Value-added tax (VAT)
The main principles of the Montenegrin VAT are in line with the European Union (EU) Sixth Directive guidelines. Taxable supplies are subject to a general 21% VAT rate; however, certain supplies are taxed at a reduced 7% rate (e.g. bread, milk, books, medicines, computers) and 0% rate (e.g. export of goods, supply of gasoline for vessels in international traffic).
In principle, the VAT base is comprised of consideration (in cash, goods, or services) received for supplies, including taxes, except VAT (e.g. customs, excise duty), and direct costs (e.g. commissions, cost of packing, transport). If the consideration is not paid in cash, the tax base will be the market value of the goods or services received at the time of supply. Furthermore, if an exchange of goods for services takes place, the tax base represents the value of the received good or service.
Registration for VAT in Montenegro may be either voluntary or mandatory. Voluntary VAT registration is possible for taxpayers who have not realised turnover exceeding 30,000 euros (EUR) in the last 12-month period. Once registered, a company may not apply for deregistration for at least three years. VAT registration is mandatory for an entity that realises turnover exceeding the EUR 30,000 threshold in any 12-month period.
VAT is calculated and paid on a calendar-month basis (i.e. a VAT return must be submitted and VAT liability must be cleared monthly). VAT calculated on imports is paid along with customs duties.
There are no export duties in Montenegro, nor is it forbidden to export any goods. Exceptionally, the Montenegrin government can impose quantity limitation of exports only in case of critical shortage of certain goods or for the purpose of protection of non-renewable natural resources, under certain conditions.
Customs duties are paid on goods imported into the customs territory of Montenegro in accordance with the rates and tariffs set forth in the Customs Tariffs, which is in line with the harmonised system of tariff codes prescribed by the World Trade Organisation (WTO). Customs duties can be levied in two manners, as ad valorem or specific duty per unit of goods.
For agricultural and alimentary products, a combined duty has been determined, that is, both ad valorem and specific duty are charged simultaneously.
Ad valorem duties are prescribed within the scope from 0% to 30%. Specific duties range from EUR 0.04 per 1kg to EUR 1 per 1kg.
Customs rates stipulated by international agreements are only applied to goods of preferential origin from countries covered by such agreements. The most important free trade agreements that Montenegro signed are with the European Union, the European Free Trade Association (EFTA), the Central European Free Trade Agreement (CEFTA) states, Russia, Turkey, and Ukraine.
Legal entities that are importers or producers of the following products are subject to excise duty:
- Alcoholic and alcohol beverages.
- Tobacco products, including non-combustible tobacco.
- Mineral oils, their derivatives and substitutes, and coal.
- Mineralised water with sugar or aroma.
- Liquid for charging electronic cigarettes.
Excise duty can be prescribed as a fixed amount and/or as a certain percentage (ad valorem).
Tax on coffee
Tax on coffee is payable on coffee imported and produced in Montenegro. The tax rate varies from EUR 0.80/kg to EUR 1.30/kg, depending on the type of the coffee. Tax on coffee is also payable for products and beverages that contain coffee. The tax rate for these products is EUR 2.50/kg for one kg of net coffee contained in the final product.
Property tax is 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 assets as of 1 January of the current year. In case of acquisition of new property, the taxpayer is obligated to submit a tax return to the tax authorities within 30 days from the acquisition date (i.e. registration return for property tax) and to declare annual property tax by the submission of annual returns. Tax is payable in two instalments, based on decisions issued by the tax authorities.
Property transfer tax
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.
No stamp taxes are in place in Montenegro.
Employment income includes all receipts paid or provided to an individual based on employment (salaries, pensions, benefits in kind, insurance premiums, benefits, and awards above the non-taxable thresholds). Income generated through other types of personal engagements similar to employment (e.g. temporary jobs) is also considered employment income.
While employees are the taxpayers, the employer is responsible for calculating and withholding personal income tax (PIT) on behalf of its employees.
As of 1st January 2022, progressive taxation of salary and income earned by entrepreneurs is introduced. Proportional 15% tax rate is introduced to other types of income.
Salary is taxed in the following manner:
- Salaries up to EUR 700 (gross) are exempt from tax;
- Salaries ranging from EUR 701 up to EUR 1,000 (gross) are subject to 9% tax;
- Salaries from EUR 1001 (gross) are subject to 15% tax.
Income earned by entrepreneurs is taxed in the following manner:
- From EUR 8,400.01 to EUR 12,000 is subject to 9% tax;
- From EUR 12,000.01 is subject to 15% tax.
Social security contributions
Social security contributions for pension and disability insurance, health insurance, and unemployment insurance are calculated and withheld by an employer from the salary paid to an employee. Unlike the other two types of social security contributions, pension and disability insurance contributions are subject to a specific annual cap (EUR 54,553 for 2021).
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 rates paid by the employee are as follows:
- Pension and disability insurance: 15%.
- Unemployment insurance: 0.5%.
Legal entities are subject to environmental charges for the following:
- Use of firing or electrical feed equipment with power greater than 1MW.
- Import of substances harmful to the atmosphere.
- Production or deposit of dangerous waste.
- Other charges (for space denominated for consumers of tobacco products and electroacoustic and acoustic devices).