- Law on Corporate Profit Tax (“Official Gazette of the Republic of Montenegro", No. 065/01 dated 31.12.2001, 012/02 dated 15.03.2002, 080/04 dated 29.12.2004, “Official Gazette of Montenegro", No. 040/08 dated 27.06.2008, 086/09 dated 25.12.2009, 040/11 dated 08.08.2011, 014/12 dated 07.03.2012, 061/13 dated 30.12.2013, 055/16 dated 17.08.2016)
- Rules on classification of fixed assets according to groups and methods for determination of depreciation (“Official Gazette of the Republic of Montenegro", No.028/02 dated 13.06.2002)
- Rules on the form and contents of the tax return for determination of corporate profit tax (“Official Gazette of Montenegro", No. 008/09 dated 04.02.2009, 011/11 dated 18.02.2011, 078/17 dated 23.11.2017, 090/17 dated 29.12.2017)
- Rules on use of tax relief in respect of corporate profit tax in underdeveloped municipalities (“Official Gazette of Montenegro", No.04/14 dated 24.01.2014)
- Rules on the form and contents of the report on payment of withholding tax ("Official Gazette of Montenegro", No.84/17 dated 15.12.2017)
- Rules on the consolidated tax return (“Official Gazette of Montenegro", No. 083/16 dated 31.12.2016, 087/17 dated 22.12.2017)
Object of taxation
The object of taxation of a resident (company registered in Montenegro) is the profit that the resident generates in Montenegro and outside of Montenegro.
The revenues generated from following grounds shall be considered as sources of profit in Montenegro:
- sale of goods produced in Montenegro;
- rendering services in Montenegro;
- interest, if debited to the resident through its permanent establishment in Montenegro;
- dividends and shares in profit paid by a resident;
- use of property rights in Montenegro;
- exploitation of natural resources;
- immovable property and rights on immovable property located in Montenegro;
- sale of immovable property, if its seller is located in Montenegro;
- sale of movable property, if its seller is located in Montenegro;
- insurance and reinsurance against risks realized in Montenegro;
- other revenues, if generated in respect of activities carried out in Montenegro.
A taxable profit of a taxpayer shall represent the tax base of the profit tax.
The taxable profit shall be assessed by adjusting the profit of the taxpayer stated in the income statement.
The expenses in the amounts set forth in the income statement, in accordance with the law governing accounting, shall be recognised when assessing the taxable profit with the exception to expenses for which law stipulates a different manner of assessment.
The following shall not be recognized as expenses:
- costs incurred for the purposes other than carrying out the business activity;
- costs that cannot be documented;
- interests on untimely paid taxes and contributions;
- interests paid to non-residents, if paid at the rate higher than customary commercial rate;
- administrative costs paid by a permanent establishment to the non-resident headquarter;
- earnings of employees or other persons arising from profit sharing;
- pecuniary fines and penalties;
- correction of value of individual claims in a case of parties to which is simultaneously owed to;
- contributions given to political organizations.
Costs of material and acquisition value of sold merchandise shall be recognized in the amounts calculated by applying average cost method or FIFO method, in accordance with the law governing accounting.
Depreciation of permanent fixed assets and investments in immovable property shall be recognized as an expense in the amount determined in the manner envisaged under the law.
Expenses incurred for healthcare, education, scientific, religious, cultural, sports, and humanitarian purposes, as well as for environmental protection shall be recognized as expenses in the amount not exceeding 3.5% of the total revenue.
Business entertainment expenses shall be recognized as expenses in the amount up to 1% of the total revenue provided that: they are incurred for improvement of business operations, they are documented, and their recipient is not a related party.
Membership fees to chambers, alliances, and associations shall be recognized as expenses in the amount not exceeding 0.1% of the total revenue, except for the membership fees the amount of which is stipulated under a law, which shall be recognized in the amount prescribed by law.
Adjusted (written off value of) doubtful claims shall be recognized as expenses provided that:
- is proven beyond doubt that such claims were previously included in taxpayer’s revenues;
- such claim was written off in the taxpayer’s books as uncollectible;
- the taxpayer presents required evidences of unsuccessful collection of such claims.
Doubtful claims, which are recognized as expenses, and then collected, shall be included in the revenues of the taxpayer at the time of their collection.
Interests and appurtenant costs due to a creditor with the status of a related party shall be recognized as an expense in the amount not exceeding interests costs in the open market, if such costs do not exceed the actually paid amount.The difference between interest calculated on the arm’s length basis and the amount of interest actually received shall be included in the tax base of the recipient of such interest.
Capital gain shall be considered to be the revenue that a taxpayer generates through sale or other transfer for consideration (hereinafter referred to as the sale) of land, building constructions, property rights, equity interest, and securities.
Losses resulting from business relations, excluding those resulting in capital losses, may be carried forward against profit generated in future assessment periods, but not exceeding five years.
Profit tax rate
The rate of the profit tax is proportional and amounts to 9% of the tax base.
A taxpayer of the profit tax is obliged to calculate, withhold and pay the withholding tax on payments made on the following bases:
- dividends and share in profits paid to the resident and non-resident legal entities and natural persons;
- interest, royalties, and other intellectual property rights compensations, capital gain, movable and immovable assets lease considerations, considerations from rendering consulting services, market research services and audit services paid to a non-resident legal entity.
The withholding tax shall be paid at the rate of 9% to a base made of the gross revenue. The withholding tax shall be calculated and paid in accordance with regulations in effect at the time of the payment of revenues.
Newly established legal entity conducting an activity in economically underdeveloped municipalities shall have the assessed profit tax for the period of the first eight years reduced by 100%. Total tax relief for a period of eight years may not exceed 200,000.00 euro.
Avoidance of double taxation of profit
Deduction at source for payments to foreign residents is subject to the Double Taxation Prevention Treaty.
For a resident taxpayer that generates profit outside of Montenegro and pays a tax on such profit in another country the tax credit shall be approved at the account of the profit tax assessed in accordance with the provision of this Law in amount equal to the amount of the profit tax paid in such country. The tax credit cannot exceed the amount that would be calculated by applying the provisions of the law on the profit generated in another country.
Group taxation and transfer prices
For the purpose of the tax consolidation, parent and subsidiary companies shall constitute a group of related companies if the parent company has direct or indirect control over at least 75% of shares or interest of the subsidiary company. Related companies shall have a right to the tax consolidation provided that such companies are residents of Montenegro.
Once approved, the tax consolidation shall apply for the period of no less than five years.
Tax period for which the Profit Tax is assessed shall be a financial year. A financial year shall be the calendar year, except for the case of liquidation or commencement of performance of activity during the year.The Profit Tax shall be assessed after the expiration of the financial year or other period for tax assessment, according to the tax base realized in such period.
Taxpayer of the Profit Tax shall be obliged to submit to the competent tax authority a tax return for the period for which the tax is assessed. The return must be submitted by no later than three months after the expiration of the period for which tax is being assessed. The tax stated in the return shall also be paid within the same deadline.