1 M O N T E N E G R O 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, 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 Tatjana Bošković Independent Adviser I Ministry of Finance Ministry of Finance Head of the Working Group for the preparation of negotiations on the accession of Montenegro to the EU, for the area of ​ the Acquis concerning the negotiation on Chapter 16 - Taxation TAX SYSTEM OF MONTENEGRO 2

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 policy of Montenegro is based on: Comprehensiveness of tax payers (natural persons and legal persons); Low and competitive tax rates; Very few selected tax incentives. 3

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 reform Tax reform in Montenegro began in 2001 The most important results are: - Introduction of the value added tax (instead of the earlier sales tax on goods and services); - A synthetic income taxation of natural persons (tax revenues from all sources); - Significant reduction of the tax rates levels, with the expansion of the tax base; - Introduction of a unique tax identification number (TIN) for all natural and legal persons (taxpayers); 4

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 reform - The introduction of the self taxation principle, as a core principle in the calculation and payment of tax liabilities; - Equalizing the tax status of domestic and foreign legal entities, equal status of domestic and import excisable goods; - Establishment of mechanisms to eliminate the double taxation of income; - Creation of legislative and system conditions to commence with the Project of a consolidated registration and collection of taxes and contributions, to ensure that all tax liabilities are paid in one place (‘one stop shop’). 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 The core principles underlying the Tax Policy Self-assessment; Simplicity; Neutrality; Transparency; Stability; Applicability. 6

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 Institutions responsible for Tax policy The Government of Montenegro and the Ministry of Finance (Department for Tax and Custom System) are responsible for tax policy. Within the Department for Tax and Customs System, managed by the Deputy Minister, there are 6 divisions: Division for analysis, supervision and coordination; Division for the tax system and tax policy (direct and indirect taxes); Division for the customs system and customs policy; Division for second instance tax- and customs-related administrative procedures; Division of local government financing system; Division of accounting and auditing. 7

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 Division for Tax System and Tax Policy carries out tasks with regards to: Preparation of integral solutions for the system and policy on direct taxation (corporate profit tax, personal income tax, contributions for compulsory social insurance and other grounds for direct taxation) and indirect taxation (VAT, excise, fees and other types of indirect taxes); Preparation of laws and enabling regulations on direct and indirect taxation; Harmonisation of regulations on direct and indirect taxation with the EU legislation and with the best international practice; Participation in bilateral negotiations with regard to entering into Double Taxation Avoidance Treaties; Preparation of opinions and positions with regard to elimination of international double taxation; follow up of activities at international level (OECD and UN) in the field of double taxation avoidance. This division employs 7 advisers. 8

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 Division for the customs system and customs policy performs tasks with regards to: The customs system and customs policy; Preparation of laws and other regulations governing the customs system and customs policy and operation of duty free zones; Preparation of opinions on draft international treaties and conventions; Participation in the preparation of the expert papers serving to undertake and implement the economic policy measures in the field of customs system and customs policy; Participation in the preparation of proposals for accepting the recommendations of the World Customs Organization and other international organizations in the field of customs; Coordination over the execution of the commitments made in the framework of the European integration processes; Participation in the negotiations on rules of origin and methods of administrative cooperation provided for free trade agreements, etc. This Division employs 3 advisers. 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 Division for second instance tax and customs administrative procedure performs tasks with regard to: -Conducting the appeals procedure and other legal remedies for taxpayers and customs payers against the first instance decisions of the tax and customs authorities and bodies of local self-government in administrative proceedings; -Preparation of Second-instance appeal decisions; -Preparation of answers to the complaint in administrative court disputes; -Monitoring of regulations from within the scope of work and participation in the preparation of different opinions with regard to positions concerning the application of tax and customs regulations, etc. This Division employs 7 advisers. 10

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 The Tax Administration is in charge for the implementation of Tax Policy, and its work is supervised by the Ministry of Finance. 11

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 laws Law on Tax Administration (Official Gazette of the Republic of Montenegro, No 65/01 i 80/04; Official Gazette of Montenegro, No. 20/11 and 28/12) as general tax law is a codification of legal provisions (procedures); Law on Corporate Profit Tax (Official Gazette of the Republic of Montenegro No 65/01 and 80/04; Official Gazette of Montenegro No 40/08, 86/09, and 14/12) governs the taxation of profit generated by legal entities; 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) 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) governs the taxation of income generated by natural persons; Official Gazette of the Republic of Montenegro No 65/01, 38/02, 72/02, 21/03, 76/05, Official Gazette of Montenegro No 16/07), VAT Law (Official Gazette of the Republic of Montenegro No 65/01, 38/02, 72/02, 21/03, 76/05, Official Gazette of Montenegro No 16/07), governs the Value Added Tax; Official Gazette of the Republic of Montenegro No 65/01, 38/02, 76/05, Official Gazette of Montenegro No 76/08, 50/09, 78/10, 61/11 and 28/12), Excise Law (Official Gazette of the Republic of Montenegro No 65/01, 38/02, 76/05, Official Gazette of Montenegro No 76/08, 50/09, 78/10, 61/11 and 28/12), governs the excise taxes system; 12

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 laws – continued Law on Immovable Property Tax governs the taxation of immovable properties in Montenegro; Law on Tax on Immovable Property Transactions regulates the payment of the tax on immovable property transactions (only on used and not on new immovable property); Law on Tax on Use of Passenger Motor Vehicles, Vessels, Aircrafts and Airplanes governs the payment of the tax on use of passenger motor vehicles, vessels, aircrafts and airplanes; Law on Tax on Transactions with Used Motor Vehicles, Vessels, Aircrafts and Airplanes governs the payment of the tax on transactions of used motor vehicles, vessels, aircrafts and airplanes; 13

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 laws – continued Law on Contributions for Social Insurance regulates the system of providing funds for financing of the compulsory social insurance (contributions for pension and disability insurance, health insurance and insurance against unemployment); Law on Insurance Premiums Tax regulates payment of the tax on insurance premiums; Law on Financing of Local Self-Government regulates sources of funds, the manner of financial equalization and usage of conditional subsidies, as well as a manner of financing the own activities of local self-governments (municipalities, Capital and Old Royal Capital), and provides for municipal taxes that are own revenues of local self-government, as well as the distribution of common revenues between the State and local self-government; Law on Administrative Fees regulates the system of payment of administrative fees for documents and activities carried out before the state administration authorities, local self-government authorities and other legal entities with public competencies; 14

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 laws – continued Law on Fees for Access to Certain Services of General Interest and for Use of Tobacco Products and Electro – Acoustical and Acoustical Devices prescribes the obligation of payment of special fees for the following: mobile telephony card (SIM card), tariff meter for measuring of the electricity consumption, connection of cable electronic communication network for distribution of radio and TV programmes (cable connection), for use of tobacco products and electro – acoustical and acoustical devices in hospitality industry facilities. This law is temporary and it will apply until 1 January 2014; Law on Integrated Registration and Reporting System on the Calculation and Collection of Taxes and Contributions regulates the establishment and management of the Central Register of persons liable for personal income tax, insurers of compulsory social insurance and persons liable to payment of compulsory social insurance; Law on Tax Advisors regulates the requirements for carrying out the activity of a tax advisor. 15

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 Type of revenue2011 outturn2012 outturn% rate of growth / decrease 1234 I State revenues Customs Excise VAT CIT PIT Tax on immovable property transactions Tax on usage of vehicles, vessels, aircrafts & airplanes Tax on turnover of used vehicles, vessels, aircrafts & flaying objects Tax on insurance premiums Social contributions Fees Charges II Local revenues Taxes Fees Charges Other Total (I +II):

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 Gross state revenues collected in 2012 in million € Type of RevenuesCollection 2012 % share in total revenues % GDP (3.342 mil.€) Customs Excise VAT CIT PIT Tax on immovable property transactions Tax on usage of vehicles, vessels, aircrafts & airplanes Tax on turnover of used vehicles, vessels, aircrafts & flaying objects Tax on insurance premiums Social contributions Fees Charges State revenues 1,

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 Gross revenues trends for the 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 Thank you for your attention! Thank you for your attention! Contact: Tatjana Bošković Contact: Tatjana Bošković 19