Montenegrin Parliament adopted in August 2016 amendments of the Corporate Income Tax Law which come into effect on 1 January 2017. The amendments introduced rules regarding tax deductibility of certain expenses, electronic filing of tax return, assessment and mechanism for taxation of capital gains realised by non-residents on sale of Montenegrin capital goods, revised penalties for non-complying with the provisions of this law, as well as broader definition of income realized by non-residents subject to withholding tax.
Montenegrin Parliament adopted in August 2016 amendments of the Corporate Income Tax Law (hereinafter: the Law). The amendments became effective as of 1 January, 2017. It seems that key driver for amendments was the intention to improve certain areas previously regulated in an insufficient manner. We list the major changes for your further consideration below.
Submission of tax returns:
Taxpayer is obliged to electronically submit CIT return through the portal of Tax Authorities. The aim of this amendment is reduction of administration and time spent by the taxpayer on complying with the provisions of the law as well as reduction of the possibilities for making errors in respect to data entry.
Please note, that in order to submit CIT return electronically, taxpayers should possess digital certificate issued by the certification body- AD “Pošta Crne Gore“.
Taxation of non-residents
The adopted amendments to the Law introduced specific rules for assessment and mechanism for taxation of:
- capital gains of non-residents in transactions with other non-resident entities or resident and non-resident individuals;
- Montenegrin sourced income realised by non-residents on the basis of lease of movable and immovable assets from a person who is not obliged to calculate, withhold and pay withholding tax (i.e. non-resident entities or resident and non-resident individuals).
The non-resident is obliged to file the tax return, via their Montenegrin tax representative (tax agent), within 30 days from generating income. Tax liability will be determined based on decision issued by the Montenegrin Tax Authorities.
Amended Law provides more detailed definitions of the income earned by a non-residents on the basis of dividends, royalties, interest, fees for consulting, market research and auditing services, which is subject to withholding tax on payments to non-residents.
Withholding tax will also be payable on income earned by:
- a non-resident on the basis of performing entertainment, artistic, sport or similar program in Montenegro;
- a non-resident or resident individuals on the basis of repurchase of used products, semi-final products and agricultural products from a manufacturer which is registered for VAT purposes.
Assessment of CIT base:
- Salary costs, severance payments related to retirement of employees, costs related to technological surplus and other payments related to termination of employment are recognized as deductible in the tax period in which they are paid (not in the period in which they are accrued).
- Impairment of assets -expenses incurred on the basis of impairment of assets are not deductible for CIT purposes. Impairment expenses are deductible in the period in which assets are disposed of or damaged due to force majeure.
- Write-off of receivables – amendments relate to conditions which need to be fulfilled so write-off of receivables can be treated as CIT deductible. Namely, write-off of receivables can be considered as CIT deductible only if such receivables were previously included in taxpayer’s revenues, if they are written-off as uncollectible in taxpayer’s books, if the taxpayer can provide a proof of filling a lawsuit or that enforced proceedings were instigated or that receivables were reported in the bankruptcy or liquidations proceedings and if such receivable is older than 365 days.
- Expenses deductible up to the amount of 3.5%of total revenues – The list of expenses deductible up to the amount of 3.5% of total revenue is expanded and encompasses expenses incurred for social purposes, reduction of poverty, protecting persons with disabilities, child and youth social care, elderly care, protection and promotion of human and minority rights, the rule of law, civil society and volunteerism, Montenegro’s Euro – Atlantic and European integration, art, technical culture, promotion of agriculture and rural development, sustainable development, consumer protection, gender equality, the fight against corruption and organized crime and fight against addictions.
Expenditures for abovementioned purposes are recognized regardless whether they are made in cash, goods, rights and services.
Expenses incurred in this regard will be deductible for CIT purposes only if they are made to legal entities, which are engaged in provision of the aforementioned services in accordance with specific regulations, and if received funds are used by such entities exclusively for the above mentioned purposes.
Fines ranging from EUR 550 to EUR 16,500 are introduced for failing to calculate CIT in accordance with provisions of the Law.
Should you require any clarification or any further information regarding the above changes in the tax legislation, please do not hesitate to contact us via e-mail or phone.