Montenegro

Two positive VAT rates are applied, with a standard rate of 19% and a reduced rate of 7%, while the zero rate applies to: export transactions and delivery of medicines and medical devices financed from the funds of the Republican Fund for health insurance.

Value added tax is calculated and paid at:
-delivery of products and services which the taxpayer performs for compensation in the course of his activity;
-import of products;
-the import of motor vehicles (new and used) is subject to VAT payment at a rate of 21%;
-traffic of used passenger cars, motorcycles and vessels, for which the taxpayer in the procurement did not have the right to deduct input VAT, is not subject to VAT. In this case, a special tax is paid at a rate of 5% paid by the buyer;
- land transport (agricultural, construction, constructed and not built) is not subject to VAT payment.

The real estate tax rate is proportional and amounts to 3% of the tax base. Immovable property is considered any acquisition of ownership of immovable property in Montenegro and this area is regulated in detail by the Law on Tax on Real Estate Transfer.

Compulsory social insurance in Montenegro is paid by employees, employers, entrepreneurs and farmers who are not obliged to pay contributions in the event of unemployment. Contributions for compulsory social security are:
-contribution for compulsory pension and disability insurance;
-contribution for compulsory health insurance;
-contribution to unemployment insurance.
The rates of contributions vary depending on the category of taxpayers and are defined by the Law on Contributions for Compulsory Social Insurance.

The Law on Excises regulates the system and introduced the obligation to pay excise taxes for individual goods and conditions that are placed in free circulation in the territory of Montenegro. Excise products are:
-alcohol and alcoholic beverages;
-tobacco products;
-mineral oils, their derivatives and substitutes.
The excise taxpayer calculates the excise tax for the calendar month.

Customs tariff system in Montenegro is made by the Customs Tariff Law and the Customs Law. Customs clearance according to this law includes the receipt of an import customs declaration, inspection of goods and classification according to the Customs Tariff and other tariffs, determination of the customs base, amount of customs and other import duties charged by the goods, collection of established amounts of customs duties and other import duties. Pursuant to the law, the investor may acquire the right to release customs duties.

Tax reliefs

Corporate income tax rate is 9% and is one of the lowest in Europe, while the personal income tax rate for natural persons is 9% and 11%. In economically underdeveloped municipalities in Montenegro, whose development index is below 75, the Law on Profit Tax stipulates that a newly established legal entity does not pay income tax for the first eight years of business. Also, the Law on Personal Income Tax of the taxpayer, calculate the income tax for the first eight years of business is reduced by 100%. Tax exemption does not apply to a taxpayer operating in the primary production of agricultural products, transport or shipyards, fisheries and steel. The laws define the tax relief for investors, in the form of exemption from paying taxes if their total amount does not exceed the amount of €200,000 for the first eight years of business.

If the amount of the tax liability (exit tax) in the tax period is less than the amount of input VAT that the taxpayer can deduct during the same tax period, the difference is recognized as a tax credit for the subsequent tax period, or, on demand, is returned within 60 days from the date of submission of the application for VAT calculation.

A taxpayer who mainly exports products and a taxpayer who, in more than three consecutive VAT counts, shows the surplus of input VAT, the difference in VAT is returned within 30 days from the date of submission of the application for VAT calculation. If the taxpayer has expired the deadline for payment of other taxes, the VAT difference is reduced by the amount of tax debt.

To the taxpayer, who in the business year for an indefinite period, at least for two years, recruit new workers, the tax base is reduced by amount of paid salaries of newly employed workers, increased by contributions forcompulsory social insurance paid by the employer.

A taxpayer who makes investments in fixed assets which are used for the production of energy from renewable sources and energy efficiency, the tax base is reduced in the amount of 50% of the investments made, and up to the amount of the tax base.

Legal entity -non-governmental organization, registered for performing an economic activity, the tax base is reduced in the amount from €4,000, provided that the profit is used to achieve the goals for which it was founded.

Tax incentives for the investments in the following sectors:
- Highend tourism – hotels with 5 or more stars;
- Food production, except primary agricultural production, and
- Capital investments in the energy sector.

The Law on VAT stipulates zero VAT rate on the delivery of products and services for the construction and furnishing of any hospitality establishment with 5 or more stars, construction of energy-generation facilities with more than 10 MW installed capacity or of food production plants categorized within sector C group 10 under the Law on Business Activity Classification (Official Gazette of MNE 18/11), if the investment exceeds €500,000.

Agreements on avoidance of Double taxation

Montenegro has signed the agreements on avoidance of double taxation with 41 countries which refer to the laws that regulate corporate income tax, property tax and individual income tax. There is the list of countries in the following table.