Why invest in Montenegro?

About Montenegro

Montenegro is a republic with civil, democratic, ecological and social justice treats governed by the rule of law.

As a Balkan country, Montenegro is located at the crossroads of land routes between Europe and Asia. With its 290 km of coastline, Montenegro reaches the world ocean via the Adriatic and Mediterranean seas.

Montenegro is one of the southernmost European countries and a Mediterranean country. It borders Serbia to the east and northeast, Croatia and Bosnia and Herzegovina to the west and northwest, and Albania to the south and southeast. In the southwest, the Adriatic Sea links Montenegro with Italy.

Montenegro is in process of European Union integration and is the most prospective accession country. Montenegro joined NATO in June 2017, and is a member of many international organizations such as UN, WTO, OSCE.

Investment, employment, tax incentives and subsidies

In order to enable economic growth, the Montenegrin government introduced a diverse and rich portfolio of incentives and subsidies for resident companies and for foreign investment.

Investment facilitation One-stop shop has been established in the form of a national Investment Agency.

Montenegrin Investment Agencyprovides a full list of incentives and subsidies designed for investments, employment and tax relief.

While afull list of incentives can be found on Agency’s web page, we present herein some of the most competitive taxation traits:

• Tax exemptionfor newly established businesses in underdeveloped municipalities- Newly established production companies located in underdeveloped municipalities are entitled to an eight-year tax exemption. The maximum amount of tax exemption for the period of eight years is limited to EUR 200,000.
• Foreign tax credit- Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realised in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro.
• Application of a double tax treaty (DTT)may reduce or eliminate Montenegrin withholding taxes. To qualify for the beneficial rates prescribed by the treaty, a non-resident must prove tax residency of a relevant treaty country and beneficial ownership over the income. In order to qualify for a preferential tax rate according to a DTT, a non-resident will need to provide the tax residency certificate filled out and stamped by the relevant authority of its country of residence.
• Income taxesin Montenegro are significantly lower than many other countries. The applicable tax rate depends on the realised profit of taxpayers, and the tax rate varies from 9% to15%. The progressive tax rates are as follows:
  • On the profit up to 100,000 euros (EUR), the tax rate shall be 9%.
  • On the profit above EUR 100,000 to EUR 1,500,000, the tax shall be paid in the amount of EUR 9,000 plus 12% on the profit above EUR 100,000.
  • On the profit above EUR 1,500,000, the tax shall be paid in the amount of EUR 177,000 plus 15% on the profit above EUR 1,500,000.

Resident taxpayers are taxed on their worldwide profit. Non-resident taxpayers are taxed on their Montenegrin-sourced income or income attributed to their Montenegrin permanent establishment. Non-residents are also subject to withholding taxes on income sourced in Montenegro.

• Personal income tax.Monthly salary is taxed in the following manner:
  • Salaries up to 700 euros (EUR) (gross) are exempt from tax.
  • Salaries ranging from EUR 701 up to EUR 1,000 (gross) are subject to 9% tax.
  • Salaries from EUR 1,001 (gross) are subject to 15% tax.

Social security contributions are payable by the employer and employee at different rates. The amount borne by the employer is treated as an operating cost while the portion payable by the employee is taken from the gross salary. The rates paid by the employer are as follows:

- Pension and disability insurance 5.5%.

- Unemployment insurance 0.5%.

The VAT rate in Montenegro is 21% on goods and services, with a reduced VAT rate of 7% on essential products and services such as medicines, bread, books, and computers. A 0% VAT rate is calculated for services provided to non-residents, for example, petrol for international transport. VAT registration is required if your turnover exceeds 30,000 euros per year.

• Property taxis payable by legal entities who own or have user rights over real estate located in Montenegro. The annual tax is levied at proportional rates, ranging from 0.25% to 1% on the market value of asset. Tax is payable in two instalments, based on decisions issued by the tax authorities.

Property transfer tax of 3% is payable on the acquisition of ownership rights over immovable property. The taxable base is the market value of the immovable property at the time of the acquisition. A taxpayer (i.e. the acquirer of immovable property) is obligated to self-assess a tax liability, submit a tax return, and settle a tax liability within 15 days from the contract date.