Taxes in Montenegro are among the lowest in Europe (the income tax is 9%, while in Russia – 13%, and in Ukraine – 18%). The agreement on avoidance of double taxation between Montenegro and 42 states allows to reduce the debt burden for foreigners. There are benefits for entrepreneurs doing business in developing northern regions: in the first 3 years of business they are exempt from paying income tax.
In order to become a tax resident in Montenegro and get opportunities for profitable fiscal optimization, you need to register a company or stay in the country for a certain period of time. How to become a resident with the capital from 1 EUR, what types of income are not taxed and other peculiarities of Montenegrin taxation are described in this article.
Who has to pay taxes in Montenegro
Taxes in Montenegro are paid by individuals (residents, non-residents) and legal entities. The category of residents includes residents who are legally staying in its territory for more than 183 calendar days per year (Montenegrin citizens, as well as foreigners with residence, study or work visa). Non-residents are citizens of other countries, who come to Montenegro as tourists or receiving some kind of profit in its territory.
Types of taxes in Montenegro
Mandatory taxes in Montenegro include value added tax, income tax, city tax (which is set by the local government), land tax and movable property tax. The main feature is that the tax must be paid not only by residents of the country, but also by tourists when they travel to Montenegrin cities.
Value added tax (VAT)
The duty is paid by the manufacturer or seller when he receives money for the goods / services from the buyer. That is, if you buy products in a Montenegrin supermarket, VAT is paid by its owner.
All rates are regulated by the Law of Montenegro «On Value Added Tax». Since 2018, the standard rate is 21%, the reduced rate is 7%. The latter applies to goods from the established «grocery basket», medicines, teaching aids, office equipment, and goods of the hotel business. Also the reduced rate applies to businesses related to the restoration and sale of antiques, organization of flights from Montenegro, and hotel reservations in other countries. For entrepreneurs with annual income less than 18 000 EUR there is 0% rate.
Individual Income Tax
According to the law «Individual Income Tax» all individuals who receive income in Montenegro (it can be a citizen or a foreigner with a residence permit) are subject to it. Exceptions are diplomats, consuls, politicians and experts of international organizations.
Sources of profit in Montenegro include personal income from employment, property and property rights, capital and its increase. Business trips or gifts are not subject to income tax.
0% rate in Montenegro also applies on:
- health insurance reimbursements other than wage reimbursements;
- Financial assistance rendered in case of damage or destruction of property due to emergencies;
- lottery or gambling prizes;
- social and humanitarian payments;
Income is taxed at a flat rate of 9%. For tax residents of Montenegro it applies to profits earned anywhere in the world, for non-residents – to those earned in the country. Duty on capital gains for non-residents is 5%, while for residents – 9%.
Income tax in Montenegro is paid by legal entities. It is charged on the amount constituting the difference between income and expenses. The costs recognized as expenses are specified in the Law «On Corporate Income Tax».
Sources of income are sales of goods and services in Montenegro, use of property rights, dividends, use of natural resources, risk insurance, ownership of property and its sale.
The tax rate in Montenegro is set on a progressive scale, taking into account the organization’s profit:
- up to 100,000 EUR – 9%;
- 100 000 – 1 500 000 EUR – fixed fee 9 000 EUR + 12 % on the amount over 100 000 EUR;
- 1 500 000 EUR – fixed payment 177 000 EUR + 15 % on the amount over 1 500 000 EUR.
Taxes on real estate
Purchase and sale
For real estate transactions in the secondary market of Montenegro, the buyer must pay a fee of 3% of the assessed value. It should be paid within 15 days from the date of purchase, and a penalty of 0.03% of the property price is charged for each day of delay. Primary real estate without VAT is subject to a 3% fee on the value. If the company pays value added tax, the buyer does not pay the fee.
Ownership of Real Estate
Owning building objects and buildings in Montenegro, you must pay property tax each year in two equal installments. The first – until June 30, the second – until October 31. Tax rates for houses depend on the cadastral value, location, purpose of the territory and other factors. They are 0.25-1.0% of the price of the object. Local governments can lower or raise the rate for different types of real estate on their own.
For foreign citizens
For foreigners who own Montenegrin real estate in the area of tourist activities, property tax is formed of two sums. To the standard annual (0.25-1% of the cadastral value) you need to add another 10-15% of this rate.
Duty is paid at the time of purchase of the vehicle and each year of use of the vehicle. The rate depends on the type, value, characteristics and year of manufacture of the vehicle.
The annual fee for motorcycle use in Montenegro is 10-300 EUR, for passenger car – 25-1500 EUR, for boat or yacht – 500-300 EUR, for aircraft – 1000-1500 EUR. The size of the fee depends on the engine volume, size, sphere of usage, etc. Every year the rate is reduced by 5%, but it cannot be less than 50% of the initial tax amount. Also for the purchase of vehicles in the secondary market an additional tax of 5% of its value is paid, if it is not subject to VAT.
The Law «On Customs Tariff» describes 14 categories of Montenegrin taxes, the rates of which vary from 0 to 30%. Detailed requirements and the amount of duties on import of various items can be found on the website of the Customs Directorate. However, there is no export duty. And people entering the country are not taxed if they have with them non-commercial goods worth up to 150 EUR.
Mandatory contributions in Montenegro are set by the local administration, made up of:
- fees on real estate – 0,08-0,8 % of its market value;
- additional tax on income of natural persons – up to 13% for municipalities and up to 15% for residents of Podgorica;
- fee on consumption, which tax profits from the sale of alcoholic and non-alcoholic beverages in places of public catering – up to 3% for municipalities and up to 5% for businesses in the capital (the fee is paid by the legal entity);
- fee on a company or its name – not exceeding 300 EUR per year, applies to individuals and legal entities that are registered to do business for more than 12 months;
- fee on slot machines – up to 20 EUR for each machine;
- fee on an undeveloped plot – 0,03-0,30 EUR per square meter.
According to the law «On Residence Tax», all Montenegrins and foreigners who use hotels, motels, boarding houses, campsites and other tourist facilities must pay the fee. Even if the renter lives in the city and decided to rent a yacht, he also pays the fee.
Tax for staying in Montenegro is 1 EUR per day, it is charged by the hotel. It must be listed in the general invoice in a separate category. When visiting relatives and friends, you do not have to pay tourist tax.
Also from the tourist tax are exempted persons who are:
- under 12 years old;
- referred for rehabilitation by a competent medical board;
- stay in the same hotel for 30 days or more;
- have severe sensory or physical impairments;
- are studying at a school or university and have come for an excursion or a sports or cultural event organized by an educational institution;
- arrived in the country through official organizations to provide humanitarian assistance;
- exempt from taxation in accordance with international agreements.
For tourists aged 12-18 years there is a benefit – they have to pay only 50%, i.e. 0,5 EUR per day. Also municipalities can independently determine the categories of people for whom there is a zero rate.
If the landlord does not undertake the obligation to pay tourist taxes, you need to come to the Montenegrin post office or bank, show your passport and say how many days you come to the city. After paying the fee, you will be given a form, with which you need to register at the tourist office, providing a receipt, the address of the property and the name of the hotelier. This must be done in the first 24 hours after arrival in Montenegro. You will need to register separately in each city.
Penalties for failure to pay taxes
|Natural person||2–20 minimum wages|
|Legal entity||20–200 minimum wages|
|Tourist in case of non-payment of the tourist fee||200 EUR|
Since January 1, 2022 the minimum wage in Montenegro is 450 EUR. That is, for individuals the fine may cost 900-9000 EUR. For a company – 9000-90 000 EUR. Organizations can be fined for late payments and lack of movement of funds in the settlement account.
Double taxation of Montenegro, Russia, Ukraine, other countries
A double tax treaty allows individuals or owners of international companies to reduce their debt burden. That is, it is possible to receive a deduction in the amount of tax paid on income received in another state. Such a system works between states that have concluded an agreement – for example, between Russia and Montenegro.
For Russians, Ukrainians and Belarusians in Montenegro the rate on income related to royalties and dividends is 10%. Interest payments for Russians and Ukrainians are taxed at 10%, for Belarussians – 8%. To get a certificate for the deduction, you need to apply to the tax authorities of Montenegro yourself.
How to pay taxes in Montenegro
In some municipalities it is possible to pay taxes in Montenegro online. This function is available on the website of the city of Bar. Forms are available in Montenegrin and English. The decision to pay, too, can be obtained remotely. As stated in the local office itself, they have developed this service particularly for property owners who live in other countries.
Utility bills are accepted at Montenegrin Post offices or on the official website, other fees – through the resource tax service or at the branches in the area of residence. The fee for staying in the country are paid by tourists in the bank or at the post office.
Benefits of tax residency in Montenegro
Foreigners who obtain Montenegrin residence permit and TIN (Individual Tax Number) get access to the following privileges:
- Low tax rates of 9% on personal income, as well as on profits of entrepreneurs and LLCs. For the business developing in the northern regions, there is a benefit, which exempts from payment of duties in the first 3 years of operation.
- Transparent system – Montenegrin taxation is easy to understand on your own.
- Fiscal optimization – the state has an agreement on avoidance of double taxation with more than 40 countries.
- Jurisdiction with a good reputation – Montenegro does not participate in the cross exchange of data with the tax authorities of other countries.
How to become a tax resident of Montenegro
In order to become a Montenegrin resident you need:
- Obtain a residence permit or citizenship and live in the country for at least 183 days during a calendar year.
- Register a company, which will be managed from Montenegro. In this case, the tax resident status is assigned immediately.
It is not necessary to establish a full-fledged Montenegrin company: you can complete the formal registration and continue as a private entrepreneur. The minimum capital for LLC in Montenegro is 1 EUR. The income you have to show for formalities – from 100 EUR per month. In order to formalize the status in accordance with the law and to get all the benefits of tax residency, it is better to turn to professional lawyers. Specialists with successful experience in migration and business niche, as well as knowledge of Montenegrin language, will help easily carry out this procedure.