The Republic of Montenegro, along with the Republic of Serbia, is one of two federal units comprising the Federal Republic of Yugoslavia. This current status was obtained in the 1992 referendum that followed the break-up of the former Yugoslavia where Montenegro was one of the six constituent republics. The Montenegrins, , unlike their Serbian counterparts, took part in a referendum and voted "yes" in answer to the somewhat ambiguous referendum question: "Are you for, that Montenegro, as a Sovereign Republic, continues living in the common state - Yugoslavia, entirely equal with other republics that wish the same?"

According to its Constitution, Montenegro is defined as a "democratic, social, and ecological state" which is "sovereign in matters that are not transferred to competence of the Federal Republic of Yugoslavia".

A geographic, historical and political overview of Montenegro

The tradition of independent statehood in the area of what is now modern Montenegro is nearly 1000 years old. Montenegro was first internationally recognized as a sovereign state in 1878, prior to which it had been an independent Principality for five centuries. The history of Montenegrin independence took a tumble in 1918, when Montenegro opted to join Serbia.

The Republic of Montenegro is situated on the Adriatic Sea. Its surface area is 13.812 square kilometers (5.333 square miles), and it has a population of 630,000.

In view of the dominant place of the Serbian-Croatian conflict in Yugoslav politics, little or no attention has been given by historians to Montenegro’s development the world wars (1919-1941). Montenegro’s economic development, including foreign investment, followed the lines of political patronage, which meant that little of it filtered into the country. There was no new rail building, no initiation of new mineral extraction, and little new road construction. Having few large estates to expropriate, Montenegro was almost untouched by agrarian reform. Port development in the Gulf of Kotor was confined to military facilities. Montenegro's most important export in this period was probably emigrants.

Any dissatisfaction this neglect may have caused the Montenegrins is hard to gauge, given the centralization of Yugoslav politics and the proscription of free party organization under the royal dictatorship after 1929. However, it is indicative that the Communist Party thrived as much in areas such as Montenegro as it did in large industrial centers as Zagreb and Belgrade.

Following the invasion and subsequent partitioning of Yugoslavia by the Axis powers in April 1941, Montenegro was taken over by the Italians under a nominally autonomous administration. Within a few months spontaneous armed resistance began. This was divided in its aims and loyalties between communists and their sympathizers and noncommunist advocates of union with Serbia. At the same time, some Montenegrin nationalists, disappointed by the experience of unification, supported the Italian administration. This local conflict was soon entangled within the wider Yugoslav struggle. The local strength of the communist party gave them an effective base in Montenegro. In addition, Montenegro’s remoteness and difficult terrain made it an important refuge for Tito's Partisan forces during the most difficult stage of their struggle, and it became a relatively safe haven after the fall of Italy.

The Montenegrins' traditional Pan-Slavism and inherent bravery made them natural allies with the communist ideal of a reunified Yugoslavia. Therefore, after the war (and in contrast to their former irrelevance) a number of Montenegrins found themselves in high positions within the military, political, and economic administration. This devotion to the party and to Soviet leadership, as well as to the Pan-Slav ideal, was partly responsible for the large number of Montenegrins who sided with Stalin in the dispute between the Communist Information Bureau (COMINFORM) and the Yugoslav leadership. These people paid for their loyalty in subsequent purges.

The communist strategy of trying to unify Yugoslavia through a federal structure elevated Montenegro to the status of a republic, thereby securing Montenegrin loyalty to the federation. Montenegro then became a regular recipient of large amounts of federal aid, which enabled it to embark upon a process of industrialization. In spite of an attempt to develop the area around Niksic as a center of both bauxite mining and steel production, Montenegro’s economic progress was continuously hampered by its insignificance to the federation’s communication networks. It wasn’t until the early 1980s that the Montenegrin coast emerged as an important tourist area.

Following the death of Broz Tito, the Yugoslav federation broke up in 1989, leaving Montenegro in a precarious position. The first multiparty elections in 1990 returned the reformed League of Communists to power, confirming Montenegrin support for the disintegrating federation. The Republic of Montenegro joined Serbian efforts to preserve the Federation and, in 1992, it joined the "Third Yugoslavia, which comprised a federal republic consisting of Montenegro and Serbia.

A thumbnail sketch of Montenegrin Offshore and business opportunities

According to the Law on companies, passed in July 1996, offshore companies can be established as:

* Companies with limited liability
* Joint-stock companies

Offshore companies can also be established as anonymous companies. Companies having limited liability can be founded by one or more founders, while a joint-stock company can be founded by at least two founders. The minimal amount of capital for a limited liability companies’ founder is $ 1.000, while it is $10,000 for a joint-stock company. Registration of offshore companies can be accomplished within 10 days.

Offshore companies established in Montenegro are allowed to carry out international trade; provide management services, consulting services, ship and yacht administration, as well as banking and insurance services.

Offshore companies are allowed to export products and services from the Federal Republic of Yugoslavia. These companies can also produce films, music records and compact discs in Montenegro. With consent of the Montenegrin government, offshore companies can invest in Montenegro.

There are a number of business incentives in Montenegro. Offshore companies registered there are subject to profit taxation at the rate of 2.5%. However, these companies are exempted from exchange control. They do not have to pay taxes and customs on duties of imported equipment and equipment for their business activities (i.e., cars, yachts, ships, technical appliances, furniture, etc.). Tax provisions and other incentives regulated by this Law are guaranteed up to the year 2011.

Employee emoluments of offshore companies are taxed at the rate of 5%. On investment income and other incomes made outside the Federal Republic of Yugoslavia, qualified individuals pay taxes at the rate of 5%.

Qualified individuals pay a tax rate of 2% on pensions received from abroad. Other individuals do not pay tax or custom duties on cars, yachts, household equipment, technical appliances and furniture imported for their personal use or for use by their families.

The Republic of Montenegro has adopted the Euro as the country's legal tender, thereby minimizing inflation taxation of its citizens. Without that step, the central bank in Montenegro would have been under constant pressure to print money.

Adopting a new tax law will introduce one of the lowest corporate tax rates in Europe: a mere 9%. Capital-exchange restrictions have been eliminated and repatriation of profits accrued by foreign investors in Montenegro is free. Interest rates are markets determined and more than 99% of the prices are freely set. Treating foreign investors like domestic ones, enjoying the same rights and legal protections, is intrinsic to Montenegro's privatization, investment and business regulations.

To encourage new business development, the required starting capital for a limited liability company has been reduced to EUR1. The aluminum industry, which accounts for 60% of total exports, is being privatized. The tender for Telecom Crna Gore, the national fixed-line operator, is already underway.

As anywhere else in the world, objections to implementing economic freedom in Montenegro come from the rent-seeking groups, monopolists, and people benefiting from state redistribution. Along with this, Montenegro also has to overcome a barrier peculiar to its political situation. As one of the basic preconditions for signing the Association and Stabilization Agreement with the EU, Brussels insisted on the "harmonization" of economic systems between Serbia and Montenegro.

There is a problem with this. Montenegro wants to develop an open and service-oriented economy while, on the other hand, Serbia wants to protect its agriculture and inherited heavy industries. Therefore, the harmonization of these systems will be problematic.

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