This article discusses Montenegro’s tax-friendly regime, its tax code, and how establishing tax residency in Montenegro can help you reduce your taxes drastically.
Montenegro is far more than a beautiful country with a rich history. It offers investors and entrepreneurs a business-friendly environment, favorable tax rates, and tons of investment opportunities.
Establishing a tax residency in a tax-free or tax-friendly jurisdiction is an integral component of a holistic offshore strategy. If you want a Plan B for your personal and financial matters, you should consider establishing a second residency or citizenship too. Don’t know how or where to start? That’s where we come in.
At Nomad Capitalist, we’ve helped thousands of investors and entrepreneurs go where they’re treated best through our holistic Action Plan that covers everything from your personal life to business complexities and financial aspirations. Reach out to us – we’d love to do the same for you.
Montenegro – Country Overview
Montenegro is a Balkan country located in southeastern Europe. The country borders Bosnia and Herzegovina to the north, Serbia to the northeast, Kosovo to the east, Albania to the southeast, Croatia to the northwest, and the Adriatic Sea to the west.
Montenegro is one of the most beautiful European countries known for its Mediterranean climate, stunning beaches, and lush-green mountains.
The current population of Montenegro is 628,275, and the official language is Montenegrin. The capital and largest city in Montenegro is Podgorica – home to 10% of Montenegro’s population.
Albanian, Bosnian, Croatian, and Serbian are also spoken in the country. You will also find English speakers in most tourist areas. In essence, Montenegro is a culturally, linguistically, and demographically diverse country.
The country gained independence in 2006 and is currently an EU-candidate state. For a short while before independence, Montenegro was a component of the federation union of Serbia and Montenegro, and for most of the 20th century, Montenegro was a part of Yugoslavia.
How to Establish Tax Residency in Montenegro?
Montenegro has a very straightforward and simple-to-understand tax system. Moreover, the country provides many incentives for global businesses and international citizens.
To become a tax resident of Montenegro, you must either spend 183 days a year in the country or prove that Montenegro represents the center of your economic and personal life.
For obvious reasons, the former is an easier route to tax residency in Montenegro and the possibility to file annual tax returns there.
Becoming a Montenegro tax resident comes with a set of opportunities to lower your tax bill while expanding your business or investment ventures. However, we understand that spending half a year in Montenegro may be a discouraging factor for some. So, if you’re looking for countries with minimal to no physical presence requirements, we can also help you with that.
At Nomad Capitalist, we consider your interests, finances, business, and personal growth before curating a holistic offshore plan that’ll help you go where you’re treated best. To know where that is, set up a call with us, and we’ll answer all your questions.
Montenegro’s Tax-Friendly Regime
The central characteristic of the Montenegro tax system is its low tax rates.
Personal Income Tax Rate: Under the Montenegrin Personal Income Tax Law, the individual income tax rates are progressive – ranging from 9% to 15%, regardless of the type of income.
Monthly income over €1,001 is subject to a 15% tax, as is entrepreneurial income above €12,0001. Moreover, the first €700 monthly salary and €8400 annual self-employment income are tax-exempt.
Gift and Inheritance Tax: Gifts for spouses, children, or parents are exempt from tax. Otherwise, a gift is taxed at 3%. The same rates and exemptions apply to inheritance tax.
Social Benefits: Social security contributions for disability insurance and pension and unemployment insurance are calculated and withheld by an employer. Unlike unemployment insurance, pension, and disability insurance contributions are capped annually.
Transport Transfer Tax: If you purchase a used aircraft, boat, car, or motorcycle in Montenegro, you must pay a 5% transport transfer tax.
Montenegro’s Business-Friendly Environment
Montenegro offers eight-year tax exemptions to self-employed individuals who start a business in the country’s underdeveloped region(s). The tax exemption is limited to €200,000 for eight years, allowing you to reduce your taxable income, but you need to hire local employees to be eligible. .
These tax incentives mean your newly established business is exempt from corporate income tax if you operate exclusively in one of Montenegro’s underdeveloped municipalities.
The tax system in Montenegro is truly amongst the best in the world for self-employed individuals and entrepreneurs.
The 15% tax rate is generally levied on dividends, capital gains, and royalties. There are no other deductions or allowances for income earned by entrepreneurs. Capital gains are taxed at the same rate for both individuals and companies.
Corporate Tax in Montenegro
Montenegro has become a magnet for entrepreneurs and investors, thanks to its low corporate income tax and relatively straightforward company formation. Progressive taxation applies to corporate income taxes in Montenegro. The country taxes the annual profit of corporates as follows:
- 9% tax on profits up to €100,000
- Profits between €100,001 and €1,500,000 are taxed €9,000 plus 12% of the amount over €100,001
- Profits over €1,500,001 are taxed €177,000 plus 15% of the amount over €150,001
Rates of social security contributions for employment income are relatively high, as they are set at an aggregate rate going up to 35%. Moreover, municipal authorities may levy up to 15% payroll tax on employee salaries. On top of that, fees of 0.2% on gross salaries support a labor fund.
Montenegro Value-Added Tax
The standard VAT rate is 21%. You must carry out VAT registration if your business generates more than €30,000 a year.
Moreover, Montenegro offers many VAT deductions and returns.
A reduced VAT rate of 7% is offered to businesses related to preparing and serving food and beverages (except for alcoholic beverages, carbonated beverages with added sugar, and coffee) in accommodation and catering outlets.
Capital Gains in Montenegro
Capital gains and investment income, aka interest income, is ordinarily taxed at 15%. Capital gains tax in Europe is generally higher than this.
Montenegro and Double Tax Treaty Countries
Montenegro has double taxation treaties with 40+ countries to cover capital gains tax, corporation taxes, and income tax. These include agreements between Montenegro and countries such as China, France, Germany, Ireland, Italy, Switzerland, and the UK. However, no treaties exist between Montenegro and Australia, Canada, Spain, and the US.
Real Estate Taxes in Montenegro
Montenegro has one of the lowest real estate tax rates in Europe.
Annual property taxes start at 0.25% and hit a high of 1%. This annual property tax is levied on building and land ownership, but those who use the property will have to pay taxes too.
You must pay capital gains tax on the real estate you sell. Taxes on rental income generated apply too. The property rental income tax is paid annually, whether you charge rent monthly or yearly.
The buyer must pay 3% in transfer tax when acquiring land. The transfer tax rate is less than half what you pay elsewhere in Europe.
Go Where You’re Treated Best
A business-friendly environment, favorable tax rates, and lucrative tax exemptions – Montenegro has it all.
Moreover, the country’s stunning location and tourist appeal make it an excellent destination for purchasing residential or commercial real estate to build summer homes, rentals, or resorts.
The only issue one might have with establishing tax residency in Montenegro is the physical presence requirement. If that’s you, you’ll be pleased to know that the region has plenty of second citizenship and residency options with minimal to no physical presence requirements.
Whether you’re interested in establishing residency in Montenegro or elsewhere, we can advise you on the best way to go where you’re treated best. All you have to do is reach out to us, and we’ll take care of the rest.
Montenegro Tax FAQ
Not anymore. Montenegro was once part of a nation called Serbia and Montenegro but, following a referendum, gained its independence from Serbia in 2006.
Not yet, but we believe it’s only a matter of time. The country already uses the euro as its official currency (though not yet a part of the ECB) and has already applied to join. As a result the country has made great advances in recent years to bring itself in line with EU directives.
As such, we consider the country to be an excellent way to get in on the proverbial ground floor, for example by investing early in real estate, as property values are certain to soar once EU membership becomes official.
The general rate of income tax in Montenegro is 15%, while the low thresholds of salaries are taxed at 9%.
