Table of Contents
ToggleBusinesses in Montenegro pay 9% on their business income in the form of a corporate profit tax (CPT). If the business is a resident company, it gets taxed on its worldwide income. If the business is incorporated or has its place of effective management in Montenegro, then the legal entity is considered a resident entity.
Non-resident entities pay taxes on Montenegro-derived income or income that is derived from so-called Permanent Establishments (PE) in Montenegro. PE is simply a fixed premise trough which a non-resident does business in Montenegro. This can either be via a branch office, factory, workshop, mine, stone pit, etc. There is no Permanent Establishment if the non-resident has inventory for the only purpose of delivering goods. Non-resident taxpayers are also liable to withholding taxes from Montenegrin sources.
The IFRS (International Financial Reporting Standards) is the basis for determining and adjusting the accounted profit which is disclosed in the profit and loss statement. The tax year in Montenegro is the calendar year, and the tax return should be handed in until March 31st.
Businesses realizing profits with financial securities or property transactions need to pay 9% Capital Gains Tax. Capital Gains can be offset against losses in the same accounting period. Capital losses can be carried forward up to 5 years.
Income derived from Interest is subject to a 9% corporate profit tax.
Royalty income is taxed at a rate of 9%.
Income derived from Dividends is subject to a 9% corporate profit tax. If the distributor of the dividend is a Montenegrin company, divdend income is free from corporate profit tax.
If you receive foreign income as a Montenegrin resident taxpayer, you can be granted a tax credit for the taxes paid abroad. This amount can not be greater than the amount that would be applicable using Montenegrin tax rates. Income earned abroad cannot be deferred into the future.
Non-resident businesses acting in Montenegro with the help of a Permanent Establishment pay 9% taxes on their Montenegro-derived income. Branches are considered a Permanent Establishment.
Assets – both tangible and intangible – with a useful life greater than one year and a value of greater equal 300 Euros can depreciate. There are five groups for depreciable assets in Montenegro with the following rates:
Only the first group (Real Estate) depreciates according to the straight-line method. Another method is used for the assets in all other groups (2-5) – the declining-balance method.
Business-related interest expenses are deductible. The cost of a loan and interest paid to the creditor is only deductible to the amount of prevalent market interest rates.
Bad debt is deductible given that:
Companies in Montenegro can claim deductions on expenditures made to charities or legal entities that engage in the following activities:
Expenses up to 3.5% of total revenue can be recognized if the receiver of the expenditures is a lawfully charitable entity.
Only in the tax period in which they occur, salary costs, severance payments related to the retirement of workers, costs related to technological surplus are recognized as deductible.
If a Montenegrin business entity receives goods or services from a foreign group entity, the excess expenses recorded over market value are not recognized as deductible expenses and must be valued at arm’s length.
The withholding tax rate is 9% and is levied on Montenegro-sourced income distributed to a non-resident. It applies to dividends, capital gains, interest payments, royalties, rental property income, intellectual property rights fees, market research, and consulting fees, audit service fees, income from sports or artistic events in Montenegro. Resident and non-resident taxpayers also pay a withholding tax on income from the repurchase of used products, semi-final products, and agricultural products from a VAT-registered producer.
Withholding taxes are paid on profit shares and the distribution of dividends to either a Montenegrin legal entity or individual. Montenegro signed 42 Double Taxation Treaties (DTT) so far with the following countries:
The Double Tax Treaty is meaning to either reduce or eliminate the Withholding Tax in Montenegro. In order to qualify for the preferential tax rate of the DTT, the non-resident needs to prove residency in the treaty country and beneficial ownership over the business income. This is done by showing the tax residency certificate of the treaty country. The document needs to be filled out and stamped by the relevant authority of the residency country.
Notes:
The base for the calculation of the mandatory monthly social security contributions is the income of the employee and includes the gross salary and gross salary from freelance contracts. Note: This is why we recommend freelancers to better open a Limited Liability company and pay out earnings via a dividend.
Social Contributions are withheld by the employer from the gross salary and paid on a monthly basis.
Contributions to Social Security | For Employee | For Employer |
---|---|---|
Health Insurance | 8.50% | 2.30% |
Pension and Disability Insurance | 15% | 5.50% |
Unemployment Insurance | 0.50% | 0.50% |
There is the possibility of an 8-year corporate income tax break for newly-established companies in the underdeveloped municipalities of Montenegro. These regions are mostly in its not so affluent North. The maximum amount a company can claim is 200.000 Euros. Note: The tax exemption is not applicable to the following sectors:
So, if you as a taxpayer make a choice for these underdeveloped municipalities to place your production units in, you can become exempt from income tax for the first eight years.
The subsidies may be used by an employer who hires:
If business owners choose to employ workers from one of the above-listed categories, they will not pay:
NGO’s are allowed to lower their tax base by 4000 Euros under the condition that the money is used for the realization of the NGO’s mission and goals.
If, as a taxpayer, you settle the corporate profit tax liability by the deadline on March 31st, you will be given a 6% discount.
As a resident taxpayer, you can claim a foreign tax credit up to the amount of foreign CPT paid. The credit cannot exceed the amount that would have been paid in Montenegro.
In Montenegro, a Value Added Tax (Sales Tax) is charged to consumers based on the purchase price of certain goods and services. The Value Added Tax rate in Montenegro is 21% on goods and services, 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, the supply of gasoline for boats and yachts, supply of goods and services that are used in international air and maritime traffic or in the free trade zones, and certan equipment used in the construction of luxury hotels.
The tax is levied on all companies that have revenues greater than 18.000€ per year. Businesses pay VAT on a monthly basis. For imported goods, businesses pay VAT besides other import duties. VAT returns have to be filed with the tax office within 15 days.
Value Added Tax | VAT rate |
---|---|
Standard Rate | 21% |
Reduced Rate | 7% |
Zero Rate | 0% |
Refund Period | 60 days |
Export Companies | 30 days |
Montenegro has no export duties.
If you want to import goods into Montenegro, customs duties will be calculated on the basis of an ad valorem or specific duty per unit of good rate.
Ad valorem duties range from 0 – 30%.
Specfic duties range from 0.04 – 1.00€ per kg.
Montenegro has free-trade agreements with the European Union, EFTA (Switzerland, Norway, Iceland and Liechtenstein), CEFTA (Serbia, Albania, Bosnia, Macedonia, Moldova), Russia, Turkey and Ukraine.
Custom duties along with Value Added Tax should be paid within 8 days.
Excise Duties
Importers and producers of the following goods must pay excise duties:
-Alcoholic beverages
-Tobacco
-Mineral oils and derivatives
-Mineral water with sugar or aroma
-Liquid for e-cigarettes
Excise duty assessment should be filed with the tax authorities within 15 days after the end of the month.
Tax on coffee ranges from 0.80 – 1.30€ per kg.
How does the Personal Income Tax Rate in Montenegro compare to other countries?
As you can see from the graph below, Montenegro levies a 9% flat tax rate on personal income (PIT) on salaries, investment income, and rental income from a property. This is the best tax rate in the whole of Europe and in the top 1% percentile worldwide. As a Montenegrin resident, you will have the advantage of paying very little income taxes. Note: For above-average incomes, the Montenegrin government has abolished the tax increae to 11%, which is good news.
For your personal income tax rate you will be taxed as an individual on your worldwide income based on your residence status. That means, if you are a resident of Montenegro, you are paying taxes on your total income from all over the world. These can be dividends, royalties, interest payments, etc.
Non-residents are subject to paying income tax on their Montenegro-sourced income under the same rules as resident taxpayers.
This is actually one of the main reasons our clients choose Montenegro as their new country of residence. It has become increasingly difficult to find a place where you can relatively easily obtain residency in and paying low taxes, and still being geographically well-positioned.
You can establish individual tax residence status in Montenegro by:
As you can see, if as an individual, your center of life and/or business is in Montenegro, or if you stay in Montenegro continuously, or with breaks more than 183 days a year, you are considered a tax resident.
In Montenegro, capital income is defined as income from:
The capital gains tax is derived from and calculated from the data in your annual tax return – at a rate of 9% flat.
Income from interest, dividends, and rental revenue is taxable at 9%. The tax on interest and dividends is withheld by the payer of the income. Rental income deductions are available in the amount of 30-70%, depending on the nature of the rental.
The 9% flat tax rate applies.
This is not subject to taxation.
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.
The annual tax return should be filed at the latest on April 30th for each calendar year. The return can be submitted personally or via mail.
The tax year in Montenegro ends on December 31st.
Do you need more information?
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