Taxes in Montenegro: Information for prospective immigrants

If you are deliberating relocation to Montenegro by use of the ‘citizenship by investment’ Government program, you may be asking yourself questions such as: What is the property tax in the country? Can I become a tax resident in Montenegro? Is Montenegro considered a tax haven? This article will answer these and other questions about Montenegro that are related to fiscal matters.

As you know, only death and taxes cannot be avoided. Well, no-one can live forever indeed but as far as taxes are concerned, Benjamin Franklin might have been not quite right. Relocation to another country will not probably let you avoid all taxes but it can definitely lessen your tax burden considerably.

Favorable tax regime in Montenegro is without doubt one of the most attractive factors that should make you consider moving to the country very seriously. However, to be able to enjoy all the tax benefits that Montenegro offers you have to legally reside in the country for a certain period. Here you can find about the ‘citizenship by investment’ program that the Government of Montenegro launched in late 2019.

If you choose to relocate to this small Balkan country and eventually become its tax resident, it will not make you tax exempt. However, your fiscal burden is going to be lower than it would be in most other European countries.

It will be interesting to know that there are several taxes in Montenegro whose rate is 9%. Evidently, this is lower than the tax rates in most countries if we are talking about the developed or the developing ones, and not about the third world countries.

Montenegrin tax system has its own specifics and this short guide will highlight the most important of them. It is meant to serve those who are thinking of applying for the ‘citizenship by investment’ program and relocating to Montenegro. Whether you are planning to purchase property in the country or establish a business company in Montenegro, the text below will give you an idea of what to expect when it comes to paying the taxes.

The information that we offer includes such topics as Montenegrin income tax, payroll tax, corporate tax, property tax, and the VAT. We also discuss tax benefits available to corporations and list the agreements on double taxation avoidance that the country has signed.

Taxes in Montenegro: Is Montenegro a tax haven?

This question can be heard rather often. Indeed, Montenegrin economy is quite small, which is usually the case with the few tax havens that still exist. Moreover, the local Government strives to make the economy larger and seeks to attract more foreign direct investments by creating favorable business and fiscal climates in the country. Apart from that, Oxfam Group, for example, has criticized Montenegro for “behaving like a tax haven”.

Nevertheless, Montenegro is certainly not at the same level with Cayman Islands, Singapore, nor the Isle of Man in what concerns the opportunities for minimizing the tax burden. The taxation system in Montenegro is transparent and fair and the taxes in the country are simply lower that in many other national states in the world.

Besides, it is evident that Montenegro’s main political goal is to join the European Union in the next decade. This goal would be unattainable if the country acted as if it were providing tax shelter to foreign investors.

Taxes in Montenegro: How can you acquire tax residency in Montenegro?

A business company is considered resident in Montenegro for tax purposes if it is registered in the country, it conducts business activities from there, and its managers reside in Montenegro.

Montenegrin resident companies are taxed on the income derived throughout the world, while non-resident companies are taxed only on the income that they make on the territory of Montenegro.

Individuals who are residents of Montenegro for tax purposes are also taxed on the income derived throughout the world, while non-residents are taxed only on the income that they make on the territory of Montenegro. A private individual can acquire Montenegrin tax residency if he or she physically resides in the country for 183 days per calendar year or more or if Montenegro is the center of his or her vital interests.

In both cases, purchasing real property in the country will largely facilitate acquiring a tax resident status in Montenegro. Moreover, you can become a citizen of Montenegro if you invest into resort property located on the seashore. You can read more about the property that qualifies for the ‘citizenship by investment’ program if you click here.

Taxes in Montenegro: The income tax

What is the personal income tax in Montenegro? And what about the corporate income tax? What is the tax on dividends? And the capital gains tax is how much? The answer to all these questions is usually “nine percent”. In Montenegro, people whose income is below average (750 euros per month or less) pay 9% of it as the income tax. Those who earn more than average pay 11% on the amount that exceeds the set limit.

It is clear that such a low income tax is meant to stimulate the economic development and incentivize people to make more money in Montenegro.

However, there are rumors about possible increases in both the income tax and the VAT rates that might occur in the near future. Due to these prospective changes, Montenegro may soon cease to be a low-tax jurisdiction.  

Taxes in Montenegro: Personal income tax

In 2016, the local Government announced an increase of the personal income tax to 11% for those whose monthly income exceeds 750 EUR. The income tax rate remained at 9% for those who make less. As it often happens, this was announced as a temporary measure but it looks like the new rate has come to stay for a long time.

Municipalities in Montenegro also tax their residents. The latter have to pay to the municipal budgets 15% of the amount of taxes they pay to the federal budget.

Fiscal non-residents of Montenegro have to pay the income tax of 5% only. In all likelihood, this regulation is one more instrument of attracting foreign direct investment to the country.

Married couples cannot file joint tax returns in Montenegro. No personal income tax benefits or reductions are available in the country.

Taxes in Montenegro: A competitive taxation system for businesses

Companies in Montenegro pay taxes at the same rate of 9%. This rate applies to capital gains, interests, and the general income from the company business activities.

Lloyd Bank experts claim that the average Montenegrin company paid 22.2% of its income in taxes in 2018. This is not nothing, of course, but it is a much lesser portion of the income than US companies have to pay in taxes (44%) let alone companies in Germany (48.9%). The same Lloyd Bank report notes that Montenegrin companies have to pay taxes in several installments and that they have to spend more time going through the red tape.  

Because the company tax burden is relatively light in Montenegro and because registering a business entity is comparatively easy there, a number of foreign people prefer starting a business in the country rather than looking for a paid job there.

Taxes in Montenegro: Payroll tax

Municipal authorities in Montenegro are entitled to charge companies registered in their territories up to 15% as the payroll tax. In addition to that, 0.2% of the gross pay (the amount of the salary before the income tax is paid) goes to the payroll fund. Outside the cities of Podgorica and Cetine, the payroll tax is only 13%.

Taxes in Montenegro: Tax benefits for business companies

A newly established company can enjoy a tax break in Montenegro if it works exclusively in the worse developed northern regions of the country. This tax holiday can last for up to eight years and the tax exemption holds for the first 200,000 EUR of the payable income tax.

Taxes in Montenegro: Agreements on avoidance of double taxation

International agreements on double taxation avoidance allow the taxpayer to avoid extra tax burden. Such agreements apply both to personal and to corporate taxes. Thus, both travelling individuals and transboundary corporations can benefit from them.  

Montenegro has double taxation avoidance agreements with most large EU member states including France, Germany, Italy, Ireland, and the Czech Republic. Agreements have also been signed with large economies from outside the EU such as China, Russia, and Switzerland. At the same time, Montenegro does not currently have such agreements with Australia, Canada, India, Spain, nor the USA, among a number of other countries. Below please find the list of national states that have made agreements with Montenegro on avoidance of double taxation as well as a description of the terms of these agreements.

If you have a business in a country that has not made an agreement on double taxation avoidance with Montenegro thus far, and if you want to live in Montenegro and engage in some business in the country as well, it will probably be difficult for you to avoid being taxed both in your home country and in Montenegro. However, a few more agreements are on the way so please follow the news. We will gladly keep you updated if you write to us to [email protected].

Taxes in Montenegro: The property tax

Similarly to most other developed states, real property is taxable in Montenegro. You have to take the tax into account when buying real estate in the country:

• VAT is payable when purchasing a new house or an apartment in a newly constructed building (that is, if the property has not changed the owner before).
• Ownership transfer tax is payable if the property that you purchase has changed the owner before.
• Capital gains tax (see below) is payable when you sell property in Montenegro.
• Income tax is payable if you let your property on a lease.

The property taxes in Montenegro are quite competitive when we are talking about capital gains, ownership transfer or rent income. Thus, when buying real estate in the country, you should not be worried about too heavy a fiscal burden.

Taxes in Montenegro: Annual property tax

The owner (or the user) of both residential estate and commercial real property is to pay from 0.25% to 1% of its market price as an annual property tax. Once again, this tax is at least two times lower than similar taxes in larger European countries.

Taxes in Montenegro: land and building ownership transfer tax

A fixed rate of 3% is applied when transferring the ownership of land or other real property from one person to another, that is, when selling it. If the building (a house, a hotel, a factory, etc.) has not changed the proprietor before, the VAT of 21% is to be added to the selling price.

The land and other property ownership transfer tax is also lower in Montenegro than in other European countries. For instance, in Portugal this tax is 6.5% while in Spain it can be as high as 10%. The small tax lowers the market price of real estate in Montenegro and increases its liquidity.  

Taxes in Montenegro: rent income tax

As is the case with many other types of income, the income obtained from letting residential or commercial property on a lease is taxed at 9% in Montenegro.

Only the net income is taxable, which means that you can deduct the costs associated with the maintenance of the rented property before paying the tax.

Taxes in Montenegro: Capital gains tax

Both business companies and private individuals have to pay the capital gains tax of 9%. Legal entities are entitled to postpone the payment of this tax for up to five years. This regulation applies only to the capital gains tax while the payment of other taxes cannot be postponed.

If a non-resident of Montenegro sells his or her property to a legal resident of citizen of the country, he or she is also the pay the capital gains tax of 9% to the Montenegrin Government.

Taxes in Montenegro: The added value tax

When companies in Montenegro sell goods or services, they have to pay the VAT of 21%. It is worth noting that the tax was 19% until recently.

Montenegro is often compared to Croatia as the latter country is similar in size, it is located nearby, and it is a popular tourist destination just like Montenegro. Croatia, however, is an EU member state already while Montenegro has yet to join the Union.

Montenegro has an advantage over many European countries including Croatia as far as the VAT is concerned. The VAT in Croatia, for instance, is 25%. At the same time, this tax is lower in Germany, France, and Great Britain than it is in Montenegro.

There are some specifics of VAT payment in Montenegro including the following ones:

• Items of prime necessity such as bread, milk, medicines, textbooks, and computers, for example, are taxed at 7% on the added value.
• Only the companies whose gross sales amount to 18,000 EUR per year or more have to pay the VAT.
• When purchasing property in Montenegro, you have to pay the VAT only if you are buying a new house or apartment. If the property has changed the owner before, the VAT is not payable.

Taxes in Montenegro: Some concluding remarks

It is evident that the Government of Montenegro uses low tax rates as one of the instruments of achieving its strategic goal, namely, of attracting more foreign investors to the country. Indeed, the low taxes may well be one of the reasons to relocate to Montenegro and acquire tax residency there.

We hope that the information supplied above helps you develop an understanding of the Montenegrin tax system. These are the main points that you have to take into consideration when deliberating relocation to Montenegro, in brief:

• If you acquire tax residency in Montenegro you will have to pay minimum 9% of your personal income in taxes. If your income is above average (750 EUR per month) the applied income tax rate is 11% in the country.
• The VAT of 21% is levied on most goods and services sold in Montenegro. These include new residential and commercial buildings.
• The ownership transfer, the capital gains, and the rent income tax rates in Montenegro are lower than in Europe on average.

Montenegro is not a tax haven. However, the local tax system is fair and quite competitive. This factor has an impact on the decisions of many foreign people to move to Montenegro and transfer their business companies there.

Are you seriously thinking about the possibility to relocate to Montenegro and acquire citizenship of this country via investing in local resorts? If you would like to learn more about the process of, and the requirements to, obtaining a second passport of Montenegro, please contact us without hesitation at [email protected].

We will gladly answer all your questions, share the necessary information with you, and provide assistance in all matters connected to purchasing property and acquiring legal residency in Montenegro. Do write to us to the address indicated above and let us help you make your life a bit better!