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Montenegro VAT 2021 Update

VAT in Montenegro

Updated on Monday 22nd February 2021

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The VAT in Montenegro is a tax applied when goods or services are sold or imported. In some countries, the VAT can be applied to exports as well, but this is not the case with Montenegro. The tax amounts to a certain percentage of the value of the sold product. For the companies which have revenues exceeding 18 000 euro per year, the standard VAT rate in this country is of 21%, with possible rate reductions at 7% or even complete tax relief.
 
A law firm in Montenegro can offer all needed assistance for the obtaining of VAT number, for VAT invoicing and any other VAT related issue. You can also rely on us for business registration solutions in Montenegro, including tax and VAT registration. You can also rely on us if you want to set up a business in Montenegro.
 

Legislation on the value added tax in Montenegro

 
Over time, the value added tax has suffered various modifications, which is why there are several laws which provide for the levy of this tax. The following laws need to be consulted when dealing with the Montenegro VAT:
  1. the Law on Value Added Tax which was introduced in 2001 and which was last revised in 2017;
  2. the Rules on the Application of the Value Added Tax which was last amended in 2017;
  3. the Rules on the determination of goods and services which are applied the reduced VAT rates;
  4. the Rules on the form and content of VAT returns which must be filed by Montenegro companies;
  5. the rules which provide for various exemptions from the payment of the value added tax.
 
The legislation on the VAT is quite extensive, however, if you need information about it, our Montenegro lawyers are at your disposal.
 

The new Law on Value Added Tax in Montenegro

 
The value added tax is based on the law bearing the same name which suffered various amendments in 2017. At the time, the government established a few changes among which:
 
  •           the new standard rate was established at 21% from the previous 19% rate;
  •           business-to-business services are now subject to new rules related to the determination of the place of their supply;
  •           new regulations related to the place of supply are also available to business-to-consumers services;
  •           the VAT exemption threshold for imported products was lowered to 75 euros.
 
It should be noted that even if Montenegro is not an EU member state, its VAT legislation is in line with the EU regulations on this tax in order to ease the access to EU-based companies to the local market and the other way around.
Our Montenegro lawyers can offer more information on the changes brought to the VAT legislation and its impact on your local company.
 

Who needs to pay the VAT in Montenegro?

 
All companies and persons undertaking an activity which implies manufacturing, trading and providing or supply of a service, respectively a product will be liable to the payment of the value added tax in Montenegro.
 
In order to do that, the entity must first register with the local tax authorities and obtain a VAT number.
The VAT legislation also imposed certain specific activities which are liable for VAT payments in Montenegro. Among these, the use of a property, be it real estate (tangible) or intellectual property (intangible) which results in the generation of income will be subject to the VAT in Montenegro. Also, any temporary activity which generates income will also be subject to the value added tax. Those who import goods into Montenegro will also be subject to VAT payments.
 
It is important to know that in order to pay the VAT any business person or company must register with the Montenegro tax authorities. However, VAT registration is not mandatory in Montenegro.
 
Small companies with annual turnovers below 18,000 euros are not required to register for VAT. Those exceeding this amount are required to register for VAT, case in which they will not be required to de-register in the next 3 years. The value added tax is calculated on a monthly basis and is paid together with the other customs duties in case of imported goods.
 
We also invite you to read about VAT registration in Montenegro in the scheme below:
 
VAT-Registration-in-Montenegro.png
 

What are the objects of VAT taxation in Montenegro?

 
According to the tax legislation on the value added tax, there are two important categories of goods which are subject to this tax in Montenegro. These are the supply of goods and services and the imported goods.
 
When it comes to the supply of goods, which refers to the sale of movable and immovable assets, it is important to know that there are several categories of products which are deemed as liable for taxation in Montenegro. The following supplies of goods are levied with the VAT in Montenegro:
 
  •  the supply of goods as a decision imposed by the authorities, including by the government;
  •  the supply of goods which are sold based on a contract which contains provisions on the payment of a commission;
  •  the supply of newly built constructions, as well as the transfer of ownership over immovable assets;
  •  the supply of natural resources to household and corporate consumers and which can include electricity, gas, air conditioning and energy for heating.
 
With respect to the supply of services, these can be considered liable for VAT if they are performed or contracted by another party. Among the services which are subject to the  Montenegro  VAT are the transfer of intellectual property rights, the supply of services based on a decision of the authorities and the supply of services by a taxpayer.
 
There are also several exemptions from the payment of the VAT in respect with the supply of goods and services. The sale of land, of used cars and vessels for which the taxpayer was not entitled to deduct the VAT is not considered as supply of goods.
 
With respect to the import of goods, all products entering the country through the Montenegro Customs Authority will be subject to VAT.
Our attorneys in Montenegro can offer more information on the supply of goods and services which are imposed with the Montenegro VAT in 2021.
 

Goods and services subject to VAT reduction in Montenegro in 2021

 
In Montenegro, some goods and services are subject to a partial VAT exemption form 19% to 7%. Such products are:
 
  • Consumption products, such as those from the food industry;
  • Products from the pharmaceutical and medical fields such as medication and medical tools; 
  • Housing services such as those offered by hotels, camps and other tourist lodgings;
  • Transportation services which deal with the transportation of people and luggage;
  • Services which assure public hygiene;
  • Funeral services;
  • Planting and breeding materials used in agriculture.
 
If the domain of activity of your company is among the list above, it means you can initiate a VAT partial exemption registration. Our lawyers in Montenegro can help you with the application procedure, tax planning services and with all relevant information.
 

Goods and services subject to 0% VAT rate or VAT tax exemption in Montenegro

 
Due to the Montenegrin legislation, some products and services can benefit from a 0% VAT rate. Another class of products is accorded complete tax exemption. Although in both cases the amount of money to be paid is 0, there are still some important differences. For example, a 0% VAT payer can claim a credit for the VAT paid on inputs, while a tax exempt company does not have this option. 
 
Some of the services which benefit from 0% VAT tax reduction are:
 
  • Services offered in the maritime and air international traffic;
  • Goods used for consular and diplomatic needs;
  • Services and goods used in petroleum extractions in the sea.
 
Complete tax exemption is granted for revenues coming from services such as:
 
  • Banking services and financial services;
  • Health care and health services;
  • Services regarding social security;
  • Educational services;
  • Religious services, goods provided by religious institutions or involved in religious ritual;
  • Radio broadcasting services; 
  • Insurance services;
  • Entertainment games and chance games services;
If you need more details about the Montenegro VAT, our lawyers are at your disposal.

How is the VAT calculated in Montenegro in 2021?

 
In order to determine the amount to be paid as a value added tax, the taxpayer must file specific documents with the tax authorities. The tax base of the Montenegro VAT is made of:
  •           the excise duty, the import duties, as well as other taxes and fees imposed upon the goods entering the country;
  •           indirect costs which can be represented by packaging, transportation, insurance, and commissions.
 
The same tax base applies to goods imported by Montenegro companies or individuals.
 
It should be noted that special regulations apply to VAT payments related to works of art, travel agencies, small businesses, and agricultural activities in farms in Montenegro in 2021.
 
In order to pay the VAT, the taxpayer must have an invoice which will contain information about the products and their price. Both the seller and the buyer must have copies after the invoice. This document must contain specific information, among which the place and the date, as well as a reference number of the invoice, are mandatory. The invoice must also provide information which helps with the identification of the seller and their Montenegro VAT number. Information about the buyer must also be found on the invoice. Other elements which must be contained by the invoice are the quantity and the name of the goods or services supplied, as well as the price which must be written with and without the VAT. The invoice must bear the signature and the stamp of the seller in order to be valid.
 

Filing VAT returns and VAT refunds

 
In order for the authorities to be able to collect the value added tax, the law imposes for all Montenegro companies and individuals paying the VAT to file returns. These documents must be filed on a monthly basis. These returns must be submitted by the 15th of the month for the previous month for which the tax assessment was made.
If the amount to be paid is lower than the amount which can be deducted, the difference will be refunded to the taxpayer in a maximum of 60 days.
 
All companies registered for VAT in Montenegro must know that they are required to store all invoices which prove the payment of such tax, including import documents. 
 

Documents related to VAT payments in Montenegro

 
All taxpayers charging the VAT are required to submit various documents which prove the payment of this tax. Even if the VAT is charged to the final user of the product (the buyer), the taxpayer is required to file the following documents in order to prove the collection of the tax:
 
  •  documents attesting the amount of money collected as VAT (the invoices);
  •  the advance payments which have been made by the company;
  •  the total value of the goods and services supplied;
  •  the invoices issued by a Montenegro company abroad (if it has registered offices there).
 
It is important to know that for VAT purposes, the invoices issued by Montenegro companies must contain the entire price of a product, the price without the VAT and the value of the VAT to be paid.
 

EORI numbers in Montenegro

 
Montenegro companies with trading activities in EU countries are allowed to apply for EORI numbers when first supplying goods and services in an EU member state. The EORI number will be issued by the Customs in the EU state and the company will be allowed to use it throughout the entire territory of the EU.
 
EORI numbers are issued based on the VAT number of the Montenegro company, so if you are interested in easier customs procedures, do not hesitate to ask our lawyers about obtaining such a number in 2021.
 
You can also watch our video below:
 

 
 

Other aspects related to the  Montenegro VAT in 2021
 

Montenegro companies should also know that:
 
  •  a company is required to register for VAT if its annual turnover has exceeded 18,000 euros;
  •  small taxpayers are not required to register for VAT if their income during an entire calendar year has not exceeded 18,000 euros;
  •  once registered, a company is not allowed to de-register from VAT for a period of 3 years;
  •  all documents related to VAT payments must be kept by taxpayers at least 5 years.
 
Local and foreign investors who want to open companies in Montenegro and want to register them for VAT in 2021 do not need to complete any special procedure. They can choose to register voluntarily or when reaching the required threshold.
 
At the level of 2021, it is worth considering VAT registration at the time the business is incorporated with the Montenegro Trade Register in order to avoid future complications.
 
In order to determine whether you are obliged to VAT registration and which class of VAT you should register for you might need the support of our Montenegro law firm. Please contact our local lawyers which will help you conform to the VAT rules of this country and will help you invest in Montenegro.