Montenegro Tax system

Montenegro’s tax regime has become one of the most competitive in whole of Europe. With 9% corporate profit tax rate and 9% personal income tax rate, investors and companies operating in Montenegro enjoy not only a business friendly environment but also a low tax burden, thus maximizing their operational profit.

Montenegro tax system compared to other countries / Source: Trading Economics

*Corporate tax has progressive rates and depends on amounts of profit. Tax rates on the amount of taxable profit are: up to EUR 100,000.00 – 9%; from EUR 100,000.01 to EUR 1,500,000.00: EUR 9,000.00€ + 12% on the amount over EUR 100,000.01; over EUR 1,500,000.01: EUR 177,000.00€ + 15% on the amount over EUR 1,500,000.01

The tax system for foreign investors is the same as for local business entities. Upon payment of corporate income tax, business entities operating in Montenegro have the possibility to transfer funds to their accounts abroad at the end of the year.

A taxpayers are:
- resident natural person who generates income in Montenegro and outside Montenegro,
- non-resident natural person who generates income inside Montenegro,
- resident legal entity who generates income in Montenegro and outside Montenegro
- non-resident legal entity who generates income inside Montenegro.

The tax system in Montenegro consists:

Corporate profit tax - 9/ 12/ 15% (progressive rate)

Corporate tax has progressive rates and depends on amounts of profit.

Tax rates on the amount of taxable profit are:

• up to EUR 100,000.00 – 9%;
• from EUR 100,000.01 to EUR 1,500,000.00: EUR 9,000.00€ + 12% on the amount over EUR 100,000.01;
• over EUR 1,500,000.01: EUR 177,000.00€ + 15% on the amount over EUR 1,500,000.01. In addition, deductible tax is increased from 9% to 15% based on gross income.

A taxpayer of the Profit Tax shall be a resident or non-resident legal entity, which carries out a for-profit activity. A limited partnership shall also be considered as a legal entity

A resident legal entity (hereinafter referred to as the resident) shall be an entity established in Montenegro, or having registered office having actual headquarters and control on the territory of Montenegro. A non-resident legal entity (hereinafter referred to as the non-resident) shall be an entity that is not established in Montenegro, and without registered office having actual headquarters and control in Montenegro, but that carries out its operations through a permanent establishment.

The object of taxation of a resident shall be the profit that the resident generates in Montenegro and outside of Montenegro. The object of taxation of a non-resident shall be the profit that the non-resident generates in Montenegro. The object of taxation of the non-resident’s permanent establishment shall be the profit generated by such establishment.

Please read Corporate profit tax law

Personal income tax - 15% (flat rate)

Tax rate of the income tax is 9% of the tax base. A taxpayer of the personals income tax shall be a resident natural person who generates income in Montenegro and outside Montenegro or non-resident natural person who generates income in Montenegro. A tax base for the income tax of a resident shall represent the taxable income of the taxpayer generated during the tax period, reduced by the amount of loss carried forward. A tax base for the income tax of a non-resident shall represent the taxable income of the taxpayer generated during the tax period.

Please read Personal income tax law

Value Added Tax (VAT) - 21%, 7%, 0%

Registration for VAT in Montenegro may be either voluntary or mandatory.

Voluntary VAT registration is possible for taxpayers who have not realized turnover exceeding 30,000 euros (EUR) in the last 12-month period.

Once registered, a company may not apply for deregistration for at least three years. VAT registration is mandatory for an entity that realizes turnover exceeding the EUR 30,000 threshold in any 12-month period.

Value Added Tax is a general tax on final consumption and is accounted for and paid in all stages of the supply of taxable products and the provision of taxable services.

The main principles of the Montenegrin VAT are in line with the European Union (EU) Sixth Directive guidelines. Taxable supplies are subject to a general 21% VAT rate; however, certain supplies are taxed at a reduced 7% rate (e.g. bread, milk, books, medicines, computers) and 0% rate (e.g. export of goods, supply of gasoline for vessels in international traffic).

Object of taxation of VAT is as follows:
1) Supplies of products and provision of services effected for consideration by a taxpayer in furtherance of his activities;
2) importation of goods into the Republic of Montenegro(hereinafter referred to as Montenegro) .

Supply of goods shall be the right to dispose of movable or immovable [tangible] things

VAT shall be accounted for and paid at the general rate of 21% on the supply of goods, services and import of goods, except for supply of goods, services and import of goods for which it has been prescribed that the VAT shall be paid at a reduced rate (7%), as well as on supply of goods, services and import of goods that have been zero rated.

VAT shall be accounted for and paid at the reduced rate of 7% on the supply of goods, services and import of goods, as follows: 1) Basic products for human nutrition (bread, flour, milk and dairy products, baby food, fat, cooking oil, meat and sugar), medicines, books, monographic and serial publications, services of accommodation in hotels, motels, tourist settlements, boarding houses, leisure, camps and villas, services of preparation and serving the food, drinks and beverages in hotels with at least four stars in the Northern region or with at least five stars in the Central and Coastal region, potable water, daily and periodic press, except those of completely or mostly advertising content, services of public transportation of passengers and their personal baggage, services of public hygiene.....(full list you can find in article 24a VAT law).

VAT shall be paid at the rate of 0% on: goods that have been exported from Montenegro by the seller that is goods that have been exported on his behalf by another person, supply of services, including transport and other ancillary services, goods and services that are used in international air and maritime traffic, medicines and medical devices, goods and services used for exploration of petroleum drills on the open sea, supply of goods and services for construction and equipping of hospitality industry facilities having five or more stars category, energy facilities for electricity generation with nameplate power higher than 10MW, and capacities for manufacturing of food products, supply of goods to the free zone, free and customs warehouses and supply of goods within a free zone, free and customs warehouses.....(full list you can find in article 25 VAT law)

VAT is calculated and paid on a calendar-month basis (i.e. a VAT return must be submitted and VAT liability must be cleared monthly). VAT calculated on imports is paid along with customs duties.

Please read Value added tax law

Real estate ownership tax - 0,25% - 1%

The immovable property located in the territory of Montenegro shall be subject to the immovable property tax. The immovable property shall be deemed to be:

• - Land (buildable, forest, agricultural and other);
• - Building structures (business, residential, residential-business and other structures);
• - Separate parts of residential building (apartments, business premises, basements, garages or garage parking spots and other).

The taxpayer of the immovable property tax shall be the owner of the immovable property registered in the immovable property cadaster or another immovable property records on 1st January of the year for which the tax is assessed. The base of the immovable property tax shall be the market value of immovable property. The market value of immovable property shall be the value of the immovable property on the 1st January of the year the tax is assessed for.

The immovable property tax rate shall be flat and may range from 0.25% to 1.00% of the immovable property market value. There are some exceptions which are related with purpose and type of property.

Please read Real estate ownership tax

Real estate transfer tax - 3% (flat rate)

Immovable property transactions shall be subject to taxation. Immovable property transactions shall be deemed any acquisition of ownership right over immovable property in Montenegro.

Acquisition of ownership right over immovable property shall be deemed: purchase and sale, exchange, inheritance, gift, inclusion and exclusion of immovable property in/from a business organization, acquisition of immovable property under the liquidation or bankruptcy proceeding, acquisition of immovable property based on a decision of a court or other competent authority, as well as other manner of acquisition of immovable property.

The immovable property shall be deemed to imply land and building structures. The land shall be deemed to imply: agricultural, buildable and other land. Building structures shall be deemed to be: buildings and parts of building, irrespective of their purpose. Building structures referred shall not be deemed to be ancillary buildings and temporary buildings of pre-assembled nature (stands, storerooms and similar).

Immovable property transactions shall not be deemed to imply the acquisition of newly built building structures that are subject to payment of the value added tax in accordance with the law governing the value added tax.

The tax base of the tax on immovable property transactions shall be the market value of immovable property at the moment of its acquisition. The market value of immovable property shall be the price of the immovable property achieved or is achievable on the market at the moment of its acquisition.

The rate of the tax on immovable property transactions shall be flat and shall amount to 3% of the tax base.

Please read Real estate transfer tax

Used cars, boaths, aircraft transfer tax - 5% (flat rate)

The transactions with or other form of acquisition of used passenger motor vehicles, vessels, airplanes and aircraft's shall be subject to taxation.

Used motor vehicle, vessel, airplane, or aircraft, shall be the passenger or other motor vehicle, or vessel, airplane or aircraft for which the seller or transferor is entitled to input VAT deduction at the event of acquisition. The taxpayer of the tax shall be the buyer, or acquirer of used passenger and other motor vehicles, vessels, airplanes and aircraft's.

Tax base of the tax on transactions of used passenger and other motor vehicles, vessels, airplanes and aircraft's shall be the market value at the moment when the tax liability arises. The market value shall be assessed based on the documents related to acquisition. The competent tax authority shall verify the market value indicated in the documents on acquisition, and if it determines that the value is not realistically stated, the tax base shall be assessed based on appraisal.

The tax on turnover shall be paid at the rate of five percent (5%).

Please read Used cars, boaths, aircraft transfer tax law

Cars, boaths, aircraft ownership tax

Taxes on the use of motor vehicles are paid by legal and natural persons who own passenger motor vehicles, vessels, airplanes and aircraft.

This tax is calculated by the owner of the motor vehicle and pays annually when registering the motor vehicle, since registration of the vehicle can only be done with proof of tax paid.

The tax on the use of aircraft is paid upon enrollment of the aircraft, when extending the period of validity of the airworthiness certificate in the aircraft registry or aircraft records.

The tax on the use of vessels shall be paid at the entry of vessels in rhe vessel registry and at any regular renewal of the validity of a navigation permit, which is performed in accordance with the regulations governing the entry of vessels in the relevant register.

Please read Cars, boats, aircraft ownership tax

Contributions for compulsory social insurance

Social contributions are withheld by the employer from the gross salary and paid on a monthly basis.

The base for the calculation of the mandatory monthly social contributions can be also salary earned by following obligors: persons performing part-time and intermittent work assignments, elected or appointed persons, if making wage for performance of functions, members of boards of directors in a business organization and other legal entity and members of boards of directors in public enterprises and institutions who receive compensation for their work, sent persons, if not covered by compulsory insurance according to regulations of such country or unless otherwise determined by international agreement, citizens of Montenegro who are, at the territory of Montenegro, employed with foreign or international organizations and institutions, foreign diplomatic and consular representative offices or with foreign legal or natural persons, unless otherwise determined by an international agreement, citizens of Montenegro employed abroad, foreign citizens and persons without citizenship who are at the territory of Montenegro employed with foreign legal and natural persons, unless otherwise determined by an international agreement, or unless insured in accordance with the regulations of another country, foreign citizens and persons without citizenship who are at the territory of Montenegro employed with international organizations and institutions and foreign diplomatic and consular representative offices, if such insurance is envisaged by an international agreement, foreign citizens and persons without citizenship who are at the territory of Montenegro employed with local legal or natural persons, based on special contracts and agreements on international-technical cooperation, unless otherwise determined by an international agreement, or unless insured in accordance with the regulations of another country, persons realizing pecuniary benefit in accordance with the law governing employment, entrepreneurs and persons carrying out professional and other activity as a core profession, persons realizing the contracted fee, unless contribution obligors on other grounds, clergy, religious professionals, monks, and nuns, agriculture producers.

Contributions for compulsory social insurance are: 1) contribution for compulsory pension and disability insurance; 2) contribution for compulsory health insurance; 3) contribution for insurance against unemployment.

Please read Contributions for compulsory social insurance law

Excise duties

Excise tax shall be payable for excise goods produced on the territory of Montenegro and excise goods imported in Montenegro. Any entry of excise goods into Montenegro shall be considered importation of excise goods.

The excise goods are: 1) Alcohol and alcoholic beverages; 2) Tobacco products, including also heat-not-burn tobacco; 3) Mineral oils, their derivatives and substitutes and coal; 4) Carbonated water; 5) Liquids for refilling electronic cigarettes.

Excise taxpayer shall calculate the excise tax by him/herself. The excise tax shall be calculated for one calendar month. The excise taxpayer shall be obliged to present the calculated excise tax in the monthly excise tax return.

Please read Excise duties law

Custom duties

Customs procedure shall be releasing the goods for free circulation, goods transit procedure, customs warehousing procedure, processing procedure in Montenegro (hereinafter referred to as the inward processing), processing procedure under the customs supervision, procedure of temporary admission, processing procedure outside Montenegro (hereinafter referred to as the outward processing), and exportation procedure

Please read Custom duties law

Insurance premium tax

Taxpayers shall be the insurance companies concluding contracts with legal and natural persons and collecting insurance premiums.

The tax base for determining the tax on insurance premiums shall be a collected gross insurance premium.

Tax rate on insurance premiums shall be 9% of contracted insurance premium.

Diplomatic and consular representative offices and international organizations, if envisaged by an international treaty, shall not be subject to payment of tax on automobile liability insurance premiums, or CASCO insurance of motor vehicle premiums.

Please read Insurance premium tax

Law on administrative fees

This Law regulates the payment of administrative fees for documents and procedures before state administration bodies, diplomatic and consular representative offices of Montenegro abroad, local government bodies and other legal entities having public authorizations.

Please read Law on administrative fees

Concession - Charges for use of natural and other resources of public interest

Concession - Charges are paid for use of natural resources of common interest (forest, mineral resources, public roads and other), as well as transferor public authorization (organizations of games of chance and other).

Special materials regulations (Law on Forest, Law on costal zone and other) and regulations for implementation of such laws, as well as concession, agreements regulate the manner for calculation and payments of specific types of concession charges.

Please read Law on administrative fees