The Parliament of Montenegro adopted a series of changes to tax regulations that were published in the Official Gazette of Montenegro no. 152/22 of December 30, 2022.

An overview of the most significant changes and the beginning of their application is given below.

Law on personal income tax

Benefits to individuals who are not employed by the payer are considered other income. The aforementioned benefits were included in personal income before the entry into force of these changes. The payer of the mentioned other income is obliged to calculate, suspend and pay tax on income from other income simultaneously with the payment of income, applying a proportional rate of 15%.

The following are exempted from paying personal income tax:

• Beneficiary of incentive measures for the development of research and innovation, for an employed or engaged person and for a person performing an independent activity, in accordance with the law regulating incentive measures for the development of research and innovation;
• A person who earns income based on personal income or independent activity from an employer who is not registered in Montenegro, based on the acquired digital nomad status in accordance with the law regulating the residence and work of foreigners.

An anti-evasion norm is introduced when determining the tax base of tax on capital gains from the sale of shares in a legal entity. If the sales value of shares in a legal entity is lower than the market value when determining the capital gain, the sales value is determined by the competent tax authority.

The scope of application of tax on income from self-employment is specified.

The changes apply from December 30, 2022.

Law on Contributions for Mandatory Social Insurance

The right to exemption from paying contributions for mandatory social insurance is exercised by:

• Beneficiary of incentive measures for the development of research and innovation, for an employed or engaged person and for a person performing an independent activity, in accordance with the law regulating incentive measures for the development of research and innovation;
• A person who earns income based on personal income or independent activity from an employer who is not registered in Montenegro, based on the acquired digital nomad status in accordance with the law regulating the residence and work of foreigners.

The changes apply from December 30, 2022.

Law on corporate income tax

The obligation to pay withholding tax on payments made on the basis of a loan, i.e. a loan with or without interest, made by a person liable for income tax to natural persons is introduced. Withholding tax is calculated and paid at the time of loan disbursement at a rate of 15% on the gross disbursement amount.

A corporate income tax payer who concluded a loan agreement with a natural person, i.e. a loan with or without interest before the date of entry into force of this amendment to the law, is obliged to calculate and pay withholding tax after the expiry of the period for which the agreement was concluded, if they conclude contract extending that period.

The withholding tax payer is obliged to submit a report on the withholding tax paid by the end of February of the current year for the previous
year.

The changes apply from December 30, 2022.

March update

The Parliament of Montenegro adopted a series of amendments to the tax regulations related to corporate income tax, which were published in the Official Gazette of Montenegro no. 028/23 of March 10, 2023.

Law on corporate income tax changes

Payments made on the basis of a loan, i.e. loans made by the taxpayer to natural persons who do not have the status of a related party, up to the amount of EUR 5,000 per year, are exempt from tax.

A special withholding tax rate of 30% is introduced on income paid to a non-resident legal entity that is established or has its registered seat or has its seat of administration or place of actual administration in the territory with tax sovereignty. The list of territories with tax sovereignty is published by the Ministry of Finance on its website. This provision does not apply to a non-resident person who has resident status in a country with which Montenegro has concluded an agreement on the avoidance of double taxation.

Additionally, a person that is established or has a registered seat or has a seat of management or a place of effective management in the territory with tax sovereignty is considered a related person of the tax resident of the income payer.

Beneficiaries of incentive measures for the development of research and innovation in accordance with the law regulating incentive measures for the development of research and innovation are exempted from paying corporate income tax.

A new provision is introduced which defines that transactions between a permanent business unit and a non-resident head office of that business unit are subject to transfer pricing documentation.

The changes apply from March 18, 2023.

Source: https://kpmg.com/

Photo: https://montenegroguides.co/