What is withholding tax in Montenegro

Who is obliged to pay withholding tax

Withholding tax is defined by the Corporate Profit Tax Act ("Official Gazette of the Republic of Montenegro", nos. 65/01, 80/04 and "Official Gazette of Montenegro", nos. 40/08, 86/09 ... 55/16), which provides that a corporate profit taxpayer is obliged to calculate, withhold and pay withholding tax on income paid on the basis of: interest, royalties and other intellectual property rights, capital gains, rental fees for movable and immovable property, fees for consulting services, market research services and audit services, where such income is paid to a non-resident legal entity.

Basis for the tax

A corporate profit taxpayer is obliged to calculate, withhold and pay withholding tax on income paid on the basis of:

dividends and shares in profit paid to resident and non-resident legal and natural persons;
interest, royalties and other intellectual property rights, capital gains, rental fees for movable and immovable property, fees for consulting services, market research services and audit services paid to a non-resident legal entity.

Withholding tax is paid at a rate of 9% on a base equal to the gross income amount, and is calculated and paid in accordance with the regulations in force at the time the income is paid. Example: If a legal entity from Montenegro engages a legal entity from another country, say India, for the preparation of a design standards book, that legal entity would be obliged to pay a 9% tax when paying the non-resident legal entity in India. Why? Well, although the design standards book was produced on the territory of India, the book itself will be used in Montenegro. Withholding tax is also paid by a business unit of a non-resident legal entity when it makes payments on any of the above-mentioned bases, except when such income is recognised as income of that business unit.

Who is exempt from this tax?

In order to protect residents from double taxation, which has a disincentive effect on international business and investment, and to eliminate tax barriers to the exchange of goods and services, movement of persons and capital, and transfer of technology and know-how, and thereby stimulate foreign investment and provide positive effects of tax incentives, Montenegro has signed double taxation treaties with the following countries. List of countries with which Montenegro has signed a treaty on prevention of double taxation:

Albania
Belgium
Belarus
Bosnia and Herzegovina
Bulgaria
Czech Republic
Denmark
Egypt
Finland
France
Netherlands
Croatia
Italy
Iran
China
Cyprus
South Korea
Kuwait
Hungary
North Macedonia
Malaysia
Malta
Moldova
Germany
Norway
Poland
Romania
Russia
Slovakia
Slovenia
Sri Lanka
Switzerland
Sweden
Turkey
Ukraine
United Kingdom
Ireland
Serbia
UAE
Azerbaijan
Austria
Portugal

The payer of the income applies the provisions of the double taxation treaty, provided that the non-resident proves resident status in the country with which Montenegro has concluded a double taxation treaty and that the non-resident is the beneficial owner of the income.

What is withholding tax

Who is obliged to pay withholding tax

Basis for the tax

Who is exempt from this tax?

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