Personal income tax

A resident or non-resident natural person who earns taxable income in Montenegro is a mandatory payer of personal income tax.

Resident natural person means a natural person who has a permanent residence in the territory of Montenegro or has the centre of his/her business and life interests there, or stays in the territory of Montenegro for more than 183 days in a tax year. A resident is also a natural person who is posted outside Montenegro to perform work for a natural or legal person resident in Montenegro or for an international organisation.

The subject of taxation of a resident natural person is income earned both inside and outside Montenegro.

The subject of taxation of a non-resident natural person is income which he/she derives from activities carried out through a permanent establishment (place of business) in Montenegro.

The object of taxation of a non-resident natural person who does not have a permanent establishment (place of business) in Montenegro is the income which such person derives from contractual fees, interest and rentals on immovable property situated in Montenegro.

If two or more natural persons jointly earn income, each of these persons is taxable in accordance with the share of income earned by each of them.

Which income is subject to personal income tax?

Income tax is payable on income earned:

personal income,

self-employment,

property and property rights,

capital.

What constitutes the tax base for determining the annual personal income tax?

The tax base for the payment of the annual personal income tax is the taxable income less the amount of the loss carry forward and the personal deduction (€840 per year).

Taxable income is the difference between the income and the deductible costs (expenses) incurred by the taxpayer in earning and maintaining it.

A taxpayer who derives income from his own activities shall be recognised costs in determining taxable income (profit) in the amount determined in the financial statements (in accordance with the accounting regulations), except for costs for which a different method of determination is provided by this Act.

What is the tax rate?

A single (flat) tax rate is used.

The personal income tax rate is 9%.

How is income from property and property rights taxed?

Income from property and property rights includes:

income derived from the rental of movable and immovable property and income from time limited grants of copyrights, intellectual property rights and other property rights.

The tax base (taxable income) for the payment of income tax on property and property rights is the difference between the total income earned from the rental of that property and the total costs incurred in connection with the earning of that income in that tax year.

Costs of property and property rights include actual costs incurred in connection with the earning of that income (if documented) or standard costs equal to 40% of the income earned from the property and property rights. For income from the rental of rooms, apartments and holiday homes to travellers and tourists, the standard cost is 50 % of the income earned.

In the case of direct income from property and property rights (where an individual rents out his property to another individual), income tax is payable when filing the annual tax return.

When is the annual income tax return filed?

A person liable to pay personal income tax is required to file an annual tax return with the relevant tax authority (according to the place of residence) by the end of the fiscal year for the calculation and payment of personal income tax.

The annual return shall be filed in Form GPP-FL by the end of April of the year in question for the previous year.

The taxpayer himself calculates the income tax in the annual return by applying the tax rate (Section 10 of the Act) to the tax base (Section 8 of the Act) and deducting the amount of tax paid during the year from the total tax calculated.

If the taxpayer has paid more tax during the year than he is liable to pay according to the annual tax return, the overpaid tax will be refunded to him at his request or will be credited as an advance payment for the subsequent tax period.

Who is not required to file an annual tax return?

Individuals who derive income from:

personal income (from the wages of employees) if this income was earned with the same employer in the same accounting period;

income from other self-employed activity which is not the taxpayer's main activity;

capital;

income from self-employment which is taxed on a flat-rate basis.