Depreciable assets are tangible and intangible assets with a useful life of at least one year and an individual acquisition value of at least EUR 300.
Fixed assets are divided into five depreciation groups, with depreciation rates prescribed for each group (I - 5%, II - 15%, III - 20%, IV - 25%, and V - 30%). A straight-line depreciation method is prescribed for assets classified in the first group (real estate), while a declining-balance method is applicable for assets classified in the other groups.
Amortisation of intangible assets (e.g. concessions, patents, copyrights, franchises, other rights) is performed using the proportional method based on the life of these investments.
Goodwill is determined according to IFRS and is subject to impairment. There are no other special provisions on goodwill.
There are no special provisions regarding treatment of start-up expenses. Consequently, they will be deductible if they are incurred for business purposes and properly documented under the general expense deductibility rule.
Interest expenses are generally deductible if they are business related and properly documented. Also, interest and related cost of loans paid out to a creditor with the status of a related party are recognised as expenses only in the amount that does not exceed market interest rates between unrelated parties. The exceeding amount is not recognised as an expense, but it is included in the taxable profit and subject to the normal CIT rate.
Interest paid out to non-resident legal entities (unless it is revenue of a PE of a non-resident legal entity) is subject to WHT levied at 15%.
Write-offs and provisions for doubtful debts are considered deductible, provided that:
- written-off/provided receivables were previously included in the taxpayer’s revenues
- doubtful debts were written-off as uncollectible
- the taxpayer can provide proof of filing a lawsuit, that enforced proceedings were instigated, or that receivables were reported in bankruptcy or liquidations proceedings, and
- such receivables are older than 365 days.
Expenses incurred for social purposes, reduction of poverty, protecting persons with disabilities, child and youth social care, elderly care, protection and promotion of human and minority rights, the rule of law, civil society and volunteerism, Montenegro’s Euro-Atlantic and European integration, art, technical culture, promotion of agriculture and rural development, sustainable development, consumer protection, gender equality, the fight against corruption and organised crime, and the fight against addictions are recognised for CIT purposes, up to a threshold of 3.5% of total revenue.
Expenditures for the above-mentioned purposes are recognised regardless of whether they are made in cash, goods, rights, or services.
Expenses incurred in this regard will be deductible for CIT purposes only if they are made to legal entities, which are engaged in provision of the aforementioned services in accordance with specific regulations, and if received funds are used by such entities exclusively for the above-mentioned purposes.
Impairment of assets
Expenses incurred on the basis of impairment of assets are not deductible for CIT purposes. Impairment expenses are deductible in the period in which assets are disposed of or damaged due to force majeure.
Salary costs and costs related to termination of employment
Salary costs, severance payments related to retirement of employees, costs related to technological surplus, and other payments related to termination of employment are recognised as deductible in the tax period in which they are paid (not in the period in which they are accrued).
Fines and penalties
Penalty interest for late payment of taxes is not CIT deductible.
The basic deductibility rule is that business expenses incurred for business purposes are CIT deductible. Following that rule, CIT Law provides for full deductibility of taxes.
Other significant items
The following expenditures are also recognised for CIT purposes, up to the prescribed threshold:
- Entertaining expenses, up to 1% of total revenue.
- Membership fees paid to chambers of commerce and other associations (except political parties), up to 0.1% of gross revenue unless the amount of the fees has been determined by law.
- Provisions for redundancy payments and jubilee awards recognised as expenditures, up to the amount prescribed by the labour legislation.
- Increase of provisions of balance sheet receivables and the provisions for off-balance sheet losses are recognised as expenses in the bank’s tax assessment form, in the amounts calculated at the level of the bank, which were, in accordance with the bank’s internal acts, reported in the bank’s profit and loss statement as an expense in the tax period, in accordance with the regulations of the Central Bank of Montenegro.
- Increase of indirect write-off made according to the receivables collectability and technical provisions are recognised as expense in the insurance company’s tax assessment form in the amount prescribed by the insurance legislation.
- Provisions for special risks of brokers and dealers, up to the amounts prescribed by the securities law.
- Provisions for renewable natural resources, warranties for the sale of goods and services (guarantee period), and the expected loss from court process (delicate agreements) if accounted for in accordance with the accounting legislation.
Net operating losses
The taxpayer is entitled to carry forward losses incurred in an accounting period over the following five years. Carryback of losses is not allowed.
Payments to foreign affiliates
Supplies of goods or services from a foreign group entity not established in Montenegro to a Montenegrin entity must be valued at arm's length. Excess expenses recorded over market value are treated as non-deductible expenses. If the transaction with a related party is not in accordance with the arm's-length principle, the tax authorities are required to adjust the taxpayer's tax base.
With respect to payment of charges of a PE, CIT Law provides that administrative costs charged by the non-resident head office are non-deductible for CIT at the level of the PE.