The Dividend Tax in Montenegro
In Montenegro, corporate earnings are subject to two tiers of taxation: limited liability companies (D.O.O.’s) pay entity-level corporate income taxes, and their shareholders must also pay a dividend tax when business profits are distributed at the end of a financial year. Dividends are taxed at a flat rate of 15% and withheld by the company.
This means that, unlike in some other countries, Montenegrin tax residents do not have to include dividends from Montenegrin sources in their personal income and report them in their individual tax returns.
Example: Suppose a Montenegrin D.O.O. earns €500,000.00 in profits in a given year and pays €57,000 in corporate income tax. If the company then distributes the remaining €443,000 as dividends to its shareholders, it must withhold €66,450 (15% of €443,000) in dividend tax, leaving €376,550 for the shareholders.
KEY TAKEAWAYS
- Dividends are already taxed at the corporate level in Montenegro
- Individual taxpayers do not have to declare these dividends on their tax returns
- Dividends are distributed relative to each shareholder’s percentage of stock in the company
- There is no personal allowance when it comes to dividend taxes
How often are Dividends paid?
Generally speaking, dividends are paid annually after a company files its annual return. They must be approved by the company’s shareholders at a general meeting, or by written resolution, and are then distributed to shareholders in proportion to their ownership. Shareholders can also opt not to distribute all profits, and instead retain part of the earnings as capital reserves or reinvest them back in the company.
If dividends are not paid out, a Montenegrin limited liability company (D.O.O.) or joint-stock company (A.D.) must still pay corporate income tax (9%–15%) on its net profit. However, shareholders can defer the second layer of taxation (a.k.a. the dividend tax) until the company decides to distribute its after-tax earnings in the future.
Calculate Dividend Payments
It should come as no surprise that dividend payouts can fluctuate significantly, depending on the company’s net profits and overall economic conditions. The number of shares, or better said, the percentage of ownership in the company, also determines the share of profits each shareholder is entitled to receive as dividends. Here’s an example:
- A limited liability company (D.O.O.) is owned by two shareholders
- The company has issued 100 shares of equal value, with each share representing 1% ownership in the D.O.O.
- Shareholder One holds 70 shares (70% ownership), while Shareholder Two holds the remaining 30 shares (30% ownership).
- The company has €200,000 in net profits to distribute to its shareholders.
- Shareholder One receives a net dividend payment of €119.000,00 (85% of €140.000,00)
- Shareholder Two receives €51.000,00 (85% of €60.000,00)
- The company withholds €30,000 in dividend taxes: €21,000 from Shareholder One and €9,000 from Shareholder Two.
- Company directors are not entitled to receive dividends unless they hold shares in the company.
- Shareholders do not need to pay personal income tax on dividends received from Montenegro-based companies, as the tax is already withheld at the company level.
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