1 M O N T E N E G R O Negotiating Team for Accession of Montenegro to the European Union Working Group for Chapter 16 – Taxation Bilateral screening: Chapter 16 PRESENTATION OF MONTENEGRO Brussels, 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 TAXATION OF THE PERSONAL INCOME IN MONTENEGRO Tatjana Bošković Senior advisor I Ministry of Finance Head of the Working Group for preparation of negotiations on Accession of Montenegro to the European Union, for the area of ​ the Acquis concerning negotiating Chapter 16 - 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 LAW ON PERSONAL INCOME TAX LAW ON PERSONAL INCOME TAX Official Gazette of the Republic of Montenegro No 65/01, 37/04 and 78/06; Official Gazette of Montenegro No 86/09, 14/12, and 06/13) In effect since July 1, 2002 Introduces the obligation of natural persons to pay the income tax (using flat tax rate from 2007) Introduction of self-assessment – taxpayer reports and assesses his/her income tax liability personally, by filing a tax return

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 TAXPAYER Taxpayer of personal income tax is a resident or a non-resident natural person, who generates income from sources set out by PIT Law.

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 A resident is a natural person, who has a permanent residence or center of business and vital interests on the territory of Montenegro, and who remains on the territory of Montenegro for more than 183 days during a tax year.

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 OBJECT OF TAXATION Object of taxation of a resident is the income generated from sources inside and outside Montenegro. Object of taxation of a non-resident is the income that he/she generates 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 TAX RATE Flat tax rate is apply from January 1, 2007: for 2007 & 2008 – 15 % for 2007 & 2008 – 15 % for 2009 – 12 % for 2009 – 12 % for 2010 – 9% for 2010 – 9% Law on Amendments to the Law on Personal Income Tax has been enforced since 8 February 2013, and it introduced taxation by higher rate of 15% of personal incomes, which are higher than EUR 720 in monthly gross amount, for the amount higher than EUR 720. Law on Amendments to the Law on Personal Income Tax has been enforced since 8 February 2013, and it introduced taxation by higher rate of 15% of personal incomes, which are higher than EUR 720 in monthly gross amount, for the amount higher than EUR 720. This decision represents temporary measure, which will be implemented by the end of This decision represents temporary measure, which will be implemented by the end of 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 INCOME EXEMPT FROM TAXATION Revenues excluded from tax base include: receipts of disabled persons, receipts of disabled persons, allowances for children and newborn babies, allowances for children and newborn babies, compensations paid from health insurance (except for compensations for salaries), compensations paid from health insurance (except for compensations for salaries), inheritances and gifts, inheritances and gifts, games of chance etc. games of chance etc.

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 TAX PERIOD & TAX BASE Personal income tax shall be paid for a period of one calendar year. Tax base of the personal income tax for a resident is the total taxable income received during the tax period, and which is reduced by the amount of loss carried forward. Tax base of the personal income tax for a non- resident taxpayer is the total taxable income of the taxpayer for the tax period.

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 SOURCES OF INCOME 1. Personal earnings; 2. Self-employment ; 3. Property and property rights; 4. Capital; 5. Capital gains.

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 PERSONAL EARNINGS Personal earnings are all incomes received from employment The employer or payer of personal earnings has the obligation to calculate, withhold and pay tax and contributions at the time of each payment of personal earnings

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 SELF-EMPLOYMENT INCOME Income from self-employment includes the revenues generated by: Business activities, freelance activities, professional services, intellectual services; Activities other than the main activity of the taxpayer, which are performed occasionally for the purpose of generating 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 SELF-EMPLOYMENT INCOME (cont.) Advance tax payment should be paid monthly by the end of the current month for previous month, in the amount of 1/12 (one twelfth) of the amount of tax liability for previous year; Advance tax payments are considered as a credit with regard to the tax liability reported on the tax return; If total turnover for last year (or planned turnover in cases of start of the activity) is less than 18,000 €, taxpayer may pay tax in annual lump sum amount; The standard expenses of the taxpayer who generates revenue from self-employment activities other than his/her main activity are 30% of the generated revenues, the tax rate is 9%.

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 PROPERTY AND PROPERTY RIGHT Revenue from property and property rights is: Revenue generated by rental of immovable and movable property; Revenue from time limited assignment of copyrights, industrial property rights and other property rights; Standard expenditures are 30% of generated revenue from the property and property rights.

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 CAPITAL Interests Share in profit realized by the members of management and employees in money or shares Use of property and services by the owners and co - owners of the capital for their private needs Dividends and shares in profit The income payers are obliged to compute, withhold and pay tax at the time of payment of income at the formal rate From 2010 the tax rate is 9%, except for the income from interest generated by non-resident the rate is 5%.

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 Capital gains Capital gain is income generated from the sale of property: immovable property, shares in legal person and securities

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 ANNUAL TAX RETURN Taxpayer Resident is obliged to submit a tax return for income generated from the following sources:  Revenues from self-employment activities (real income)  Property and property rights  Capital gains  Income from abroad Non - resident submit a tax return for incomes generated in Montenegro for wich payment on withholding tax is not provided

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 To a resident taxpayer, who generates income outside of Montenegro and pays an income tax in another country, the tax credit in the amount equal to income tax paid in such country shall be approved. The tax credit cannot exceed the amount that would have been obtained through implementation of provisions of this Law to income generated in another country. 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 Thank you for your attention! Thank you for your attention! Contact: Tatjana Bošković Contact: Tatjana Bošković