In Montenegro, employers are obligated to make several social security contributions on behalf of their employees. These contributions fund the country's social security system, which provides benefits such as pensions, healthcare, and unemployment benefits.

Employer Contributions

Employers are required to contribute to the following:

• Pension Insurance: 20.5% of the employee's gross salary.
• Disability Insurance: 1.5% of the employee's gross salary.
• Health Insurance: 10.5% of the employee's gross salary.
• Unemployment Insurance: 1.0% of the employee's gross salary.
• Parental Leave Insurance: 0.5% of the employee's gross salary.

Additional Employer Contributions

In addition to the above, employers also contribute to:

• Labor Fund: An additional 0.2% of an employee's gross salary.
• Chamber of Commerce: 0.27% of the employee's gross salary.
• City Surtax: A city surtax is levied by municipalities at a rate of 15% on personal income tax.

The total employer social security contributions in Montenegro amount to 33.5% of the employee's gross salary, plus the additional contributions to the Labor Fund, the Chamber of Commerce, and the City Surtax.

Payment Procedures

Employer contributions must be paid to the Montenegrin Tax Authority by the 15th of the following month. Electronic payment is the preferred method.

Compliance

Employers are responsible for the accurate and timely calculation, payment, and reporting of social security contributions. Non-compliance can result in penalties and interest charges.

In Montenegro, the personal income tax (PIT) system is progressive with two tax brackets. The 9% rate is applied to income up to €700 per month, while the 15% rate is applied to income exceeding €700 per month. A monthly tax allowance further reduces the taxable income for lower-income earners.

Social Security Contributions

Employees in Montenegro have deductions for the following social security contributions:

• Pension Insurance: Employees contribute 15.5% of their gross salary.
• Disability Insurance: Employees contribute 1.5% of their gross salary.
• Health Insurance: Employees contribute 8.5% of their gross salary.
• Unemployment Insurance: Employees contribute 0.5% of their gross salary.
• Parental Leave Insurance: Employees contribute 0.5% of their gross salary.

Additional Deductions

A city surtax is levied by municipalities at a rate of 15% on personal income tax. This surtax is also deducted from an employee's salary.

Calculation of Contributions

Employee tax deductions are calculated based on their gross salary, with contribution percentages applied as outlined above.

Tax Filing Responsibilities

In Montenegro, employers are responsible for calculating, withholding, and submitting both income tax and social security contributions on behalf of their employees. Individual employees don't generally need to file annual tax returns.

The standard VAT rate in Montenegro is 21%. Certain supplies are subject to a reduced VAT rate of 7%, including items such as bread, milk, books, pharmaceuticals, and computers. A 0% rate applies to specific categories such as the export of goods and supply of gasoline for vessels engaging in international traffic. VAT applies to the supply of most services within Montenegro.

Determining the Place of Supply for Services

The place of supply for services is crucial in determining if Montenegrin VAT is applicable. For Business-to-Business (B2B) Services, the place of supply is generally where the recipient of the service is established. There are exceptions, such as services related to immovable property where the location of the property determines the place of supply. For Business-to-Consumer (B2C) Services, for certain electronically supplied services (e.g., software downloads, website subscriptions), the place of supply is where the customer resides. For other B2C services, the place of supply is usually where the supplier is established.

VAT Registration

Entities exceeding a turnover threshold of EUR 30,000 within a 12-month period are obliged to register for VAT in Montenegro. Businesses below the threshold can opt for voluntary VAT registration.

VAT Invoicing and Filing

Businesses must issue VAT invoices compliant with Montenegrin regulations, detailing the VAT amount charged. VAT returns must be filed monthly, and VAT liability must be paid within the stipulated deadline.

Input VAT Deduction

Taxpayers are generally entitled to deduct input VAT (VAT paid on purchases) related to their taxable supplies. However, there are limitations and conditions as stipulated in the Law on Value Added Tax.

VAT Exemptions

Certain services are exempt from VAT in Montenegro. These include financial and insurance services, medical and healthcare services, educational services, and specific cultural and sporting activities.

Companies engaged in production activities in underdeveloped parts of Montenegro can benefit from an eight-year corporate tax holiday. This exemption has a maximum limit of €200,000 over the eight-year period. However, this tax incentive has specific restrictions and is not available for businesses operating in sectors like primary agricultural production, shipbuilding, steel production, fishery, transport, catering (except primary catering), and trade.

Investment-Based Incentives

The Montenegrin government offers financial incentives to businesses (both domestic and foreign) based on investment value. Investments in the North and Central region (excluding the capital city Podgorica) must meet a minimum threshold of €250,000 and create at least 10 new jobs to qualify. Investments larger than €10 million creating a minimum of 50 new jobs can potentially get incentives reaching up to 17% of the total investment value.

Tax Exemptions for NGOs

NGOs registered in Montenegro and engaging in business activities might be eligible to reduce their corporate tax base by up to €4,000 annually. This is contingent on using any profits to achieve the NGO's primary goals.

Foreign Tax Credit

Montenegrin businesses can potentially claim a foreign tax credit. This credit, applicable to income generated in other countries, is limited to the corresponding Montenegrin tax liability on that foreign income.

COVID-19 Support Measures

In light of the pandemic, some taxpayers who settled their corporate income tax within legal deadlines might have been eligible for a 6% deduction.