The general corporate income tax rate is a flat rate amounting to 9% and it applies to both resident and non-resident companies. Resident companies are taxed on their worldwide income, while non-residents are taxed only on income generated in Montenegro. The tax base is the pre-tax profit modified by several increasing and decreasing items. Capital gains are included in the annual corporate profits tax return and are subject to a 9% tax. In Montenegro, losses can be carried forward for 5 years while the carry back of losses is not permitted.
TA tax incentive (profit tax rate for the first eight years is 0%) is applied for newly founded legal entities engaged in manufacturing in economically underdeveloped municipalities. The total amount of the tax exemption may not exceed 200.000 € for a period of eight years. In Montenegro, there are no specific thin capitalization rules, except that interests paid to a non-resident must be on arm’s length terms.
|Transfer pricing in Montenegro|
|Arm’s lenght principle||since 2002|
|Documentation liability||At the moment of request from the tax authorities.|
|Master file-local file (OECD BEPS 13) applicable||-|
|lack of documentation||Not specifically stated, general rules apply|
|tax shortage||Not specifically stated|
|Related parties||20% <||direct control for foreign companies or common managing director|
|25% <||The parties between whom special relations exist, which could directly impact the conditions or economical results of the transaction between them.|
Level of attention paid by Tax Authority:
Withholding tax at the rate of 9% is applicable on dividends, interests, capital gains, royalties and other intellectual property rights, fees for the lease of movable and immovable property, consulting services, market research and audit services which are paid to a non-resident legal entity. Montenegro has a wide international treaty network with 42 double tax treaties.
A transfer tax of 3% is levied on the transfer of immovable property. There is no surtax or alternative minimum taxes. Property tax is levied on the ownership/use of property at rates ranging from 0,25% to 1%.
The general rate is 21%, the reduced rates is 7% (e.g. bread, milk, accommodation services, medications), and there is VAT-exemption for exports and banking services. Taxpayers with revenue in excess of EUR 18,000 must register for VAT purposes. The options/limits based on the VAT Act in Montenegro:
|VAT Options in Montenegro||Applicable / limits|
|VAT group registration*|
|Import VAT deferment|
|Local reverse charge|
|Option for taxation - letting of real estate|
|letting of real estate|
|supply of used real estate|
|VAT registration threshold||EUR 18,000/year|
In Montenegro, resident individuals are taxed based on their worldwide income, and non-residents are taxed only on income provided in Montenegro. There is a flat rate of 9%, and it is generally applicable on the active (e.g. employment, assignment fee) and passive income (e.g. capital gains, dividend and interest).
Monthly salary exceeding a gross amount of EUR 765 is taxed at rate of 11%. It is important to state that non-resident income on interest is taxed by 5%. Active incomes fall under the scope of the SSC system: individual’s social contributions equal altogether 24%. These include contributions for pensions (15%), health (8.5%) and unemployment (0.5%). The employer’s contribution is at the rate of 10.7% of the employee’s salary. It includes pensions (5.5%), health contributions (4.3%) unemployment (0.5%), contributions to the Labour fund (0.2%) and Labour union fund (0.2%). Also, local surtax, which is calculated on PIT assesed, is paid by the employer to the municipality of taxpayer’s seat. Surtax rates range from 10% to 15%, depending on municipality, with most municipalities having the 13% rate.
The examples below show the cost of the employer and the employee in case of minimum wage level and the average wage in the private sector.
|Wage-releted taxes in Montenegro||Minimum wage||Average wage in private sector|
|in EUR||in EUR|
|TOTAL WAGE COST||322||109,80%||854||109,80%|
|Personal income tax||26||9,00%||69||9,04%|