On December 31, 2021, the Parliament of Montenegro adopted a series of changes in the area of tax regulations (“Europe Now” program).

An overview of the most significant changes is given below.

Law on corporate income tax

I Progressive taxation of profits

Progressive taxation of profits of legal entities is introduced as follows:

• Profit up to EUR 100,000 is taxed at a rate of 9%;
• Profit in the range of 100,000 euros to 1,500,000 euros is taxed at a rate of 12%;
• Profit over EUR 1,500,000 is taxed at a rate of 15%.

The withholding tax rate is increased to 15%.

II Transfer prices

A new set of transfer pricing rules is being introduced. These new rules include a new definition of related parties, an expanded list of methods used to determine arm’s length pricing, and documentation of related party transactions.

The rules regarding the recognition of interest expenses and the taxation of interest income from related parties have been aligned with the “arm’s length” principle.

Documenting transactions with related parties depends on the classification (size) of the taxpayer and the volume of transactions with related parties. The new rules foresee the following:

• Large taxpayers are required to submit documentation on transfer prices along with the annual income tax return;
• Other taxpayers (who do not have the status of a large taxpayer) are required to have transfer pricing documentation when submitting their annual income tax return. The aforementioned taxpayers are obliged to submit documentation on transfer prices at the request of the tax authority within 45 days.
• Taxpayers who do not have the status of a large taxpayer can have documentation in an abbreviated form if transactions with a related party do not exceed the value of 75,000 euros in the year for which the annual income tax return is submitted.

Taxpayers are obliged to prepare and submit (if necessary) documentation on transfer prices for the previous year by June 30 of the current year.

By-laws for the application of the new rules on transfer pricing are expected within a year from the start of the application of the new rules.

III Other changes and additions

• Special rules are introduced for the taxation of interest payments and royalties as well as the payment of dividends/profit shares between affiliated companies from EU member states. These rules will be applied from the day of Montenegro’s accession to the European Union.
• The right to reduce the tax liability by 6% is abolished.

The aforementioned changes apply from January 1, 2022 (with the exception of the rules for taxation of interest payments, royalties, dividends and profit shares between affiliated companies in EU member states).

Value Added Tax Law

The scope of application of the reduced VAT rate of 7% is extended to the preparation and serving of food, beverages and beverages, except for alcoholic beverages, carbonated beverages with added sugar and coffee, in facilities for the provision of catering services.

The aforementioned amendment shall enter into force on January 8, 2022.

Source: https://kpmg.com/

Photo: https://www.hometaxsolutions.com/