Income Tax in Montenegro
Personal Income Tax:
Taxation of individuals’ income in Montenegro is based on their residence status.
Residents are subject to tax on their worldwide income from any source.
Non-residents are taxed on income related to a fixed base/permanent establishment (PE) in Montenegro and royalties, interest, and rental income from immovable property in Montenegro.
Personal income tax rates:
Personal income tax (PIT) of 9% is levied on salaries, property-related income, and investment income (interest income earned by non-residents is subject to a 5% PIT).
In January 2016, the Montenegrin government increased the PIT rate from 9% to 11% for gross salaries exceeding average monthly salary (where the higher rate applies only on part of the salary exceeding the amount of average salary).
Although the increase of the tax rate was announced as a temporary measure, it is still applicable.
Local surtax exists in addition to PIT and is paid to the municipality where the taxpayer is domiciled. Surtax of 13% is applicable in all municipalities with the exception of Podgorica and Cetinje, where the rate is 15%.
The surtax base is the amount of PIT assessed.
A resident is an individual who:
· spends at least 183 days in a tax year in Montenegro
· has domicile in Montenegro, or
· has a centre of personal and economic activities in Montenegro.
Employees' gross income includes all cash remuneration and most personal expenses (including PIT and social security contributions) paid by the employer.
The following types of income are considered as employment income:
· Salaries or compensation generated in accordance with regulations governing labour.
· Earnings on the basis of fees paid in addition to salary, above the amount set by the PIT Law.
· Reimbursement of costs for business trips and accommodation in connection with these trips.
· Relocation expenses.
· Reimbursement for the use of one’s own vehicle for business purposes exceeding the non-taxable threshold set by the PIT Law.
· Earnings of members of representative and executive bodies of the state or local administration.
· Earnings of members of assemblies, managing boards, and supervisory boards.
· All other earnings arising from employment and those similar to employment (e.g. temporary and occasional work).
Employees’ gross income also includes bonuses paid and any benefits in kind (subject to minor exceptions) received as a result of employment.
Pursuant to the legislation of Montenegro, specific employee remunerations are not taxable up to a specified cap (e.g. certain redundancy payments, solidarity help).
The last amendments to the PIT Law stipulate that meal allowance, holiday allowance, and transportation to and from work compensation are taxed in full.
Capital gains and investment income:
Adopted amendments introduced taxation of capital gains realised from the sale of real estate, shares in a legal entity, and securities.
Capital gain tax is not levied on transfer of property in the following cases:
· Transfer of a real estate used as a place of taxpayer's residence.
· Transfer or property between spouses and parents and children.
Investment income is subject to PIT and includes:
· interest income
· shares in profits distributed to employees or board members
· use of a company's property and services by the owner of the company, and
· acquisition of a company's shares by the employees or board members under beneficial terms.
Note that while investment income is generally subject to PIT at a rate of 9%, interest income distributed to a non-resident is subject to a 5% rate.
The following property income is subject to PIT at a rate of 9%:
· Lease income from immovable and movable property.
· Income from time limited disposal of intellectual property (IP) and other property rights.
Standard expenditures are recognised for a taxpayer who generates revenue from other self-employment activities that are not one's primary activity in the amount of 30% of the realised revenue from those other activities.
Corporate Income Tax:
Corporate income tax:
Companies resident in the Republic of Montenegro (RM) are subject to tax on their worldwide income. A company is resident in the RM if it is incorporated in the RM or if its central management and control is actually exercised in the RM. Nonresident companies are subject to tax only on their income derived from the RM. Nonresident companies are companies registered in other countries that have a permanent place of business in the RM.
Rate of corporate income tax:
The rate of corporate income tax in the RM is 9%.
Newly established companies that perform business activities in undeveloped municipalities are exempt from corporate profit tax for an eight-year period from the date of the commencement of their business activities.
The corporate profit tax liability of companies that have business units established in undeveloped municipalities that engage in production activities may be reduced proportionally based on the percentage of the business unit’s profit in the total profit of the company. This tax relief can be claimed for an eight-year period from the date of the incorporation of the business unit. The total amount of the tax incentive cannot exceed EUR200,000. In addition, under the Corporate Income Tax Law, newly established companies who perform business activities in undeveloped municipalities may be exempt from paying salary tax (and the surtax on salary tax) for newly employed individuals and disabled persons under the conditions specifically mentioned in the legislation.
For a legal entity that is a non-governmental organization and is registered for business activities, the tax base is reduced by the amount of EUR4,000 if the profit is used to realize the purposes for which the entity was founded.
Capital gains derived from the disposal of land, real estate, industrial property rights, capital participations and shares and other securities are included in taxable income and are subject to tax at the regular corporate income tax rate.
Capital gains realized by a nonresident legal entity from another nonresident legal entity or a resident or nonresident individual in Montenegro is subject to a 9% capital gains tax, unless otherwise specified by a double tax treaty.
Capital gains may be offset by capital losses incurred in the same year, and net capital losses may be carried forward to offset capital gains in the following five years.
The tax year is the calendar year, except in the case of liquidation or the beginning of business activities during the year. A company may not elect a different tax year. Companies must file annual tax returns in electronic form and pay tax due by 31 March of the year following the tax year.
Resident companies include dividends received from its nonresident affiliates in taxable income.
Corporate and dividend taxes paid abroad may be claimed as a tax credit up to the amount of domestic tax payable on the dividends. Any unused amount of the tax credit for dividend taxes paid abroad can be carried forward to offset corporate income tax in the following five years. This tax credit applies only to dividends received by companies with a shareholding of 10% or more in the payer for at least one year before the date of submission of the tax return.
A 9% withholding tax is imposed on dividends paid to nonresidents.
An applicable double tax treaty may provide a reduced withholding tax rate for dividends (see Section F). To benefit from a double tax treaty, a nonresident must verify its tax residency status and prove that it is the true beneficiary of the income.
Foreign tax relief:
Companies resident in the RM that perform business activities through permanent establishments outside the RM may claim a tax credit for corporate income tax paid in other jurisdictions. The credit is equal to the lower of the foreign tax and the Montenegrin tax paid on the foreign-source income.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.