The Montenegrin Parliament adopted at the end of 2021 a set of legislative changes concerning taxation, in the Labour Act, Mandatory Social Security Act, Personal Income Tax Act, and Corporate Income Tax Act. The new regime applies from 1 January 2022.
The announced reform’s key goal was to increase average salary in Montenegro. This was achieved through: (i) increasing minimum monthly wage for full-time work from net EUR 222 to net EUR 450, (ii) abolishing mandatory contributions for health insurance, and (iii) exempting first EUR 700 of gross salary from taxation and introducing progressive taxation of higher salaries.
In order to ensure that the above changes will benefit the employees, the amendments to the Labour Act explicitly provide that any decrease or abolishment of any mandatory social contribution or personal income tax levied on the employee’s salary has to translate into the increase of the net salary.
The monthly salary exceeding the non-taxable EUR 700 gross is subject to progressive taxation. In that respect, the tax rate of 9% applies to the portion of the salary between EUR 700.01 to EUR 1,000.00, while the portion of the salary above EUR 1,000 is taxed at the rate of 15%.
Combined tax burden is now ranging from 20.4% of gross minimum salary to maximum of 31.3% from gross salary which is above the minimum wage.
A similar new regime is introduced for the income from self-employment (income earned by registered entrepreneurs, free professions such as lawyers, notaries, auditors, engineers, and similar, and income from intellectual and other services, etc.). Non-taxable part of revenue generated from self-employment is EUR 8,400 on an annual basis. The annual revenue above EUR 8,400 is subject to progressive taxation. Annual income in the range between EUR 8,400.1 and EUR 12,000 is taxed at the rate of 9%, and the portion of the annual income above EUR 12,000 at the rate of 15%.
Not all personal income is subject to progressive regime described above. Income from property capital, capital gains and sport activities is still subject to a flat rate, which has been increased from 9% to 15 %.
Corporate income tax is now also subject to progressive taxation. Annual profit of corporates is taxed as follows:
- for the profit of up to EUR 100,000.00, the tax rate is 9%;
- for the profit anywhere between EUR 100,000.01 and EUR 1,500,000.00, corporate income tax is equal to EUR 9,000 + 12% of the amount over EUR 100,000.01; and
- for the profit over EUR 1,500,000.01, corporate income tax is equal to EUR 177,000.00 + 15% on the amount over EUR 1,500,000.01.
The withholding tax rate, which is applied on dividends payable to resident or non-resident natural or legal persons, and on income of non-resident legal entities from interest, royalties, capital gains, rent of movable or immovable property, consulting services, market research services, or audit services, is increased from 9% to 15%.