The Cabinet of Ministers of Montenegro adopted changes on May 13, 2021. They will be enshrined in the Law on Tax Administration.
What will change in Montenegro's tax legislation
There will be an exchange of financial information with other countries. Financial institutions, such as banks, will identify accounts that belong to tax residents of EU and third countries. Information will be collected on such accounts:
the balance of the account;
the sources of money on the account.
Banks will pass data on accounts to the Montenegrin tax service, which will then send it to the tax services of other countries. Thus, states will be able to identify cases of illegal money withdrawal and tax evasion.
Most countries in the world exchange financial information automatically under the Organization for Economic Cooperation and Development plan. The tax authorities check the data they receive against the information on tax returns filed for the reporting period. If the tax authorities find discrepancies, they have the right to check the taxpayer. For example, request documents with explanations of discrepancies.
In May 2021, Russia receives data on foreign accounts of citizens and tax residents from 75 states and 13 territories, among which Montenegro is not. The complete list is presented in the Order of the Federal Tax Service dated December 4, 2018, No. ММВ-7-17 / 784С.
Tax reporting of international companies will become more transparent. A company can be a tax resident of Montenegro and at the same time have representative offices and branches in other countries. According to the new rules, such companies will have to submit to the Montenegrin tax authorities:
information on activities in other countries;
information on profit tax paid for each foreign representative office of the company.
The Tax Service of Montenegro will also exchange the data received with the countries in which the representative offices of local international companies operate.
There will be an additional tax on the sale of undeclared real estate. Taxpayers sometimes do not declare real estate if they cannot confirm the legality of the money with which it was purchased. If the taxpayer decides to sell such real estate, the transaction will be subject to additional tax. The new tax is likely to include the full amount that the seller should have paid when buying and owning such real estate. But the government of Montenegro has not yet disclosed exactly how the process of collecting taxes in such situations will be arranged.
The changes are aimed at bringing Montenegro’s tax laws in line with the uniform laws of the European Union. This will improve the country’s chances of joining the European Union in 2025. Exchange of tax information at the international level will allow faster detection of violations. At the same time, Montenegro’s budget will be replenished through a more efficient tax collection system.
What taxes are paid by individuals and companies in Montenegro
Montenegrin law establishes relatively low rates on the main taxes paid by individuals and companies. For example, income tax in Montenegro is charged at a flat rate of 9%, and in Russia – from 13% depending on the amount of income.
The conditions of taxation depend on whether the payer is a tax resident of Montenegro. In order to become a tax resident, one must live in the country for at least 183 days per year.
Tax rates and conditions in Montenegro in 2021
Rate and conditions
Rate and conditions
|Income tax for individuals||9% of all world income||9% only on income earned in Montenegro|
|Corporate income tax||9% of all world income||9% only on income earned in Montenegro|
|Real estate tax||0,25—1% of the value of the object|
Terms of the Agreement on Avoidance of Double Taxation between Russia and Montenegro
A Double Taxation Treaty (DTT) has been in force between Montenegro and Russia since 1997. It regulates the process of paying taxes when the source of income is in one country and the recipient is in the other. In this case, SITN applies to taxes on:
income of individuals;
income of legal entities;
immovable property of individuals and legal entities.
Payment of personal income tax depends on the taxpayer’s country of residence. Two variants are possible:
- The payer is a tax resident of Russia and receives part of his income from Montenegro. He pays income tax in Russia at a rate of 13%. Part of the income from Montenegro is taxed twice: first you have to pay 9% in Montenegro, then pay 4% more in Russia.
- The payer is a tax resident of Montenegro, receives income in both countries. In this case, income tax is also paid twice. But in Russia, only the difference of 4% is paid on the income received from Russian sources.
Tax residents of Montenegro can save up to 27% of income tax if the main source of their income is not in Russia.
saves the resident of Montenegro on income tax
The payer receives a total income of ₽ 100,000 per year. Of that, ₽ 90,000 from a source in Montenegro and another ₽ 10,000 from a source in Russia.
A tax resident of Montenegro will pay ₽ 9,400 of income tax: ₽ 9,000 (9%) of world income in Montenegro + ₽ 400 (4%) of income from a Russian source in Russia. A Russian tax resident will pay ₽ 13,000 tax.
Savings for a tax resident of Montenegro is ₽ 3,600 or 27% of the income tax.
Payment of income tax for the company. If the company is registered in Montenegro, it pays income tax only in Montenegro at the rate of 9%. But if a Montenegrin company has a permanent representative office in Russia, then it pays tax on profits of the Russian representative office in Russia at the rate of 20%. The same rule applies to Russian companies with a representative office in Montenegro.
Montenegrin companies can save up to 50% of the amount of income tax, even if they have branches in Russia.
Montenegrin companies save on profit tax
A Montenegrin company with a representative office in Russia earns ₽ 100,000 of profit per year. Of that, ₽ 90,000 of income comes from the head office in Montenegro, and the remaining ₽ 10,000 from the Russian representative office. The company will pay ₽ 10,100 tax: ₽ 9,000 (9%) of global profits in Montenegro + 1,100 ₽ (+ 11%) of Russian representative office income in Russia.
A Russian company with a representative office in Montenegro receives 100,000 ₽ a year, of which ₽ 90,000 is a profit of the head office and ₽ 10,000 is the income of the representative office. The company will pay ₽ 20,000 tax: ₽ 18,000 in Russia for the head office + ( ₽ 1,100 in Russia + ₽ 900 in Montenegro for the representative office).
A Russian can become a tax resident of Montenegro if he/she lives in the country for more than 183 days per year. To live in the country for a long time, you need a residence permit or citizenship.
Temporary Residence Permit in Montenegro can be obtained by purchasing real estate or opening a business in the country, employment, or study. The temporary residence permit is issued for one year, and every year it must be renewed. After five years of status, maintenance is allowed to apply for a permanent residence permit. And if you live in Montenegro for 10 years, you can get citizenship.
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