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Montenegro VAT Guide
If you’re a sole proprietor, VAT-registered individual, or limited liability company offering goods or services, you must charge Value-Added Tax (VAT) on all domestic and some international sales once you’re above the VAT threshold of 30.000,00€. In Montenegro, Value-Added Tax is collected by businesses and then paid monthly to the government.
It is a tax on consumption that is collected at each production stage of a good or service and is paid by both consumers and businesses. Value-Added Taxes are complex and attract strict penalties; it is crucial to understand how they work and to determine the correct amount that applies to your business.
Read on to find out more about VAT rates in Montenegro, the registrations thresholds, and how and on which transactions you must charge VAT.
The Basics
In general, businesses do not suffer the burden of VAT, but the final consumer. However, sellers are responsible for collecting and remitting it to the tax office. At every point of a supply chain, where value is added to a product or service, each supplier, business, or customer is charged VAT on supplies delivered to them, if they are provided by a VAT-registered supplier.
As a consequence, businesses have the ability to reclaim Input Value-Added Tax paid on purchases for standard-, reduced-, and zero-rated supplies, which reduces their costs and increases profits. Businesses that are not able to recover Input VAT, however, face an additional cost. To see how Value-Added Taxes work in practice, have a look at the example below:
Example
A manufacturer sells a kitchen to a wholesaler for 10.000,00€ and charges him Value-Added Taxes at Montenegro’s standard rate of 21%. The kitchen manufacturer then transfers the amount that is due for VAT – 2.100,00€ – to the tax office when submitting his monthly VAT return.
The wholesaler goes on to sell the kitchen to a retailer for 20.000,00€ plus VAT, for a total of 24.200,00€. The (VAT-registered) wholesaler is obliged to file a monthly VAT return as well, and has to pay Output VAT of 4.200,00€ on the kitchen, which he can offset against the 2.100,00€ he had already paid to the manufacturer in the form of input VAT, leaving 2.100,00€ he has to transfer to the tax office.
When a customer buys the kitchen at the retailer, he must also add Value-Added Tax to the selling price. The retailer sells the kitchen for 30.000,00€, plus 21% VAT, making a total selling price of 36.300,00€ to the customer. The retailer’s net VAT (Output VAT of 6.300,00€ – Input VAT of 4.200,00€) results in a payment of 2.100,00€ to the tax office.
Montenegro’s tax office has now received 21% on the price paid for the kitchen by the consumer (6.300,00€). The kitchen manufacturer, wholesaler, and retailer only paid the amount of VAT they charged to the next buyer down the supply chain.
KEY TAKEAWAYS
- VAT is charged on supplied, bartered, and imported goods and services
- It is also due on self-supply (from business to stakeholders) and private use of goods and services
- Montenegro has four VAT brackets: 21% (Standard Rate), 15% (Reduced Rate I), 7% (Reduced Rate II), and 0% (Zero-Rated Goods and Services)
- The VAT threshold is 30.000,00€
- VAT returns have to be submitted by the 15th of each month
- The VAT rate on the import of new and used motor vehicles is 21%
- There is no VAT levied on the transfer of land
The VAT Threshold
If your company is generating turnover in excess of Montenegro’s VAT threshold, you must register for VAT and start charging Value-Added Tax on your products or services, regardless of your company type. If you fail to register on time with the tax administration, you still have to pay VAT from the moment you became eligible.
You may have to register for VAT if either:
- Your taxable turnover (i.e. the total issued invoice value) for the previous 365 days (12-month rolling basis, not the calendar year) has breached the ‘VAT registration limit’ (currently 30,000€)
- You think your turnover will soon go over this limit
In case you surpass the VAT threshold of 30.000,00€, you are obliged to register for Value-Added Tax by the 20th of the month following the event, and even have to register if you have reason to believe that your sales will exceed the threshold next month. Once registered, you will be issued a VAT certificate within 7 days.
Example – reaching the VAT registration threshold
- Your VAT taxable turnover on September 11, 2024 is 29.300,00€ for the 12 months leading up to this date
- You must register for Value-Added Tax by September 20, 2024
- Usually, you then have to charge VAT on your taxable sales from October 1, 2024
Deregister for VAT
Once registered for VAT, you will then legally be required to officially charge Value-Added Tax on all supplied goods or services – that are not excempt from VAT – until you stop business operations or providing VAT-taxable supplies. If your turnover has been fallen below 30,000€ in the previous calendar year or 12-month rolling period, you can ask the tax office to cancel your VAT registration.
Voluntary VAT Registration
Even though VAT registration is not compulsory for small businesses operating under the VAT registration threshold, it may actually be beneficial in a number of instances for them to do so. The ability to reclaim Input VAT on business-related purchases can lead to substantial cost savings, particularly for trading companies and those requiring investments in long-term assets such as machinery.
Further, being VAT-registered can elevate your business’s credibility and brand image in the eyes of potential clients and business partners. It suggests a level of professionalism and stability, making it instantly seem more trustworthy and legitimate.
VAT Number Format
A VAT number (Montenegrin: PDV registracioni broj) is a unique identifier that’s assigned to every business when registering for Value-Added Tax. The number is then used on invoices and when filing monthly VAT returns. In Montenegro, a VAT number consists of 10 digits in the following format ’91/31-02896-8′.
Montenegro VAT Rates
The current standard rate of VAT in Montenegro is 21%, and is charged on all goods and services that are not classed as reduced or zero-rated for VAT purposes. There has been a recent amendment to Montenegro’s VAT tax code; here are the current rates:
Standard-Rated Items 21%
If you’re above the 30.000,00€ threshold for VAT, you have to charge Value-Added Tax when making taxable supplies of goods or services. Standard-rated items in Montenegro include:
- diesel and petrol
- car parts
- alcohol
- durable goods (consumer electronics, home appliances, toys, furniture, etc)
- consultancy services, incl. bookkeeping and accounting
- new construction
- motor vehicles
- jewellery and cosmetics
- office equipment
- bottled water
Reduced-Rated Items 7%
The reduced VAT rate of 7% applies to a select range of goods and services in Montenegro, including:
- basic food items such as bread, eggs, flour, milk products, meat, and infant formulas among others
- pharmaceutical products for human and veterinary use
- prosthesis (artificial body parts)
- school supplies and textbooks
- newspapers
- animal feed, seeds, and fertilizers
- diapers
- sanitary hygiene products
Reduced-Rated Items 15%
VAT-registered businesses can apply the (recently introduced) reduced VAT rate of 15% on the following taxable goods and services:
- holiday accommocations: hotels, guesthouses, registered vacation rentals, campsites, etc
- restaurant and catering services (except coffee, alcohol, and sodas)
- books and magazines
- marina services
- hairdressing services
- supply and installation of solar panels
- entry tickets to concerts
Zero-rated items 0%
Even though zero-rated goods and services still count as taxable supplies, the Value-Added Tax charged on them is zero percent. Here is an overview of some zero-rated items for VAT purposes in Montenegro:
- goods you export from Montenegro to other countries
- most services you export from Montenegro other countries
- goods you supply to another VAT-registered business in Montenegro
- supply of marine or aviation fuels for crafts on commercial flights or voyages leaving Montenegro
Exempt items
Even if they may sound similar, there is a difference between VAT exemption and zero-rated items: if (VAT-registered) businesses supply goods or services, including the ones that are zero-rated, they can claim back VAT on their taxable inputs from Montenegro’s tax administration, which however is not possible for items that are exempt from VAT:
- health-related social and medical services
- public postal services
- private health insurance and pension schemes
- preschool education and training
- cultural and sports events organized by nonprofits
- services offered by nonprofits
- services from insurance providers and their representatives
- real estate transactions (secondary market; VAT is due on new build developments)
- long-term rentals (for a period of 60 days or greater)
- banking services
Import VAT (for consumers)
If you order or bring goods into Montenegro, you will be charged import duty and Value-Added Taxes as soon as the goods arrive in Montenegro. This includes goods bought online on platforms such as Amazon or Aliexpress, and by mail order. You will have to pay VAT at the standard rate of 21%.
From 1 January 2025, the VAT exemption on low-value import shipments (up to 75€) no longer applies. Therefore, all goods arriving into Montenegro are subject to Value-Added Tax at the standard rate. Excise Duty is payable on coffee, alcohol, and tobacco products and is separate from VAT and Customs Duty.
VAT Refunds
If you are a non-resident of Montenegro, you are entitled to a VAT refund on all goods you have purchased during your trip to Montenegro if the goods are shown to customs on departure within 3 months of acquiring them, together with the original invoice and the ‘PDV-PP’ VAT refund document, which needs to be filled out and signed by the vendor. Here are some other things to consider:
- the invoice value cannot be lower than 100,00€
- there is no VAT refund on alcoholic beverages, tobacco products, and mineral fuels
- spare parts for cars and vessels installed in Montenegro qualify for a refund
- the claim must be validated by Montenegro’s customs authority before you leave the country
- the certified ‘PDV-PP’ form then needs to be sent (or brought) back to the vendor, within 6 months of the purchase, so that he can initiate the VAT refund, either in cash or via wire transfer
VAT Returns
If you are a registered as being liable to pay Value-Added Tax, either as an individual, sole trader, or corporation, you are obliged to file your monthly VAT returns electronically with Montenegro’s tax office by the 15th of each month, even in case there were no taxable transactions in that particular month.
The monthly VAT return shows:
- the amount of Value-Added Tax you have charged for your goods or services to your customers in the period (Output VAT)
- the Input VAT: Value-Added Taxes you have paid on your business purchases
If the amount you have paid to your (VAT-registered) suppliers is less than the amount you have charged your customers, i.e. the amount of Output VAT exceeds your Input VAT, you must pay the difference (net amount of VAT) to the tax office together with your monthly tax return.
Otherwise, when Input VAT > Output VAT – which is typically the case when the business exports a lot – it is entitled to a refund of input tax credits that can also be paid out on request within 60 days (or 30 days after three months).
Penalties for late filing or late payment
Because Value-Added Taxes play a crucial role in financing Montenegro’s state budget, penalties for not complying with VAT regulations can be severe, depending on the nature and amount of the transgression. When a VAT return is filed and the taxes owed are paid late, you might be charged a penalty (up to 10.000,00€) together with late payment interest.