Montenegro Corporate Income Tax

Montenegro-based limited liability companies pay between 9% and 15% Corporate Income Tax (CIT) on the annual profits they make. These profits can usually be reduced by various expenses, deductions, and government subsidies so that the effective corporation tax rate is typically even lower.

International corporations with an ongoing and stable presence in Montenegro are also obliged to pay corporate income taxes, but exclusively on profits generated from this permanent establishment, which can either be an office, branch, factory, mine, or (work) shop in Montenegro. Construction sites for projects taking longer than 6 months are considered permanent establishments for tax purposes.

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The corporate income tax applies to income received from sales of goods and services, dividends, interest, disposal of chargeable business assets, and rental real estate among others. 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 all the details about corporate income taxes in Montenegro, and what you need to do if your company is considered ‘dormant’.

KEY TAKEAWAYS

Corporate Income Taxes are collected by the Montenegrin tax administration once a year; the due date is March 31st
Taxes are assessed on different types of income (sale of goods and services, dividends, interest, capital gains, rental income, etc) after all expenses have been accounted for
The CIT rate in Montenegro is marginal: 9% on the first 100,000€ of profits, 12% on the next 1.4 Million €, and 15% on profits above 1.5 Million €
When the corporation pays out dividends to its shareholders, a flat tax of 15% is withheld at the entity level

The Corporate Tax Rate in Montenegro

Corporate Income Taxes are direct taxes on net profits that Montenegrin companies are obliged to pay to tax office. Since January 1, 2022, the marginal corporate income tax rates in Montenegro have been:

9% for the first 100.000,00€ in annual corporate profits
12% for annual profits between 100.000,00€ and 1.500.000,00€
15% for profits above 1.500.000,00€

The tax rates are marginal, meaning that corporations will effectively pay less than the marginal tax rate (i.e. what they have to pay on their highest Euro of taxable income). Let’s assume a company makes 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 last 500.000,00€.

Total taxes owed: 252.000,00€ (12.6%)

Business Expenses and Deductions

Limited Liability Companies in Montenegro are permitted to reduce their taxable income by a range of business & investment expenses, as well as deductions. All business expenditures that are required (‘wholly and exclusively’) for the operation of the corporation are entirely tax-deductible such as:

employee salaries, wages, and social contributions
bookkeeping, accounting, tax preparation fees
advertising and marketing costs
business insruance premiums
annual depreciation of long-term assets according to depreciation schedules
business related interest expenses
business entertainment expenses up to 1% of annual revenue
professional membership fees up to 0.1% of annual revenue
uncollectable receivables
charitable contributions up to 3.5% of total yearly revenue
tuition reimbursements
fuel costs
travel expenses
certain bonuses to employees

However, allowable expenses do not include costs that cannot be documented, expenses that cannot ‘wholly and fully’ be attributed to the ordinary course of business, 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, and above above arm’s length interest rate payments (as defined by Montenegro’s Ministry of Finance) between related parties.

Properties purchased in an effort to generate income for the corporation are also claimable deductions following Montenegro’s tax depreciation schedule, allowing to account for the gradual decrease in the value of buildings and other types of real estate throughout their useful life, until the cost is fully recovered.

The allowable annual depreciation amount for real estate in Montenegro is 2.5%. This, alongside with the available expenses and deductions listed above, allows you to legally reduce your company’s profit, and thus, the amount of tax your company owes over a year.

Available Tax Reliefs

Under certain conditions, companies (including branches) having their seat in less developed municiaplies can claim tax relief of up to 200.000,00€ over a period of eight years. However, Marginal this tax relief is not available to:

transport and logistics companies
shipywards and steel mills
trading companies (retail, wholesale, etc)

Alternatively, you may be able to claim a (applied) Research and Development tax relief if you as a sole proprietor or your science or technology company engages in cutting-edge projects with the aim of building marketable products/services, develop new processes or intellectual property, with the potential to gain (national or international) trademark or patent rights.

The tax relief can also be granted to freelancers who offer quantifaible, science-based, and innovative solutions to their clients. If a certain business activity fullfills the requirements and if you are eligible for a tax relief, is evaluated by a commission that is appointed by the Government. R & D approved companies must then also enroll in Montenegro’s National Startup Registry.

Further, there is also an agribusiness scheme under which Montenegrin companies reinvesting their profits into agriculture, forestry, or food processing can claim tax relief of up to 300,000 Euros for investments made in the primary sector over a three-year span.

Withholding Taxes & Double Taxation

Withholding tax (WHT) applies to dividends, lease payments, interest, intellectual property rights, and royalties that go from a Montenegro-based company or branch to its shareholders or non-resident corporations or individuals. The withholding tax rate in Montenegro is 15% and is collected at source instead of levied from the recipient. Here are some things to consider regarding WHT in Montenegro:

Loans from the company (with or without interest) to natural persons above the allowable threshold of 5,000 Euro per year
Withholding taxes are due by the end of February for the previous fiscal year
Consulting, legal, auditing, and markets research services offered by non-resident companies to Montenegro-based companies are subject to withholding taxes, payable by the service receiver at a rate of 15% on the gross amount
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
WHT must be withhold at the statutory rate of 15% by the service receiver on payments to foreign entertainers and professional athletes
Higher withholding taxes (30%) apply in cases in which the recipient of the payment is included in Montenegro’s Ministry of Finances blacklist

Montenegro currently has Double Taxation Treaties with 44 countries, which may allow cross-border investors to reduce or eliminate the amount of withholding tax owed to the Montenegrin Tax Office. Corporations can qualify for the exemptions under a DTT by proving ownership over the income and their tax residency status in the more beneficial treaty country.

For example, Montenegro has concluded an greement with the Republic of Cyprus for the avoidance of double taxation, allowing dividends to be taxed in either country. This means that investors can take advantage of Cyprus’ dividends-received exemption and not pay any taxes on dividends received from their investments in Montenegro.

Corporate Tax Return Filing

Every company in Montenegro that is ‘active’ is required to file a corporate income tax return. Activity is determined by the residency status of its founders. For non-Montenegrin founders, the company is only considered ‘active’ when its shareholders have received their residence permits.

If such is the case, the company’s annual accounts – together with the tax return form (‘Obrazac PD’), statistical annex, and the depreciation reports – must be submitted no later than 3 months after the end of the accounting period, even if the company has not generated any profits or revenue. The tax filing deadline is March 31st.

The start of the corporation’s accounting period is the day that it becomes active for corporate income taxes, which may or may not be the day that it is established at Montenegro’s Company Register. Each fiscal year will run for a maximum of one year, ending on December 31st, except for when the company has been established intra-annully or has been closed down before the end of the accounting period.

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. Missed-deadline penalties for Montenegrin companies are 0.03% per day of the outstanding tax.

Need help with filing your company taxes?

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