Taxes in Montenegro: Everything you need to know [2023 update]

The tax season 2023 is around the corner and it is not such as bad thing because taxes in Montenegro are not as high as those in other European countries. Until the end of 2021, Montenegro had a flat rate tax system with both personal and corporate income that was taxed at a rate of just 9%.

This has changed since January 2022.

With the start of the year 2022, the Montenegrin government has introduced a progressive tax system. (yikes!) I will dive into more detail further down this article and let you know if Montenegro is still a tax haven or at least close to being one.

The Tax System in Montenegro

The Montenegrin tax system is residency-based. Tax residents pay income in Montenegro on their worldwide income. This taxation system is different from a territorial-based tax system that does not tax repatriated income and from a citizenship-based taxation system such as in the United States.

Montenegro’s income tax system can broadly be divided into two distinct parts: one part constitutes the corporate tax system and the other is all about personal taxes. Let’s start with the corporate tax apparatus. If you want to read about personal or property tax in Montenegro instead, you can skip the following section.

Montenegro Corporate Income Tax & Rates

Taxes in Montenegro for businesses are moderate. The corporate income tax rate is progressive and ranges from 9% – 15%. Read below for an overview of the three tax brackets for corporates:

• businesses pay 9% taxes in Montenegro on annual net profits of up to 100,000€
• the corporation tax rate is 12% for yearly profits between 100,001€ and 1,500,000€
• Montenegrin companies pay a 15% corporate tax for all incomes above 1,500,001€

The above-mentioned progressive tax rates are marginal. This means that each rate corresponds to a specific tax bracket. For example, if your business has a taxable income of 300,000€ in 2022, then it is in the 12 percent bracket.

This however will not make you pay 12 percent on all of this income. Instead, you will pay 9% for the first 100,000€ and 12 percent for the remaining amount.

total taxes: 9,000€ + 24,000€ = 33,000€

Let’s look at another example.

Let’s assume you have a booked yearly net profit of 110,000€. You would be taxed at a rate of 10.2% effectively and would need to pay a corporate tax of 10,200€ in total (9,000€ + 1,200€).

Note: Taxes in Montenegro are determined and adjusted following the IFRS (International Financial Reporting Standards).

Businesses realizing profits from the sale of land, property sales, property rights, and financial instruments must account for these capital gains in their books. Capital Gains are considered business income in the current accounting period. Whereas capital losses can be offset against future capital gains forward for up to 5 years.

Branch Income Tax

Foreign companies (non-residents) doing business in Montenegro pay progressive taxes (9% – 15%) on their Montenegro-derived income same as resident companies. Tax authorities treat a branch in Montenegro as a permanent establishment.

Note: If the business is incorporated or has its place of effective management in Montenegro, then the legal entity is considered a resident entity instead.

Corporate Withholding Taxes Montenegro

The withholding tax rate is 15% and is levied on the Montenegro-sourced income of a non-resident entity without a permanent establishment in Montenegro.

Withholding taxes are enforced on dividends, capital gains, interest payments, royalties, rental income, intellectual property rights fees, market research, and consulting fees, audit service fees, and income from sports or artistic events in Montenegro.

You can eliminate or reduce withholding taxes if your country of tax residence has a double tax treaty with Montenegro. Two conditions apply:

1. You need to show proof of ownership over the to-be-distributed income.
2. You must have a tax residency certificate (signed and stamped by your foreign tax authority).

Montenegro currently has double tax treaties with 43 countries:

• Albania, Austria, Azerbaijan, Belgium, Belarus,
• Bosnia, Bulgaria, China, Croatia, Cyprus,
• Czech Republic, Denmark, Egypt, Finland, France,
• Germany, Hungary, India, Ireland, Italy, South Korea,
• Kuwait, Latvia, Macedonia, Malaysia, Malta, Moldova
• Netherlands, Norway, Poland, Portugal, Romania, Russian Federation,
• Serbia, Slovakia, Slovenia, Sri Lanka, Sweden, Switzerland
• Turkey, Ukraine, United Arab Emirates, United Kingdom

Montenegro Payroll Taxes and Contributions

Employee salaries are subject to various taxes at the state and surtaxes on the municipal levels in Montenegro. Four national taxes and contributions are imposed on wage and salary income: income tax, pension and disability insurance contributions (social security), health care contributions, and unemployment insurance contributions.

Further, there is a surtax that is levied on the municipal level.

On top of that, you have another three contributions due each month:

• contribution to the labor fund (0.20%)
• mandatory contribution to the chamber of commerce (0.27%)
• contribution to the labor union (0.20%)

All these taxes and contributions are withheld by the employer from the gross salary and paid every month.

Personal Income Tax Rates in Montenegro

The personal income tax is progressive in Montenegro and ranges from zero to 15% for employees. For a monthly salary of less than 700,00€ (gross) per month, you do not need to pay income taxes. On monthly gross salaries between 700,00€ and 1,000€ a 9% income tax is levied on the amount exceeding 700,00€. 

Salaries above 1,000€ incur the top marginal rate of 15%.

Pension and Disability Insurance Contributions

The pension and disability insurance tax rate is 15% on the side of the employee and 5.50% on the side of the employer. This is money that goes into the government’s social security fund to finance pension obligations.

Health Insurance Contributions

The health insurance contributions have been currently suspended both on the side of the employer and also on the side of the employee. For the time being, Montenegro will finance their healthcare system out of the state budget.

Before this new regulation, 8.5% have been withheld from the employee and 2.3% from the employer.

Montenegro has a government health insurance scheme. There are no private healthcare alternatives.

Unemployment Insurance Contributions

The unemployment insurance tax rate amounts to 1.00% in total (employer and employee pay 0.50% each).

This is money used to finance Montenegro’s job center among others.

Municipal Surtaxes

Municipalities in Montenegro charge a surtax on all salaries exceeding 700,00€. The tax rates range between 10 and 15%, depending on the municipality. It is 10% in Budva, 13% in Bar, and 15% in Podgorica and Cetinje.

Being a surtax (tax on a tax), the amount you will have to pay is luckily not that big. For example, for a net wage of 1,000€, the surtax (15%) would be 9.94€, not 15% of the salary.

How do I calculate my income after taxes?

As you can see, the payroll tax system in Montenegro is rather complex. There are in total eight different types of taxes and contributions to deal with.

Let’s go through two examples here so that you can get a better grasp of the salary taxes in Montenegro.

Example One:

Assuming your (or your employee’s) gross salary is 695,00 Euros per month.

After we pay taxes and contributions (total tax from gross 20.78%), we arrive at a net salary of 550,55 Euros. 

• Social Security Contributions: 20.50% (15% + 5.50%)
• Unemployment Insurance: 1.00%
• Contributions: 0.67% (0.20% + 0.20% + 0.27%)

Example Two:

• Net Salary is 1700,00€
• Gross Salary of 2269,06€
• Total taxes 217,36€
• Social security contributions of 340,35€
• Healthcare contributions 0,00€
• Unempl. insurance 11,35€
• Total taxes and contributions 569,06 €

PLUS employer contributions:

• Social security contributions of 124,80€
• Healthcare contributions 0,00€
• Unempl. insurance 11,35€
• Municipal surtax 32,60€
• Chamber of Commerce 6,13€
• Labor Fund contributions of 4,54€
• Labor Union contributions of 4,54€
• Total taxes and contributions 183,96 €

TOTAL taxes and contributions

753,02€ calculated based on a net salary of 1700,00€.

Montenegro Value-Added Tax (Sales Tax)

Value Added Tax is charged to consumers based on the purchase price of certain goods and services. As we discuss in the section about Montenegro’s tax policy, VAT plays a crucial role in financing Montenegro’s state budget. Thus you need to be very careful once your company is in the VAT system. The fines for noncompliance can be draconic.

If your taxable business turnover exceeds the current threshold of 30,000€ (calculated for the previous 12 months, not the calendar year), VAT registration is mandatory.

In Montenegro, you pay VAT on goods and services at a rate of 21%, and 7% on essential goods and services like medicine, books, meat, milk, bread, medicines, textbooks, newspapers, and public transport.

0% VAT is levied on the export of goods and services.

This means that you do not need to pay VAT if you offer services over the internet for foreign clients, for example.

Montenegro’s tax system tries to stimulate the development of luxury real estate and yachting tourism. That is why the supply of gasoline for boats and yachts and the construction of certain luxury hotels are zero-rated for VAT purposes. 

Montenegro Tax Policy

With this recent change in tax regulations, the Montenegro tax system has become a little less favorable for companies with high corporate income. In exchange, employment income is now taxed less than before. At the same time, the minimum monthly net wage has been increased to 450,00 Euros.

Looking at the table below, we can see how important the Value Added Tax is for Montenegro’s state budget. The VAT (sales tax) is one of the indirect taxes and is levied in the amount of 21% on most goods and services and 7% on essential goods. Being such as critical lynchpin in the Montenegro tax system, this is where you need to be careful to meet due diligence demands when running your business.

Note: This overview does not include state income from the citizenship by investment program that was contributing roughly 70 million in the year 2022.

Tax Brackets Montenegro 2023

The tax brackets for 2023 are the same as in 2022. There are two (personal) income tax brackets in Montenegro: 9% and 15%. Your tax bracket is determined by your monthly taxable income and by the nature of the income.

In this sense, we need to differentiate between three types of personal income.

1. Employment income
2. Income from sole trader activity or self-employment
3. Interest-, Dividend-, Royalty-, and Rental Income

For all net wages lower than 700,00 Euros, the taxable income is zero percent. Income tax rates are 9% for personal incomes between 701,00€ and 1.000,00€ and 15% above 1.001,00€.

Rates for self-employment and liberal professions are 0% for annual incomes that do not exceed 8.400,00€. Incomes between 8.401,00€and 12.000,00€ are in the 9% tax bracket whereas everything above 12.001,00€ is taxed at a rate of 15%.

All Rental-, Dividend-, Royalty-, and Interest Income gets taxed at 15%.

Tax Year Montenegro

The tax year in Montenegro for the most part is a 12-month calendar year, and the deadlines for the submission of your annual tax return are:

• March 31st for your corporate income tax returns
• April 30th for your individual tax returns

Remember: By filing your taxes in 2023, you’re not filing your taxes for the current year but your 2022 taxes instead.

The tax year is not the full calendar year in case you start a new business or liquidate an existing one throughout the year. In that case, it is shortened and your income tax liabilities need to be adjusted accordingly.

Note: The threshold before you need to register for VAT is 30,000€ in Montenegro. It is calculated for the previous 12-month period, not the calendar year. This means that you need to immediately register as soon as the threshold is exceeded to avoid fines.

Personal Taxes in Montenegro

As we have mentioned above in the section about tax brackets, tax residents pay anywhere between 9% and 15% personal income tax in Montenegro. Only employment income that is lower than 700,00 Euros per month and annual income from self-employment that does not exceed 8.400,00 Euros is tax-free.

If you receive rental-, dividend-, royalty-, or interest income, it is worth noting that you will pay income tax at a rate of 15%.

Tax Residency in Montenegro

You can establish an individual tax residence status in Montenegro by:

• having a domicile in Montenegro
• spending at least 183 days a year in Montenegro
• having your center of personal and economic activity in Montenegro

As you can see, if you have the center of your personal and economic activity established in Montenegro, or spend more than 183 days a year there, you can ask to be considered a tax resident.

Being a tax resident of Montenegro means paying taxes on your global income. This can constitute investment income, dividends, royalties, interest payments, etc.

This is one of the main reasons our clients choose Montenegro as their country of tax residence. It has become increasingly difficult to find a place where you can relatively easily obtain residency and pay low taxes, and still be geographically well-positioned. 

Capital Gains Tax Montenegro

The capital gains tax rate in Montenegro for individuals is 15%. 

Capital gains are profits earned on the sale of either real estate or financial instruments. For example, if you buy shares in a stock or non-public company and the price goes up before you sell them, you need to pay capital gains tax.

Dividend Tax Montenegro

If you are a shareholder in foreign or Montenegrin companies and receive dividend income, you need to pay taxes on it. Dividends are taxable at a flat rate of 15% and are withheld by the payer of the income in the case of local companies.

If you receive dividends from outside of Montenegro and are a tax resident, you need to declare the dividend income in your individual income tax return.

Note: If you receive income from royalties, patents, sports- or music events, you need to include these sources of income in your tax base.

Taxation of Rental Income

Rental income is taxed at a rate of 15% after deductions.

Rental income deductions in the amount of 30% do not need to be documented.

For example, if you rent out an apartment in Montenegro for a monthly rent of 1,000€, you would pay the following rental income taxes:

• yearly rent: 12,000€
• minus allowed deductions of 30%: 8,400€
• 8.400€ x 0.15 = 1,260€ rental taxes

Some special conditions with potentially larger deductions for short-term rentals. Contact us for more information.

Montenegro Property Tax

The property tax is one of the two real estate taxes that foreign investors will come across when owning, buying, or selling property in Montenegro.

Property taxes are proportional and range from 0.25% to 1.00% per year, calculated based on the estimated current property value.

You will have to pay a property tax for land and properties located inside Montenegro’s borders, namely:

• agricultural and urbanized land
• finished and semi-finished property (commercial and residential)
• basements, non-residential spaces, and garages

Property taxes are distinct from taxes on rental income and transfer tax. They are paid in two equal installments with deadlines on June 30th and October 31st respectively.

These real estate taxes are adjusted annually by the local municipalities. Taxpayers are notified by mail latest April 30th each year.

Montenegro Property Transfer Tax

The property transfer tax is the other type of the two real estate taxes in Montenegro. The real estate transfer tax is due on all transactions including immovable property except newly-built real estate.

Buyers of land, residential, and commercial property pay taxes in the amount of 3.00% irrespective of the transaction value. Currently, there are talks between lawmakers to increase the transfer tax to 5.00% for property values greater than 150,000 Euros.

The sale of a property is not taxed if the transfer of property is a gift to relatives of the first hereditary order or if the property is the main and only domicile of the taxpayer. Further, there is no inheritance tax to pay between relatives of the first order.

Montenegro Self-Employed Tax

Some people choose to be self-employed over establishing a corporation in Montenegro. Generally speaking, you are self-employed if:

• You do business as a sole proprietor or an independent contractor
• You are a partner in a (general or limited) partnership
• You earn income through a work contract agreement or as a gig worker

What are my tax obligations?

As a self-employed individual, you are generally required to file an annual return and pay taxes and contributions on a monthly basis. The taxes and contributions are similar to the payroll taxes and contributions withheld from the salary of most employees. 

Montenegro Crypto Tax

There is currently no regulation regarding the taxation of profits generated from the buying and selling of cryptocurrencies or other crypto assets.

Is Montenegro a tax haven?

The answer is ‘No’. Montenegro is not a tax haven but a country with a straightforward taxation system with moderate taxes for individuals and corporations. The top marginal tax rate for corporations and individuals is a mere 15%.

There are a couple of Carribean and Golf countries with zero or close to zero taxation. Being a tax haven comes at a cost. It is becoming increasingly difficult to transfer money in and especially out of these countries nowadays. 

Moving to a country with no personal income tax might sound good on paper but not everyone likes to live in the desert or on a remote island with a culture hard to adapt to.

To its advantage, Montenegro manages to combine the best of both worlds. Corporations enjoy a low corporate tax rate, 43 double tax treaties, and many tax incentives.

As a tax resident, you can take advantage of low personal taxes and a favorable geographical location. Montenegro is located very centrally in the heart of Europe.

SUMMARY: TAXES IN MONTENEGRO

• Resident companies pay a progressive 9% – 15% corporate income tax
• Non-resident companies are taxed on their Montenegro-sourced income at a corporate tax rate of 15%
• Value Added Tax is levied by EU guidelines and is 21% (reduced rate 7%)
• Montenegro residents pay a 15% tax on capital gains, dividends, interest, rental income
• Corporations file annual tax returns until March 31st
• Individuals file their annual tax returns with a deadline of April 30th