Tax residency in Montenegro for digital nomads is definitely something to think about if you like to spend time at the Mediterranean coast. More and more tourists start to explore cities like Kotor and Budva. Also amongst nomads, Montenegro becomes a more popular hotspot.
Living in Montenegro
Montenegro is a candidate to become part of the European Union. However, today, they aren’t a member state yet. This also means that Montenegro is not part of the Schengen Area.
This can be interesting for people (e.g. UK citizens since Brexit) who can only spend a limited amount of time in the Schengen Area. Their stay in Montenegro will not count for the 90 days they can spend in the Schengen Area during a period of 180 days.
For citizens of the Schengen Area, this makes things a bit more complicated if they want to relocate to Montenegro. For a visit up to 90 days, they won’t need a visa. If you want to stay longer, you will need one. You can qualify for a temporary residence if you invest in a property or incorporate a business.
Montenegro tax rules
Tax residency in Montenegro
You will qualify as a tax resident in Montenegro if you spend 183 or more days there.
Nevertheless, even if you spend less days in the country, you can still become a tax resident of Montenegro. This will be the case if you have your domicile or your centre of personal or economical life in the country.
In practice, I have noticed that the Montenegrin tax authorities will only consider you as a tax resident if you have a temporary residence permit and actually spend more than 183 days in the country. So, in order to become a tax resident in Montenegro you do need to spend the majority of the (first) year in Montenegro.
Tax residency in Montenegro for digital nomads: tax rates
The first €8.400 in professional income is tax exempt. Everything you make above €8.400 up to an amount of €12.000 is taxed at 9%. Income over that threshold is subject to a tax rate of 15%.
The tax rate on investment income is 15%.
In addition to this federal tax rates, also local surtaxes apply. The rate of the surtax depends on the municipality you are living in.
Tax residency in Montenegro for digital nomads: social contributions
Social contributions entirely depend on your personal situation and the income generated. Therefore, it is hard to give an indication of the social contributions you need to account for.
Setting up a company in Montenegro
As more and more bureaucracy is getting involved in operating a business in a personal name, Montenegrin taxpayers decide to set up a company in Montenegro.
Montenegro has a 9% corporate tax rate on the first €100.000 of profit. Profit above this threshold but under €1.500.000 is subject to 12% corporate tax. Above that level, you will pay 15%. These tax rates are definitely some of the lower ones around Europe.
However, when working with a company, you should also think about the withholding tax. You pay withholding tax once you take out profit of the company as a dividend. The basic withholding tax rate is 15%.
As already mentioned, setting up a company in Montenegro can be your route to obtaining residency in Montenegro.
Tax residency in Montenegro for digital nomads: conclusion
Setting up tax residency in Montenegro for digital nomads can work out if you pick the right setup. Performing your activities in your personal name, might not be the best option. The reason is that a lot of bureaucracy is involved. Furthermore, you will fairly quickly end up in the highest tax brackets.
Setting up a company is a way to benefit from the lower (corporate) tax rates in Montenegro. Yet, in this case you have to account for withholding tax on dividend distributions. This will bring your overall tax burden to around 24%.