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Overview of Taxes in Montenegro

Kemal Nicholson
07 September 2021

One of the most naturally stunning nations in Europe, Montenegro offers the global elite a solid investment destination as well as a home for themselves and their families through its wildly popular citizenship by investment program.

The nation has already begun EU accession procedures with the Union, and many global experts expect it to become a full-fledged EU member come 2025. This shift in status could rapidly develop the economic landscape of the nation as it will become an integral part of one of the world’s leading political and economic superpowers.

Nevertheless, even without an EU membership card in its pocket, data shows that the European nation remains an excellent investment destination and its pleasant climate and luxury resorts and residential developments are attracting some of the global elite to its shores.

But those who consider relocating to the nation must understand its taxation structure to be able to ensure the financial aspect of their lives transforms for the better. In this piece, we will cover the fundamentals of taxation in Montenegro from income, corporate, property, value-added, withholding, capital gains, inheritance taxes, and many more.

Overview of Taxes in Montenegro — Migronis

Discover a world of benefits within Montenegro:

Visa-free or visa-on-arrival access to 124 destinations

The prospect of EU accession: Montenegro is expected to join the European Union member countries in 2025.

Possibility to obtain an E-2 visa for the US. This type of visa is not available for citizens of China, the Russian Federation, South Africa and some others. An E-2 is a business visa that allows investors to live and work in the States.

Mediterranean climate, beautiful scenery, and a low cost of living

Citizenship in a member state of the European Monetary Union, the NATO Alliance, OSCE, and the WTO

Real estate is in demand

A green light from banks: No issues with opening accounts in progressive European banks

Income tax

There are two types of income tax to consider, personal income tax and corporate income tax. Here is a breakdown of each type of income tax in Montenegro.

Personal Income Tax Rates

Personal income tax is levied on the gross income of tax residents in Montenegro. Investment income, employment income, royalties, interest, dividends, and other income streams are subject to income tax.

Personal income is taxable at a flat rate of 9%. The tax rate may become 11%, but this is only levied on any taxable income that surpasses the average income. Montenegro announces its average for each year (approximately 765 Euros for 2020), and any income below or equal to the national average is taxable at a flat rate of 9%, while any extra income surpassing the average is taxable income at a rate 0f 11%.

To be considered as a tax resident and be subject to Montenegrin taxes an individual must be a full-time resident for at least 183 days a year, tax residents are taxed on regional and worldwide income that enters Montenegro. A non-resident who spends less than 183 days a year is not subject to any Montenegrin income tax.

Personal income tax is paid on annual basis, and tax residents must register with their local tax authorities. There is a local surtax that must also be paid, and the surtax of 13% is paid in all municipalities with the exception of Podgorica and Cetinje, where the paid rate is 15%. Local surtaxes are paid directly to the municipality one is registered in.

Corporate Income Tax Rates

Companies and permanent establishments incorporated in Monetengro are subject to corporate income taxes. A permanent establishment is a fixed place of business through which a non-resident carries out business in Montenegro.

Corporate tax is levied at a flat rate of 9% on income. Montenegrin law does provide exemptions on a service rendered outside of Montenegrin soil in the case a double taxation treaty is in place with the destination country.

Any income in Montenegro is taxable income and a business must register with tax authorities to ensure profit from selling goods or services is taxed legally. Companies pay corporation tax on an annual basis.

The corporate tax rate in Montenegro is one of the best tax rates in the entirety of Europe, which is why many companies from different countries flock to establish their HQ on Montenegrin soil. Low taxes are vital for a company to remain viable in a financial sense, especially for start-ups, and the Montenegrin government understands that and has provided an outstanding business environment that will undoubtedly interest any company in setting up shop and conducting its operations and services in the European nation.

If Montenegro becomes an EU member and maintains a great corporate tax rate then entrepreneurs and business owners should profoundly consider moving their company, or even companies, to Montenegro to take advantage of the low taxes.

Value-Added Tax (VAT) in Montenegro

Value-added tax (VAT) is another financial commitment taxpayers must face in Montenegro. VAT is payable on all goods and services sold within the country. VAT is also paid on imported goods.

Any business that has a gross turnover (before expenses) of 18,000 Euros or more in one year must pay VAT. There are exemptions, however, depending on the type of services or goods being sold.

A reduced rate of 7% applies on any good or service listed below:

  • Basic commodities such as milk, sugar, bread, and oil
  • Medication and orthotic or prosthetic instruments;
  • Educational material such as textbooks
  • Services in accommodation such as hotels, resorts, motels, and other tourist accommodation;
  • Potable water, with the exception of bottled water;
  • Services of public transportation of passengers as well as their baggage
  • Services of public hygiene;
  • Funeral services and any goods related to those services;
  • Copyrights
  • Services related to the use of sporting facilities for non-profit purposes;
  • Agricultural goods and services

There is even a further reduction to a 0% VAT rate on a service or good related to the following industries:

  1. Exported goods to foreign countries;
  2. Supply of ancillary services
  3. Services performed on goods imported to Montenegro from a foreign country
  4. Supply of fuel and other necessary goods used for supplying:
  5. Goods and services related to international air or maritime traffic;
  6. Goods and services intended for diplomatic and consular representatives
  7. Medicines and devices for medical use, determined by the government

Taxes of Montenegro

Montenegro taxes on real estate

There is a real estate tax in Montenegro, and this tax depends on the type of real estate, the location of the real estate, and the use of the real estate. The average property tax is between 0.25% and 1%.

There is also a real property transfer tax that applies to real estate which is paid on a tax rate of 3%.

Taxes on rental income

Renting out real estate for financial return will incur a property rental tax. Property owners who rent out their property are required to pay a property tax of 9%. It does not matter if rent is monthly or yearly, property rental income tax is paid on an annual basis based on the aggregate rent total.

Those who rent out monthly and do not rent out the entire year will still be liable for tax on the total amount of rental income they achieved.

Taxes of Montenegro

Do you want to become a Montenegro citizen? Find out how.

Taxation of capital gains

Capital gains are taxed at a flat rate of 9% for both individuals and companies. Capital gains tax in Europe can be quite high, which makes the capital gains tax in Montenegro a great attraction for individuals and companies looking to do business within a low tax environment.

 

Withholding tax

Montenegrin withholding tax is payable at a rate of 9%. However, payments of dividends and royalties to non-residents are taxed at a flat rate of 5%.

Indirect taxes

There are other indirect taxes that the government of Montenegro does require its residents to pay. Montenegrin indirect taxes should be of interest to both an individual or a company within the nation, as these taxes they must pay can affect their overall income or, in the case of a business, the overall costs for their operation.

The main indirect tax that can affect a company’s costs is customs duties that are applied to foreign goods imported from another country, which can range from 0% to 30% depending on a large data set of good type, country of origin, purpose, and otherwise. It is crucial to calculate customs duties in a company’s expenses column to ensure financial viability. Customs duties payments are completed along with the action of customs clearance.

Another type of indirect tax that may affect expenses and company overhead costs is social security contributions. A company that undergoes the employment of individuals must contribute to their social security plan as follows:

  • Pension and disability insurance: 5.5% of the employee’s salary
  • Health insurance: 2.3%.
  • Unemployment insurance: 0.5%.

Individuals who take up employment must also pay part of the contribution from their salary as follows:

  • Pension and disability insurance: 15%.
  • Health insurance: 8.5%.
  • Unemployment insurance: 0.5%.

Treaties on double taxation of Montenegro

Tнe Monetengrin government has signed double taxation treaties with 43 countries. These countries are:

  1. Albania
  2. Austria
  3. Azerbaijan
  4. Belgium
  5. Belorussia
  6. Bosnia and Herzegovina
  7. Bulgaria
  8. China
  9. Croatia
  10. Cyprus
  11. Czech Republic
  12. Denmark
  13. Egypt
  14. Finland
  15. France
  16. Germany
  17. Hungary
  18. India
  19. Ireland
  20. Italy
  21. Korea
  22. Kuwait
  23. Latvia
  24. Macedonia
  25. Malaysia
  26. Malta
  27. Moldova
  28. Netherlands
  29. Norway
  30. Poland
  31. Portugal
  32. Romania
  33. Russia
  34. Serbia
  35. Slovak Republic
  36. Slovenia
  37. Sri Lanka
  38. Sweden
  39. Switzerland
  40. Turkey
  41. Ukraine
  42. United Arab Emirates
  43. United Kingdom

Not all countries have the same double taxation treaty in place, and the terms differ from one country to the next. However, doing business with any of these countries from Montenegro is simplified thanks to the double taxation agreement in place.

Taxes of Montenegro

How do I become a tax resident in Montenegro?

To become a tax resident in Montenegro you need to maintain residence and reside legally for more than 183 days a year on Montenegrin soil. Tax residents are taxed on income but have the right to live, take on employment, and study within Montenegrin borders.

For an individual to become a tax resident they must immigrate to Montenegro, and the easiest way to do that is by becoming a citizen through the nation’s citizenship by investment program. 

An individual who invests in immovable property and donates a sum to the government can become a citizen within months and sell the property after five years. There is no need for prior residence to become a citizen.

Frequently asked questions

Is Montenegro a tax haven?

No, but non-residents are not taxed in Montenegro and it does have great tax rates compared to Europe’s average.

Is Montenegro tax-free?

No, but it has very competitive tax rates.

What is the property rental income tax rate in Montenegro?

Those who rent a property for residence or otherwise must pay 9% rental income taxes.

Does Montenegro tax worldwide income?

Income generated from around the world is taxed for an individual who is a tax resident and brings it into the nation. Non-residents do not pay income from sources around the world.

Is there property transfer tax in Monetenegro

Yes, property transfer tax is 3% of the value.

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