Montenegro, independent country since 2006 and currently working towards the EU membership, provides an attractive environment for investors with one of Europe’s lowest tax rates of 9%. The country has over 20 business-related laws with EU standards, simplifying property acquisitions and facilitating investments in the EUR currency. This article will explore Montenegro’s attractive corporate tax regime, focusing on benefits for both local and foreign investors.

Corporate Residency in Montenegro

In Montenegro, businesses are subject to a progressive Corporate Income Tax (CIT) based on their generated profit. Legal entities should file their annual tax reports and pay taxes at the end of March. The tax rates are levied between 9% to 15%, with the following structure:

• For profits up to EUR 100,000 the tax rate is 9%.
• Profits from EUR 100,000.01 to EUR 1,500,000 incur a tax of EUR 9,000 plus 12% on the amount exceeding EUR 100,000.01;
• Profits exceeding EUR 1,500,000.01 result in a tax of EUR 177,000 plus 15% on the amount surpassing EUR 1,500,000.01;

Corporate Income Determination and Sources

Income sources subject to corporate tax in Montenegro include:

• Ordinary business operations or activities closely related to them.
• Transfer of real property or income arising from immovable property.
• Dividends and other forms of income distribution.
• Interests.
• Royalties.

New Amendments in the Montenegro Corporate Income Tax Law

The new changes, effective since 2024, aim to align Montenegro’s tax framework with EU tax legislation, in the scope of the EU’s Council Directive 2009/133/EC. This directive establishes a standardized taxation system for mergers, divisions, asset transfers, and share exchanges among companies from various EU member states. Additionally, the suggested modifications will facilitate the transfer of registered seats between member states, with implementation postponed until Montenegro officially joins the EU.

The amendments are reflected in the following categories of Corporate Tax Law:

CIT Base. The changes specify that the CIT base is determined by adjusting the pre-tax profit from the balance sheet following accounting rules like International Accounting Standard (IAS) and International Financial Reporting Interpretations Committee (IFRS). Accounting policy changes will be recognized as income or expense over five tax periods, while as income from liquidating other entities is excluded from the CIT base.

Capital Gains. Detailed rules for determining asset acquisition value were introduced. The tax authority can adjust the selling price to market value in transactions between related or unrelated parties.

Withholding Tax. The definition of withholding tax taxpayers is expanded to include legal entities. A new subject of withholding tax distribution of the liquidation surplus is introduced. In addition, permanent establishments are now obliged to pay withholding tax on dividends, profit, and liquidation surplus payments.

Adjustments in the Subsidy Rule. The Amendments remove the subsidy for newly employed from the CIT Law, as it’s covered in the Personal Income Tax Law. For non-residents dealing with dividends, interests, royalties, and services, the withholding can be deducted based on double taxation treaties Montenegro has with other countries.

Deductions

Corporate tax deduction is available in Montenegro for tax depreciation, business-related interest, and bad debts that are more than 365 days, with legal action. Charitable gifts are tax-deductible up to 3.5% of revenue. Salary and termination bonuses are deductible expenses. Deductions for entertainment and membership fees are limited. Tax losses can be carried forward up to 5 years.

Corporate Tax Incentives

In Montenegro, the corporate provides many tax benefits, newly founded production businesses in undeveloped towns can receive an eight-tax exemption of up to EUR 200.000. Nonetheless, this does not apply to sectors like agriculture, transport, and steel production, among others.

NGOs engaged in business can reduce their tax base by EUR 4,000, provided the profit supports their primary objectives. Additionally, resident taxpayers are eligible for a foreign tax credit, which should match the company tax paid abroad.

Montenegro’s developing economy encourages foreign investments, offering residency and citizenship opportunities to attract global investors. Its strategic location in Europe, usage of the Euro currency, and thriving real estate market make it an appealing base and financial activities.

Consulting with a tax and legal professional can be beneficial in the administration of the corporate income taxes and aspects related to it. Our firm specializes in international taxation, and our team is ready to assist with any related matters. If needed, we can connect you with top professionals to support your business activities in Montenegro. Please feel free to contact us.