MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Working group for Chapter 16- taxation Bilateral screening: Chapter 16 PRESENTATION OF MONTENEGRO Brussels, 29 April 2013

MONTENEGRO Negotiating Team for the Accession of Montenegro to the European Union Working group for Chapter 16 - Taxation Bilateral screening for Chapter 16 Presentation of Montenegro Brussels, 28 April 2013 TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Directive on Taxation of Savings Aida Muratović Independent Advisor, Ministry of Finance TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

 Council Directive 2003/48/EC of 3 June 2003 on taxation of savings in the form of interest payments RELEVANT DIRECTIVE TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

 Law on Personal Income Tax (Official Gazette of the Republic of Montenegro 65/01, 12/02, 37/04, 29/05, 78/06, and 04/07; Official Gazette of Montenegro 86/09, 40/11, 14/12, and 06/13);  Law on Corporate Profit Tax (Official Gazette of the Republic of Montenegro 65/01, 12/02 and 80/04; Official Gazette of Montenegro 40/08, 86/09, 40/11 and 14/12);  Law on Tax Administration (Official Gazette of the Republic of Montenegro 65/01, 80/04 and 29/05; Official Gazette of Montenegro 73/10, 20/11 and 28/12);  Law on Banks (Official Gazette of Montenegro 17/08, 44/10 and 40/11);  Law on Prevention of Money Laundering and Terrorism Financing (Official Gazette of Montenegro 14/07, 04/08 and 14/12);  Convention on Avoidance of Double Taxation. LEGISLATIVE FRAMEWORK TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

DEFINITION  The term ''interest'' means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures as well as other income assimilated to income from money lent by the laws of the State in which the income arises but does not include any income which is treated as a dividend. Penalty charges for late payment shall not be regarded as interest. (Article releted to Interest in Convention on Avoidance of Double Taxation).  The payer of interest is a bank or other financial institution which is obliged to calculate, withhold, and pay the tax on revenue from interest at the same time with the payment of interest.  The term ''competent authority'‘ in Montenegro means the Ministry of Finance or its authorized representative, or the Tax Administration (Article related to general definitions in the Convention on Avoidance of Double Taxation). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

RESIDENT INDIVIDUALS  A resident natural person is a natural person who has habitual residence or centre of business and vital interests in the territory of Montenegro, or staying in the territory of Montenegro for more than 183 days in a tax year. The resident of Montenegro shall also be a natural person who was assigned outside of Montenegro to conduct business for a natural person or legal entity who is a resident of Montenegro, or for an international organization (Article 3, Law on Personal Income Tax).  Object of taxation of a resident natural person is the income that the resident generates in Montenegro and outside of Montenegro (Article 4 of the Law on Personal Income Tax).  Sources of income on which personal income tax is paid, include revenues generated, among other things, in respect of capital which includes revenues from interest (Articles 12 and 37 of the Law on Personal Income Tax). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

RESIDENT INDIVIDUALS continued  Payment of tax on revenues from interest (Article 50 of the Law on Personal Income Tax) The payer of revenues from interest is obliged to calculate, withhold, and pay the tax on revenue from interest at the same time with the payment of revenue. Tax rate - Withholding tax on revenues from interest paid to a resident, is calculated at the rate of 9% on the base made of gross revenue. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

NON -RESIDENT INDIVIDUALS  Object of taxation of a non-resident natural person is revenue from interest that the non-resident natural and legal person generates in Montenegro (Article 4 of the Law on Personal Income Tax).  Payment of tax on revenues from interest (Article 50 of the Law on Personal Income Tax and Article 29 of the Law on Corporate Profit Tax) The payer of revenues from interest, paid to a non-resident, shall be obliged to calculate, withhold and pay the tax on revenue from interest at the same time with the payment of revenue. Tax rate o Withholding tax on revenues from interest paid to a non-resident natural person, is calculated at the rate of 5%; o Withholding tax on revenues from interest paid to a non-resident legal person, is calculated at the rate of 9%, on a base made of gross revenues. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ELIMINATION OF DOUBLE TAXATION  To a resident taxpayer, who generates income from interest outside of Montenegro and pays an income tax in another country, the tax credit in the amount equal to the income tax or profit tax paid in such country shall be approved.  The tax credit cannot exceed the amount that would have been obtained by applying provisions of the domestic laws to the income generated in another country (Article 44 of the Law on Personal Income Tax and Article 33 of the Law on Corporate Profit Tax). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ELIMINATION OF DOUBLE TAXATION continued  When calculating the withholding tax for revenues from interest paid to a non- resident legal entity, a payer of revenues shall apply provisions of the Convention on avoidance of double taxation, provided that the non-resident proofs the resident status in the country with which Montenegro has concluded the Convention for the avoidance of double taxation and that the non-resident is the beneficial owner of revenues (Article 29a of the Law on Corporate Profit Tax).  Convention on avoidance of double taxation shall supersede the provisions of the domestic laws (Article 45 of the Law on Personal Income Tax and Article 34 of the Law on Corporate Profit Tax).  Table presentation of Conventions on avoidance of double taxation applicable in Montenegro TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ELIMINATION OF DOUBLE TAXATION continued Number State Official Gazette of Montenegro Number Rate of interest 1 Albania SCG 11/ Belgium SFRJ 11/ Byelorussia SRJ 5/988 4 Bosnia and Herzegovina SCG18/ Bulgaria SRJ 1/ Czech Republic SCG 3/ Denmark SFRJ 15/810 8 Egypt SCG 14/ Finland SFRJ 8/ France SFRJ 28/ Netherlands SFRJ 12/ Croatia SCG 6/ Italy SFRJ 2/ China SRJ 2/ Cyprus SFRJ 2/ Korea SRJ 1/ Kuwait SRJ 4/ LatviaSCG 3/0610 TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ELIMINATION OF DOUBLE TAXATION continued Number State Official Gazette of Montenegro Number Rate of interest 19 HungrySRJ 10/ Macedonia SRJ 5/ Malaysia SFRJ 15/ Malta CG 02/ Moldova SCG 3/ Germany SFRJ 12/ Norway SFRJ 9/ Poland SRJ 2/ Romania SRJ 4/ Russia SRJ 3/ SlovakiaSRJ 4/ Slovenia SCG 7/ Sri Lanka SFRJ 4/ Switzerland SCG 11/ Sweden SFRJ 7/ Turkey SCG 3/ Ukraine SRJ 4/ Great Britain SFRJ 7/ Ireland CG 9/ Serbia CG 16/ UAE CG 9/1210 TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ELIMINATION OF DOUBLE TAXATION continued  In some Conventions on Avoidance of Double Taxation, interest shall be exempted from taxation in the Contracting State in which it arises, or in Montenegro, if it is derived and beneficially owned by the Government of the other Contracting State or a local authority thereof, the Central Bank or any financial institution wholly or almost wholly owned by that Government. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCHANGE OF INFORMATION  The tax authority, in discharging competencies, have the authorisation to cooperate with other bodies and organizations in the country and abroad regarding the issues of tax crimes, in accordance with international treaties or agreements (Article 6 of Law on Tax Administration).  Data considered as tax secret, at request of the competent state authority, may be available to that authority in accordance with law (Article 16 of Law on Tax Administration). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCHANGE OF INFORMATION continued  The banking secret are considered to be: data about the account holders and their account numbers opened with a bank; data on individual deposit accounts and transactions at the individual accounts of natural and legal persons opened with a bank; other data on a client which the bank obtained on the basis of providing services to bank’s client. (Article 84, Law on Banks).  All data representing a banking secret may be disclosed to: the Central Bank, - to the competent judicial authority; other parties, based on explicit written approval of a client. Furthermore, data on the account number of a legal person and a natural person performing the registered activity may be disclosed to the tax authority, as well as the creditor of the bank’s client who presents the bank with an enforceable court ruling or another enforceable document determined by the law. (Article 85, Law on Banks).  Thus, line with the applicable legal provisions, a bank cannot make available to the Tax Administration data considered a banking secret, precisely the Tax Administration cannot exchange data concerning interests on savings with the EU member states. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCHANGE OF INFORMATION continued  Conventions on avoidance of double taxation signed by Montenegro after its independence, included a provision by which the competent authorities of the contracting states may not decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.  Thus, the Tax Administration can exchange information only with countries with which Montenegro has signed a convention on avoidance of double taxation and containing the above described provision in the Article concerning the exchange of information. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Prevention of money laundering  Money laundering is criminalised in Article 268 of the Criminal Code.  Law on Prevention of Money Laundering and Terrorism Financing governs the measures and actions to be undertaken in order to discover and prevent money laundering and terrorism financing.  Provisions of this Law stipulate the obligations, measures, procedures, controls, restrictions and actions an obligor is obliged to carry out during its operation, as well as in respect of its clients.  Provisions pertaining to the competences of the Administration stipulate the manner of lodging a request to an obligor, lawyer, or notary or another state authority to submit data when estimated that there is a reasonable suspicion that a money laundering or terrorism financing is in question. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Prevention of money laundering continued  In line with this Law, the competent state authority (customs office, stock exchanges and clearing and depository companies, courts, state prosecutor, and other state authorities) are obliged to submit to the Administration data if in the course of activities from within their competence they discover facts indicating to a suspicion that a money laundering or terrorism financing is in question.  According to this Law, banks (obligors) are obliged to submit to the Administration reports on cash transactions in the amount exceeding EUR 15,000 and on all suspicious transactions regardless of the amount.  The law does not prescribe a specific interest payments, but has detailed rules regarding KYC measures. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Future steps  The main goal of Montenegro is to harmonize its national legislations with EU regulations.  Montenegro will gradually harmonize the Law on Tax Administration with the EU Directive on savings, and will also improve the technical capacity of the tax authority to facilitate the efficient exchange of information. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

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