Taxation of international executives
Income tax information is based on the Montenegrin Law on Personal Income Tax of 2001 and the latest changes from December 2014.
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 current year for the then 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?
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 single source 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 and their worldwide income, by filing annual tax return.
What are the current income tax rates for residents and non-residents in Montenegro?
In Montenegro, progressive tax rates are applicable till 31 December 2015. Tax rate of 9% is applied for monthly personal gross income below EUR 720 per month, and tax rate of 13% for income above EUR 720. Additional income reported in the annual tax return is only subject to 9% tax rate.
If no additional changes would be prescribed, as of 1 January 2016 personal income tax rate will be 9%.
The same tax rates apply for both, residents and non-residents.
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 spends more than 183 days in calendar year in Montenegro, if he/she has a residence in Montenegro, or if his/her center of business and vital interest is on the territory of Montenegro.
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.
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.
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, the tax authorities may check the data with the immigration authorities.
On the other hand, 13-digit unique personal identification number which is given to an individual by the immigration authorities represents the tax identification number. Data on these numbers is forwarded by the immigration authorities to the tax authorities.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
If the assignee 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.
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.
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 minimus 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.
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 constitute taxable income. These include, but are not limited to the following:
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.
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:
Commuting costs in Montenegro are no longer recognized as deductible (as of 1 January 2010).
Life, property, and belongings insurance indemnities are not recognized as taxable income in Montenegro.
Allowance given in the event of death of an employee to immediate members of his/her family or retired employee, is recognized as tax-exempt income up to EUR1,500.
Allowance given because of destruction or damage of property in consequence of natural disasters or other extraordinary occurrences is not recognized as taxable income.
Are there any concessions made for expatriates in Montenegro?
There are no special tax regimes for expatriates in Montenegro.
Is salary earned from working abroad taxed in Montenegro? If so, how?
Residents are obliged to file an annual tax return and report their worldwide income. Montenegrin 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.
Are investment income and capital gains taxed in Montenegro? If so, how?
Income from capital in Montenegro includes the following:
No expenses are recognized in determination of taxable income.
Tax on capital gains is calculated in the annual tax return. Tax rate is 9 percent. It is payable at the same time when annual tax return is submitted.
Income from dividend is taxable at 9 percent tax. Tax on dividends is withheld and paid by the payer of the income.
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.
Revenue generated by rental of immovable and movable property is taxed at 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 lump sum 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).
Income from rental of rooms, apartments and houses to tourists for which residence tax has been paid, lump sum deduction is 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 exercised are taxable at the rate of 9 percent in Montenegro.
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 incurred through the sale of immovables, securities, and royalties could be offset with a capital gain resulting from the sale of immovables, securities, and royalties in the same year.
The sale of personal use items is not recognized as taxable income.
Taxation of gifts is determined by different tax laws that regulate taxation of transfer of different types of movable/immovable property.
Are there additional capital gains tax (CGT) issues in Montenegro? If so, please discuss?
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.
What are the general deductions from income allowed in Montenegro?
In the assessment of annual taxable income in Montenegro, no deductions apply.
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.
How are estimates/prepayments/withholding of tax handled in Montenegro? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
In Montenegro, the Pay-As-You-Earn (PAYE) method is 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).
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 taxation rights of the expatriate’s salary shall be. Treaties of Montenegro concluded in the 1970s and 1980s often provide exemption method as a method for avoidance of double taxation. The double taxation relief provided by a tax treaty prevails over the domestic relief. As at 1 January 2015, Montenegro has 42 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).
What are the general tax credits that may be claimed in Montenegro?
There is no general tax credit.
This calculation assumes a married taxpayer resident in Montenegro with two children whose three-year assignment begins on 1 January 2013 and ends on 31 December 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.3
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = EUR0. 0.86880875 *.
|Days in Montenegro during year||365||365||365|
|Earned income subject to income tax|
|Net housing allowance||10.426
|Moving expense reimbursement||17.376||-||17.376|
|Total earned income||149.082
|Salary tax (9%)||778||778||778|
|Salary tax (13%)||18.257||16.563||18.257|
|Total monthly tax liability||19.035||17.341||19.035|
Calculation of annual tax liability
|Total taxable income||154.295||141.263||154.295|
|Tax paid on local employment||19.035||17.341||19.035|
|Recognized amount of tax paid abroad||0||0||0|
|Annual tax liability||469||469||469|
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 2001.