You are now the official owner of a business, but are you aware of all of the tax implications that come with it? This article is going to provide you with an overview of the tax system in Montenegro and what your obligations are.
Businesses in Montenegro are subject to a tax rate of 9% on their profits. This is regardless if you are a registered business or only trade there. Incorporated businesses are treated as tax residents in Montenegro. This treatment also applies to businesses that are registered in a foreign country but are managed in Montenegro.
The Value Added Tax (VAT), corresponds to the rates set by the European Union. That rate is currently set at 21% for goods and services. Essential goods and services, such as medicine, bread, and books have a reduced rate of 7% VAT. Services to non-residents have a special VAT rate of 0%. This percentage also applies to certain goods provided to non-residents, like gasoline for international transport. If your company turnover is more than 18,000 euros annually you are obliged to register for VAT. Less than this amount and you can choose whether you want to register for VAT.
The property tax for all properties in Montenegro is set between 0.25 and 1% of the market value as of the 1st of January each year. New owners of a property must submit a tax return within 30 days of purchasing the property. From this point on, the owner of the property has to submit yearly tax returns for their property.
Land and buildings are examples of immovable property and are subject to a 3% transfer tax. This 3% is calculated based on the value of the property when it was purchased. The submission of the tax return must be completed, and the amount paid within 15 days of the purchase. There are some new developments that may be exempt from paying this tax.
Taxes applicable to salaries and wages
As with many countries, employees in Montenegro have to withhold personal tax income from the employees’ salaries or wages. This is then paid to the tax authorities. There are two flat rates in Montenegro. 9% of a salary is charged if the amount is equal to or less than the average monthly salary. This is paid by the employees. Those earning above the average must pay an additional 11% on their earnings. It is the tax authorities that decide what is considered the average monthly income.
At the same time as making their own contributions, employers also have to collect other taxes and contributions from the salaries of their employees. The rates are currently set at:
- From the employers- Social Security- 5.5%
- Health Insurance- 4.3%
- From the employees- Pension and disability insurance- 15%
- Health insurance- 8.5%
- Both must pay- Unemployment Insurance- 0.5%
Capital Gains Tax
The capital gains rate set for this year is 9%. Capital gains or losses can be carried over for a 5-year period in Montenegro. This gives the taxpayer a chance to offset gains and losses. Non-tax-residents are subject to the same 9%.
Withholding tax is set at 9% for residents and non-residents. The income included for withholding tax is gained from:
- Capital gains
- Interest earned
- Profit distributions
- Fees for the use of intellectual property
- Rental income
- Consulting fees
- Market research fees
- Auditing services
- Performance and sporting fees
Double tax agreements may reduce or even eliminate this withholding tax. To take advantage of the double tax agreement, you must be able to prove that you are a resident of the relevant country. You will also have to demonstrate that you pay taxes in said country, for example, an original, stamped document from your local tax authority.
Montenegro has double taxation agreements with Egypt, Iran, Korea, Kuwait, Latonia, Macedonia, Malaysia, Moldavia, Russia, Sri Lanka, Switzerland, Turkey, and European countries.