Montenegro Individual Tax Guide

Montenegro, Republic of

Please direct all inquiries regarding the Republic of Montenegro to Ivan Rakic of the Belgrade, Serbia, office.

Belgrade, Serbia GMT +1

EY

Antifasisticke borbe 13A

11070 Belgrade Republic of Serbia

Executive and immigration contact

Ivan Rakic

A. Income tax

+381 (11) 209-5794

Fax: +381 (11) 209-5891

Email: ivan.rakic@rs.ey.com

Who is liable. Residents are subject to tax in Montenegro on their worldwide income. Nonresidents are subject to tax on Montenegrinsource income.

Individuals are considered to be residents for tax purposes if they have a domicile, residence or center of business and vital interests in Montenegro or if they spend more than 183 days in Montenegro within a tax year, which corresponds to the calendar year. In addition, Montenegrin individuals seconded abroad by a resident employer to operate in the name and on behalf of the employer or an international organization are also considered resident.

Income subject to tax. Tax is levied on the types of income described below.

Employment income. Salary tax is payable at a rate of 9% on income from permanent or temporary employment, benefits received in money and in kind, paid leave and other employment remuneration.

Self-employment income. Tax is levied on the net earnings of selfemployed individuals at a rate of 9%. For this purpose, taxable income is accounting profit adjusted in accordance with the tax regulations. Lump-sum tax is levied if self-employed individuals realize or plan to realize turnover below EUR18,000. If an indi vidual realizes income from self-employment that is not his or her principal business activity, a standard deduction in the amount of 30% of realized income is allowed in calculating the income tax (unless actual expenses are documented).

Investment income. Tax is imposed at a rate of 9% on the follow ing types of investment income derived by residents and nonresi dents:

• Interest (interest paid to nonresidents is taxed at a rate of 5%)

• Dividends and profits participations

• Participation in profits of employees and board members (mon etary payments or payments in shares)

• Use of a company’s property or services by its owners and coowners for personal purposes

Income from property leasing derived by residents and nonresi dents is taxed at a rate of 9%. A standard deduction of 30% may be claimed with respect to this income. As an exception, a 50% deduction is allowed for income received from leasing apart ments, rooms and beds in the tourism industry if the sojourn tax has been paid, and a 70% deduction is allowed for income received from leasing apartments, rooms and beds in the tourism industry to tourist agencies and local tourist organizations if an average capacity utilization was achieved for a period of 60 days per year.

The income payer withholds at source the above taxes on invest ment income.

Capital gains. Capital gains derived by individuals are taxed at a rate of 9%.

Rates. For Montenegrin tax resident individuals, a 9% rate applies to worldwide income. The same rate applies to income realized in Montenegro by nonresident individuals.

Surtax. Municipalities are entitled to impose a surtax on salaries, self-employment income, income from property and property rights, as well as on investment income of individuals residing in their territory. The surtax is imposed at a rate of 15% in the cities of Cetinje and Podgorica, and at a rate of 13% in other munici palities.

Relief for losses. Losses incurred in self-employment activities may be carried forward for up to five years.

B. Other taxes

Real estate tax. Each legal entity or individual owning real estate in Montenegro on 1 January is considered to be a taxpayer for that calendar year with respect to the real estate located in Montenegro. Real estate tax rates range from 0.25% to 1%.

Transfer tax. Transfers of ownership of land and buildings locat ed in Montenegro are subject to a 3% transfer tax, which is pay able by the acquirer. This tax rate also applies to inheritances and gifts of real estate.

C. Social security and other contributions

Contributions. Social security tax is imposed on salaries received by individual employees. The employee and the employer each pay contributions to the following funds and organizations at the rates indicated.

Employer Employee Fund or organization % %

Pension and Disability Fund

15 Health Care Fund

8.5 Unemployment Fund

0.5 Work Fund

Montenegrin Chamber of Commerce

Labor union

Contributions to the Pension and Disability Fund at a rate of 20.5% and contributions to the Health Care Fund at a rate of 10.8% (for individuals without any other insurance) are payable

by individuals on income received under contracts relating to royalties, services, additional work, agency and sports, as well as under similar contracts involving the payment of remuneration for services performed.

The maximum annual social security contribution base is set at EUR53,858 for 2020 (the maximum base for 2021 has not yet been published).

Expatriate employees must pay social security contributions if they are not insured in their home countries or if provided in totaliza tion agreements applied by Montenegro.

Coverage. An employee who pays Montenegrin social security contributions is entitled to various benefits, including health insurance for the employee and dependent family members, dis ability and professional illness insurance, unemployment allow ances, pension payments and other benefits.

Totalization agreements. To prevent double taxation and to assure benefit coverage, the Republic of Montenegro currently applies social security totalization agreements with the jurisdictions listed below. The following is a list of the signatories of the total ization agreements that Montenegro currently applies.

Austria France Poland Belgium Germany Serbia Bosnia and Hungary Slovak Republic Herzegovina Italy Slovenia Bulgaria Libya Sweden Croatia Luxembourg Switzerland Czech Republic Netherlands Turkey Denmark North Macedonia United Kingdom Egypt Norway

D. Tax filing and payment procedures

The tax year is the calendar year.

Annual tax returns must be filed by the end of the April of the year following the tax year. Residents should file the annual tax return for self-employment income (unless the tax is payable as a lump sum), income from property and property rights, capital gains and income from abroad. Nonresidents are required to file annual tax returns for the income that is not subject to tax with holding. Withholding tax is levied on most types of income, including salaries. Individuals who receive income from abroad should submit the tax form and pay tax within five days after receiving the income.

E. Double tax relief and tax treaties

The Montenegrin government has rendered a decision providing that Montenegro recognizes tax treaties signed by the former Republics of Yugoslavia and Serbia and Montenegro until new tax treaties are signed. Although Montenegro professes to honor the tax treaties entered into by the former states of which it had been a part, the full applicability of these treaties must be con firmed by the other contractual state because Montenegro applies these treaties unilaterally. The following is a list of the jurisdic tions with which Montenegro has tax treaties in force.

Albania Germany Poland

Austria Hungary Portugal

Azerbaijan India Romania

Belarus Iran Russian

Belgium Ireland Federation

Bosnia and Italy Serbia

Herzegovina Korea (North) Slovak Republic

Bulgaria Kuwait Slovenia

China Mainland Latvia Sri Lanka

Croatia Malaysia Sweden

Cyprus Malta Switzerland

Czech Republic Moldova Turkey Denmark Monaco Ukraine

Egypt Netherlands United Arab Emirates

Finland North Macedonia United Kingdom

France Norway

F. Temporary visas

Valid passports and visas are required to enter Montenegro for foreign nationals of many countries.

Foreign nationals from countries with which Montenegro has a visa-free regime (for example, citizens of the European Union [EU], Australia, Canada, the United Arab Emirates and the United States) may remain in the country for 90 days in a six-month period if they have a valid passport. All other foreign nationals need to obtain a visa prior to entering Montenegro.

Travelers with a valid Schengen visa, a valid visa from the Republic of Ireland, the United Kingdom or the United States, or a residence permit in those countries may enter and stay or cross the territory of Montenegro for up to 30 days or until the visa expires if the visa validity period is shorter than 30 days.

Holders of travel documents issued by EU member states, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the United States, pursuant to the 1951 Convention on the Legal Status of Refugees or the 1954 Convention relating to the Status of Stateless Persons, as well as holders of travel documents for foreigners, can enter, cross over the territory and stay in Montenegro for up to 30 days without a visa. Such individuals may enter Montenegro for non-work pur poses; however, if they need to apply later for a residence and work permit, they would need to first obtain a visa.

G. Residence permits

Temporary residence and work permit. A temporary residence and work permit can be issued to a foreign national who intends to stay in Montenegro longer than 90 days if the foreign national satisfies certain conditions, such as the following:

• He or she has sufficient funds to support himself or herself.

• He or she has health insurance.

• He or she has available accommodations.

The above list is not final and may be adjusted at the authorities’ request, based on each specific case.

The issuance of a temporary residence and work permit is subject to the approval of the immigration authority. The permit is

granted for a duration of up to one year, and it may be extended. Obtaining a temporary residence permit can take up to 15 days.

Permanent residence permit. A permanent residence permit can be granted to a foreign national if he or she has spent at least five years continuously in Montenegro on the basis of a temporary res idence permit (or less than five years under specific conditions).

H. Certificate of confirmation of work

For certain types of work, a work permit is not required. However, the foreign national must obtain a certificate of confir mation of work and may not stay in Montenegro for more than 90 days in a one-year period.

Obtaining a confirmation of work can take up to seven days.

I. Family and personal considerations

Work permits are not automatically granted to the family mem bers of a foreign national who receives a work permit. However, family members have priority in the process of the issuance of new work permits.