Russian Business Influx into Montenegro More a Means to Residence
These companies altogether paid 4.89 million euros into state coffers in the form of taxes and social security contributions between February last year and July 4, 2023 – that’s an average of 837 euros.
Experts say the data suggests Russians are opening businesses not to earn money, but to secure residence papers.
“The numbers show that a large part of these companies have a small number of employees or even no registered workers, which may be an indicator that business is not the primary goal,” said economics analyst Boban Stanic. “This could suggest that the creation of companies is a strategy for securing the right of residence, rather than a legitimate business interest.”
And small foreign-owned companies in Montenegro have a habit of not paying taxes.
Stanic said it was important that authorities differentiate between such types of investment, stepping up scrutiny of small firms and whether they are meeting their obligations to the state.
“This implies recognizing those that bring real value to the economy, compared to those that may not have long-term benefits.”
“A comprehensive approach must be built, which not only attracts foreign investments but also promotes transparency, accountability and long-term sustainability.”
One-man band
Western sanctions on Russia over its invasion of Ukraine have driven many Russians to move their businesses elsewhere; those in the IT sector in particular have been able to relocate and continue their work online.
“I am convinced, and this is also shown by the data, that many companies that did business in Russia and Ukraine want to transfer their business to safer areas and that Montenegro is one of the more attractive destinations for that,” Montenegrin Economic Development and Tourism Minister Goran Djurovic told television Vijesti in May 2022.
Programmer Aleksei Gudashev was one of those who chose Montenegro, which is not yet a member of the European Union and for years has courted Russians to spend their summer holidays on the Adriatic coast or buy properties.
Gudashev registered his IT agency in the coastal town of Herceg Novi in March last year and is the only employee.
“After opening a company, you can legally work with foreign clients, but also get a residence permit in Montenegro,” he said. “Nevertheless, the process did not go quickly. Eight months passed from the establishment of the company in Montenegro to the first payment.”
According to the Montenegrin interior ministry, between February 2022 and July this year, a total of 29,294 temporary and permanent residence permits were issued to Russian citizens.
Just over half were temporary residence and work permits, allowing a foreign citizen to stay beyond 90 days. That compares to 6,343 such permits in 2021.
To obtain a temporary residence permit, a foreigner must prove employment with a company registered in Montenegro or that they themselves have opened a company in the country.
“Most companies are opened only so that people can live in Montenegro, and I think that many people choose this country precisely for living, and not for business emigration,” said Gudashev.
“Self-employed people like me do not take jobs in Montenegro. They export services to other countries and pay taxes here.”
Need for ‘stricter regulatory measures’
Anyone can register a limited liability company in Montenegro with founding capital of at least one euro.
According to revenue and customs data, 161 companies founded by Russian citizens since the invasion of Ukraine have already closed; three went bust and one was deleted from the business register.
Russians prefer to set up on the coast – Budva is the most popular municipality with 1,975 companies registered to Russian citizens. Podgorica, the capital, follows with 1,192, followed by Herceg Novi with 1,000 and the port of Bar with 977.
The biggest Russian employer in Montenegro is the IT firm First Line Software, which, according to official data, boasts 201 employees. Synthesis of Intelligent Systems, Linux Development and BD Software each employ between 27 and 42 people. All four are registered in Budva and, in total, posted 3.27 million euros in revenues and outgoings of 3.09 million euros last year.
None of the four responded to requests for comment for this story.
According to the Union of Employers of Montenegro, before the war in Ukraine, the Russian business presence in Montenegro was dominated by companies that employed significant numbers of workers; since the war, the profile has shifted to mainly small companies.
The union warned that roughly half of new companies founded by foreigners did not submit final accounts or settle their tax obligations, though it did not specify the time period it was referring to.
“Such procedures should be dealt with institutionally and in a timely manner, all for the reason that the act of registering a company does not represent sure proof of the intention to perform an economic activity, but can also be a cover for other things, such as, for example, permanent residence,” the union said.
Asked about the economic benefit to Montenegro derived from Russian companies registering in the country, the Central Bank sent BIRN data on foreign direct investment.
The data shows that the total gross inflow of foreign investment for the first five months of this year amounted to 361 million euros, of which Russia accounted for the largest chunk – 52.5 million.
Some 26.8 million euros went into real estate, 13.18 million was intercompany debt, i.e. borrowing money from parent companies abroad, and 12.3 million was investment in domestic companies and banks.
Stanic said it was alarming that half of companies newly-established by foreign citizens have not paid their tax obligations.
“This represents not only a violation of legal norms, but also shows a potential problem in the sustainability of these business ventures,” he said. “Therefore, there is a need for stricter regulatory measures to ensure that all companies fulfill their financial obligations.”
Ivan Ivanovic
BIRN