US Tax Advice for US Expatriate Living and Working in the Republic of Montenegro.
Tax Guide for US Expats Living and Working in the Republic of Montenegro
Who Is Liable For Income Taxes in the Republic of Montenegro
Residents are subject to tax in Montenegro on their worldwide income. Nonresidents are subject to tax on Montenegrin-source income that is realized through a permanent establishment in Montenegro. The income of a nonresident without a permanent establishment in Montenegro is subject to tax on interest, royalties and rental fees realized from the renting of real estate located in Montenegro.
Individuals are considered to be resident for tax purposes if they have a domicile, residence or center of business and life interests in Montenegro or if they spend more than 183 days in Montenegro within a tax year, which is the calendar year. In addition, Montenegrin individuals seconded abroad by a resident employer to operate in the name of the employer or an international organization are also considered resident.
Income subject to tax. Tax is levied on the types of income described below.
Employment income. Salary tax is payable at a rate of 9% on income from permanent or temporary employment, benefits received in money and in kind, paid leave and other employment remuneration that exceeds a prescribed level.
Self-employment income. Tax is levied on the net earnings of self-employed individuals at a rate of 9%. For this purpose, taxable income is accounting profit adjusted in accordance with the tax regulations. The tax authorities may grant certain self-employed individuals the right not to maintain books; lump-sum tax is levied in such cases. In cases in which an individual realizes income from self-employment that is not his or her principal business activity, a standard deduction in the amount of 30% of realized income is claimed.
Investment income. Tax is imposed at a rate of 9% on investment income derived by residents and nonresidents in the following cases:
- Dividends (subject to Corporate Profit Tax Law rules)
- Participation in profits
- Use of a company’s property or services by its owner for personal purposes
Interest paid to nonresidents is taxed at a rate of 5%.
Income from property leasing derived by residents and nonresidents is taxed at a rate of 9%. A standard deduction of 30% may be claimed with respect to this income. Under an exception, a 50% deduction is allowed for income received from leasing apartments, rooms and beds in the tourist industry.
The above taxes on investment income are withheld at source by the payer of the income.
Capital gains. Capital gains derived by individuals are taxed at a rate of 9%.
Rates. For Montenegrin tax resident individuals, a 9% rate applies to annual worldwide income from sources specified in the tax law. This rate also applies to income realized in Montenegro by non-resident individuals.
Surtax. Municipalities are entitled to impose a surtax on personal income tax paid by legal entities and individuals in their territory. The surtax is imposed at a rate of 15% in Cetinje and Podgorica, and at a rate of 13% in other municipalities.
Relief for losses. Losses incurred in self-employment activities may be carried forward for up to five years.
B. Other taxes
Real estate tax. Each legal entity or individual owning real estate in Montenegro on 1 January is considered to be a taxpayer for that calendar year with respect to the real estate located in Montenegro. Real estate tax rates range from 0.1% to 1% and are determined at the municipality level.
Transfer tax. Transfers of ownership of land and buildings located in Montenegro are subject to a 3% transfer tax, which is payable by the acquirer. This tax rate also applies to inheritances and gifts of real estate.
C. Social security and other contributions
Contributions. Social security tax is imposed on salaries received by individual employees. The employee and the employer each pay contributions to the following funds and organizations at the rates indicated.
Contributions to the Pension and Disability Fund at a rate of 20.5% and contributions to the Health Care Fund at a rate of 12.3% (for individuals without any other insurance) are payable by individuals on income received under contracts relating to royalties, services, additional work, agency and sports, as well as under similar contracts involving the payment of remuneration for services performed.
The maximum annual social security contribution base is set at €43,000.
Expatriate employees must pay social security contributions if they are not insured in their home countries or if provided in totalization agreements applied by Montenegro.
Coverage.
An employee who pays Montenegrin social security contributions is entitled to various benefits, including health insurance for the employee and dependent family members, disability and professional illness insurance, unemployment allowances, pension payments and other benefits.
Totalization agreements. To prevent double taxation and to assure benefit coverage, the Republic of Montenegro currently applies social security totalization agreements with the countries listed below. All of these agreements were signed by the former Republic of Yugoslavia, except for the agreement with the Republic of Serbia, and are applied by Montenegro unilaterally.
The following is a list of the signatories of the totalization agreements that Montenegro currently applies.
Austria
France
Norway
Belgium
Germany
Poland
Bosnia
Hungary
Romania
Herzegovina
Italy
Serbia
Bulgaria
Libya
Slovak Republic
Croatia
Luxembourg
Sweden
Czech Republic
Macedonia
Switzerland
Denmark
Netherlands
United Kingdom
Egypt
Double tax relief and tax treaties
Montenegro became an independent state in June 2006. The only double tax treaty that Montenegro has signed as an independent state is a treaty with Malta. The Montenegrin government has rendered a decision that it recognizes tax treaties signed by the former Republic of Yugoslavia until new tax treaties are signed.
Although Montenegro professes to honor the tax treaties entered into by the former Yugoslavia, the full applicability of these treaties must be confirmed by the other contractual state because Montenegro applies these treaties unilaterally. The following is a list of these countries.
Albania
Finland
Poland
Belarus
France
Romania
Belgium
Germany
Russian
Bosnia-
Hungary Federation
Herzegovina
Italy
Slovak Republic
Bulgaria
Korea (North)
Slovenia
China
Kuwait
Sri Lanka
Croatia
Latvia
Sweden
Cyprus
Macedonia
Switzerland
Czech Republic
Moldova
Turkey
Denmark
Netherlands
Ukraine
Egypt
Norway
United Kingdom
To learn more about the history, culture, economy and other information about Montenegro
We have been preparing US income tax returns for US Citizens and permanent residents living in Montenegro for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Montenegro and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Montenegro.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email