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Taxation of Branches in Montenegro

Taxation of Branches in Montenegro

Foreign companies interested in carrying out operations on the Montenegrin market can set up several types of entities. Among the most common ones are the subsidiary and the branch office. The differences between them are important from two points of view: the first one related to the independence of the company based in Montenegro, and the second one is related to the taxation of the branch and subsidiary in Montenegro.

While the subsidiary is treated like any other local business, the branch office is subject to specific taxation criteria in Montenegro. Below, our company formation agents in Montenegro explain how branch offices of foreign companies are taxed. We can also assist with the registration of a branch office.

Characteristics of branches in Montenegro

Both local and foreign companies can establish branch offices in Montenegro, however, the taxation of foreign-owned branch offices can pose certain problems.

In order to understand how the taxation of branches in Montenegro occurs, one should know that:

  • –          the branch office is an extension of the parent company and can complete the same activities as the foreign company;
  • –          even if foreign-owned, the branch office must register for taxation and VAT in Montenegro;
  • –          the branch office will be treated as a local company only with respect to the income it generated in Montenegro;
  • –          there are no specific share capital requirements for opening a branch office in Montenegro.

Our Montenegro company formation specialists can offer information on the advantages of setting up a branch office here. They can also explain the main differences between branches and subsidiaries in Montenegro.

The taxes to be paid by branches in Montenegro

The taxation of branch offices in Montenegro implies the levy of the same taxes as for a local company but only on the amount of money earned in this country. The taxes that need to be paid by a branch office in Montenegro are:

  • –          the corporate tax;
  • –          the dividend tax;
  • –          the capital gains tax;
  • –          the value added tax;
  • –          the employment charges.

Montenegro has one of the lowest corporate tax rates in Europe, and it is set at 9%. Montenegro branch offices of foreign companies will be imposed the corporate tax of 9% on the income it generates in this country. The same 9% rate applies to capital gains and dividends distributed by the branch to its parent company.

The other withholding taxes which need to be considered by a branch office are the interest and the royalties taxes which are levied at a 9% rate on their payment. It is important to note that interest paid to non-resident individuals is set at a 5% tax rate.

The VAT which needs to be paid by a branch office on the goods and services sold on the Montenegro market is set at 19%, however, a reduced rate of 7% is also available. It should be noted that there is no difference between the taxation of branch offices and local companies with respect to the value added tax in Montenegro.

In order to be taxed, branch offices are required to submit several financial documents which need to be prepared by the parent company and sent to the tax authorities and the Trade Register in Montenegro.

Branch offices under Montenegro’s double tax treaties

From a taxation point of view, foreign companies will have many benefits if they decide to open branch offices instead of subsidiaries. This is because branches are treated as permanent establishment under these agreements and thus benefit from:

  • –          repatriation of profits at reduced rates and various tax exemptions available in the parent company’s home country;
  • –          tax credits in order to avoid the payment of a similar tax in both countries signing the agreement;
  • –          reduced tax rates on the payment of dividends, royalties, and interests to the parent company;
  • –          other tax benefits which depend on the agreement signed with Montenegro, which can be offered by our agents.

It should be noted that Montenegro has more than 30 double tax agreements with countries around the world.

Our company registration consultants in Montenegro can offer more information on how branches are taxed with respect to double tax conventions.

Tax filing requirements for Montenegro branch offices

When it comes to the assessment of taxes which need to be paid by a branch office, this can be done by the parent company or by the tax authorities in Montenegro. The period in which the tax returns must be filed within 3 months after the end of the calendar year.

If you need more information on how branches are taxed or assistance in opening such business structure, please contact our company formation representatives in Montenegro.