Business and taxes

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

As Montenegro aims to join the EU, it introduced the tax reform at the beginning of 2022. Now, individual and corporate income is taxed according to progressive scales. Yet, tax rates remain pretty low and range from 9 to 15%.

Montenegro also introduced a non-taxable salary part of €700, which is the highest among all European countries. Contributions for compulsory health insurance were cancelled. As a result, the tax burden on wages, including income tax and social contributions, is reduced by 1.2—1.9 times.

Montenegro tax system

Tax system in Montenegro

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

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.

Income tax for individuals

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.

Individual income tax rates

Tax rateMonthly salaryAnnual self-employment income
0%Up to €700Up to €8,400
9%€701 to €1,000€8,400.01 to €12,000
15%Over €1,001Over €12,001

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.

Corporate income tax rates

Yearly profitTax rate
Up to €100,0009%
€100,000.01 to €1,500,000€9,000 + 12% on the profit above €100,000.01
Over €1,500,000.01€177,000 + 15% on the profit above €1,500,000.01

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.

Value-added tax rates

Standard rate21%
Reduced rate
For bread, milk, books, medicines, computers, etc.
7%
Exemptions
Export of goods, supply of gasoline for vessels in international traffic, etc.
0%

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.

Property taxes in Montenegro

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.

Government-approved real estate in Montenegro for sale

Real estate in Montenegro: property taxes

Apartments in a 5-star Breza hotel in the suburbs of Kolasin. The price is €250,000, so the transfer tax to be paid is €7,500

Property taxes in Montenegro: buying real estate in Budva

Apartments in a new residential complex on the first coastline in Budva. The price is €450,000, so the transfer tax to be paid is €13,500

Transport taxes

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.

VehicleTax rate
Passenger car€25 to €1,500
Motorcycle€10 to €300
Boat (vessel without a cabin)€5 to €60
Ship (vessel with a cabin)€10 to €3,000
Aircraft€1,500 to  €5,000

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.

Taxes on capital gains, gifts and inheritance

Capital gains for individuals are taxed at 15%. In the case of businesses, capital gains are not charged separately but added to profit and taxed according to the progressive scale.

15%
The capital gain tax rate in Montenegro

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

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.

Double tax treaties that Montenegro has signed

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. 

Full list of countries with double tax treaties with Montenegro

AlbaniaGermanyPortugal
AustriaHungaryRomania
AzerbaijanIndiaRussia
BelarusIrelandSerbia
BelgiumItalySlovakia
Bosnia and HerzegovinaKuwaitSlovenia
BulgariaLatviaSouth Korea
ChinaMalaysiaSri Lanka
CroatiaMaltaSweden
CyprusMoldovaSwitzerland
Czech RepublicNetherlandsTurkey
DenmarkNorth MacedoniaUkraine
EgyptNorwayUnited Arab Emirates
FinlandPolandUnited Kingdom
France

How to move to Montenegro to switch to its tax residency

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.

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.

Frequently asked questions

Does Montenegro have an income tax?

Income earned by individuals is taxed at a progressive scale of 9 to 15%. The first €700 of monthly salary is non-taxable, and the first €8,400 of self-employment annual income.

The company’s profit is also charged on a scale of 9 to 15%.

Does Montenegro have VAT?

The standard VAT rate in Montenegro is 21%. It can be reduced to 7% or eliminated to 0% in some cases.

Does Montenegro have a property tax?

Property taxes in Montenegro are the following:

  • 3% of the real estate value as a transfer tax if buying; 
  • 0.1 to 5.5% as an annual ownership tax; 
  • 15% of income if renting out; 
  • 15% of a capital gains tax if selling.
Is Montenegro a tax haven?

Montenegro has pretty low tax rates compared to other European countries. But planning to join the EU, it’s aiming to make its taxation system meet the European Union guidelines. Both individual and corporate income tax rates fluctuate from 9 to 15%.

Does Montenegro tax foreign income?

If a foreigner earns income in Montenegro, it is taxed in Montenegro. The tax rates are the same for citizens and foreigners: 9 to 15%. If a foreigner stays for more than 183 days per annum in Montenegro, they become a country’s tax resident and are charged on their worldwide income in Montenegro.

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