How to Get 100% Corporate Income Tax Exemption in Underdeveloped Municipalities?

Starting a business in underdeveloped municipalities in Montenegro comes with numerous benefits, including significant tax incentives. Newly established companies operating in economically underdeveloped municipalities can be fully exempt from corporate tax for the first eight years.

Below, you can find out what conditions must be met to obtain this benefit and how you can take advantage of it for the growth of your business.

WHO CAN QUALIFY FOR CORPORATE TAX EXEMPTION?

To benefit from tax incentives, your company must actually operate in an underdeveloped municipality. The tax exemption applies to:

• Profits generated in a newly established business unit operating in an underdeveloped municipality (proportionate to the profit earned in that specific business unit).

It is important to note that the company must maintain separate financial records for the business unit located in the underdeveloped municipality.

HOW LONG DOES THE TAX EXEMPTION LAST?

• Corporate tax can be reduced by 100% for a period of eight years, but the total amount of tax exemption cannot exceed 200,000€.
• The first year in which the company gains the right to the exemption is counted from the date of registration in the Central Register of Business Entities (CRPS).

HOW TO APPLY FOR A CORPORATE INCOME TAX EXEMPTION?

Taxpayers who wish to benefit from the tax exemption must submit an application to the Tax Administration within 30 days of registering with the CRPS.

Additionally, during the period of tax exemption, the company must submit a statement to the tax authority regarding any other state aid received in previous fiscal years. This statement must be submitted along with the corporate tax return.

The tax authority will decide on the exemption request through an official decision.

WHICH MUNICIPALITIES ARE CONSIDERED UNDERDEVELOPED?

According to the level of development, local self-government units are classified into six groups:

1. Group 1 – municipalities with a development index up to 30% of the national average in Montenegro
2. Group 2 – municipalities with a development index up to 50% of the national average
3. Group 3 – municipalities with a development index above 50% up to 75% of the national average
4. Group 4 – municipalities with a development index above 75% up to 100% of the national average
5. Group 5 – municipalities with a development index above 100% up to 125% of the national average
6. Group 6 – municipalities with a development index above 125% of the national average

Less developed municipalities are those in Groups 1, 2, and 3. If you plan to establish a company in one of these municipalities, be sure to check the official list of underdeveloped municipalities to confirm eligibility for tax incentives.