanent establishment only if it lasts longer than six months.

So the question "will this create a permanent establishment?" does not arise for a branch. Registering one answers it.

Stav 5 lists what is not a permanent establishment, and it matters for groups considering whether they need any registration at all: using facilities solely for storage, display or delivery of the company's goods; maintaining stock for those purposes; maintaining stock for processing by another entity; maintaining a fixed place of business solely for purchasing goods or collecting information; maintaining one for activities of a preparatory or auxiliary character; and combinations of those purposes where the overall activity remains preparatory or auxiliary.

Who is taxed on what

Član 3 stav 1 makes a legal person resident if it is established in Montenegro or has its seat of actual management and control in Montenegro. Stav 2 defines a non-resident as one neither established there nor managed from there, which conducts its business through a permanent establishment.

Under član 4, a resident is taxed on profit realised in Montenegro and outside it (stav 1); a non-resident on profit realised in Montenegro (stav 2); and a permanent establishment on the profit that establishment realises (stav 3).

Note the direction of risk in član 3 stav 1 that groups often overlook: it is not only about the Montenegrin entity. A foreign company whose actual management and control sits in Montenegro can be treated as a Montenegrin resident, and therefore taxed on its worldwide profit. Choosing a branch to keep the operation "foreign" does not help if the decisions are in fact taken in Montenegro.

The rate

Član 28 makes the corporate tax rates progressive: 9% on taxable profit up to €100,000; €9,000 plus 12% on the amount above €100,000.01 up to €1,500,000; and €177,000 plus 15% on the amount above €1,500,000.01. The headline 9% is the first band only, a point we deal with in our note on what Montenegro's 9% corporate tax really means. The same scale applies to the profit of a permanent establishment and to a resident subsidiary.

The deduction a branch does not get

Član 11 tačka 5 disallows, as a deductible expense, administrative costs paid by a permanent establishment to the non-resident head office. That is a flat prohibition, not a transfer-pricing test. A subsidiary paying a genuine, arm's-length management or service charge to its parent is in a different regime; a branch charged with a share of head-office administration simply cannot deduct it.

The same article disallows interest paid to non-residents above the usual commercial rate (tačka 4) and default interest between related parties (tačka 11).

Withholding, and the asymmetry on getting profit out

Član 29 stav 1 requires withholding on payments of: dividends and profit shares paid to resident and non-resident legal persons; interest, royalties and other intellectual property fees, capital gains, rent for movable and immovable property, and fees for consulting, market research and audit services paid to a non-resident legal person; and distributions of a liquidation surplus to legal persons. The rate is 15% of the gross amount, applied at the moment of payment (stav 4).

Stav 5 raises that to 30% where the non-resident is from a territory whose rules impose a lower burden on corporate profit and dividends than Montenegro's, or which does not exchange information with the Montenegrin tax authority about beneficial owners and tax obligations. Stav 6 attaches that status by incorporation, registered seat, seat of management or place of actual management, and stav 7 disapplies it where the non-resident is also resident in a state with which Montenegro has a double taxation treaty. Under stav 10 the Ministry publishes the list of such territories.

Two consequences follow for the branch-versus-subsidiary choice.

First, a subsidiary's distribution of profit to its foreign parent is a dividend and falls within član 29 stav 1 tačka 1. A branch remitting profit to its head office is not paying a dividend to anyone — it is a transfer within a single legal person — and no such remittance appears in the withholding list in član 29. Whether that produces a net advantage depends entirely on the treaty position and on how the home state taxes the branch profit, and it is a question for a tax adviser on the specific facts rather than a general rule. We flag the structure of the Act, not a planning conclusion.

Second, a branch is not outside the withholding system as a payer. Član 29 stav 8 makes the business unit of a non-resident legal person liable to withhold when it makes the payments in stavovi 1, 2 and 3 — unless, under stav 9, the fee is attributed as income to that business unit.

This note describes the statutory framework. It is not tax advice for a particular structure, and the treaty position — including Montenegro's network of double taxation agreements and the effect of the multilateral instrument — has to be checked for the specific home state. Our international tax practice deals with that layer.

Setting either one up

Član 10 stav 1 allows the formation of a limited liability company, a part of a company and a part of a foreign company to be carried out electronically, without the physical presence of the founder or applicant at any stage. Stav 2 requires all documentation, including the founding act and statute, to be signed and delivered electronically under the electronic signature and electronic document legislation, with no paper document required. Under stavovi 3 to 5 the notary verifies the founding act by electronic means, using electronic video identification, a qualified electronic signature and a qualified electronic seal, and must reliably establish the founder's identity in accordance with the notarial, electronic identification and anti-money-laundering rules.

That route is available on paper for both structures. In practice the constraint is the qualified electronic signature and the video identification: a foreign founder who does not hold a qualified electronic signature recognised for this procedure will still act through a locally authorised representative, which makes the scope of the power of attorney the operative document. The general position on incorporating is in our company formation guide.

The branch is tethered to the parent

A subsidiary outlives its shareholder. A branch does not outlive its parent, and the Act automates that.

Under član 547 stav 5, if the parent's home register notifies the CRPS through the system of interconnection of registers that the parent has been liquidated or otherwise struck off, the CRPS will start deleting the branch without the parent having to file anything at all. Stav 7 provides the exception: no deletion where the parent ceased to exist through a change of legal form, a restructuring by merger, acquisition or division, or a cross-border conversion.

Stav 8 keeps the register synchronised in the meantime: on notification from the home register, the CRPS updates the parent's name, registered seat, registration number, legal form, persons authorised to represent it, and the financial documents published under the home state's rules. Stavovi 9 to 11 run the same channel in reverse when the branch is deleted. And under član 626, where a branch of a foreign company is registered in Montenegro, the CRPS must publish the fact that the parent has ceased to exist in liquidation — the closing mechanics of which are in our note on the four routes to closing a Montenegrin company.

Choosing between them

A branch suits a group that needs a registered presence for a defined activity, is content that the parent stands behind everything the branch does, does not mind its own accounts and ownership appearing on a Montenegrin public register, and does not intend to charge head-office administration into Montenegro for deduction.

A subsidiary suits almost everything else: ring-fenced liability, its own accounts, the ability to take in a local partner, a deductible arm's-length service charge, and an existence that does not depend on the parent's home register. What it costs is the 15% withholding on distributions, subject to treaty relief.

The one thing neither structure achieves by itself is keeping the operation outside Montenegrin tax residence when it is in fact run from Montenegro — član 3 stav 1 looks at the seat of actual management and control, whatever the form on the register says.

If you are deciding between a branch and a subsidiary in Montenegro, our corporate law practice can set the registration and disclosure consequences of each against the group's position before anything is filed.

Companies Act article numbers are from the Zakon o privrednim društvima, unofficial consolidated text covering Sl. list CG 090/25 of 6 August 2025 and 121/25 of 21 October 2025. Tax article numbers are from the Zakon o porezu na dobit pravnih lica, consolidated text covering Sl. list CG 065/01 through 088/24 of 13 September 2024. Both were checked against those texts on 28 August 2026. A further amending Act to the Companies Act was published in Sl. list CG 44/2026 on 27 March 2026 and entered into force the same day; its published subject matter is electronic incorporation and registration, and no consolidated text incorporating it was obtainable at the date of this check. This note is general information and not tax advice for a particular structure. Confirm the current text before relying on a specific article.