Montenegro - Income Tax | KPMG | GLOBAL

Montenegro - Income Tax

Montenegro - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The annual tax return should be filed not later than 30 April of the following year. The tax return can be submitted personally, via mail or in electronic form (disc) or some other electronic form which enables computer data processing.


What is the tax year-end?

The tax year end in Montenegro is 31 December.

What are the compliance requirements for tax returns in Montenegro?

Residents

There is a prescribed tax return form (GPPFL form) that should be submitted to the tax authorities together with the official certificates issued by the payer of the income proving the amount of total income included in annual tax liability calculation.

There are no annual tax return requirements if no additional income, apart from employment, is generated in Montenegro.

If assignee regarded as tax non-resident, generates income from multiple Montenegrin sources, for the period he/she spent in Montenegro, he will have annual tax return filing obligation. Tax residents will have the obligation of reporting multiple sourced income from Montenegro or their worldwide income, by filing annual tax return.

Tax rates

What are the current income tax rates for residents and non-residents in Montenegro? 

Residents in Montenegro – Montenegrin and foreign citizens

In Montenegro, progressive tax rates are applicable Tax rate of 9% is applied for monthly personal gross income below EUR 751 per month, and tax rate of 11% for income above EUR 751. Additional income reported in the annual tax return is only subject to 9% tax rate.

Non-residents in Montenegro

The same tax rates apply for both, residents and non-residents.

Residence rules

For the purposes of taxation, how is an individual defined as a resident Montenegro? 

An individual is deemed to be a resident of Montenegro if he/she has permanent home or center of business and vital interests in Montenegro or stays in Montenegro continuously or in intervals at least 183 days in the tax year.

Tax residents of Montenegro are also individuals assigned to work abroad for an individual or legal entity of Montenegro or an international organization.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

There are no rules as to counting the number of days when residency starts or ends. Namely, in practice the departure/or arrival days are counted as the days spent in Montenegro (the days of physical presence).

What if the assignee enters the country before their assignment begins? 

The days the assignee is in the country before his/her assignment begins would not be counted for purposes of computing the 183-day period.

Termination of residence

Are there any tax compliance requirements when leaving Montenegro?

Tax clearance does not have to be obtained on departure from Montenegro.

What if the assignee comes back for a trip after residency has terminated?

The days spent on a trip after residency has terminated would not be included in the total number of days he/she spent in Montenegro.

Communication between immigration and taxation authorities

Do the immigration authorities in Montenegro provide information to the local taxation authorities regarding when a person enters or leaves Montenegro?

The immigration authorities in Montenegro do not have an obligation prescribed by the law to provide the tax authorities with the data related to persons who are entering or leaving Montenegro. However, tax authorities may check the data with the immigration authorities.

On the other hand, 13-digit unique personal identification number which is given by the immigration authorities represents the tax identification number. Data on these numbers is forwarded by the immigration authorities to the tax authorities.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

If the assignee’s generated income from multiple Montenegrin income sources, for the period he/she spent in Montenegro, he will have a filing requirement in Montenegro after he/she left or is repatriated from Montenegro.

Economic employer approach

Do the taxation authorities in Montenegro adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Montenegro considering the adoption of this interpretation of economic employer in the future?1

The tax authorities in Montenegro apply a sort of economic employer approach meaning that expenses recharged to a local entity are regarded as income from Montenegrin sources. Please note that economic employer approach is not well regulated by Montenegrin tax legislation and Montenegrin tax obligation has to be determined from case to case basis.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?2

No. There is no de minimum number of days before the local tax authorities will apply the economic employer approach. Further, please note that economic employer approach is not developed and is recognized only when recharging of expenses to the local company is performed.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a rule, it can be stated that all types of remuneration and benefits received by an individual for services rendered constitute taxable income. These include, but are not limited to the following:

  • personal earnings (salaries and bonuses) 
  • income from self-employment 
  • real estate and real estate right income 
  • capital income
  • capital gains income
  • income from lottery prizes.

Income of an individual is the sum of taxable incomes that he generates in a tax year.

Spouses are taxed separately and there is no group taxation of a family unit.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Montenegro? If so, please provide a general definition of these areas.

The following benefits are not included in taxable income in Montenegro:

  • travel allowances up to the amount of actual expenses (includes accommodation, food expenses and commuting costs);
  • In case of a business trip abroad, travel allowances up to the limit set for state employees;
  • allowances for the use of a private car for business purposes;
  • pension severance payment up to EUR1,000;
  • death and funeral costs compensation up to EUR1,500;
  • fees paid for training and seminars of interest to the company’s business etc.

Certain expenses for accommodation

Not exempted.

Certain expenses for commuting costs

Commuting costs in Montenegro are no longer recognized as deductible (as of 1 January 2010).

Allowances for ground transportation

Not applicable.

Certain funds from property and personal insurance

Life, property and belongings insurance indemnities are not recognized as taxable income in Montenegro.

Death/funeral compensation

Allowance given in the event of death of an employee to immediate members of his/her family or retired employee, is recognized as tax-exempted income up to EUR1,500.

Natural disaster compensation

Allowance given because of destruction of or damage to property in consequence of natural disasters or other extraordinary occurrences is not recognized as taxable income.

Expatriate concessions

Are there any concessions made for expatriates in Montenegro? 

There are no special tax regimes for expatriates in Montenegro.

Salary earned from working abroad

Is salary earned from working abroad taxed in Montenegro? If so, how? 

Residents are obligated to file an annual tax return and report their worldwide income. Montenegro citizens assigned to work abroad are treated as residents, and as such are subject to annual income tax, unless otherwise stipulated by the double taxation treaty applicable between Montenegro and the country of assignment.

Non-residents are not subject to income tax on compensation attributable to services performed outside Montenegro.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Montenegro? If so, how?

Capital income in Montenegro includes the following:

  • interest revenues, 
  • shares and money revenue based on profit sharing scheme by members of a board of directors and other employees, 
  • income arising from usage of company’s property or services by owner or co-owners of capital for their private purposes, 
  • dividends and profit shares and
  • income in the form of shares/stakes received by members of board of directors and other employees under privileged conditions.

No capital expenses are recognized in determination of taxable income.

Tax on capital gains is calculated in annual tax return. Tax rate is 9 percent. It is payable at the same time when annual tax return is submitted.

Dividends, interest, and rental income

Dividends

Income from dividend is taxable at 9 percent tax. Tax on dividends is withheld and paid by the payer of the income.

Interest

Income from interest is taxable at a 9 percent tax rate. In Montenegro, five percent withholding tax is applied on interest revenues paid out to non-residents. Tax on interest is withheld and paid by the payer of the income.

Rental income

Revenue generated by rental of immovable and movable property is taxed by 9 percent tax rate in Montenegro. The tax base is determined by deducting the actual costs incurred with the exercise of this income, or if not documented by applying 30 percent regulated costs in Montenegro, on the amount of rental income. Rental income tax is withheld and paid by the payer of the rent (legal entity or entrepreneur).

In renting rooms, apartments and houses to travelers and tourists for which residence tax has been paid, regulated costs are recognized in the amount of 50% of the realized income on that basis, or 70% of the realized income if rental contract is concluded with the tourist agency or local tourist organization.

Gains from stock option exercises

Gains from stock option exercised are taxable at the rate of 9 percent in Montenegro.

Foreign exchange gains and losses

Not applicable.

Principal residence gains and losses

Capital gain from a principal residence unit (flat or house) is determined as difference between the sale and purchase price of that real estate. Capital gain is taxed at the rate of 9 percent.

Capital losses

Capital losses incurred through the sale of immovable, securities, and royalties could be offset with a capital gain resulting from the sale of immovable, securities, and royalties in the same year.

Personal use items

The sale of personal use items is not recognized as taxable income.

Gifts

Taxation of gifts is determined by different taxes laws that regulates taxation of transfer of different types of movable/immovable property.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Montenegro? If so, please discuss?

No.

Are there capital gains tax exceptions in Montenegro? If so, please discuss? 

Please see above for more information.

Capital gains from the sale or transfer of property is not taxed if:

- the real estate served to the taxpayer as the only and main place of residence (domicile);

- the asset was transferred between spouses and is directly linked with marriage, divorce or inheritance of property;

- the transfer of property is performed as a gift to relatives of first hereditary order.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Montenegro? 

In the assessment of annual taxable income in Montenegro, no deductions apply.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Montenegro? 

Tax reimbursement may be obtained based on written request for refund of overpaid tax.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Serbia and Montenegro? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Pay-as-you-go (PAYG) withholding

In Montenegro, the Pay-As-You-Earn (PAYE) method is applicable.

PAYG installments

Not applicable.

When are estimates/prepayments/withholding of tax due in Montenegro?For example: monthly, annually, both, and so on.

Withholding tax is due at the moment when income is paid out.

In Montenegro annual tax liability is due at the moment when annual tax return is submitted (not later than 30 April of the current year for the then previous calendar year).

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Montenegro? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

If there is a double taxation treaty concluded between Montenegro and the expatriate’s country, the provisions of the treaty will determine in which country the expatriate’s salary shall be taxable. The double taxation relief provided by a tax treaty prevails over the domestic relief. As at 1 January 2018, Montenegro has 44 effective double taxation conventions on income and capital.

In the absence of a tax treaty, unilateral relief is granted in the form of an ordinary tax credit for income taxes paid abroad. The credit for tax paid abroad may not exceed the amount of tax due in Montenegro on the foreign income (i.e. there is no possible refund).

General tax credits

What are the general tax credits that may be claimed in Montenegro? Please list below.

There are no tax credits.

Sample tax calculation for Montenegro

This calculation assumes a married taxpayer resident in Montenegro with two children whose three-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

Calculation for monthly liability

  2015 2016 2017*
  USD USD USD
Salary 100.000 100.000 100.000
Bonus 20.000 20.000 20.000
Cost-of-living allowance 10.000 10.000 10.000
Housing allowance 12.000 12.000 12.000
Company car 6.667 6.667
6.667
Moving expense reimbursement 20.000 - 20.000
Home leave - 5.000 -
Education allowance 3.000 3.000 3.000
Interest income from non-local sources 6.000 6.000 6.000

Exchange rate used for calculation: USD1.00 = EUR0. 0.81668 *.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Montenegro.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

* Exchange rate from 19 January 2018

Calculation of taxable income

Year-ended 2015 2016 2017
  EUR EUR EUR
Days in Serbia during year
365 366 365
Earned income subject to income tax      
Salary   81.668   81.668  81.668
Bonus  16.334
  16.334   16.334 
Cost-of-living allowance 8.167
 8.167  8.167 
Net housing allowance 9.800
9.800
9.800
Company car  5.385   5.385 
 5.385 
Moving expense reimbursement 16.334   - 16.334
Home leave  -   4.083  -
Education allowance  2.450 2.450 2.450
Total earned income 140.137 
127.887
140.137
Salary tax (9%) 778 778 811
Salary tax (13%) 17.095  13.117  14.424 
Total monthly tax liability 17.872  13.895
15.235

*Salary tax rate of 13% applies for 2015.

Calculation of annual tax liability

Year-ended 2015 2016 2017
  EUR EUR EUR
Employment income 140.137
127.887
140.137
Interest income from non-local sources
4.900
4.900
4.900
Total taxable income 145.037  132.787
145.037
Calculated tax  18.313 14.336
15.676
Tax paid on local employment 17.872
13.895
15.235
Recognized amount of tax paid abroad 0 0 0
Annual tax liability 441 441 441

Footnotes:

1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Sample calculation generated by KPMG d.o.o Beograd, the Montenegro member firm of KPMG International, based on the Montenegrin Law on Personal Income Tax of 2017.

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