Country Name: Montenegro
Currency: Euro (€) (EUR)
Primary Tax Authority: Revenue and Customs Administration (Uprava prihoda i carina)
Key Legislation:
- Corporate Income Tax Law
- Personal Income Tax Law
- Value Added Tax Law
Fiscal Authority Allocation
Centralized Fiscal System:
Montenegro operates a centralized tax system. The Revenue and Customs Administration is responsible for the collection of all taxes, including corporate income tax (CIT), personal income tax (PIT), and VAT. Local governments collect property taxes and certain fees.
Corporate Income Tax (CIT)
Standard Rate: 9%
Montenegro has one of the lowest corporate income tax rates in Europe at 9%. Resident companies are taxed on their worldwide income, while non-resident companies are taxed on their Montenegro-sourced income.
Corporate Forms and Taxation:
- Limited Liability Company (Društvo sa Ograničenom Odgovornošću – d.o.o.): The most common corporate form, subject to a 9% CIT rate.
- Joint-Stock Company (Akcionarsko Društvo – a.d.): Typically used by larger enterprises, also taxed at 9%.
- Branches of Foreign Companies: Taxed on Montenegro-sourced income at 9%.
Exemptions and Incentives:
- Free Zones: Companies operating in free zones benefit from tax reductions and exemptions, including full or partial CIT exemptions for a certain period.
- R&D Incentives: Montenegro offers tax deductions for qualified research and development activities.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 21%
Montenegro applies a VAT rate of 21% to most goods and services. Reduced rates of 7% and 0% apply to certain goods and services, such as basic food items, books, medicines, and hotel accommodations.
Exemptions:
Healthcare, education, and financial services are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT on input costs related to exported goods.
Personal Income Tax (PIT)
Progressive Rates:
Montenegro operates a progressive personal income tax system:
- Income up to €8,400 per year: 9%
- Income above €8,400 per year: 15%
Dividends:
Dividends are taxed at a flat rate of 9%.
Additional Mandatory Contributions
Social Security Contributions:
Both employers and employees must contribute to Montenegro’s social security system, covering pensions, healthcare, and unemployment.
- Employer Contribution: 10.8% of gross salary.
- Employee Contribution: 24% of gross salary.
Withholding Taxes
- Dividends: 9%
- Interest: 9%
- Royalties: 9%
These withholding tax rates may be reduced under Montenegro’s double taxation agreements (DTAs).
Transfer Pricing Rules
Montenegro follows OECD guidelines for transfer pricing. Related-party transactions must comply with the arm’s-length principle, and businesses are required to maintain documentation for transactions that exceed certain thresholds.
Special Tax Regimes
- Free Zones: Companies operating in designated free zones enjoy exemptions from VAT, customs duties, and CIT for a period of time.
- Tourism Incentives: Montenegro offers tax incentives to boost investments in the tourism sector, including reduced CIT rates and exemptions for investments in hotel infrastructure.
Other Taxes
- Real Estate Tax: Local governments impose property taxes, generally ranging from 0.25% to 1% of the property’s market value.
- Capital Gains Tax: Capital gains are taxed as ordinary income, subject to the 9% rate.
- Excise Duties: Montenegro levies excise duties on specific goods, such as alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
Montenegro has signed over 40 double taxation agreements with various countries, including Germany, Italy, and Russia. These treaties reduce withholding taxes and prevent the double taxation of income.
Local Taxes
Local municipalities in Montenegro collect property taxes and certain local fees, such as utility and waste management taxes. However, income tax and VAT are managed by the central government through the Revenue and Customs Administration.
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by March 31st of the following tax year. Personal income tax returns are due by the same date. The tax year follows the calendar year.
Penalties for Late Filing:
Penalties for non-compliance include fines and interest charges on overdue tax payments. The interest rate is typically 0.03% per day on unpaid taxes.
Recent Developments
Green Energy Incentives:
Montenegro is introducing tax incentives for companies investing in renewable energy projects and energy-efficient infrastructure. These include tax credits and exemptions from certain excise duties for green energy equipment.
Digital Services Tax:
The Montenegrin government is considering a digital services tax aimed at multinational companies that provide online services in Montenegro.
Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.