Taxes in Montenegro: a Complete Guide for Expats in 2022

What do you need to know about taxes in Montenegro? What is the property tax rate in Montenegro for foreigners? How can you obtain tax residency in Montenegro? Answers to these and other fiscal questions are essential for investors seeking residence permits/citizenship in Montenegro. 

Over 200 years ago, Benjamin Franklin wrote: “In this world, nothing is certain, except death and taxes.” Unfortunately, humans have not yet succeeded in evading mortality. However, there is a legal way to reduce or avoid taxes – by immigration.

Benign taxes in Montenegro are among the many strengths of this European country. But to take advantage of this benefit, you will need to be a local tax resident. This status will be yours if you have resided there for a reasonably long period legally, i.e., if you have a residence permit or even citizenship in this small Balkan jurisdiction. 

For details on economic residence and citizenship in Montenegro, please click on the following links or look up other topical articles on our portal:

• Montenegro citizenship by investment: practical matters
• Montenegro residence permits by investment: expert insights

There is no such thing as a total tax exemption in Montenegro, but the tax reduction can be quite considerable compared to the rest of Europe.

If you are interested in investing in economic citizenship or residence, buying some property or starting your business, moving to Montenegro, and becoming its tax resident, this article is right for you.

Taxes in Montenegro: is it a tax haven?

Is Montenegro a tax haven? This question is quite frequently asked. Moreover, Montenegro has been much criticized by international organizations for behaving like a tax haven. 

Yes, like many tax havens, Montenegro has a relatively small economy. Its government is very ambitious to attract direct foreign investments as soon as possible. To this end, it has designed a favorable fiscal climate for international investors. Apart from other perks, it maintains a fair and transparent tax system with low rates.

However, Montenegro is not on par with the Cayman Islands, Singapore, or the Isle of Man in terms of opportunities for tax exemption. There are clear indications that EU membership is the main political goal of Montenegro for the next decade. This intention means that Montenegro will continue to distance itself from the status of a tax haven.

Taxes in Montenegro: tax residency

Resident entities and private persons are subject to tax on worldwide income from any source. 

Non-resident companies and individuals are taxed on income related to a fixed base/permanent establishment (PE) in Montenegro and royalties, interest, and rental income from immovable property in Montenegro.

A company is recognized as a resident of Montenegro for tax purposes if it is registered in Montenegro or maintains control over its activities and has headquarters in Montenegro.

A private person may obtain tax residency in Montenegro if he/she stays there for 183 days or more in a calendar year or has his/her center of vital interests in this Balkan country.

In both cases, the decision to buy real estate in Montenegro is a winning strategy for applicants seeking tax residency in this country. You will have the best of both worlds if you apply for citizenship by investing in advantageous real estate in some stunning Montenegro resort.

Income, dividend, capital gain, VAT taxes in Montenegro 

What is the personal income tax in Montenegro? What is the corporate profit tax? What is the tax on dividends? Or the tax on capital gains? Until recently, the answer to these questions has been very easy to remember: the income, dividends, capital gains were subject to 9% taxes.

Personal Income Tax

In 2022, the tax rate of the income tax is 9% of the tax base. 

Sources of revenues include:

• personal earnings
• self-employment activity
• property and property-based rights
• capita
• capital gains.

Income from property capital, capital gains and sport activities is still subject to a flat rate, which has been increased from 9% to 15 %

Resident spouses in Montenegro fill out individual income tax returns. Private persons are not entitled to any deductions or tax credits.

Payroll Tax

As of January 1, 2022, Montenegro exempted first €700 of gross salary from taxation and introduced progressive taxation of salary and income earned by entrepreneurs. 

Besides, the mandatory contributions for health that used to be levied on the employee’s salary are abolished (that equaled 10.8% before 2022). 

This reform aims to increase the average salary in Montenegro: the minimum monthly wage for full-time work has grown from net €222 to net €450. 

The total tax burden is now from 20.4% of gross minimum salary to 31.3% of gross salary above the minimum wage.

There are no deductions and allowances for individuals.

Salary:

• Salaries up to €700 (gross) are exempt from tax
• Salaries from €701 up to €1,000 (gross) are subject to 9% tax
• Salaries from €1001 (gross) are subject to 15% tax.

The income from self-employment (earned by registered entrepreneurs; income of designers, auditors, lawyers, notaries, and other free professions; income from intellectual and other services, etc.) is also taxed differently now. 

Income earned by entrepreneurs:

• Income up to €8,400.01 is exempt from tax
• Income from €8,400.01 to €12,000 is subject to 9% tax
• Income from €12,000.01 is subject to 15% tax.

Local Surtax (LST)

The  Local Surtax (municipal) on personal income tax is charged at the rate of 13% (or 15% in Podgorica and Cetinje) of the amount paid as federal taxes.

Company Profit Tax (CPT)

CPT in Montenegro is now progressive. The annual profit of companies is taxed as follows:

• Profit of up to €100,000.00 is subject to 9% tax
• Profit from €100,000.01 to €1,500,000.00 is subject to the CPT of €9,000 + 12% of the profit amount over €100,000.01
• Profit over €1,500,000.01 is subject to the CPT of €177,000.00 + 15% on the amount over €1,500,000.01. 

Non-residents developing business in Montenegro through a branch (Permanent establishment, PE) are taxed on their Montenegrin-source income at a rate of 9%. 

Withholding Tax

The withholding tax rate has leaped from 9% to 15%. It refers to dividends payable to residents or non-resident private or legal persons, and income of non-resident legal entities from interest, dividends, royalties, capital gains, rent of movable or immovable property, consulting services, market research services, or audit services. 

Application of a double tax treaty (DTT) may reduce or eliminate Montenegrin WHT.

Local Tax on Property capital, capital gains, sport activities

Income generated from property capital, capital gains, and sports activities is taxed at the flat rate of 15 % (an increase compared to the 9% tax before 2022).

VAT (PDV)

The Value Added Tax is in line with the European Union (EU) Sixth Directive guidelines. Taxable supplies are taxed at the 21% VAT rate. The reduced 7% rate is stipulated for certain supplies (e.g., bread, milk, books, medicines). The 0% rate is applicable to the export of goods, supply of gasoline for vessels in international traffic. 

Montenegro VAT compares favorably with VAT in many European jurisdictions, including neighboring Croatia (where VAT is calculated at a flat rate of 25%). However, the overall rate of VAT in Montenegro is higher than in Germany, France or the UK.

The peculiarities of Montenegro’s VAT system include the following:

• The rate can be reduced to 7% for basic necessities such as milk, bread, and medicine, as well as books and computers
• Only companies with net sales over €18,000 have to charge VAT
• You pay VAT in Montenegro on the purchase of a new home, while buildings that have previously changed ownership are exempt from this tax.

Social security contributions

Different rates of social security contributions apply to the employer and employee. Employers refer them to operating costs. Employees’ social security fees are taken from the gross salary.

Employer‘s rate:

• Pension and disability insurance 5.5%.
• Unemployment insurance 0.5%.

Employees‘ rates:

• Pension and disability insurance 15%.
• Unemployment insurance 0.5%.

Tax incentives and allowances for companies in Montenegro 

Any new company operating in the northern part of Montenegro is exempt from corporate profit taxes for the first 8 years. The exemption is limited to €200,000. This tax incentive does not apply to the sector of agricultural products, transport, shipbuilding, fishery, and steel production.

Transfer pricing (TP) rules

A new set of transfer pricing (TP) rules was introduced. For more information on this specific amendment (covering the new definition of related parties, extended list of price assessment methods, and TP compliance), please refer to our experts.

The total of all annual corporate taxes paid in 2021 by an average Montenegrin company made  22.2% of its profits. One may say it is too high. But it is well below the 48.8% in Germany, 36.6% in the USA, and 33.5% in Eastern Europe & Central Asia (according to Lloyds Bank, October 2021). 

Montenegrin companies transferred taxes 18 times/year and spend more time on red tape (300 hours) than companies in Eastern Europe & Central Asia and in the USA. 

Corporate taxpayers may offset capital losses that were occurred in the same tax period: depreciation, bad debts, some charity types, salary costs, start-up expenses, membership fees, etc.

Considering all the details mentioned above, you can understand now why many applicants for Montenegro citizenship choose to set up companies rather than look for a job in this beautiful country. The procedure of company registration in Montenegro is quite straightforward. Nevertheless, we recommend and offer professional assistance, particularly in opening corporate bank accounts in this jurisdiction.    

Double Taxation Treaties of Montenegro

A bilateral double taxation treaty (DTT or DTA) defines which of the two countries is entitled to collect taxes from a particular taxpayer if this legal entity or private person resides, has business assets and activities in both jurisdictions party to the agreement.

Resident taxpayers are entitled to a tax relief up to the amount of tax paid in another country on income realized in that country. This tax relief is equal to the tax paid in another country, but may not exceed the amount of the tax that would have been paid in Montenegro.

At this point, no treaty is in place with Australia, Canada, Spain, the USA, United Arab Emirates, and many other countries. However,  Montenegro has double tax treaties with most major EU states, the UK, China, Russia, Switzerland, Azerbaijan, Belarus, Egypt, India, Korea, Kuwait, Malaysia, Moldova, Moldova, Sri Lanka, Turkey,  Ukraine, United Arab Emirates. 

The list of the treaties is provided below (resource: PwC, Global Tax Summaries of 25 February 2021):

Double Taxation Treaties of Montenegro

	WHT (%)
	Dividends	Interest	Royalties	From
Albania	5/15	10	10	2006
Austria	5/10 (8)	10	5/10 (4)	2016
Azerbaijan	10	10 (7)	10	2014
Belgium	10/15	15	10	1982
Belarus	5/15	8	10	1999
Bosnia and Herzegovina	5/10	10	10	2006
Bulgaria	5/15	10	10	2001
China	5	10	10	1998
Croatia	5/10	10	10	2005
Cyprus	10	10	10	1987
Czech Republic	10	10	5/10 (4)	2006
Denmark	5/15	0	10	1983
Egypt (2)	5/15	15	15	2007
Finland	5/15	0	10	1988
France	5/15	0	0	1976
Germany	15	0	10	1989
Hungary	5/15	10	10	2003
India (3)	5/15	10	10	N/A
Ireland	5/10	10	5/10 (4)	2012
Italy	10	10	10	1986
Korea	10	10	10	2002
Kuwait	5/10	10	10	2004
Latvia	5/10	10	5/10 (4)	2007
Macedonia	5/15	10	10	1998
Malaysia	0 (5)	10	10	1991
Malta	5/10	10	5/10 (4)	2010
Moldova	5/15	10	10	2007
Netherlands	5/15	0	10	1983
Norway	15	0	10	1986
Poland	5/15	10	10	1999
Portugal	5/10	10	5/10	2018
Romania	10	10	10	1998
Russia	5/15	10	10	1998
Serbia	10	10	5/10 (4)	2012
Slovak Republic	5/15	10	10	2002
Slovenia	5/10	10	5/10 (6)	2004
Sri Lanka	12.5	10	10	1987
Sweden	5/15	0	0	1982
Switzerland	5/15	10	10	2006
Turkey	5/15	10	10	2008
Ukraine	5/10	0/10 (7)	10	2002
United Arab Emirates	5/10 (8)	10	5/10 (4)	2014
United Kingdom	5/15	10	10	1983

Notes

1. If the recipient company owns/controls at least 25% of the equity of the paying company, the lower of the two rates applies.
2. A new DTT was signed with Egypt in 2005, but it is not applicable yet. Meanwhile, the old treaty is still applicable.
3. Instruments of ratification have not been exchanged between the two countries.
4. A tax rate of 5% will be applicable to literary, scientific, and work of art, films, and works created like films or other sources of reproduction tone or picture. A tax rate of 10% will be applicable to patents, petty patents, brands, models and samples, technical innovations, secret formulas, or technical procedures.
5. Only in cases when dividends are to be paid to Montenegrin residents. If paid to Malaysian residents, they are taxable at 9% in Montenegro.
6. A 5% rate is applicable for intellectual property and a 10% rate for industrial property.
7. A 0% rate is applicable in cases when the income recipient is the government or government-owned banks.
8. A 5% rate is applicable in cases when the beneficial owner is a company that holds at least 5% of the capital of the payer of the income. In all other cases, a 10% rate applies.

If you do business in any country with which the Montenegrin authorities have not yet signed a double taxation agreement, and at the same time are going to do business in Montenegro, as well as live in this country permanently, you may be more difficult to avoid paying tax on the same income, both there (in the respective country) and in Montenegro.

Property taxes in Montenegro

Property taxes in Montenegro are levied in the same way as in most developed countries. You should expect to pay:

• VAT on new buildings and structures (if they have not previously changed ownership) or transfer tax in the case of buildings and structures that have previously changed ownership
• Capital Gains Tax on real estate in Montenegro, which you sell
• Income tax on rental income.

The rate ranges from 0.25 % to 1 %.

Property taxes in Montenegro are competitive in capital gains, transfer taxes, and rental income. So, when investing in Montenegro real estate, you do not have to worry about excessive fiscal burdens.

Property Transfer Tax

Transfer tax of 3% is payable on the acquisition of ownership rights over immovable property.

The taxable base is the market value of the immovable property at the time of the acquisition. A taxpayer (i.e., the acquirer of immovable property) is obligated to self-assess a tax liability, submit a tax return, and settle a tax liability within 15 days from the contract date.

If the building (house, hotel, factory, etc.) has not changed the owner before, then the VAT rate of 21 % is added to the sale price.

In terms of taxation of the transfer of ownership of some real estate, Montenegro is very advantageous compared to many other jurisdictions in Europe. For example, the rate of similar tax is 6.5% in Portugal, and up to 10% in Spain. This reduces the cost of selling real estate in Montenegro and helps increase liquidity in the market.

Rental taxes in Montenegro 

The following property income is subject to PIT at a rate of 15%:

• Lease income from immovable and movable property
• Income from fixed-term disposal of intellectual property (IP) and other property rights.

As with most other types of income, the government of Montenegro, where many people rent properties for holidays at sea for most of the year, levies an Income tax on rental properties using a flat rate.

Before calculating the tax due for renting out a property to someone, you can either deduct your actual expenses related to the rental business or a fixed 40% of the gross income from the rental.

Taxes in Montenegro: conclusions

Montenegro’s government considers low tax rates as a key to achieving one of its main political goals, which is to attract solid investors and expats.

The key takeaways from this article are as follows:

• If you obtain tax residency in Montenegro, you will pay at least 9% in the form of tax on personal income. The rate of this income tax is 15% for the portion of the income above the Montenegrin average
• New goods and services are subject to VAT at the standard rate of 21% (and the list of eligible goods includes new homes or apartments, which owners have not changed before)
• Tax rates on the transfer of ownership of the real estate in Montenegro, interest, and capital gains are also below average taxes across Europe.

Are you planning to apply for a second passport and Montenegrin citizenship for investment in local resorts? Do you have specific questions about the Montenegro tax system? Please contact our experts for any information you need about tax residency and specific taxes in Montenegro. You are welcome to send your inquiries to info@offshore-pro.info or in messengers given at the top of this page.