Taxes in Montenegro: a taxation system and individual and corporate tax rates

Who pays taxes? In Montenegro, taxes are paid by individuals and companies. They can be Montenegrin tax residents or non-residents.

Montenegro citizenship by investment program

All the tax rates are the same for both categories of taxpayers. The difference is that tax residents of Montenegro are charged on their global income, while non-residents pay taxes only on income earned in Montenegro.

Tax residents are also exempt from withholding taxes on interest and royalties.

Who is considered a tax resident? An individual becomes a tax resident of Montenegro if they spend more than 183 days in the country.

Suppose they spend 183 days per annum neither in Montenegro nor in any other country. In that case, tax residency can be granted to those with a domicile or a centre of personal and economic activities in Montenegro.

A legal entity is considered a tax resident if incorporated in Montenegro or has a place of effective management in the country.

When to pay taxes, and in which currency? The fiscal year in Montenegro is the calendar year. The official currency of Montenegro is the euro despite the fact that the country is not yet part of the EU, so taxes are charged in euros.

Employment income is calculated based on monthly salary, and self-employment is based on yearly income. Even though the tax base is different, the rates are the same. And part of the income is non-taxable.

Municipalities charge additional income tax, or surtax. Its base is the amount of general tax assessed. In Podgorica and Cetinje, it is levied at 15%, and in all other regions, at 13%.

Salaries are also charged with social contributions. They are levied at 15,5%: 15% goes for pension and disability insurance, and 0,5% for unemployment insurance. Pension and disability insurance contributions cannot exceed the limit set at the beginning of the year: for 2021, it was €54,533.

The tax burden for employers combined with the income tax, surtax and social contributions ranges from 20,4% in case of minimum salary to a maximum of 31,3%. Before the reform, the tax burden was 39%.

Individuals must submit an annual income tax return and pay the tax by the end of April. If you earn no other income but your salary, you do not need to file tax returns: the employer withholds taxes from your salary.

Legal entities must file annual tax returns and pay the taxes by the end of March.

Employers also deduct 6% of their employee’s salary for social contributions: 5,5% for pension and disability insurance and 0,5% for unemployment insurance.

Tax incentives. If you establish a production company in an economically underdeveloped municipality, it is entitled to income tax exemption for up to eight years. Yet, the tax exemption is limited to €200,000 for the entire period.

This exemption cannot be applied to businesses operating in the primary production sector of agricultural products, transport, shipbuilding, fishery, steel production, trade, or catering.

The value-added tax base, or VAT base, consists of the consideration received for supplies, including taxes like customs and excise duties and direct costs such as commissions, cost of packing and transport.

VAT registration is mandatory for an entity whose turnover exceeds €30,000 a year. If it is less, it’s up to you to decide whether to register VAT or not.

VAT returns are submitted and fulfilled on a monthly basis.

Taxes on real estate in Montenegro are paid by buyers, owners, sellers, and lessors.

When buying. The first transfer of ownership rights on real estate is subject to 21% VAT, which is included in the property price. Subsequent property sales are subject to transfer tax, levied at 3% of the property market value.

The tax return must be filed and paid for within 15 days after signing the sale and purchase contract.

Those who buy a property for €250,000 or more in the northern or central region of Montenegro can qualify for citizenship by investment. As for the coastal region or the capital city, Podgorica, the property must cost over €450,000. Yet, properties have to be approved for participation in the CBI program by the government: usually, these are tourist apartments.

When owning. Annual property tax is levied on ownership of lands and buildings. Tax rates are calculated individually and depend on property age, area and location. They usually range from 0.1 to 1% of the market value of assets as of January 1st of the current year.

For certain types of real estate, like some hotels in the coastal region, the tax rate can reach 5,5%. Montenegrin citizens and permanent residents can qualify for reduced rates.

The first tax return must be submitted within 30 days from the acquisition date of a new property. Then, annually, owners receive a notification with the tax amount assessed by April 30th. The ownership property tax is paid in two instalments: till June 30th and October 31st.

When renting out. Rental income is taxed at 15% and is added to an annual tax return. Costs incurred to generate income are deducted from the tax base.

When selling. If a seller gets a capital gain, it is taxed at 15%. The capital gain tax is not levied if it is a transfer of real estate used as a place of taxpayer’s residence or if a property is transferred between spouses, parents and children.

If you buy a used car, motorcycle, boat, or aircraft in Montenegro, you need to pay a transport transfer tax of 5%.

Ownership of a vehicle is taxed annually. The tax rate depends on the type of vehicle, its size and engine capacity.

The tax on the use of a vehicle is reduced by 5% for each completed year of its age, with the total reduction not exceeding 50% of the prescribed amount of tax.

Transport taxes must be paid before applying for annual registration of a vehicle, renewing an airworthiness certificate or a navigation permit.

Capital gain is the difference between the sale and purchase price of assets such as land, buildings, property rights, capital share, and securities. Acquisition costs and related expenses are deducted from the selling price before the tax calculation.

Gifts and inheritance tax. Gifts intended for spouses, children or parents are exempt from tax. In any other case, a gift is taxed at 3%. The same rates and exemptions apply to inheritance tax.

Withholding taxes, or WHT, are imposed in the following situations:

• when income earned from a Montenegrin source is distributed to a non-resident;

• when income is earned based on the repurchase of used products, semi-final products, and agricultural products;

• when dividends and shares of profits are distributed to a tax resident of Montenegro.

The WHT rate is 15% for individuals and companies, tax residents and non-residents. Montenegrin tax residents are exempt from tax on interest and royalties.

Montenegro has signed double taxation agreements with 43 countries. Most of them regulate the taxation of income and property of individuals and legal entities.

The application of a double tax treaty may reduce or eliminate Montenegrin WHT. To qualify for the beneficial rates, a non-resident must prove tax residency of a relevant treaty country and beneficial ownership over the income.

Montenegrin tax residence is obtained by spending at least 183 days per year in the country. You cannot stay for so long with a usual visa: you need to get an official status in the country, which can be a residence permit or citizenship.

All ways to obtain Montenegro citizenship

For wealthy people, the fastest and easiest way to move to Montenegro is to get citizenship by investment. This way offers an opportunity to save your first citizenship, and others don’t. An investor can include their spouse and children in the application.

Participating in the Montenegro CBI program requires spending of at least €472,000. That’s where the money goes:

• €250,000 for purchasing real estate;

• €200,000 for the contribution to the state fund;

• €15,000 for paying the administrative fee;

• €10,000 for the Due Diligence check.

The two latter cost items depend on the composition of the investor’s family: the more people included in the application, the more it costs.

You can’t buy any property you want to get Montenegro citizenship: it must be approved by the government. Usually, these are apartments for tourists.

€250,000 is enough to buy an apartment in the northern or central part of the country. If you want to buy real estate in the capital or on the coastline and earn more from rent, you need to pay at least €450,000.

Note that the Montenegro CBI program is to close December 31st, 2022.