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Taxes in Montenegro

Taxes in Montenegro

Updated on Tuesday 18th August 2020

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If you open a company in Montenegro you will surely need to know what tax regulations in Montenegro apply to your business. Depending on the line and the type of your enterprise, you might need to have several employees. Apart from the corporate tax that will be charged on your company, there are also social security contributions that you must pay to the Montenegrin authorities, for your employees. 
 
If you need information on the taxation system of this country, our lawyers in Montenegro are at your disposition with updated data. You can also rely on us for guidance in various tax-related matters.
 

Provisions of the Montenegro tax regulations

 
Both residents and non-residents must follow the same taxation rules and rates. The foreign investors who open a company in Montenegro are due to pay the corporate tax at the rate of 9%, which is deduced from the income they obtain in this country. Although the funds gathered from the corporate tax are an important source of money for the government, the corporate tax has been lowered by law, from a maximum of 20% in the past years to the actual rate of 9%, in order to encourage foreign investment in the country. 
 
The withholding tax payed by non-residents for dividends, interests, royalties and services, can be deduced according to the double taxations treaties signed by Montenegro with other countries.
 
If you need more information on the taxes in Montenegro, our law firm is at your service for guidance.
 

Taxes to be paid in Montenegro

 
The Montenegro taxation system is made of direct and indirect levies which are applied in accordance with the residency of the taxpayers. This means that a Montenegro citizens and companies are taxed on their worldwide incomes, while foreign ones are taxed on the income, respectively profits they earn in Montenegro only.
 
Here are the taxes that need to be considered in Montenegro:
 
  1. the income tax which takes the form of the personal income tax in the case of natural persons;
  2. the corporate tax which is levied on domestic companies and foreign ones with operations in Montenegro;
  3. inheritance and real estate taxes are also imposed to both companies and citizens of Montenegro;
  4. withholding taxes on dividend, interest and royalties payments are also applied;
  5. the value added tax (VAT) which is one of the most important indirect levies in Montenegro.
 
In order to understand how taxation in Montenegro works, you can rely on the experience of our law firm which can advise on various tax legislation matters. You can rely on us for details on the most important taxes in Montenegro.

 

Taxable income determination in Montenegro

 
In order to pay taxes in Montenegro, a natural person or company must first establish the source of the income which can be local or foreign, the tax residency and whether special regulations apply. As mentioned above, local companies and ordinary residents or citizens of Montenegro will be imposed with the income tax in the income they obtain in this and in any other country around the world.
 
The situation changes in the case of foreign citizens who carry out temporary activities in Montenegro and companies operating for determined periods of time here, as these will must report the incomes they make both in their countries of residence and Montenegro. Where special provisions of bilateral treaties apply, the taxpayer can be imposed with the specific levy in his or her country of residence or Montenegro.
In the case of natural persons, the following incomes are taxed in Montenegro:
 
  • salary income;
  • rental income;
  • business and professional income (this can be the case of sole traders).
 
It is worth noting that in order to be deemed as a resident of Montenegro, a foreign citizen must live here for at least 183 days in a calendar year. This requirement also applies in the case of Montenegro’s double taxation treaties.
 
In the case of Montenegrin companies, the taxable income is represented by business profits which are established following the filing of annual tax return and/or financial statements, depending on the type of entity to be taxed.
 
The taxation system of this country is very advantageous for foreign investors which is why if you want to set up a business, our Montenegro law firm can handle the incorporation procedure on your behalf in the shortest timeframe. If you need assistance in understanding how the taxes in Montenegro are levied, do not hesitate to get in touch with us.

 
You can read about the Montenegro taxation system in the infographic below:
 

Taxes in Montenegro

 

The income taxes in Montenegro

 
In Montenegro, the income tax is applied for earnings which result from salaries or self-employment as well as from real estate renting, or capital gains, such as those obtained from dividends and interests. 
 
If you have a company registered in Montenegro, your income is calculated by making the sum of all the taxable incomes you obtained during a tax year. The tax rate due for individual income is at the flat rate of 9%. The value added tax is charged in Montenegro for imports and goods commercialization at a rate of 19%.
 
As provided by the Montenegro tax regulations, the social security system must receive from both employer and employee a contribution which is calculated at the rate of 10.3% for the employer and at 24% for the employee. The social security retains this money in order to cover, pension, health and unemployment security.  Trading companies should also consider registering for EORI in Montenegro.
 
Our lawyers in Montenegro can keep you updated on your obligations regarding the taxation system in this country. 
 

Salary taxes in Montenegro

 
Most of the income of Montenegro citizens and residents comes from salaries which are levied at progressive rates. The lowest rate is 9% while the highest is 11%. The gross salary is taxed at the lowest rate up to the amount of the previous year’s average wage, while the remaining amount is taxed at the 11% rate.
 
Income obtained from personal services is also imposed with the income tax at a rate of 9% calculated at a tax base of 70% of the entire income.
Our lawyers can explain how salary taxes in Montenegro are levied. You can also rely on the support of our lawyers in Montenegro for information on employees’ rights and obligations under labor contracts.
 

Employment regulations and taxation in Montenegro

 
Employees and employers must respect the Labor Code when it comes to their work relations. While for employees, the income tax is the main levy imposed in Montenegro, companies must also pay certain levies. Also, various payroll contributions must be considered upon employment in Montenegro.
 
The following contributions need to be considered in Montenegro:
 
  • employee salaries are imposed with a maximum payroll tax of 15%;
  • the labor fund also receives 0.2% of the gross salaries;
  • lower payroll taxes are available in outside Podgorica and Cetinje – the maximum rate here is 13%.
 
Companies are also imposed with social security contributions on the gross salary of an employee which amount to 10.3% and which are divided into:
 
  • pension contributions of 5.5%;
  • health insurance of 4.3%;
  • unemployment contributions of 0.5%.
 
These taxes are capped at maximum 50,000 euros per calendar year.
 
If you need more information on the payroll contributions that need to be paid as taxes in Montenegro, feel free to discuss with our lawyers. You can also rely on us if you want to start a business in Montenegro and need details about hiring employees.
 

Filing tax returns as a natural person in Montenegro

Both natural persons and companies are subject to tax return filings in order to determine the taxes they need to pay in Montenegro, as well as the tax deductions they can obtain. In the case of income derived from employment, the taxes are automatically withheld by the employer on a monthly basis, however, for other types of incomes, a person must file one or more tax returns by the end of 30 of April of the current year for the previous one. Based on these returns, the taxes paid over the year will be deducted upon the calculation of the taxes that need to be paid.
 
In the case of non-resident citizens, these are required to file tax returns related to the income they obtain in Montenegro. The advantage is that they can benefit from exemptions or deductions under Montenegro’s double tax treaties (if the country of the taxpayer has one with Montenegro).
 
For details on how foreign citizens must pay taxes in Montenegro, you can ask our lawyers.
 

Main provisions regarding corporate tax in Montenegro
 

According to the law in Montenegro, the income obtained in this country is taxed on residents as well as on foreigners. There is a unique rate of 9% applied on the income of companies, this tax being referred to by the name of corporate tax or company tax. There are also exceptions for income coming from particular types of activities. Our law firm in Montenegro can give all information regarding the taxation of your income in this country.
 
The corporate tax in Montenegro applies to net profits of a company, which means the profits calculated by making the difference between the expenses and income of a business. A corporation owes the payment of the corporate tax to the local government. 
 
Not all types of companies in Montenegro support the corporate tax. The most common entities that must contribute are the incorporated companies and all foreign enterprises having a permanent establishment in Montenegro, or obtaining profits from Montenegro. 
 
The corporation tax in Montenegro is calculated annually and must be submitted by the end of April for the previous fiscal year.
 
The foreign investors in Montenegro paying corporate tax in this country might enter the provisions of double taxation treaties between Montenegro and their country of residence. This might give them the possibility to deduce part of the taxes payed in Montenegro through applying for in their country of residence.  
 
Our Montenegro lawyers are ready to offer legal assistance to foreign investors who need to comply with the laws on various taxes in Montenegro
 

Advantages of corporate tax in Montenegro

 
The corporate tax in Montenegro offers several advantages to companies, compared to individual income taxes. One such advantage is the possibility of deduction that is offered for the corporate tax. These deductions can cover expenses such as medical insurance for families or retirement plans.
 
Moreover, the corporate tax makes it much easier for companies to deduct losses. Another important strong point of the corporate tax in Montenegro is the fact it is imposed at a medium-low rate, which allows enterprises to develop fast in this country.  
 

Corporate tax filing requirements in Montenegro

 
Montenegro companies are also required to file annual tax returns. These must file their returns no later than 3 months from the end of the financial year. In most cases, the tax year is the same as the calendar one. Also, it should be noted that certain companies, such as holding companies or foreign companies operating through branch offices in Montenegro, are not allowed to file consolidated returns.
 
Penalties are also levied on late payments, which is why we recommend you use the expertise of our law firm when it comes to paying taxes in Montenegro.
 

Withholding taxes in Montenegro

 
Some of the most important taxes that are imposed in Montenegro are the withholding levies which apply to the following:
 
  • interests;
  • royalties;
  • technical service fees;
  • capital gains.
 
The rate at which these taxes are imposed is 9% (one of the lowest in Europe), however, there are also exceptions which provide for lower rates and even exemptions. This is the case of interest payments which can be taxed at a rate of 5% when paid to a non-resident natural person. With respect to capital gains, these are applied the 9% rate when paid by a resident company to a non-resident one, in all other cases, the tax being levied based on a tax assessment.
 
Our lawyers in Montenegro can offer more information related to the regulations on taxation of non-resident companies with operations in this country.
 

The value added tax in Montenegro

 
The most important indirect tax in Montenegro is the value added tax (VAT). It is subject to the following rates and requirements:
 
  • the standard rate which is 21%;
  • a reduced rate of 7% is applied to various goods and services;
  • a 0% rate is available for the supply of financial services and property sales;
  • the mandatory registration threshold is 18,000 euros.
 
Companies and sole traders must register for VAT with the Tax Administration.
 
Companies must file monthly VAT returns. These are to be submitted by the 15th of the current month for the previous one. VAT registration comes with various advantages, among which the possibility of claiming VAT refunds under specific circumstances based on the return filings.
 
Our law firm in Montenegro can assist with both VAT and EROI registration procedures when it comes to companies dealing in EU trading activities.
 

Inheritance and real estate taxes in Montenegro

 
Natural persons and companies are also subject to real estate taxes on properties located in Montenegro. The property tax is imposed on the owner and is levied at rates ranging between 0.25% and 1% depending on the value of the property.
 
Natural persons must also pay an inheritance tax on real estate properties. The rate of this tax is set at 3% and is also calculated based on the value of the real estate.
 
Both taxes in Montenegro are subject to deductions and exemptions under specific conditions. For example, children, spouse or parents are exempt from the inheritance tax upon transferring a property received as a gift.
 
Our law firm in Montenegro can also help foreign citizens acquire citizenship by investment here which can be completed through the purchase of a property.
 
Don’t hesitate to contact one of our lawyers in Montenegro for further details regarding the application of the corporate tax on your company.