Recent amendments of the Law on Social Security
In accordance with recent amendments of the Law on Social Security Contributions as of Jan 1, 2022, the health insurance contributions are abolished by both employee and employer (in total 10.8%)
Individual - Taxes on personal income
Taxation of individuals’ income in Montenegro is based on their residence status.
Residents are subject to tax on their worldwide income from any source.
Non-residents are taxed on income related to a fixed base/permanent establishment (PE) in Montenegro and royalties, interest, and rental income from immovable property in Montenegro.
Personal income tax rates
As of 1st January 2022, progressive taxation of salary and income earned by entrepreneurs is introduced. Proportional 15% tax rate is introduced to other type 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.
Local surtax
Local surtax exists in addition to PIT and is paid to the municipality where the taxpayer is domiciled. Surtax of 13% is applicable in all municipalities with the exception of Podgorica and Cetinje, where the rate is 15%.
The surtax base is the amount of PIT assessed.
Individual – Residence
A resident is an individual who:
- spends at least 183 days in a tax year in Montenegro
- has domicile in Montenegro, or
- has a centre of personal and economic activities in Montenegro.
A resident is also an individual sent abroad for the purpose of working for legal entity or natural person resident of Montenegro or for international organisation.
Individual - Other taxes
Social security contributions
Social security contributions for pension and disability insurance and unemployment insurance are calculated and withheld by an employer from the salary paid to an employee. Unlike the unemployment, pension and disability insurance contributions are subject to a specific annual cap (53,371 euros [EUR] for 2019).
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%.
Consumption taxes
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) and 0% rate (e.g. export of goods, supply of gasoline for vessels in international traffic).
Individual - Income determination
Employment income
Employees’ gross income includes all cash remuneration and most personal expenses (including PIT and social security contributions) paid by the employer.
The following types of income are considered as employment income:
- Salaries or compensation generated in accordance with regulations governing labour.
- Earnings on the basis of fees paid in addition to salary, above the amount set by the PIT Law.
- Reimbursement of costs for business trips and accommodation in connection with these trips.
- Relocation expenses.
- Reimbursement for the use of one’s own vehicle for business purposes exceeding the non-taxable threshold set by the PIT Law.
- Earnings of members of representative and executive bodies of the state or local administration.
- Earnings of members of assemblies, managing boards, and supervisory boards.
- All other earnings arising from employment and those similar to employment (e.g. temporary and occasional work).
Employees’ gross income also includes bonuses paid and any benefits in kind (subject to minor exceptions) received as a result of employment.
Pursuant to the legislation of Montenegro, specific employee remunerations are not taxable up to a specified cap (e.g. certain redundancy payments, solidarity help).
The last amendments to the PIT Law stipulate that meal allowance, holiday allowance, and transportation to and from work compensation are taxed in full.
Capital gains and investment income
Adopted amendments introduced taxation of capital gains realised from the sale of real estate, shares in a legal entity, and securities.
Capital gain tax is not levied on transfer of property in the following cases:
- Transfer of a real estate used as a place of taxpayer’s residence.
- Transfer or property between spouses and parents and children.
Investment income is subject to PIT and includes:
- interest income
- shares in profits distributed to employees or board members
- use of a company’s property and services by the owner of the company, and
- acquisition of a company’s shares by the employees or board members under beneficial terms.
Applicable tax rate is 15%
Property income
The following property income is subject to PIT at a rate of 15%:
- Lease income from immovable and movable property.
- Income from time limited disposal of intellectual property (IP) and other property rights.
Individual - Deductions
Business deductions
Deduction for non-primary activity expenditures
Standard expenditures are recognised for a taxpayer who generates revenue from other self-employment activities that are not one’s primary activity in the amount of 30% of the realised revenue from those other activities.
Individual - Foreign tax relief and tax treaties
Foreign tax relief
Resident taxpayers are entitled to a tax relief up to the amount of tax paid in another country on income realised in that country. This tax relief 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.
Tax treaties
See the Withholding taxes section in the Corporate tax summary for a list of countries with which Montenegro has a tax treaty
Individual - Other tax credits and incentives
Tax incentive for self-employed individuals in a non-developed region
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Individual - Tax administration
Taxable period
The tax year in Montenegro is the calendar year.
Tax returns
Generally, taxpayers are obligated to submit an annual tax return at the end of April for income generated in the previous calendar year, except taxpayers that have only employment income or have only investment income.
Payment of tax
Tax on employment income, income from capital, income from self-employment that is not the primary activity of the self-employer, and property-related income is withheld at source by the payer of income.
A self-employed taxpayer is entitled to lump-sum taxation unless one’s total turnover for the year preceding the year for which the tax is assessed exceeds EUR 18,000. This option is excluded for certain professions (e.g. lawyers, auditors).
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