| Montenegro Income Tax In 2009, a flat tax rate of 12% is applied to personal income in Montenegro.
In 2010, the individual income tax rate in Montenegro will reduce to 9%.
Surtax to the personal income tax
- The possibility for introduction of surtax on the personal income tax is regulated under the Law on financing local self-government ("Official Gazette of Republic of Montenegro", no. 42/03 and 44/03).
- The Law envisages that the rate of the surtax on personal income tax may amount to 13%, except for the Capital and Historical Royal Capital for which the rate may amount to 15%.
- The tax base for surtax on personal income tax is the personal income tax, from any of the sources (personal income, private sector activities, property and property rights and capital).
- The amount of surtax on personal income tax is determined by the municipality through adoption of its decision.
Consumption tax
- The possibility for introduction of consumption tax is regulated under the Law on financing local self-government.
- Consumption tax is paid on the turnover of alcoholic and nonalcoholic beverages in hospitality industry facilities, with the exemption of turnover of coffee and tea.
- Consumption taxpayer is a legal or physical person providing hospitality industry services.
- The base for payment of consumption tax is the sale price of alcoholic and nonalcoholic beverages in hospitality industry facilities, which does not include VAT and consumption tax.
- Consumption tax rate may amount to 3%, except for the Capital and Historical Royal Capital for which the rate may amount to 5%.
- The municipality with its decision determines the amount of the consumption tax rate.
Who is obliged to pay personal income tax?
- A taxpayer of the personal income tax is a resident or non-resident physical person generating taxable income on the territory of the Republic of Montenegro.
- A resident physical person is any physical person with residence or center of business and vital interests on the territory of the Republic of Montenegro or residing on the territory of Republic of Montenegro for more than 183 days in a tax year. Resident is also a physical person assigned outside of Republic of Montenegro to conduct business for a physical or legal person who are residents of Republic of Montenegro, or for an international organization.
- Object of taxation of a resident physical person is the income they generate in Republic of Montenegro and outside of Republic of Montenegro.
- Object of taxation of a non-resident physical person is the income that the non-resident generates from activities performed through the permanent establishment (business unit) in Republic of Montenegro.
- Object of taxation of a non-resident physical person without a permanent establishment (business unit) in Republic of Montenegro is also the income generated from royalties, interest, capital gain and rental of immovable property located in Republic of Montenegro.
- Where two or more physical persons jointly generate income, each of these persons is a taxpayer proportionally to the share in income they generate.
Which physical persons are exempted from payment of personal income tax?
Personal income tax is not paid by the following:
- members of foreign diplomatic missions in Montenegro, as well as the members of their households, if they are not citizens of Montenegro;
- members of consular offices, as well as the members of their households, if they are not citizens of Montenegro;
- officials and experts working on the programs of the United Nations and its specialized agencies;
- honorary consuls of foreign countries, but only for income received from the country which has appointed them to perform honorary consul functions;
- officials, experts and administrative staff of international organizations if they are not citizens of Montenegro or if they have no residence in Montenegro.
Montenegro Corporate TaxMontenegro Corporate Tax rates for 2009:
- The rate of profit tax is flat and amounts to 9% of tax base (of taxable profits).
- A taxpayer of profit tax is obliged to calculate and pay withholding tax on:
. dividends and shares in legal persons' profits,
. royalties, interest, capital gain and immovable property rental fees paid to non-resident legal person.
- The tax rate for the mentioned revenues amounts to 15%, except for the interests that are taxed at the rate of 5%.
Who is corporate tax taxpayer?
- The taxpayer of the tax on profit is a resident or nonresident legal person, which carries out a business activity for profit. Limited partnership is also a taxpayer of the tax on profit.
- A resident legal person is a person established in the Republic of Montenegro, or with its main office of management and control in the territory of Montenegro.
- Non-resident legal person is a legal person that is not established in Montenegro, and with no main office of management and control in Montenegro.
What are tax exemptions and concessions?
The following are exempted from payment of tax on profits:
- Legal persons newly established in an underdeveloped municipality conducting a production activity, for the period of the first three years as of the day of commencement of the activity;
- newly established business units conducting the production activity in the underdeveloped municipality for the duration of first three years, proportionally to the profit's share in the total amount of taxpayer's profit.
How are capital gains of legal persons taxed?
- Capital gains are considered to be the revenues that a taxpayer realizes through sale or other transfer with compensation of land, building constructions, property rights, shares in capital and securities.
- Capital gains are not taxed separately at the moment of sale of the mentioned property, but are included in the taxable gains when annual tax balance is calculated.
- Capital gains realized from the sale of securities reinvested within 12 months from the purchase of new securities is not included in the tax base in the year when the gain is realized.
- If the capital gain is not reinvested within 12 months, that amount is included in the tax base in the year following the year when capital gain is realized.
- Capital gains realized by the sale of securities that the taxpayer held in his portfolio for the period longer than two years is not subject to tax.
Montenegro Value-Added Tax (VAT) RatesThere are two Value-Added Tax rates being implemented in Montenegro:
- standard tax rate of 17%, and
- reduced tax rate of 7%
Also, a zero rate VAT is applied on export transactions and on delivery of medicines and medical supplies which are funded by the Republic Health Insurance Fund.
What products and services are taxed at reduced rate?
The following is taxed at reduced rate of 7%:
- Staple-foods (milk, bread, fat, oil and sugar);
- Medicines, including medicines for veterinary use, except for prescription drugs covered by the Republic Health Insurance Fund;
- Orthotic and prosthetic devices, and medical devices surgically implanted in human body, except for medical devices covered by the Republic Health Insurance Fund;
- Textbooks and teaching aids;
- Books, monographies and serial publications;
- Accommodation services in hotels, motels, apart hotels, tourist settlements, boarding houses, camps and villas;
- Drinking water, except for bottled water;
- Daily newspapers and periodicals, except for press, which fully or mostly includes advertising contents;
- Public transportation of passengers and their personal luggage;
- Public hygienic services;
- Funeral services and products related to such services;
- Copyrights and services in the field of education, literature and art;
- Copyrights in the field of science and artifacts, collections and antiquities;
- Services charged through tickets for cinema and theatre shows, concerts, museums, fairs, amusement parks, exhibitions, zoos and similar cultural and sports manifestations, except for those legally exempt from payment of VAT;
- Use of sport facilities for non-profit purposes;
- Fodder, fertilizers, pesticides, reproduction seeds, seedlings and breeding stock.
Note: In 2006, books, monographies and serial publications were taxed at the privileged rate of 3,5%.
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