Thinking Beyond Borders
Montenegrin legislation does not recognize the term “extended business traveler”. A person’s liability to Montenegrin tax (PIT) is determined by his/her tax residence status and the source of income derived by him/ her.
Extended business travelers will be liable to tax primarily on their income related to work performed in Montenegro if they are present in Montenegro more than 183 days in calendar year.
Liability to income tax
A person’s liability to Montenegrin tax is generally determined by residence status or source of income.
A Montenegrin tax resident is an individual who spends more than 183 days in a calendar year in Montenegro, if he/she has a residence in Montenegro, or if his/her center of business and vital interest is on the territory of Montenegro. Montenegrin tax residents are residents for the entire calendar year (not as of first day of arrival to Montenegro).
Individual who is Montenegrin tax resident is taxable on his/her worldwide income. A non-resident is generally taxable on income derived from Montenegrin sources. Montenegrin-sourced income is recognized as income paid by a Montenegrin entity. Please note that economic employer approach is not well regulated by Montenegrin tax legislation and Montenegrin tax obligation has to be determined from case to case basis.
Extended business travelers are likely to be considered non-residents of Montenegro for tax purposes unless they stay in Montenegro more than 183 days in calendar year.
Tax trigger points
For all “extended business travelers” whose business trips/assignments last for more than 183 days in a calendar year, i.e. when foreigners become Montenegrin tax residents, income tax must be paid by filling annual tax return. The personal income tax paid in another country can be claimed as a tax credit.
Types of taxable income
For extended business travelers, who are recognized as non-residents the types of income that are generally taxable are employment income (for work performed in Montenegro) and Montenegrin-sourced income (income from self-employment, income from property and property rights, income from capital, capital gains, lottery gains).
For tax residents, all of the above stated income generated worldwide is subject to taxation in Montenegro.
General tax rate in Montenegro is 9%.
For 2017 tax rate of 9% is applicable for monthly personal gross income below EUR 751 per month, and tax rate of 11% for income above EUR 751. Additional income reported in the annual tax return is only subject to 9% tax rate.
Liability to social security
Montenegrin social security legislation prescribes that foreigners are obliged to pay mandatory social security contributions, unless secured in their home country or in case of assignment, as prescribed by the social security convention between Montenegro and their home country.
However, in practice registration of foreigners for mandatory social security insurance is not well regulated since short/long trip business travelers do not have employer in Montenegro who is obliged to register them for mandatory social security insurance and to pay social security contributions on behalf of an employee.
Therefore, in practice it happens that the Tax Authorities accept that individual (extended business traveler/assignee) is not subject to Montenegrin social security contributions if he/she confirms with some document other than Certificate of Coverage, that mandatory social security contributions are paid in his/her home country (payslip or sometimes even employer's statement).
However, we do not know for how long the Tax Authorities would apply this approach.
Employee compliance obligations
An extended business traveler who performs work in Montenegro for a period longer than 183 days in a calendar year, and whose employer is not resident in Montenegro, is obliged to file a tax return and pay income tax after receiving income for the work performed in Montenegro. However, since the government of Montenegro has not yet prescribed a form of tax return for monthly taxation of income received from abroad, income tax is paid annually. Individuals who become Montenegrin tax residents, therefore, must pay tax by filing an annual tax return. The annual tax return must be filed and tax must be paid by April 30 of the current year for the then previous calendar year.
Employer reporting and withholding requirements
Individuals in Montenegro are subject to withholding of income tax on salaries (9% and 11%) and social security contributions (on behalf of employer and employee, calculated and paid by Montenegrin employers. Salaries include cash and non-cash payments for services performed by an employee for the employer, unless an exception applies.
Work permit/visa requirements
In general, foreign nationals must obtain a visa at Montenegrin embassies and consulates, prior to entering Montenegro to work. The type of visa required will depend on the purpose of the individual’s entry in Montenegro.A waiver of the visa requirement is available to nationals of citizens of EU countries, USA, Canada, Australia, Russia, Switzerland, Norway, Iceland and a number of other countries for tourism or non-employment business purposes.In order to preform work in Montenegro (for more than 90 days in a six-month period), foreign nationals are also obliged to obtain residence and work permit. In addition, the government of Montenegro has introduced quotas, limiting the number of work permits issued per year, but this limitation is not applied to certain categories of assignees (managers, specialists) assigned to Montenegro.
Double taxation treaties
Montenegro has entered into double taxation treaties with 44 countries (mostly European countries), to prevent double taxation and allow cooperation between Montenegro and other countries Tax Authorities in enforcing their respective tax laws.
Permanent establishment implications
There is potential risk that an extended business traveler may create a permanent establishment if he/she has a fixed place of business in Montenegro for a period longer than 183 days and depending on the level of authority the employee has, type of services performed, etc. Each of the cases should be discussed separately.
The general VAT rate for the taxable supply of goods and service and import of goods is 21%, while the reduced tax rate is 7 %. VAT registration is required for individuals who independently perform business activities.
Montenegrin law has basic provisions regarding transfer prices. Montenegrin Tax Authorities do not have developed transfer pricing practice.
Local data privacy requirements
Montenegro has data privacy laws.
Montenegro has certain restrictions in terms of flow of Montenegrin or foreign currency out of the country. When entering the country, residents and non-residents can freely bring in unlimited amounts of foreign and domestic currency, but amounts in value over 10,000 euros (EUR) must be reported to the Customs Authority.
Foreigners may transfer funds abroad if all taxes have been duly paid in Montenegro. Amount exceeding EUR10,000 can be returned abroad if they were reported when entering the country.
Anti-money laundering regulations require that all financial transactions in amounts exceeding EUR15,000 must be reported to Anti Money Laundering Commission as well as all currency exchanges above EUR 15,000 (will be done by the bank or FX exchange dealer).
Non-deductible costs for assignees
Non-deductible costs are not prescribed by Montenegrin personal income tax legislation.