The Dividend Tax in Montenegro

In Montenegro, corporate annual earnings are subject to two tiers of taxation: limited liability companies (D.O.O.’s) pay entity-level corporate income taxes, and their shareholder must also pay a dividend tax when the business profits are distributed. All dividends are taxed at a flat rate of 15% and are withheld at the paying entity level, meaning that unlike in some other countries, shareholders in Montenegro exclude dividends from their taxable personal income.

Suppose a Montenegrin D.O.O. earns 500.000,00€ in profits this year and pays 57,000€ in corporate income taxes. If the corporation now decides to pay out the remaining 443.000,00€ (before dividend taxes) to its shareholders, the D.O.O. must withhold 66.450,00€ (0.15 x 443k) in taxes and 376.550,00€ would be left for the company’s shareholders.

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KEY TAKEAWAYS

Dividends are already taxed at the corporate level in Montenegro
Individual taxpayers do not have to declare these dividends in 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, dividend amounts are paid annually, after a corporation files its annual return. These are approved by the company’s shareholders during a general meeting, or by written resolution, and distributed to all shareholders in proportion to their stock holdings. The shareholders can also opt not to pay out all dividends and instead, retain some of the earnings as capital reserves and/or reinvest into the company.

If no dividends are distributed, the Montenegrin Limited Liability Company (or Joint-Stock Company) would still pay the corporate income tax (9% – 15%) on its net profit, but the shareholder would carry over the second taxation, which only occurs when after-tax earnings are distributed, until sometime in the future.

Calculate Dividend Payments

It should come as no surprise that dividend payouts can fluctuate widely, in accordance with the performance of the broader economy and the net profit amount available for distribution. The number of shares, or better said, the percentage of ownership in the company, determines which percentage of profits each of the shareholders can receive as dividends. Let’s look at one example:

A limited liability company (D.O.O.) is owned by two shareholders
The corporation has issued 100 shares of equal value, so each share represents 1% ownership in the D.O.O.
Shareholder One owns 70 shares (70% of the company), and shareholder Two owns the remaining 30 shares (30% of the company)
The company has 200.000,00€ of 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 a net dividend payment of 51.000,00€ (85% of 60.000,00€)
The company withholds 30.000,00€ in dividend taxes (21.000,00€ from shareholder One and 9.000,00€ from shareholder Two)
Company directors do not receive any dividends if they do not hold shares in the company
Shareholders do not need to pay personal income taxes on their dividend income received from Montenegro-based companies separately because the taxes are already withheld