25. 12. 2025.
Proper recording of expenses is crucial for the accurate calculation of corporate income tax. Certain expenses are not recognized for tax purposes, which can increase your tax base and result in additional liabilities to the state.
Below is an overview of the most common expenses that are either not recognized or are recognized only under specific conditions, in accordance with applicable tax regulations.
1. EXPENSES NOT RELATED TO BUSINESS ACTIVITY
Only expenses directly related to your business activity are recognized in tax balances. Private expenses and costs unrelated to the business are not allowed.
2. UNDOCUMENTED EXPENSES
Expenses without valid documentation (invoices, contracts, receipts) cannot be recognized. Special attention should be paid to cash payments and informal disbursements.
3. INTEREST FOR LATE PAYMENT OF TAXES
Default interest arising from late payment of taxes, contributions, and other public revenues is not considered a tax-deductible expense, even if recorded in the accounting books.
4. INTEREST PAID TO NON-RESIDENTS AT EXCESSIVE RATES
If you pay interest to foreign entities at rates higher than market rates, the excess amount will not be recognized as an expense.
5. COSTS PAID TO A FOREIGN HEAD OFFICE
Costs paid by a permanent establishment in Montenegro to its foreign head office are not recognized for tax purposes.
6. PROFIT DISTRIBUTIONS
Payments made to employees or other persons from profit distribution are not considered deductible expenses.
7. FINES AND PENALTIES
Monetary fines, penalties, and other sanctions incurred during business operations cannot be recorded as deductible company expenses.
8. RECEIVABLES ADJUSTMENTS
When you adjust the value of receivables from an entity to which you simultaneously owe liabilities, up to the amount of that liability, such expense is not recognized.
9. DONATIONS TO POLITICAL ORGANIZATIONS
Donations, contributions, and other payments to political parties and organizations are fully excluded from tax-deductible expenses.
10. GIFTS AND FREE TRANSFERS
Transfers of money or assets without compensation are not recognized as expenses.
11. INTEREST BETWEEN RELATED PARTIES
Interest between related legal entities (e.g., parent and subsidiary companies) is not deductible.
TAX CONSEQUENCES
Non-deductible expenses increase the tax base on which corporate income tax is calculated at a rate of 9%, 12%, or 15%, depending on the level of profit earned.
We recommend careful planning of expenses and consulting with us to avoid additional costs and liabilities during tax calculation. Our team is here to help you understand local regulations and optimize your business operations.
