The Montenegrin Parliament recently enacted the new Law on Tax on Coffee and amendments to the Law on Value Added Tax, the Law on Real Estate Tax, the Law on Tax Administration and the Law on Mandatory Social Security. The purpose of these changes is to clarify existing provisions of these tax laws in order to improve their enforcement and to better control the tax liabilities of non-resident taxpayers. Changes to the Law on Real Estate Tax have introduced higher taxes, but also tax benefits aimed at stimulating the development of high-end tourism in Montenegro.
Law on Value Added Tax Amended
A key change to the Law on Value Added Tax is the introduction of a new assessment basis for tax VAT in cases where a supplier grants the customer a discount. Under the new rule, discounts which reduce the sale price below the price at which the supplier acquired the goods will not be recognized for purposes of assessment of tax base. The effect of this rule is to require suppliers to pay VAT on the acquisition price of all goods, irrespective of the price at which those goods are sold. This deviates significantly from basic VAT standards incorporated in EU VAT Directives by shifting the cost of VAT to the supplier, instead of the customer.
Amendments to the Law on Real Property Tax
The amendments to the Law on Real Property Tax increase the minimum rates of property tax from the current 0.10% to 0.25%. As a result, the rates of property tax which may be prescribed by Montenegrin municipalities can now range from 0.25% to 1.00% of the property market value.
Amendments introduce the possibility of decreasing prescribed tax rates for hotels in primary tourist zones up to 30% for 4 star hotels, and up to 70% for hotels which have more than 4 stars.
Construction companies are exempt from paying real estate tax on facilities under construction which are intended for further sale. The tax exemption is available for maximum period of three years starting from the issuance of the construction permit. The amendments also introduce the right of municipalities to exempt companies involved in agricultural production, including processing, packing or finishing of agricultural goods produced in Montenegro from paying real estate tax.
Amendments allow for the higher taxation of hotels which are not used in line with the planning documentation, agricultural land that is not being cultivated, and illegally constructed facilities.
The prescribed fines for failure to pay tax or to submit a tax return range from EUR 2,000 to EUR 20,000 for companies, and from EUR 250 to EUR 2,000 for natural persons. Fines are also imposed on public notaries and officials in competent state authorities who fail to inform the Tax Authority about the transfer of real property.
The amendments to the Law on Real Property Tax will be applied as of 1 January 2016.
Amendments to the Law on Contributions for Mandatory Social Security
Increased rates of contributions for health insurance have been introduced as follows
- For employees, members of corporate boards, seconded persons, and foreign citizens employed in Montenegro, the rate of contributions borne by the employers has been increased from 3.8% to 4.3%, increasing the overall rate from 12.3% to 13.8%.
- For Montenegrin citizens employed abroad, entrepreneurs, persons engaged under service agreements, farmers and owners of agricultural land, priests, and employees on unpaid leave for more than 30 days, the rate has increased from 12.3% to 12.8%.
- For persons receiving compensation in line with the labour laws, unemployed persons, war veterans, and social protection beneficiaries, the rate has increased from 3.8% to 4.3%.
The prescribed rates for pension, disability and unemployment insurance contributions remain unchanged.
Amendments to the Law on Contributions for Mandatory Social Insurance entered into force on 28 February 2015.
Amendments to the Law on Tax Administration
An obligation of non-residents to appoint a tax representative if they generate income or own property in Montenegro, if their permanent establishment or permanent residence is not in Montenegro has been introduced. Non-residents must appoint a tax representative within 10 days from the date when they generated income or acquired property in Montenegro and must inform the Tax Administration of such appointment. An exception to this rule applies if the non-resident generates income which is subject to the withholding tax.
The law prescribes a maximum fine of EUR 15,000 for a non-resident who fails to appoint a tax representative.
The amendments have extended the statute of limitations for the payment of tax from three to five years. Also, the amendments prescribe that the statute limitations for a refund of tax credit is one year after deletion of a taxpayer from taxpayers register. The statute of limitations for tax misdemeanours is three years starting from the date when the tax misdemeanour was committed.
The amendments introduce an obligation on the Tax Administration to refuse tax registration of a company if the founder of such company has unsettled tax liabilities.
The Tax Administration is now authorized to impose tax on persons who conduct unregistered business activities. In such cases the Tax Administration is authorized to assess tax on the basis of taxable income of companies which perform similar business activities, without the deduction of standard expenses.
The amendments specify that a taxpayer can amend a submitted tax return a maximum two times. However, the amended tax return cannot be submitted if the Tax Administration had already initiated a tax audit.
The amendments now allow for taxpayers whose bank accounts are blocked in enforced collection proceedings to settle their mutual monetary obligations through contractual arrangements, such as change of creditor or change of debtor. This possibility is available only for the purpose of fulfilment of tax liabilities.
The possibility of forcibly collecting tax from non-monetary receivables of taxpayers, their salary or pension, has also been introduced by the amendments.
The amendments have introduced, for the first time, the concept of "secondary tax liability", whereby one person may be held liable for the unpaid taxes of another person. The list of persons who may have secondary tax liability include the statutory representative of a company for unpaid taxes of the company, persons who assist other persons in the evasion of tax, and responsible persons in the company for unpaid withholding tax by the company. In addition, secondary tax liability may be imposed on all shareholders who hold at least 10% of shares in a company. These persons may be held liable for a company's tax liabilities if they receive payment or assets from the company without consideration or for a price below market in the period of three years before the company's tax liability became due.
The amendments increase fines for certain specific misdemeanours, including failure to register with the Tax Administration and failure to submit a withholding tax return within the prescribed deadlines.
Circumstances under which the tax authority is allowed to seize a taxpayer's assets in the course of a tax audit (e.g. goods acquired without payment of tax, supplied by an unregistered entity, or transported without proper supporting documentation, etc.) have been defined in greater detail. The amendments also prescribe cases in which the Tax Administration is authorized to prohibit a taxpayer from performing business activities (e.g. if the taxpayer engages workers without an employment agreement in order to evade tax and social security contributions, if the taxpayer does not use the fiscal cash register, etc.).
Minor improvements to the provisions governing the payment of tax in bankruptcy, liquidation or corporate status change proceedings have also been introduced.
Amendments to the Law on Tax Administration entered into force on 28 February 2015.
New Tax on Coffee Introduced
A new system for the taxation of coffee has been introduced by the Law on the Tax on Coffee. Instead of excise tax being payable only on the import of coffee, the new law introduces a special tax on coffee which will be payable on both the production and import of coffee. The system of calculation of tax has also changed: the new tax will be paid in fixed amounts, instead of 20% of the customs value of coffee, as was previously the case. The new tax ranges from EUR 0.80 to EUR 2.50 per kg of coffee, depending on the type of coffee in question. Tax on coffee becomes due at the moment of import, or at the moment of supply of coffee. Tax has to be paid by the 15th of the month for coffee supplied/imported in the previous month.
The new law introduces an obligation on companies engaged in the production and import of coffee to apply to the Customs Authority for registration in the Registry of Coffee Taxpayers within certain prescribed deadlines.
Misdemeanour fines for failure to submit a tax return, to pay tax or to register with the competent authorities within the prescribed deadlines range from EUR 1,000 to EUR 15,000 for companies, and from EUR 100 to EUR 1,000 for responsible persons in a company.
The new Law on Tax on Coffee entered into force on 28 February 2015.