Informal economic activity among registered private companies and entrepreneurs in Montenegro declined to 12.4% of GDP in 2026, from 20.6% in 2022, according to an Ipsos survey cited by the Finance Ministry. The four-year reduction amounts to 8.2 percentage points, indicating increased formalisation within the registered private sector.
The survey does not cover Montenegro’s entire shadow economy. Its estimate concerns informal practices among registered private companies and entrepreneurs and does not necessarily capture completely unregistered work, household activity and other parts of the grey economy.
Regional and Sectoral Differences
Construction and hospitality recorded some of the largest improvements, while informal activity remained relatively higher in transport, agriculture and northern Montenegro. The estimated rate in the northern region was 17.5%, compared with 11.3% in central Montenegro. The government is preparing a new programme to combat the informal economy for 2027-2029. Planned measures are expected to include digitalisation, greater use of cashless payments, stronger inspection capacity and improved exchange of taxpayer information.
Higher Perceived Detection Risk
The survey also recorded a substantial change in perceptions of enforcement. The proportion of respondents who considered the probability of detecting informal activity to be above 50% increased to 67%, compared with 33% four years earlier. Montenegro is expanding the use of digital systems as part of its approach to compliance. The Tax Administration is preparing electronic invoicing, electronic dispatch notes and new digital registers, while authorities also plan to strengthen access to information from online booking platforms.
The system is intended to make greater use of information generated by businesses, banks, customs authorities and digital platforms, allowing authorities to compare records and identify discrepancies rather than relying exclusively on individual inspections. This approach could have particular relevance for tourism, retail and construction, where large numbers of relatively small transactions make conventional inspection-based monitoring more difficult.
Tax Revenue and Formalisation
The fiscal impact comes as tax revenues continue to increase. Montenegro collected almost €1.2 billion in gross tax revenue during the first eight months of 2026, around €98 million more than in the same period a year earlier. VAT receipts reached almost €380 million.
Higher economic activity contributed to the increase, while improved compliance can also increase public revenue without changes to tax rates.
That issue is relevant to the government’s planned 2027 wage and tax overhaul, which includes higher minimum wages and possible changes to payroll taxation. Changes in wages and payroll taxes will affect public finances and increase the importance of expanding the effective tax base. Greater formalisation also affects competition between businesses. Companies that underreport turnover or employment can operate with lower costs than competitors that comply fully with tax and labour requirements.
Construction and Hospitality
Construction is among the sectors where this issue is particularly significant. Montenegro has recorded strong residential and tourism-related construction activity, while the sector has historically faced exposure to informal employment and cash payments. More formal activity in construction would affect tax collection, labour protection and the accuracy of economic statistics. Hospitality faces similar monitoring challenges. Small restaurants, cafes, private accommodation providers and seasonal workers generate substantial numbers of transactions that can be difficult to supervise manually.
Agriculture, Transport and Northern Montenegro
The comparatively higher levels of informality in agriculture and transport indicate areas where enforcement efforts may increasingly be directed. Agriculture includes numerous small producers and operations combining household and commercial activities, which can make formalisation more difficult. Transport presents additional supervision challenges because of mobile work, fuel transactions and cross-border activity.
Northern Montenegro presents a separate geographic challenge, with smaller labour markets and weaker private-sector development making informal work an important source of household income. The government’s approach will therefore also need to address the practical costs of formalisation. High compliance costs relative to business income can discourage smaller operators from entering or remaining within the formal system.
Digitalisation and Cashless Payments
Digitalisation is intended not only to improve oversight but also to simplify administration. Electronic systems can reduce paperwork and lower reporting costs for small businesses, although systems that are difficult to use could create additional compliance burdens for firms with limited administrative capacity.
Cashless payments are another expected component of the 2027-2029 programme. Electronic transactions create records that can be traced and can reduce opportunities for undeclared turnover. Montenegro nevertheless retains a strong cash-based business culture, particularly in tourism and small retail. Mandatory digital payments could create additional costs for microbusinesses if introduced too rapidly. The survey indicates that informal activity among registered private businesses was substantially lower in 2026 than in 2022, with the estimated level falling by 8.2 percentage points to 12.4% of GDP.
