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Montenegro country profile - 2020

Montenegro country profile - 2020

Key tax factors for efficient cross-border business and investment involving Montenegro.

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EU Member State

No (EU candidate)

Double Tax Treaties

With the following countries, territories and jurisdictions:

Albania Denmark North Macedonia Slovenia
Austria Egypt Malaysia Sri Lanka
Azerbaijan Finland Malta Sweden
Belarus France Moldova Switzerland
Belgium Germany Netherlands Turkey
Bosnia & Herzegovina Hungary Norway UAE
Bulgaria Ireland Poland UK
China Italy Romania Ukraine
Croatia Rep. of Korea Russia Portugal
Cyprus Kuwait Serbia Iran
Czech Rep. Latvia Slovakia  

Most important forms of doing business

Civil association, Limited partnership, Limited liability company, Joint-stock company, Part of a foreign company (branch office)

Legal entity capital requirements

EUR 1 for a Limited liability company, EUR 25,000 for a Joint-stock company.

Residence and tax system

A resident is a legal entity that is incorporated or has its place of effective management and control in Montenegro. Resident taxpayers are taxed on their worldwide income. Non-residents are taxed only on their Montenegrin source income.

Compliance requirements for CIT purposes

The taxpayer is obliged to file a CIT return no later than 3 months after the end of the financial (calendar) year for which the tax is calculated (i.e. no later than the end of March for the previous year). Payment of CIT as per the tax return is also due by the same deadline. An income statement and balance sheet are submitted to the tax authorities along with the CIT return.

Corporate income tax rate

The standard corporate income tax rate is 9 percent.

Withholding tax rates

On dividends paid to non-resident companies

9 percent.

On interest paid to non-resident companies

9 percent.

On patent royalties and certain copyright royalties paid to non-resident companies

9 percent.

On fees for technical services

Yes, consulting, market research and audit service fees are subject to WHT.

On other payments

Withholding tax of 9 percent on the following payments to non-resident entities: lease fees for movable and immovable property, entertainment, musical, artistic and sports fees. In addition, 9 percent withholding tax on fees paid by Montenegrin resident companies to individuals for purchase of used products, semi-products and agricultural products.

Branch withholding taxes

Yes, for payments subject to WHT, except for dividend payments.

Holding rules

Dividend received from resident/non-resident subsidiaries

Dividends received from Montenegrin tax residents (domestic dividends) are subject to a final WHT, but excluded from the tax base of the parent company.

Dividends received from non-Montenegrin companies (inbound dividends) are taxable; a credit for WHT paid abroad is available, subject to the parent company holding directly or indirectly 10 percent or more of the shares of the non-resident company for at least one year preceding the submission of the tax balance. Non-utilized tax credits can be carried forward for a maximum of five years.

Capital gains obtained from resident/non-resident subsidiaries

Capital gains realized in Montenegro by non-resident companies are subject to a 9 percent capital gains tax.

Capital gains realized by a resident company (arising from disposal of a resident/non-resident subsidiary) are subject to 9 percent corporate income tax.

Tax losses

Losses (excluding capital losses) generated from business, financial, and non-business transactions may be carried forward over the five subsequent tax periods and offset against future taxable income. Losses that were carried forward are not forfeited due to mergers, acquisitions, spin-offs, and other reorganization changes.

Capital losses may be carried forward for five years and utilized only against capital gains.
Carry-backs are not allowed.

Tax consolidation rules/Group relief rules

Yes, Montenegrin resident companies may opt for group consolidation. The parent company and its affiliates can constitute a group of associated companies, if at least 75 percent of the shares of the affiliates are held, either directly or indirectly, by the parent company. Once approved, tax consolidation must be applied for at least five years.

Registration duties

No.

Transfer duties

On the transfer of shares

No.

On the transfer of land and buildings

Real estate transfer tax at the rate of 3 percent is payable on the transfer of land, as well as on the second and subsequent transfer of new buildings. The first transfer of a new building is subject to VAT at the rate of 21 percent.

Stamp duties

No.

Real estate taxes

In general, the tax rate ranges from 0.25 percent to 1 percent applied to the market value of real-estate. The general rate is subject to change, depending on the specific type of real estate and its intended use.

Controlled Foreign Company rules

No.

Transfer pricing rules

General transfer pricing rules

Taxpayers are required to separately disclose transactions between related parties in their tax balances and the value of such transactions at arm's length prices. The difference between the arm's length price and the transfer price used by the taxpayers is included in the tax base. The Montenegrin legislator approved the following three methods for determining the arm’s length price: comparable uncontrolled price method, cost plus method and resale price method.

Documentation requirement

Guidelines regarding the determination of the transfer price and documentation required in the case of a transfer pricing audit by tax authorities, currently do not exist in Montenegro.

Thin Capitalization/Interest Limitation rules

No.

General Anti-Avoidance rules (GAAR)

No.

Specific Anti-Avoidance rules/Anti Treaty Shopping Provisions/Anti-Hybrid rules

Apart from transfer pricing rules, there are no other specific anti-avoidance rules applicable in a cross-border context.

Advance Ruling system

No.

IP / R&D incentives

No.

Other incentives

  1. A tax holiday is provided for newly established entities and newly established organizational units performing business activities in underdeveloped regions of Montenegro during the first 8 years of operation. The tax holiday cannot exceed EUR 200,000 for the entire 8-year period.
  2. 6 percent CIT discount if the CIT liability is promptly settled

VAT

The standard rate is 21 percent, and the reduced rates are 7 and 0 percent.

Other relevant points of attention

No.

 

Source: Montenegrin tax law and local tax administration guidelines, updated 2020.

Mandatory Disclosure Rules Updates

For country specific information and updates on the EU Mandatory Disclosure Rules please visit KPMG’s EU Tax Centre’s MDR Updates page.

COVID-19 Resources

An overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19) is available here. For further insight into the potential tax, legal and mobility implications of COVID-19, please refer to the dedicated KPMG page.

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Igor Loncarevic
KPMG in Serbia
T: +381 11 20 50 570
E: iloncarevic@kpmg.com

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