Montenegro tax system - taxation of Montenegrin companies and individuals: VAT, income tax and capital gains. Tax treaties of Montenegro.

As of 1 January 2022, progressive taxation of salary and income of entrepreneurs is introduced. A proportional 15% tax rate is introduced for other kinds of income.

Monthly salary is taxed at the following rates:

• salary of up to EUR 700 is not taxed;
• salary of EUR 701 to EUR 1 000 is taxed at the rate of 9%;
• salary of EUR 1 001 or higher is taxed at the rate of 15%.

Monthly income received by entrepreneurs is taxed as follows:

• income of EUR 8 400,01 to EUR 12 000 is taxed at the rate of 9%;
• income of EUR 12 000,01 or higher is taxed at the rate of 15%.

The local income tax exists in addition to the personal income tax and shall be paid to the municipality at the taxpayer’s place of residence.

The income tax of 13% applies in all municipalities, except for Podgorica and Cetinje where the rate is 15%.

The basis for the local income tax is the amount of the accrued personal income tax.

Companies operating in Montenegro are subject to progressive corporate income tax. The applicable tax rate depends on the realized profit of taxpayers and varies from 9% to 15%.

The progressive tax rates are as follows:

• on the profit of up to EUR 100 000, the tax rate is 9%;
• on the profit of EUR 100 000 to EUR 1 500 000, the tax shall be paid in the amount of EUR 9,000 plus 12% on the profit above EUR 100 000
• on the profit above EUR 1 500 000, the tax shall be paid in the amount of EUR 177 000 plus 15% on the profit above EUR 1 500 000.

Resident taxpayers are taxed on their worldwide profit. Non-resident taxpayers are taxed on their Montenegrin-sourced income or income attributed to their Montenegrin permanent establishment (PE).

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, some supplies are taxed at a reduced 7% rate (for example, bread, milk, books, medicines, computers) and 0% rate (for example, export of goods, supply of gasoline for vessels in international traffic).

Registration for VAT in Montenegro may be either voluntary or mandatory. Voluntary VAT registration is possible for taxpayers who have not realized turnover exceeding EUR 30 000 in the last 12 months. Once registered, a company may not apply for deregistration for at least 3 years. VAT registration is mandatory for an entity that realizes turnover exceeding the EUR 30 000 threshold in any 12-month period.

Montenegrin profit tax law imposes tax on income realized from a Montenegrin source and distributed to a non-resident.

The scope of the withholding tax applies to dividends and profit distributions, capital gains, interest, royalties, intellectual property rights fees, rental income, fees for consulting, market research, and audit services, as well as to income earned on the basis of performing entertainment, artistic, sport, or other programs in Montenegro.

The general withholding tax rate is 15%.

Application of a double tax treaty may reduce or eliminate Montenegrin withholding tax. To qualify for the beneficial rates prescribed by the treaty, a non-resident must prove their tax residency of the relevant treaty country and actual ownership of the income.

None.

Transactions between related parties must be valuated at arm's length. If the transaction with a related party is not in accordance with the “arm's length” principle, the tax authorities must adjust the taxpayer's tax base.

Parties are considered related if the following conditions are met:

• ownership of 25% or more, or a majority of shares;
• the same persons participate in management or control of both companies;
• family member of a person that has 25% or more of voting rights or has 25% or more of profit share is considered a related party.

Large taxpayers are obligated to submit documentation annually, and other taxpayers must have transfer pricing documentation in place and provide it on the request of the tax authorities within 45 days.

Coffee tax is payable on coffee imported and produced in Montenegro.

The tax rate varies from EUR 0,80 / kg to EUR 1,30 / kg, depending on the variety of coffee.

Coffee tax is also payable for products and beverages that contain coffee. The tax rate for these products is EUR 2,50 / kg for one kilogram of pure coffee contained in the final product.

Property tax is payable by legal entities who own or have user rights to real estate located in Montenegro.

Annual tax is levied at proportional rates, ranging from 0,25% to 1% of the market value of assets as of 1 January of the current year.

Property transfer tax of 3% is payable on the acquisition of ownership rights to immovable property.

Social security contributions are payable by the employer and employee at different rates.

The rates paid by the employer are as follows:

• pension and disability insurance – 5,5%;
• unemployment insurance – 0,5%.

The rates paid by the employee are as follows:

• pension and disability insurance – 15%;
• unemployment insurance – 0,5%.

Montenegro has entered into 43 double taxation agreements (DTAs) with the following jurisdictions:

Austria, Azerbaijan, Albania, Belarus, Belgium, Bulgaria, Bosnia and Herzegovina, Great Britain, Hungary, Germany, Denmark, Egypt, India, Ireland, Italy, Cyprus, China, Korea, Kuwait, Latvia, Macedonia, Malaysia, Malta, Moldova, the Netherlands, Norway, the UAE, Poland, Portugal, Russia, Romania, Serbia, Slovakia, Slovenia, Turkey, Ukraine, Finland, France, Croatia, the Czech Republic, Switzerland, Sweden, Sri Lanka.

Montenegro has not yet signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

There are no foreign exchange controls in Montenegro.