The Parliament of Montenegro has adopted the Law on Amendments to the Law on Corporate Income Tax (“Official Gazette of the Republic of Montenegro nos. 65/01 and 80/04 and ‘Official Gazette of Montenegro’ nos. 40/08, 86/09, 61/13, 55/16, 146/22, and 152/22).
The amendments to the Law on Corporate Income Tax introduce a new article that establishes a withholding tax on payments made based on loans or borrowings with or without interest to individuals, as well as in cases of loan repayment extensions, as follows:
Article 28a
(1) A corporate income tax payer is obligated to calculate, withhold, and pay a withholding tax on payments made based on loans or borrowings with or without interest to individuals, as well as in cases of loan or borrowing repayment extensions.
(2) The withholding tax is paid at the time of the payment referred to in paragraph 1 of this article, at a rate of 15% on the gross amount.
(3) The withholding tax payer referred to in paragraph 1 of this article is obligated to submit a report on the paid withholding tax to the competent tax authority by the end of February of the current year for the previous year.
(4) The format of the report referred to in paragraph 3 of this article shall be prescribed by the Ministry.
The report format referred to in Article 28a, paragraph 4, shall be issued within 90 days from the date this law enters into force.
Article 42a introduces penalty provisions for cases where the withholding tax report is not submitted within the prescribed deadline, or the withholding tax is not calculated, is incorrectly calculated, or not paid.
XIa PENALTY PROVISIONS
Article 42a
(1) A legal entity shall be fined between EUR 1,000 and EUR 20,000 for the following offenses:
- Failure to calculate, incorrect calculation, or failure to pay withholding tax on the income paid as referred to in Article 29 of this law;
- Failure to submit a withholding tax report within the prescribed deadline (Article 29a, paragraph 5, and Article 28a, paragraph 3);
2a) Failure to calculate, incorrect calculation, or failure to pay withholding tax on payments made based on loans or borrowings with or without interest to individuals, as well as in cases of loan repayment extensions (Article 28a, paragraph 1); - Failure to submit documentation on transfer pricing, required to demonstrate whether transactions with related parties comply with the “arm’s length” principle, when submitting the tax return referred to in Article 40 of this law (Article 38c, paragraph 1);
- Failure to possess transfer pricing documentation and failure to submit it to the competent tax authority within 45 days upon request (Article 38c, paragraph 2);
- Failure to calculate corporate income tax in accordance with this law (Article 40, paragraph 1);
- Failure to submit a tax return electronically to the competent tax authority within three months from the end of the period for which the tax is calculated (Article 40, paragraphs 2, 3, and 6);
- Failure to submit evidence of paid tax, income statement, and balance sheet, prepared in accordance with the law regulating accounting, along with the tax return referred to in Article 40, paragraph 2 of this law (Article 40, paragraph 4); (2) The responsible person within the legal entity shall be fined between EUR 500 and EUR 2,000 for the offenses referred to in paragraph 1 of this article.
A new article is also added to the law, as follows:
Article 44c
A corporate income tax payer who has concluded a loan or borrowing agreement with an individual with or without interest before the entry into force of this law is obligated to calculate and pay the withholding tax referred to in Article 28a of this law after the expiration of the period for which the agreement was concluded, if the parties conclude a new agreement extending this period.
This law was published in the “Official Gazette of Montenegro” no. 152/22 on December 30, 2022, and enters into force on the date of publication.
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