Montenegro, A new set of changes to five financial and tax laws

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Buyers of real estate worth more than EUR 150,000 will pay higher taxes, companies from offshore zones will have a withholding tax of 30%, organizers of games of chance on the Internet and in casinos will pay higher amounts of concessions, excise taxes on sweets and drinks with sweeteners will be introduced, and the increase in excise taxes on tobacco products.

This is provided for by a set of changes to five financial and tax laws that the Government forwarded to the Parliament, and for which it requests a vote in an urgent procedure, and the reasons for the urgency are the prevention of tax frauds and the protection of state finances and the budget of local self-governments, because the money from part of these taxes goes to them. The draft laws were prepared by the Cabinet of the Minister of Finance Aleksandar Damjanović.

It was also explained that all these changes were made in accordance with the directives and practices of the countries of the European Union and the need to harmonize the Montenegrin tax legislation.

Higher tax for offshore companies

Foreign companies whose headquarters are in “territories with tax sovereignty”, that is, so-called offshore zones and tax havens, will pay tax at a deduction of 30% instead of 15%, it was stated in the proposal to amend the law on profit tax.

Withholding tax is a tax that taxes non-residents on profits earned in Montenegro. The tax for all domestic and foreign legal entities is now 15%. According to the proposal to amend the law, the higher tax rate will apply to companies from territories with which Montenegro does not have an agreement on the avoidance of double taxation and which do not exchange data with Montenegrin tax institutions. The Ministry of Finance is tasked with preparing and updating a list of these territories for which companies would be subject to a higher tax rate.

As stated in the explanation, in the majority of cases, companies in these territories are established to avoid paying taxes and money laundering,

– As a mechanism to fight against these abuses, developed countries introduced a number of different tax mechanisms into their tax system years ago. One of them is the creation of a list of defined territories, according to which there would be special – more rigorous – business conditions. Based on this principle, the proposed amendments to the legal text introduce special conditions related to transactions with this type of defined territory, in terms of withholding tax, as well as transfer prices – it is stated in the explanation.

The goal of the changes, as stated, is to prevent the withdrawal of tax-free money, prevent tax abuses and improve tax discipline.

Higher tax for real estate worth more than EUR 150,000

With the proposed amendments to the law on real estate sales tax, the current rate of three percent will remain for real estate with a value of up to EUR 150,000, while the new rate of five percent will apply to the amount over that limit. This norm, if adopted, would enter into force on January 1, 2024.

– The proposed solutions will result in the application of a higher tax rate on the sale of real estate whose value exceeds EUR 150,000, that is, it will be applied only to persons with the greatest economic strength. On the other hand, the largest number of persons who do not have the economic power to buy real estate across the subject border will not have an additional burden, that is, they will not feel an increase in the tax rate. An additional reason for the introduction of a higher real estate tax rate is the increase in turnover and prices on the Cme Gore real estate market due to increased demand for the same by foreign natural persons whose tax capacity is far above the Cme Gore average. It is an established practice that in situations where a market, in this case real estate, is experiencing expansion due to high demand, the legislator increases tax rates for the reason that this increased demand can easily absorb them – it was stated in the explanation.

More money from online betting and casinos

The proposed amendments to the law on games of chance precisely define the work of organizers of games of chance over the internet, as well as their payment of concessions. The existing law, which was written 19 years ago, did not define this segment of games of chance in detail, while the technologies used in the meantime have advanced significantly.

Organizers of betting games of chance via the Internet will pay the fixed part of the concession, as before, 10,000 EUR per month, but for the first time, a variable concession of 10 percent is being introduced to them on the difference between total payments and payment of winnings. Until now, the variable fee was paid by all other organizers of games of chance, but for some reason internet organizers were exempted, a segment that has seen significant growth in recent years. Because of this newspaper, they expect an increase in state revenues.

The ban on foreign betting sites is now clearly defined. Domestic organizers will have to integrate their system with the information system of state supervision.
A change In the payment of the fixed concession for casinos was proposed. Instead of a one-time fee of two million euros that was paid when the concession was issued and an annual fee of 50,000 euros, which was established 19 years ago and which inflation has since devalued, it is proposed to pay the concession in the monthly amount of 41,666 euros. This concession amount will also apply to online casinos, that is, the arrangement of slot machine games via the Internet and other telecommunications means.

A kilogram of sweets and a pack of cigarettes cost 50 cents more

Amendments to the law on excise duties were also proposed, introducing excise duties on sweets of 50 cents per kilogram, on waters and juices with sweeteners of 10 to 25 cents per liter, as well as on single-use plastics.

The excise tax calendar for tobacco products is speeding up, so the gradual increase in excise taxes, which was supposed to last for the next two years, will take place in July this year and January next year. These two excise tax increases would increase the price of a pack of cigarettes by a total of about 40 to 50 cents.

A similar acceleration of excise taxes occurred in 2018, when cigarettes increased the price of a pack by around one euro for three semi-annual adjustments. This then influenced the growth of the gray cigarette market. Legal traders of tobacco products, with whom Vijesti spoke, are afraid that this could happen again, and they are disappointed that the current government is repeating the practice of its predecessors and changing the excise calendar without announcement or agreement.

In the explanation of the changes, it was stated that they were proposed in accordance with the directives of the European Union.

The amendments to the law regulate part of the norms on small alcohol producers, as well as the possibility of exemption from paying part of the excise duty on motor fuels for agricultural producers.

An excise tax on single-use plastic products is also being introduced, and plastic packaging for drinks and food products is exempt.

The previous Government also tried to introduce excise taxes on sweets and plastic, as well as to speed up the excise calendar for tobacco products, but the Parliament did not support that at the time.

Whoever owes taxes to workers cannot borrow money

The proposed changes to the law on profit tax further specify the new law adopted in December, which foresees the taxation of loans from companies. With the new amendment, persons who borrow up to EUR 5,000 and do not have the status of a person connected with that company are exempted from the obligation to pay tax. This means that companies can, for example, lend money to workers up to that amount with clearly defined terms and repayment terms, without paying taxes on that amount.
An amendment to the Law on Prevention of Illegal Business was also proposed, which stipulates that legal entities and entrepreneurs cannot lend money to other companies, entrepreneurs, or individuals if they do not pay their tax obligations in accordance with the law or have debts to workers. The fine for violating this norm would be from 10 to 20 thousand euros.

The goal of these changes, as stated, is to protect the state and municipal budgets by preventing tax evasion.

– The aforementioned amendment to this law aims to introduce, i.e. expand the scope of the business ban for taxpayers who have unpaid tax obligations, and who have so far made loans to other companies, natural persons or entrepreneurs and thus avoided paying their tax obligations –it is stated in the explanation.

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