Israel – Montenegro Tax Treaty

Business Activity in Montenegro

Montenegro’s economy centers around three main sectors, advancing energy, agriculture, and tourism. Tourism, contributing approximately 25% to the GDP, is a vital economic driver, attracting a tourist influx that surpasses the country’s population threefold. The sector benefits from emerging luxury tourism enterprises, especially in ship and yacht tourism. Montenegro’s shipbuilding ports are renowned in the Mediterranean for their excellence, providing top-notch services for yacht construction and refurbishment. This high-quality support plays a key role in the growth of the nautical tourism industry.

In 2022, the top exports of Montenegro were mineral fuels, lubricants, and related materials totaling 209.9 million EUR. This category included Electric energy (170.2 million EUR) and other components.

In terms of imports, machinery and transport equipment dominated the structure, amounting to 709.9 million EUR. Notable components within this category were road vehicles (228.5 million EUR), electrical machinery, apparatus, and appliances (142.3 million EUR), among others.

In overall, different business laws have been adopted to remove barriers to doing business and attracting foreign investors in Montenegro.

Bilateral Agreements Between Montenegro and Israel

Several agreements were signed between Israel and Montenegro:

1. Agreement Between Serbia and Montenegro and the State of Israel on reciprocal Promotion and Protection of Investments

Reciprocal Promotion and Protection of Investments

This Agreement was signed between the state of Israel, Serbia and Montenegro for the reciprocal promotion and protection of investments, to intensify the economic developments and mutual benefits between them. The agreement became effective on February 7, 2006.

To read the agreement in English, click here.

Applicability of the MLI

While Montenegro did not sign the MLI, Israeli did signed it in 2017, and it entered into force on January.

Residency for Tax Purposes in Montenegro

Residence of an Individual

The general rule for tax residency in many countries, including Montenegro, is based on the number of days spent in the country. Spending 183 days or more in Montenegro within a particular calendar year is one of the requirements for tax residency.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A legal entity is recognized as a tax residency in Montenegro if it is registered/incorporated in the country. However, a foreign corporation may be considered a Montenegrin tax resident if it has its effective management located within Montenegro.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Montenegro

The Montenegro’s Tax Authority is called “Ministry of Finance and Social Welfare – Revenue and Customs Administration“.

Income taxation: 9-15% Tax rate.

Local surtax: 13% is applicable in all municipalities with the exception of Podgorica and Cetinje, where the rate is 15%.

Taxation of companies and branches: 9%

VAT: 21% VAT rate; however, certain supplies are taxed at a reduced 7% rate (e.g. bread, milk, books, medicines, computers) and 0% rate (e.g. export of goods, supply of gasoline for vessels in international traffic).

Capital gains tax: 15%

Withholding Tax

Inheritance Tax and Estate Tax in Montenegro

Referring to inheritance, estate, and gift taxes, the applicable rates may vary based on the relationship between the deceased individual and the recipient. Transfers of wealth to spouses, children, or parents are granted tax exemption, reflecting the nation’s family-centric tax policies. In general, for instances involving individuals outside these immediate family ties, both gifts and inheritances for real estate are subjected to a flat tax rate of 3%.

Relocation to Montenegro

Even though the Jewish community in Montenegro is on the smaller side, estimated only at around 500 people in 2023, in January 2012, following the signature of the Act on Mutual Relations, Judaism was recognized as an official religion in this country.

There are several visa regimes that allow for relocation to Montenegro including here investment in tourism, agriculture, energy etc. Furthermore, visa can be issued when opening a company, buying a property, or also by obtaining a working visa. Regarding the working visa, you can apply for either a permanent or temporary work residence permit. The temporary work residence permit is initially issued for 12 months and after that can be renewed. To qualify for a permanent residence permit, you need to have spent five years in Montenegro with a temporary residence permit.

Real Estate Taxation in Montenegro

Montenegro imposes annual property taxes ranging from 0.25% to 1%. The person utilizing the property, not necessarily the owner, is responsible for settling this tax obligation. The real estate tax is calculated based on the market value of a specific property.

Effective from January 1, 2024, individuals purchasing real estate in Montenegro are required to pay a title transfer tax based on the property value:

• 3% for property values up to 150,000 Euros;
• 5% for property values ranging from 150,000 to 500,000 Euros;
• 6% for property values exceeding 500,000 Euros.

When it’s the first sale of a building, it is subject to a 21% value-added tax (VAT), and after that a standard 3% transfer tax is levied on the buy of property. The property tax base is the market value of the immovable property in the time of its acquisition. Real estate transfer tax is not paid when a unit of real estate is included as part of an initial stake as a contribution in kind, in connection with a share capital increase, or in the event of the acquisition of real estate in the course of a merger or de-merger.

Renting income is taxed at 15 % and is added to the annual tax return.

Transfer of Funds from Israel to Montenegro

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Montenegro

• Limited liability company (Drustvo sa ogranicenom odgovornscu): This type of business is one of the most common in Montenegro. Only 1 euro is needed as a share capital to open this company, and the ownership structure is straightforward. The shareholder of the company, which can also be the company director, can be anyone, whether a foreign/local company or individual. The shareholder number shouldn’t exceed 30. In case the company’s share exceeds the capital in 25,000 Euro, it can be transformed after following certain procedures as a joint stock company
• Joint stock company (Akcionarsko drustvo): This entity can be established as a private or public entity with a single shareholder and director. However, it’s mandatory to designate an auditor as well. The minimum capital needed for this type of entity is 25,000 Euro.
• General partnership (Ortako drutvo): This type of entity does not require a minimum share capital and all partners are liable of the company’s debt and responsibility.
• Limited liability partnership (Komanditno drutvo): This company structure includes two main groups: general partners and limited partners. General partners bear full responsibility for the company’s debts, while limited partners are only liable up to the extent of their invested capital. Limited partners lack decision-making authority and cannot initiate the dissolution of the partnership. Additionally, if a third party wishes to join the partnership, they don’t need approval from the limited partner. There is no minimum capital required.
• Branch office/subsidiary: In Montenegro other type of entity are branch company or subsidiary. A branch office, can engage in profit making activities with Montenegro and its activities are only limited in the scope of the mother company business.

Incentive Laws in Montenegro

Montenegro can be considered a tax friendly state which offers a large variety of investments opportunities and incentive laws.

For example, the newly established production companies in underdeveloped municipalities qualify for an eight-year tax exemption, capped at EUR 200,000. This incentive is applicable to businesses with units in underdeveloped regions. The tax holiday is proportional to the unit’s profit compared to the total profit over the eight-year period. However, the incentive excludes taxpayers in specific sectors, including primary agricultural production, transport, shipbuilding, fishery, steel production, trade, and catering (except primary catering facilities).

Tourism is a very important sector for Montenegro, contributing around 25% to its GDP. Montenegro government aims to boost investment in key sectors such as high-quality tourism, food production, and energy. For example, it includes a zero VAT rate for specific investments exceeding EUR 500,000, tax reliefs for some business that qualify, and a reduced VAT rate of 7% for various services. High-category hotels are exempt from utility fees, and investors constructing four-star hotels or higher enjoy fee exemptions for communal equipment. Exemptions are subject to categorization compliance, documented through the real estate cadaster.

Montenegro Double Tax Treaties: