Montenegro Corporate Income Tax
Limited liability companies based in Montenegro pay Corporate Income Tax (CIT) on their annual profits at rates ranging from 9% to 15%. These profits can typically be reduced by various allowable expenses, deductions, and government subsidies, which can lower the effective corporate tax rate significantly.
Companies registered abroad but with an ongoing and stable presence in Montenegro are also required to pay corporate income tax, but only on profits generated by their permanent establishment, which may take the form of an office, branch, factory, mine, or workshop located in Montenegro.
Which incomes are taxable? This tax is levied on profits from the sale of goods and services, as well as other taxable sources such as dividends, interest, capital gains, and rental income. Realized Capital Gains are reported on a separate section of the company tax return, and are not subject to any allowances. Losses, however, can be carried forward for up to five years.
Below, we explain the key details about corporate income tax in Montenegro and what you need to do if your company is considered dormant.
KEY TAKEAWAYS
- Corporate income tax is collected by the Tax Administration of Montenegro once a year, with the filing and payment deadline on March 31st.
- Corporate income taxes are assessed on the sale of goods and services, dividends, interest, capital gains, and rental income – after allowable business expenses have been deducted.
- The tax rate is applied on a marginal basis: 9% on the first €100,000 of profits, 12% on the next €1.4 million, and 15% on profits above €1.5 million.
- When a corporation distributes dividends to its shareholders, a flat 15% dividend tax is withheld at the company level.
The Corporation Tax Rate in Montenegro
Since January 1, 2022, the marginal corporate income tax rates in Montenegro have been:
- 9% on the first €100,000 of annual corporate profits
- 12% on annual profits between €100,000 and €1,500,000
- 15% on annual profits above €1,500,000
The tax rates are marginal, meaning corporations pay different rates on different portions of their income, so their effective tax rate will be lower than the highest marginal rate (i.e., the rate applied to their last euro of taxable income). Let’s assume a company earns 2.000.000,00€ in annual profits. It would pay:
- 9% on the first 100.000,00€,
- 12% on the next 1.4 Million €, and
- 15% on the remaining 500.000,00€.
Total taxes owed: 252,000€ (effective rate: 12.6%)
Business Expenses and Deductions
Limited companies in Montenegro are permitted to legally reduce their taxable income by a range of business & investment expenses, as well as allowable deductions. Only business expenditures that are ‘wholly and exclusively’ attributable to the operation of the company are fully tax-deductible, such as:
- Employee salaries, wages, and social contributions/salary taxes
- Bookkeeping, accounting, and tax preparation fees
- Advertising and marketing expenses
- Business insurance premiums
- Annual depreciation of long-term assets (according to prescribed depreciation schedules)
- Business-related interest expenses
- Business entertainment expenses (deductible up to 1% of annual revenue)
- Professional membership fees (deductible up to 0.1% of annual revenue)
- Uncollectable receivables
- Charitable contributions (deductible up to 3.5% of annual revenue)
- Tuition reimbursements
- Fuel costs
- Travel expenses
- Certain employee bonuses
However, allowable expenses do not include any undocumented costs (no invoice or receipt), interest paid to non-residents at rates larger than the average commercial interest rate in Montenegro, administrative expenses paid by a branch to the head office, penalties, or interest payments between related parties exceeding arm’s length rates.
Residential and commercial properties purchased in an effort to generate income for the corporation are also claimable deductions. They follow Montenegro’s tax depreciation schedules, allowing companies to account for the gradual decrease in the value of buildings and other types of real estate over their useful life – up to 2.5% per year, until the full cost is recovered.
Available Tax Reliefs
Businesses set up in less developed Montenegrin municipalities may claim corporate income tax concessions of up to 200,000€ over a period of eight years. They need to fulfill specific conditions set by the Tax Administration of Montenegro, including restrictions on certain business activities, such as:
- Transport and logistics companies
- Shipyards and steel mills
- Trading businesses (retail, wholesale, etc.)
Innovative technology companies involved in developing new marketable products or services with the potential to gain (national or international) trademark or patent rights may be eligible for Research and Development (R&D) tax relief. This tax relief may also be granted to freelancers/solo entrepreneurs offering innovative solutions. Companies approved for R&D tax relief must also register with Montenegro’s National Startup Registry.
There is also an agribusiness tax exemption scheme under which companies registered in Montenegro that reinvest their profits back into the primary sector (agriculture, forestry, or food processing) can claim tax relief of up to €300,000 over a three-year period.
Withholding Taxes & Double Taxation
Withholding tax (WHT) is levied on dividends, lease payments, interest, royalties, and intellectual property fees paid by a Montenegro-based company or branch to non-resident shareholders. The withholding tax (WHT) rate in Montenegro is 15% and is collected at the source, rather than being levied on the recipient. Here are some key points to consider regarding WHT in Montenegro:
- Loans from the company (with or without interest) to natural persons exceeding the allowable threshold of 5,000€ per year
- Withholding taxes must be paid by the end of February for the previous fiscal year
- Consulting, legal, auditing, and market research services provided by non-resident companies to Montenegro-based companies are subject to a 15% withholding tax on the gross amount, payable by the service recipient
- Withholding taxes are also levied on dividends, interest payments, royalties from intellectual property, capital gains, and rental income earned by resident and non-resident companies from activities in Montenegro
- The service receiver in Montenegro must withhold WHT at the statutory rate of 15% on all payments to foreign entertainers and professional athletes performing in Montenegro
- A higher withholding tax rate of 30% applies to payments made to recipients found on Montenegro’s Ministry of Finance blacklist
Montenegro currently has Double Taxation Treaties with 44 countries, which may allow cross-border investors to reduce or eliminate withholding tax payable to the Tax Administration of Montenegro. Corporations can qualify for exemptions under a DTT by proving ownership of the income and their tax residency in another treaty country.
Corporate Tax Return Filing
Each company’s annual accounts, together with the tax return form (PD obrazac), statistical annex, and amortization schedules, must be completed and submitted by March 31st, even if the company has not generated any profits or revenue. The company’s accounting period starts on the date of incorporation and runs until the end of the fiscal year, which typically concludes on December 31st.
Are you required to e-file your company tax return?
According to Montenegro’s Law on Corporate Income Taxes, all corporations need to electronically submit their tax returns, either through a government-approved software or an authorized tax professional. For Montenegrin companies, penalties for missed tax deadlines are charged at a rate of 0.03% per day on the outstanding tax.
Need help with navigating or filing corporate income taxes?
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