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TAX SYSTEM AND INCENTIVES

TAX SYSTEM AND INCENTIVES

TAX SYSTEM AND INCENTIVES

Foreign companies in Montenegro are guaranteed equal legal treatment as local ones. Foreign investor can operate in Montenegro either as a legal entity or as a natural person. The term “foreign investor” applies to a company that has been set up in Montenegro by a foreigner, or foreign legal entity, whose share of investment capital is higher than 25% of total capital invested.
There is no limit on the amount of capital invested in Montenegro. Foreign investors are encouraged to invest freely within any industry and to transfer all assets, including profits and dividends. Foreign investors can acquire rights to real estate, such as commercial property, office space, residential space or land for construction. All major insurance companies around the globe insure investment projects in Montenegro.

Tax system

The tax system in Montenegro consists of:

  • corporate income tax;  social security contributions;
  • personal income tax;
  • excise duties;
    Value Added Tax (VAT);
  • hydrocarbons tax;
    real estate tax;
  • fees;
  • real estate transfer tax;
  • customs duties.

The tax system for foreign investors is the same as for local business entities.
Corporate income tax is flat 9% and it is one of the lowest in Europe, while the tax rate on personal  income is 9% or 11% (applicable on gross monthly wages above €720).

Upon payment of the corporate income tax, business entities operating in Montenegro have the possibility to transfer funds to their accounts
abroad at the end of the year.

Two positive rates of value added tax (VAT) are
applied, standard rate of 21% (Article 24 of Law on value added tax) and the reduced rate of 7% (Article 24a of Law on value added tax), and the zero rate
(Article 25 of Law on value added tax). Value added  tax is calculated and paid for:
• delivery of products and services done for a fee by the taxpayer within the performance of its business activities;
• imports of products.
The tax rate on real estate transfer is proportional and amounts to 3% of the tax base. Trade in real estate is considered to be all acquisitions of ownership over real estate in Montenegro and this area
is thoroughly regulated by the Law on Real Estate Transfer Tax.
Compulsory social insurance in Montenegro is paid by the employees, employers, entrepreneurs and farmers who are not contributors to unemployment insurance.
Contributions for compulsory social insurance are:
• contribution for compulsory pension and disability insurance;
• contribution for compulsory health insurance;
• contribution for unemployment insurance.
Contribution rates are different depending on the category of taxpayers, and they are defined by the Law on Compulsory Social Insurance.
Law on Excise Duties governs the system and introduces the obligation to pay excise duties for individual goods and services that are released to free circulation on the territory of Montenegro.
Excise products are:
• alcohol and spirituous beverages;
• tobacco products including also heat-not-burn tobacco;
• mineral oils, their derivatives and substitutes and coal
• carbonated water;
• liquids for refilling electronic cigarettes.
Excise duty payers calculate the excise duty for the calendar month themselves.
Types of fees in Montenegro that have to be paid by investors are:
• administrative fees;
• court fees;
• utility fees;
• registration fees;
• sojourn fees.
The basis of the customs system in Montenegro consists of the Law on Customs Tariff, The Customs Service Law and the Customs Law2 . According to the law, investors may be eligible for exemption from customs duties.
As of December 1, 2018, Montenegro has 43 effective double taxation conventions on income and capital.

2 Customs clearance under this law, includes receipt of import customs declaration, inspection of goods and classification according to the customs tariff and other tariffs, fixing the customs basis, amount of customs duties and other import duties charged on the goods, collection of fixed customs duty amounts and other import duties.

Personal income tax rate in Montenegro is 9% (previously 12%).

 New rates of tax and contributions from and on personal receivings are applicable of January 1st 2010, as following:

Tax and contributions from personal receivings

– personal income tax 9%

– contributions for pension and disability insurance 15%

– contributions for health insurance 8,5%

– contributions for unemployment insurance 0,5%

Contributions on personal receivings

– contributions for pension and disability insurance 5,5%

– contributions for health insurance 3,8%

– contributions for unemployment insurance 0,5%.

A new type of contributions, paid to the Labour Fund has been introduced, being paid by the employer at the rate 0,2%, while surtax is paid at same rates as previous years.

The personal income tax of 9% is levied on salaries and other types of personal income, including income from dividends. Certain income, however, such as income from services, is subject to tax at the rate of 15% on the tax base that is equivalent to 60% of income.

Basis

– Resident individuals are taxed on worldwide income; nonresidents are taxed only on Montenegro-source income.

Residence

– An individual is resident if he/she is in Montenegro for 183 days or more in a calendar year or if his/her centre of vital interests is in Montenegro.

Tax Filing status

– Joint tax returns are not permitted.

Taxable income

– Taxable income comprises income from employment, business and professional income, investment income (dividends, interest and royalties); and income from immovable property.

Capital gains

– Capital gains are not taxable in Montenegro.

Tax Deductions and tax allowances

– There are no deductions or allowances in Montenegro.

Other taxes on individuals:

Capital duty

– No Stamp duty

– No Capital acquisitions tax

– No Real property tax

– Property tax is levied on the owner/user of property at rates ranging from 0.08% to 0.8%.

Deductions are available.

Inheritance/estate tax

– A 3% tax is levied on the inheritance of real estate. An exemption is available for the transfer of property as a gift or inheritance to children, parents or a spouse.

Net wealth/net worth tax

– No Social security

– Social security contributions due by employee are levied at a rate of 24%. These include contributions for pension (15%), health (8.5%) and unemployment (0.5%).

Administration and compliance: Montenegro Tax year

– Montenegro tax year is the calendar year Tax Filing and Tax payment

– Employment income is taxed via withholding by the employer.

 An annual income tax return is due for other income by 30 April following the tax year end. Individuals that receive only employment income do not file an annual return. Individuals that receive income from several sources file annual income tax, with tax paid during the year deducted from the final tax due.

Penalties

– A penalty of 0.03% per day is imposed for late payment of tax.

Montenegro Corporate Tax Montenegro corporate income tax is a flat 9%.

Residence – A company that is registered in Montenegro, or that has its management and control there, is deemed to be resident for tax purposes.

Basis – Resident companies are taxed on worldwide income; nonresidents are taxed only on Montenegro-source income.

Taxable income – Taxable income is based on accounting profit, further adjusted for tax purposes, by nondeductible expenses, nontaxable income, tax depreciation, etc.

Taxation of dividends

– Dividends paid between residents are subject to withholding tax but are not included in taxable income. Dividends received from abroad are included in taxable income, but a resident taxpayer can claim a tax credit for foreign tax paid.

Capital gains

– Capital gains are included as normal income and taxed at the standard rate of tax.

Losses

– Tax losses may be carried forward for 5 years.

The carryback of losses is not permitted.

Rate

– The main rate of 9% applies to both domestic and foreign companies.

Surtax

– No Alternative minimum tax

– No Foreign tax credit

– An ordinary tax credit is available for foreign income taxes paid.

The credit is limited to the amount of Montenegro tax attributable to the foreign-source profits.

Participation exemption

– See under „Taxation of dividends“.

Holding company regime

– No Tax Incentives

– A 3-year tax holiday is granted to companies registered in underdeveloped areas.

Withholding tax:

Dividends

– A 9% withholding is levied on dividends paid to residents and nonresidents, unless the rate is reduced under a tax treaty.

Interest

– A 9% withholding tax is levied on interest paid to nonresidents, unless the rate is reduced under a tax treaty.

Royalties

– Royalties paid to nonresidents are subject to withholding tax of 9%, unless the rate is reduced under a tax treaty.

Services

– Service fees paid to nonresidents for market research, advisory and audit services, as well as on inco

Tax incentives

In economically underdeveloped municipalities in Montenegro, with development index below
75, the Law on Corporate Income Tax provides that the tax calculated on a newly established legal
entity for the first eight years of operation is reduced by 100%. Total amount of tax exemption does not exceed the amount of €200.000. The Law on Personal Income Tax also stipulates that the tax
calculated on the taxpayer’s personal income for the first eight years of operation is reduced by
100%. The total amount of tax exemption does not exceed the amount of €200.000. Tax exemption
does not apply to taxpayers operating in the sector of primary production of agricultural products,
transport or shipyards, fisheries and steel.
Where the amount of tax liability (output tax) in the VAT period is less than the amount of input VAT
which may be deducted by the taxpayer in the same VAT period, the difference is recognized as a tax
credit for the following VAT period, or refunded upon request within 60 days from the date of filing
the VAT return. The VAT difference shall be refunded to a taxpayer who mainly exports goods and
taxpayer who in more than three successive VAT assessments states the surplus of input VAT, within
30 days after the VAT return was submitted for calculation. Taxpayer who was granted the right on
refund of import VAT, while simultaneously having the obligations regarding the customs duty debt
(resulting from VAT), a redirection of these funds may be granted, upon its request, for the purposes
of paying VAT on import.

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