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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Montenegro: VAT essentials 

Essential information regarding VAT as it applies in Montenegro.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made for a consideration in Montenegro, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. Supply includes all forms of supply.


Certain actions carried out for no consideration are deemed to be supplies; for example, giving business gifts, if gifts' value exceeds certain amount, private use of business assets.


What is the standard rate of VAT?


As of 1 July 2013, the standard rate of VAT is increased from 17 to 19 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 7 percent for certain goods and services, including:


  • basic foodstuffs (bread, milk, flour, sugar, cooking oil, meat, baby food)
  • drinking water, except of bottled water
  • medicines, including the ones used in veterinary medicine, except of listed medicines which are taxed at zero rate
  • orthotic and prosthetic devices as well as implants, except of implants which are taxed at zero rate
  • agricultural fertilizers, pesticides, seed stock, nursery stock, feeding mixtures, livestock
  • textbooks
  • newspapers
  • hotel, motel, apart hotel, apartments, guesthouses, holiday camp, and villas accommodation
  • certain public utility services
  • copyrights and services in the field of education, art and literature
  • entrance fees for cinema, theatre, music events, museums, trade fair, amusement park, exhibition, zoo and similar cultural and sport events, if tax exemption is not applicable
  • personal computers
  • services rendered in marinas.

Special rate under the farmer's flat rate scheme amounts to 5 percent.


There is an extensive list of zero-rate supplies, including:


  • exports
  • listed medicines
  • supplies of goods in and within free zones and customs warehouses
  • supplies of goods and services in relation to donation agreements and other international agreements if agreements state tax exemption
  • supplies of goods and services used for international air and maritime traffic
  • services performed on movables imported in Montenegro and then exported by the service provider or by the customer who does not have a business seat or permanent establishment in Montenegro or permanent address or usual residence in Montenegro
  • supplies of goods and services to diplomatic and consular missions and their foreign personnel under the reciprocity rule as well as to international organizations and their foreign personnel if it is provided by the international agreement
  • services supplied by an intermediary explicitly acting in the name and for the account of a third party where underlying transaction is zero-rated or it is rendered out of the Montenegrin territory.

The list of exemptions includes:


  • official postal services
  • health and welfare
  • education
  • cultural and sport services provided by non-profit organizations
  • religious services
  • services provided by non-profit organizations under condition that this would not lead to distortion of competition
  • insurance and reinsurance
  • financial and banking services
  • the lease and sublease of immovable property for residential purposes if lease period is more than 60 days
  • the lease of agricultural land and forests that are inscribed in the land registry
  • transfer of immovable, except first transfer.

Note: it is generally not possible to recover VAT incurred in making exempt supplies.


What are the other local indirect taxes beside VAT?


Excise duties, customs duties, sales tax payable on transfer of immovable that is not subject to VAT, insurance premium tax.

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Registration

Who is required to register for Montenegrin VAT?


Montenegrin Entities


If a company’s turnover in the previous 12 months is above EUR 18,000, then it is required to register and account for Montenegrin VAT. Voluntary registration is possible if the turnover does not exceed abovementioned threshold.


Entities who perform only supplies that are exempt from VAT do not file VAT application form.


Branch offices of non-resident entities are required to register for Montenegrin VAT under the rules that apply to Montenegrin entities.


Non-Montenegrin Entities


The registration rules that apply to Montenegrin entities also apply to non-resident entities, except the VAT registration threshold. Overseas businesses should appoint a VAT representative to deal with their VAT affairs.


The fiscal representative takes responsibility for the correct submission of the tax returns, keeping of VAT records, the payment of VAT. However, tax representative is jointly liable for the payment of VAT.


The VAT Law provides that if no tax representative is appointed than customer is obliged to apply reverse charge.


In practice, due to administrative reasons it has not been possible to register non-resident companies for VAT. Therefore, Montenegrin customers apply reverse charge mechanism on supplies performed by non-resident companies which are taxable in Montenegro.


Are there penalties for not registering or late registration?


Penalty ranges from EUR 3,000 to EUR 20,000. In addition, penalty interest for unpaid tax may be charged.


Is voluntary VAT registration possible for an overseas company?


N/A.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


Registration should not be required for services that are taxable at the place of customer if customer is a VATpayer. Namely, VAT legislation provides that in this case customer pays VAT applying reverse charge.


As mentioned above, regardless of VAT legislation provisions in practice it has not been possible to register non-resident companies for VAT.


Does an overseas company need to appoint a fiscal representative?


In general, yes. However, in practice VAT registration of non-resident has not been possible.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Registered businesses are required to submit VAT returns on a monthly basis.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The average exchange rate published by the National Bank of Montenegro valid at the day when VAT liability became due (at the moment when supply is performed, at the moment of issuing of an invoice or at the moment when advance payment is received) should be applied.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. Under certain conditions overseas businesses can recover Montenegrin VAT on supplies of goods and services made to them within Montenegro.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No, reciprocity rule is not applied.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where VAT relates to both taxable and exempt supplies, an apportionment is required.
  • Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required.
  • Motor cars (excluding commercial vehicles): VAT is non-deductible with respect to watercraft used for sport and recreation, motor cars and motorcycles, fuel and lubricants, spare parts and services directly connected with their use. VAT is deductible if watercrafts, motor cars and motorcycles are used exclusively for performing of following business activities: sale, rent, transport of goods and passengers or training drivers.
  • Business entertainment: VAT is not deductible on entertainment costs.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company exports goods to a customer (business or private) outside of Montenegro, then it does not need to charge VAT but should make sure that in all cases it keeps proof required by the VAT legislation of dispatch/delivery to support its zero rating.


Services


Montenegrin VAT legislation is not harmonized with the last changes of EU VAT Directive with regards to the place of supply of services.


If a company supplies services to a customer (business or private) outside Montenegro, then the place of supply is at the place where the recipient has its business domicile or business establishment for which the service is provided, provided the service falls within one of the following categories:


  • the transfer, assignment and usage of copyrights, patents, licenses, trademarks, and similar rights
  • telecommunication services
  • advertizing services
  • the services of engineers, lawyers, notaries, auditors, accountants, interpreters and translators and other similar consultancy services
  • electronic data processing and the transfer of information
  • banking, insurance and re-insurance services
  • refusal to carry out a business
  • mediation in hiring of staff
  • the hiring out of movable tangible property with the exception of transportation vehicles
  • intermediation services in relation to abovementioned services.

Furthermore, businesses should not charge Montenegrin VAT on the following types of services, if these services are performed outside the territory of Montenegro:


  • cultural, artistic, sporting, scientific, educational, entertainment and similar services, including the activities of the organizers of such activities
  • ancillary transport activities such as loading, handling, and similar activities
  • valuations of movable tangible property.

Note that transportation services are taxable where the transport takes place.


In addition, Montenegrin VAT should not be charged on services directly related to immovable located outside the Montenegro (regardless where those services are actually performed).


How are goods dealt with on importation?


When goods are imported into Montenegro, import VAT and customs duties may be due. Import VAT is to be assessed by the Montenegrin customs authorities at the point of importation.


How are services which are brought in from abroad treated for VAT purposes?


If a company buys in certain services from outside Montenegro, it will be required to apply VAT based on the reverse charge mechanism.


Under the reverse charge the service recipient is required to account for a national amount of VAT as output tax in its VAT return and, for most businesses, it should be able to recover this as input tax in the same tax return (subject to limitation of input VAT recovery as a result of exempt supplies, if applicable).


If a business is able to recover all of its VAT the reverse charge has no cost effect and is a VAT compliance matter only. However, if it is partly exempt there is likely to be a VAT cost depending on the level of recovery allowed.


The reverse charge applies to a range of services, for example:


  • the transfer, assignment and usage of copyrights, patents, licenses, trademarks, and similar rights
  • telecommunication services
  • advertizing services
  • the services of engineers, lawyers, notaries, auditors, accountants, interpreters and translators and other similar consultancy services
  • electronic data processing and the transfer of information
  • banking, insurance and re-insurance services
  • refusal to carry out a business
  • mediation in hiring of staff
  • the hiring out of movable tangible property with the exception of transportation vehicles
  • intermediation services in relation to abovementioned service.

A reverse charge is also applicable on other services taxable in Montenegro that do not fall under abovementioned range of services if tax representative is not appointed by a non-resident service provider.

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Invoices

Is a business required to issue tax invoices?


VAT invoice is required for supplies performed by taxable person. Retailers must possess cash registers and cash register receipt (invoice) must contain obligatory items provided by the VAT legislation.


What do businesses have to show on a tax invoice?


A VAT invoice issued to VAT payer should contain the following data:


  • the date and place the invoice was issued
  • the sequential number of the invoice
  • name, address and VAT identification number of supplier
  • name and address of customer
  • date of supply of goods/service
  • the quantity and nature of the goods supplied
  • the extent and nature of the services rendered
  • taxable amount
  • amount of VAT per applied VAT rate
  • VAT rate applied
  • total amount of consideration for performed supply including VAT
  • note about applied tax exemption, if any
  • signature and stamp of the invoice issuer.

If invoice is issued to non-VATpayer than information on the name and address of the customer and taxable amount is not required.


Can businesses issue invoices electronically?


The VAT Law provides that invoice might be issued electronically if both supplier and customer have the tax authorities’ approval for this. However, it is not applicable in practice.


Is it possible to operate self-billing?


Yes.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, if an invoice is issued to non-resident customer. If the invoice is issued to a Montenegrin customer euro should be applied but it is possible to show amounts both in euro and in some other currency.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business as a going concern then VAT may not be due. There are certain conditions to satisfy.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between Montenegrin head office and its local branch are out of the scope of VAT in Montenegro.


The VAT Law is silent with respect to transactions between foreign head office and local branch (and vice versa). From a legal point of view, supplies between a branch and its head office should be considered as supplies within the same legal entity. However, the current position of the Montenegrin tax authority is that cross-border supplies of goods/services between the head office and the branch are subject to VAT according to the rules on cross-border supplies.

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Bad Debt

Am I able to claim relief for bad debts?


Businesses may claim VAT relief for bad debts on the basis of the effective court decision on the conclusion of bankruptcy proceedings or on the basis of the forced settlement.


In addition, businesses may claim VAT relief for bad debts if they possess an effective court decision on suspension of the enforcement proceeding, or another document which proofs that debt is not paid, in full or partly, after the closed case, due to the debtor’s deletion from the court registry, or other relevant registers or records.


If the company subsequently receives payment for the supply then it will have to refund the VAT to the tax authorities.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There are no general anti-avoidance provisions under the Montenegrin VAT Law or general tax law.

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Penalty Regime

What is the penalty and interest regime like?


The VAT Law provides that penalties could be assessed in the range from EUR 3,000 to EUR 20,000 for compliance failures.


In addition, the responsible person in the company may be fined from EUR 800 to EUR 2,000.


Late payment penalty interest is equal to 0.03 percent per day.

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Tax authorities

Tax audits


How often do tax audits take place?


There is no any specific rule. Usually first request for refund is subject to VAT audit.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


A request for ruling could be filed with the Ministry of Finance and the tax authorities. They are not legally binding.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Some rulings issued by the tax authorities can be found on their web site. In general, rulings issued by the Ministry of Finance are not publicly available.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes. For example: the place of supply rules applicable to services or the arm’s length price applied regardless of customer‘s right of deduction.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes. For example: the reduced rate applied to personal computers.

 

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