Montenegro Tax System Review

Basis for Taxation and Tax Residence

Dr. Jean-Philippe Chetcuti | 07 Jan 2019

Montenegro Tax Review

The taxation in Montenegro is based on the residence status and the source of income.  

According to the Law on tax on income of natural persons (Law on Personal Income Tax), a resident of Montenegro shall be a natural person who:

  • Has habitual residence or centre of business and vital interests in the territory of Montenegro;

  • Resides in the territory of Montenegro for more than 183 days in the tax year, or 

  • a natural person who was assigned outside of Montenegro to conduct business for a natural person or legal entity who is a resident of Montenegro, or for an international organization.

Persons who are tax residents of Montenegro are subject to a worldwide taxation in Montenegro, whilst the non-tax residents are liable to tax on an income generated in Montenegro.

Montenegro Tax - Revenues exempt from taxation

According to the Montenegrin PIT Law, revenues exempt from Income are: regulations on rights of disabled persons; child allowances and special assistance for supplies for new born children; basic rights in the area of social protection; assistance in the event of destruction or damage of property as a result of natural disasters or other extraordinary events; compensations paid from health insurance, except for wage compensation; inheritances and gifts; organized social and humanitarian assistance; state awards established by law; pensions, except for pensions obtained in accordance with the law governing the wages of the state and public officials, and disability allowances; lotteries and games of chance; goods, life, and property insurance.

Persons Exempt from Taxation

Certain persons are exempt from paying tax in Montenegro under the Montenegrin PIT Law, such as members of foreign diplomatic missions in Montenegro and members of consular representative offices, and members of their households (if they are not citizens of Montenegro); officials and experts of technical assistance programs of the United Nations Organization and its specialized agencies; honorary consuls of foreign countries, but only for earnings received by a country, which has appointed them to render the honorary consul service; officials, experts, and administrative staff of international organizations if they are not citizens of Montenegro or do not have habitual residence if Montenegro.

Montenegro Tax Period

The tax period in Montenegro for which the income tax is to be calculated, is a calendar year, with the exemption of cases when a business activity terminates or commences during the year.

The income tax is to be calculated upon the expiry of the calendar year or other period for tax assessment according to the tax base realized during that period.

Tax Rate

The PIT rate in Montenegro is 9%.  Notwithstanding this, the PIT rate on personal earnings exceeding €720 a month in gross terms shall be 11% on the amount of earnings exceeding €720.

Sources of revenues consisting the income tax include: personal earnings; self-employment activity; property and property-based rights; capital and capital gains;

Tax Holidays

A taxpayer who commences an activity in economically underdeveloped municipalities shall have the assessed tax for the period of the first eight years reduced by 100%.  Total tax holiday for a period of eight years may not exceed 200,000.00 euro.

Montenegro Tax - Revenue from Property and Property-based Rights

Revenues from property and property-based rights are considered to be revenues generated by lease of movable and immovable property or revenues from time limited assignment of copyrights, industrial property rights, and other property rights.

Revenue from capital is considered to be revenues generated through interests; Share in profits realized by the members of management and employees in money or shares; Revenues from the use of property and services by the owners and co-owners of the capital for their private needs and Dividends and shares in profit.

Montenegro Tax - Capital Gains and Losses

A capital gain is the revenue generated through sale of (immovable) property, interest in a legal entity, and securities.  Taxable revenue in such instances is the difference between the sale and acquisition price of the property.

Notwithstanding, capital gain from sale or transfer of property won’t be taxed if the immovable property served to the taxpayer as only and principal place of residence (habitual residence); the transfer of property was made between spouses and directly linked with a marriage, divorce or inheritance of property or the transfer of property was made by a gift to heirs in a first level of kinship.

Calculation and Payment of the Income Tax in the Tax Return

The income tax in Montenegro is being calculated annually by the taxpayer himself, in the tax return and is to be paid at the same time with the tax return filing. 

The income tax is being determined in accordance with the tax base (as per above), provided that the amount of the tax paid in the form of advance instalments for all sources of revenue is deducted from the total calculated tax.

Montenegro Tax Return

The Montenegrin taxpayer is obliged, upon the expiration of the tax period, to file a tax return to the competent tax authority. The tax return shall be filed at the end of April of the current year for the previous year and the Ministry of Finance stipulates the form and contents of the tax return.

A resident who generates income from the following sources is obliged to file the tax return: self-employment activity chargeable to tax for actual revenue; property and property-based rights; capital gains; abroad; on the account of personal earnings generated with two or more employers or payers of earnings whereat total monthly gross amount exceeds €720.

A non-resident shall submit a tax return for revenues generated in Montenegro, which are not subject to a withholding tax payment.

Montenegro Double Taxation Avoidance

To a resident taxpayer, who generates income outside of Montenegro and pays an income tax in another country, the tax credit in the amount equal to the income tax paid in such country shall be approved. The tax credit cannot exceed the amount that would have been obtained by applying provisions of the Montenegro Personal Income Tax Law to the income generated in another country.

An agreement on double taxation avoidance shall supersede the provisions of the PIT Law.

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Key Contacts

Dr Jean-Philippe Chetcuti

Senior Partner, Global Residency & Citizenship

+356 22056411

Mr Kenneth Camilleri

Director, Tax & Immigration

+356 22056414

Dr Antoine Saliba Haig

Legal Associate

+356 22056446

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