Tax system and tax incentives
The tax system in Montenegro includes:
- Corporate Income Tax;
- Personal Income Tax;
- Value Added Tax (VAT);
- Real Estate Transfer Tax;
- Social security contributions;
- Excise duties;
- Customs duties.
The tax system for foreign investors is the same as for local business entities.
Corporate income tax amounts to 9%. The tax rate on personal income is 9% i.e. 11% on gross wages higher than EUR 720. Upon payment of corporate income tax, business entities operating in Montenegro have the possibility to transfer funds to their accounts abroad at the end of the year.
Two positive rates of VAT are applied, namely the standard rate of 19% and the reduced rate of 7% (for basic foodstuffs, such as milk, bread, lard, cooking oil and sugar; medicines and some medical devices; books, textbooks and teaching aids; potable water; feed; fertilizers and breeding livestock; plant protection products and propagation material; some services, such as accommodation, public passenger transport, public hygiene, funeral services, copyright and services from the field of education, literature or art, use of sports facilities for non-profit causes, copyright in science or related to artefacts, collections and antiquities, and services where tickets are charged for cultural or sports events).
The zero rate applies to export transactions and delivery of medicines and medical devices that are funded by the Health Insurance Fund of Montenegro.
Real estate transfer tax rate is proportional and amounts to 3% of the tax base.
Compulsory social insurance is covered by the employees, employers, entrepreneurs and farmers who are not contributors to unemployment insurance.
The contributions for compulsory social insurance are:
- Contribution for compulsory pension and disability insurance;
- Contribution for compulsory health insurance;
- Contribution for unemployment insurance.
Contribution rates vary, depending on the category of taxpayers, and are determined by the Law on Compulsory Social Insurance.
The Law on Excise Duties governs the system and introduces the obligation to pay excise duties for individual goods and services that are released for free circulation on the territory of Montenegro.
The three excise products in Montenegro are:
- Alcohol and spirituous beverages;
- Tobacco products;
- Mineral oils, their derivatives and substitutes.
Excise duty payers calculate the excise duty for the calendar month themselves.
The types of fees in Montenegro payable by investors are:
- Administrative fees;
- Court fees;
- Utility fees;
- Registration fees;
- Sojourn fees.
The basis of the customs system in Montenegro consists of the Law on Customs Tariff and the Customs Law. Customs clearance under this law, includes receipt of import customs declaration, inspection of goods and classification according to the customs tariff and other tariffs, fixing the customs basis, amount of customs duties and other import duties charged on the goods, collection of fixed customs duty amounts and other import duties.
According to the law, investors may be eligible for exemption from customs duties if investing in hotels with five or more stars, energy facilities or processing facilities.
If the tax liability (output tax) for the taxable period is lower than the input VAT, deductible for the same period, the difference is either recorded as tax credit for the coming period or refunded, following the taxpayer’s request, within 60 days from the date of submission of the VAT return.
To taxpayers who are predominantly involved in export and those who have shown excess input VAT in three consecutive VAT assessments this difference is refunded within 30 days from the date of submission of VAT return.
In the event of taxpayer defaulting on the payment of other taxes, such tax arrears are subtracted from the VAT refund due.
In economically underdeveloped municipalities in Montenegro, whose development index is below 75, the Law on Corporate Income Tax provides that a newly established legal entity does not pay corporate income tax for the first eight years of operation. Also, the Law on Personal Income Tax stipulates that the tax calculated on the taxpayer’s personal income for the first eight years of operation is reduced by 100%. Tax exemption does not apply to taxpayers operating in the sector of primary production of agricultural products, transport or shipyards, fisheries and steel. These laws defined the tax relief for investors, in the form of exemption from taxes if their total amount does not exceed the amount of €200,000 for the first eight years of operation.