Montenegro

In Montenegro, employers face various tax obligations related to payroll, corporate income tax, and other contributions.

Employer Obligations

• Corporate Income Tax (CIT): A flat rate of 9% is applied to resident companies' worldwide income and non-resident companies' Montenegro-sourced income. The CIT return is due by the end of March the following year, payable in a lump sum or six installments.
• Personal Income Tax (PIT): Employers withhold PIT on employee salaries. The tax is progressive: 0% for up to €700, 9% between €701 and €1,000, and 15% above €1,000. Annual returns are due by April 30th for employees with multiple income sources. As of January 1st, 2025, income from online activities and gambling is also subject to a 15% tax.
• Social Security Contributions: Employers contribute 10.3% of the employee's gross salary for pension, health, and unemployment insurance.
• Payroll Tax: A municipal surtax of up to 15% applies to employee salaries. Lower rates (up to 13%) may apply outside Podgorica and Cetinje.
• Labor Fund Contribution: 0.2% of the gross salary is contributed to the labor fund.

Tax Incentives and Deductions as of 2025

• Investments in Agriculture and Sports: Tax exemptions are now available for businesses reinvesting their profits into agricultural projects or other agricultural entities. Companies can also deduct up to 5% of their total revenue for contributions to national sports federations.
• Deductible Expenses: Businesses can deduct expenses related to health, social, educational, scientific, religious, cultural, sports, humanitarian purposes, and environmental protection up to a maximum of 3.5% of total revenues.

Other Relevant Information

• The tax year in Montenegro is the calendar year.
• Tax returns and payments can be submitted electronically.
• Late payment penalties apply.

This information is current as of February 5, 2025, and might be subject to change. Consulting a tax professional is recommended for specific situations.

In Montenegro, employee tax deductions primarily involve income tax and social security contributions. These are typically withheld by the employer.

Income Tax

• Progressive Rates: Income tax in Montenegro is progressive, meaning higher earners pay a higher percentage. The specific rates for 2025 are 0% for income up to 700 EUR, and above this amount a higher tax band applies.
• Tax Incentives: Tax incentives exist for specific sectors and situations. For instance, certain employees of startups in underdeveloped areas might be exempt from income tax for a period of time.

Social Security Contributions

• Employee and Employer Contributions: Both employees and employers contribute to social security. Current rates for employees are 10% of their gross salary for pension contributions. Employer contributions are subject to changes and updates.
• Contribution Calculation: The contribution is calculated based on the employee's gross salary.

Other Deductions

• Municipal Surtax: A municipal surtax, which can be up to 15% of the employee's salary, might be applicable depending on the municipality.

Employer Responsibilities

• Withholding and Reporting: Employers are responsible for withholding income tax and social security contributions from employees' salaries and remitting these amounts to the tax authorities.
• Electronic Filing: All tax and contribution returns must be filed electronically via the Tax Administration's web portal.

Self-Employed Individuals

• Deductions for Expenses: Self-employed individuals can deduct up to 3% of their income for legitimate business expenses.
• Lump-Sum Taxation: A lump-sum taxation option is available for self-employed individuals with income up to a certain threshold, which is currently 30,000 EUR.

Additional Information: Please be aware that tax laws and regulations can change periodically. It's recommended to consult with a tax advisor or refer to the latest official publications from the Montenegrin Tax Administration for the most up-to-date and detailed information. This information is current as of February 5, 2025, and may be subject to change.

In Montenegro, Value Added Tax (VAT) is levied on most goods and services sold or imported.

VAT Rates

• Standard Rate: 21% applies to most goods and services.
• Reduced Rates: As of January 1, 2025:
  • 7% applies to essential goods: basic food items, medicines, medical devices (surgically implanted), textbooks and educational materials, newspapers, drinking water, menstrual products, baby diapers.
  • 15% applies to books, some publications, hotel accommodations, restaurant services (excluding alcoholic beverages, sugary drinks, and coffee).
• Zero Rate (0%): Applies to specific goods and services like exports, international maritime and air transport services.

VAT Registration

• Threshold: Businesses must register for VAT if their annual turnover exceeds €30,000 in any 12-month period. Registration can be voluntary for businesses below this threshold.
• Deregistration: Once registered, deregistration is not possible for at least three years.
• Process: Businesses exceeding the threshold must register within 20 days in the following month. Although online registration is not available, businesses may seek assistance from local agents specialized in foreign company registration.

VAT Filing and Payment

• Frequency: Monthly.
• Deadline: Returns and payments are due by the 15th of the following month.
• Refunds: If deductible input VAT exceeds output VAT, the difference is refunded within 60 days.

Exempt Goods and Services

• Certain goods and services are entirely exempt from VAT, such as financial and healthcare services, education, and religious services. Note that the sale of land, used cars, and vessels (where input VAT was not deductible) is not considered a supply of goods.

Additional Information

• E-invoicing: Not mandatory, but it is becoming more common.
• Record Keeping: Maintain records (invoices, receipts, bank statements) for five years.
• Penalties: Fines and interest charges apply for late, incorrect, or missing filings and payments.
• Reverse Charge Mechanism: Applies to B2B transactions involving non-resident providers of digital services. These businesses must register and remit VAT (the current standard rate of 21% applies).

Montenegro offers several tax incentives designed to attract investment and stimulate specific sectors.

Corporate Tax Incentives

• Tax Holiday for Newly Established Businesses in Underdeveloped Municipalities: Newly established production companies in designated underdeveloped municipalities are eligible for an eight-year tax holiday. The total exemption is capped at €200,000 over the eight-year period.
• Tax Exemption for NGOs: Non-governmental organizations (NGOs) engaged in business activities can deduct up to €4,000 from their corporate tax base, provided the resulting profit is used to further the NGO's primary mission.
• Reinvestment in Agriculture and Sports: Businesses reinvesting profits in agricultural projects or other agricultural entities, and those contributing to national sports federations (up to 5% of total revenue) can benefit from tax exemptions.
• Foreign Tax Credit: Resident taxpayers can claim a tax credit for corporate income tax paid in another country on income generated in that country. The credit is limited to the amount of Montenegro tax attributable to the foreign-source income.

Personal Income Tax Incentives

• Tax Relief for Occasional Income: Clearer guidelines for taxing occasional income have been introduced.
• Deductions for Self-Employed Individuals: Self-employed individuals can deduct up to 3% of their income for legitimate business expenses.

Value Added Tax (VAT) Incentives

• Reduced VAT Rate: A reduced VAT rate of 7% applies to essential goods and services, including basic foodstuffs, certain medicines, accommodations, transportation of people and luggage, public hygiene services, funeral services and planting materials used in agriculture.
• Zero VAT Rate: A 0% VAT rate applies to exports, free trade agreements, bank and insurance products, construction and equipment of five-star or higher-rated catering facilities and energy facilities with an installed capacity exceeding 10 MW, and facilities for food production (classified under sector C group 10 of the Law on Classification of Activities) where the investment surpasses €500,000.

Property Tax Incentives

• Reduced Real Estate Tax for Hotels: Hotels rated three stars and above benefit from reduced real estate tax rates. Three-star hotels receive a reduction of up to 15%, four-star hotels up to 30%, and hotels with over four stars up to 70%.

Other Tax Incentives and Relief Measures

• Write-off of Interest on Overdue Tax Liabilities: Taxpayers can have interest on overdue tax liabilities waived if they file all tax returns due by December 31, 2024, and settle the principal tax debt by March 2, 2025.

General Tax Information

• Corporate Income Tax: Montenegro has a standard corporate income tax rate of 9%.
• Personal Income Tax: Personal income tax is progressive, with a 9% rate applied to income up to a certain threshold and 15% applied to higher incomes (above €1,001/month).
• Value Added Tax (VAT): The standard VAT rate in Montenegro is 21%.
• No Inheritance Tax: Montenegro does not levy an inheritance tax on property.
• Double Taxation Treaties: Montenegro has double taxation avoidance treaties with over 40 countries to prevent double taxation.

This information is current as of February 5, 2025, and may be subject to change. It's crucial to consult with a tax advisor for the latest regulations and personalized guidance.