Corporate tax in Montenegro

Summary

Corporate Income Tax Rate (%) 9
Capital Gains Tax Rate (%) 9
Branch Tax Rate (%) 9
Withholding Tax (%)
Dividends
9 (a)
Interest 9 (b)
Royalties from Patents, Know-how, etc. 9 (b)
Capital Gains and Leasing Fees 9 (c)
Consultancy, Market Research and Audit Fees 9 (c)
Net Operating Losses (Years)  
Carryback 0
Carryforward 5

a) This tax applies to resident and nonresident legal entities and individuals.

b) This tax applies to nonresident legal entities and resident and nonresident individuals. Interest paid to nonresident legal entities is taxed at a rate of 5%.

c) This tax applies to nonresident legal entities. Individuals are taxed under the
Personal Income Tax Law at a rate of 9%.

Taxes on corporate income and gains

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%.

Tax incentives. 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. Capital gains derived from the disposal of land, real es tate, 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 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.

Administration. 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 and pay tax due by 31 March of the year following the tax year.

Dividends. 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.

Determination of trading income

General. The assessment is based on the profit or loss shown in the financial statements prepared in accordance with Montenegrin ac counting regulations, subject to certain adjustments for tax purposes.

Taxable income is the positive difference between income and expenses. Dividend income of taxpayers is not included in the tax base if the payer of the dividend is a taxpayer according to the Montenegrin Corporate Income Tax Law.

Tax-deductible expenses include expenses incurred in performing business activities. Expenses must be documented. Certain ex­penses, such as depreciation (see Tax depreciation) and donations, are deductible up to specified limits.

Inventories. Inventories must be valued using average prices or the first-in, first-out (FIFO) method.

Write-offs (provisions). Legal entities may claim deductions for ad­justments or write-offs (provisions) of receivables if such actions are in conformity with the Accounting Law. This conformity ex­ists if the following conditions are satisfied:

  • It can be proved that the amounts of receivables were previously included in the taxpayer’s revenues.
  • The receivable is written off from the taxpayer’s accounting books as uncollectible.
  • The taxpayer can provide clear evidence of the unsuccessful collection of receivables.

Long-term provisions made for renewal of the natural resources, expenses payable in a guarantee period and expected losses on the basis of court disputes are recognized as expenses in accordance with the local accounting regulations. In addition, long-term pro­visions made by the banks are recognized as expenses up to the amount determined in the relevant banking regulations.

Severance and jubilee payments that are calculated but not paid are deductible up to the amount determined in the Labor Law.

Tax depreciation. Assets with the value over EUR300 are subject to tax depreciation. Intangible and fixed assets are divided into five groups, with depreciation and amortization rates prescribed for each group. A ruling classifies assets into the groups. Group I includes immovable assets.

The straight-line method must be used for Group I, while the declining-balance method must be used for the assets in the other groups.

The following are the depreciation and amortization rates.

Group of assets Rate (%)
I 5
II 15
III 20
IV 25
V 30

 

Relief for losses. Tax losses incurred in business operations may be carried forward for five years.

Loss carrybacks are not allowed.

Groups of companies. Under group relief provisions, companies in a group that consists only of companies resident in the RM may offset profits and losses for tax purposes. Tax consolidation is available if a parent company holds directly or indirectly at least

75% of the shares of subsidiaries. To obtain group relief, a group must file a request with the tax authorities. If tax consolidation is allowed, the group companies must apply the group relief rules for five years. Each group company files its own annual in come tax return and the parent company files a consolidated tax return based on the subsidiaries’ tax returns. Any tax liability after con­solidation is paid by the group companies with taxable profits on a proportional basis.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT), on supplies of goods
and services in the RM and on imports of
goods; certain tax exemptions with or
without the right to deduct input VAT are
granted; VAT taxpayers are legal entities and
entrepreneurs who had turnover of goods
and services in excess of EUR18,000 in the
preceding 12 months or who expect to have
annual turnover greater than the threshold
Standard rate 19
Lower rate 7
Property tax; paid on rights over immovable property in the RM, including residential and business buildings, apartments, garages, buildings and rooms for resting and recreation, and other buildings; certain immovable property is exempt; tax credits are available for the dwellings of owners and their immediate families; the amount of tax due is determined by a tax authority’s ruling, which should be issued by 31 May of the year for which the tax is rendered; the tax is payable in two installments, which are due on 30 June and 30 November; tax rate varies depending on the municipality in
which the immovable property is located
0.1 to 1
Transfer tax; imposed on the transfer of the
immovable property located in Montenegro;
the tax base equals the market value of the
transferred property at the time of acquisition;
the acquirer of the property is the taxpayer;
the tax is due within 15 days after the date on
which the tax authority’s ruling determining
the amount of tax due is issued
3
Tax on income; paid by employee; higher rate
applies to gross salary exceeding EUR720
9 / 13
Surtax on salary tax; paid by employer 13 / 15
Social security contributions (for health
and pension/disability funds); paid by
Employer 10.3
Employee 24
Additional contributions for the Association of Labor Unions of Montenegro, labor fund
and chamber of commerce; total rate
0.67

Miscellaneous matters

Foreign-exchange controls. The official currency in the RM is the euro (EUR).

Capital transactions (investments), current foreign-exchange trans­actions and transfers of property to and from the RM are gener­ally free.

Transfer pricing. Under general principles, transactions between related parties must be made on an arm’s-length basis. The differ­ence between the price determined by the arm’s-length principle and the taxpayer’s transfer price is included in the tax base for the computation of corporate income tax payable.

Treaty withholding tax rates

Montenegro became an independent state in June 2006. The gov­ernment has rendered a decision that it will recognize tax treaties signed by the former Union of Serbia and Montenegro and the former Yugoslavia until new tax treaties are signed. The follow­ing table lists the withholding tax rates under the treaties of the former Union of Serbia and Montenegro and under the treaties of the former Yugoslavia that remain in force. It is suggested that taxpayers check with the tax authorities before relying on a par­ticular tax treaty.

  Dividends

%

Interest

%

Royalties

%

Albania 5/15 10 10
Azerbaijan 10 10 10
Belarus 5/15 8 10
Belgium 10/15 15 10
Bosnia and      
Herzegovina 5/10 10 10
Bulgaria 5/15 10 10
China 5 10 10
Croatia 5/10 10 10
Cyprus 10 10 10
Czech Republic 10 10 5/10
Denmark 5/15 0 10
Egypt 5/15 15 15
Finland 5/15 0 10
France 5/15 0 0
Germany 15 0 10
Hungary 5/15 10 10
Ireland 5/10 10 5/10
Italy 10 10 10
Korea (North) 10 10 10
Kuwait 5/10 10 10
Latvia 5/10 10 5/10
Macedonia 5/15 10 10
Malaysia 10 10 10
Malta 5/10 10 5/10
Moldova 5/15 10 10
Netherlands 5/15 0 10
Norway 15 0 10
Poland 5/15 10 10
Romania 10 10 10

 

   
 
Russian Federation 5/15 10 10
Serbia 10 10 5/10
Slovak Republic 5/15 10 10
Slovenia 5/10 10 5/10
Sri Lanka 12.5 10 10
Sweden 5/15 0 0
Switzerland 5/15 10 0/10
Turkey 5/15 10 10
Ukraine 5/10 10 10
United Arab Emirates 5/10 10 0/5/10
United Kingdom 5/15 10 10
Non-treaty countries 9 9 9