06. 10. 2025.
Proper recording of expenses is crucial for any business, especially when preparing the annual corporate income tax return. Certain expenses are not recognized for tax purposes, which can increase your tax base and lead to additional obligations toward the state.
Below is an overview of the most important expenses that should be avoided or properly understood.
1. EXPENSES NOT RELATED TO BUSINESS
Only expenses directly connected to your business activity are recognized in financial statements. Private expenses or costs unrelated to the business are not allowed.
2. UNDOCUMENTED EXPENSES
Expenses without valid documentation (invoices, contracts, receipts) will not be recognized. This is a common issue with informal payments or transactions without fiscal proof.
3. LATE PAYMENT INTEREST ON TAXES
Default interest incurred due to late payment of taxes and contributions cannot be recorded as a recognized expense.
4. INTEREST TO NON-RESIDENTS AT EXCESSIVE RATES
If you pay interest to foreign entities at rates higher than market levels, that amount will not be recognized as an expense.
5. ADMINISTRATIVE COSTS PAID TO FOREIGN HEADQUARTERS
Expenses paid by a permanent business unit in Montenegro to its foreign headquarters are not recognized for tax purposes.
6. PROFIT DISTRIBUTION PAYMENTS
Payments to employees or other persons from profit distribution are not considered recognized expenses.
7. FINES AND PENALTIES
Financial fines, penalties, and other sanctions incurred during business operations cannot be recorded as company expenses.
8. RECEIVABLES ADJUSTMENTS
When you adjust the value of receivables from an entity to which you simultaneously owe money, up to the amount of that debt, such expenses are not recognized.
9. CONTRIBUTIONS TO POLITICAL ORGANIZATIONS
Donations or any contributions to political parties are excluded from recognized expenses.
10. GIFTS AND FREE TRANSFERS
Transfers of property or money without compensation are not treated as recognized expenses.
11. DEFAULT INTEREST BETWEEN RELATED PARTIES
Interest between related legal entities (e.g., parent and subsidiary companies) cannot be recognized.
Tax Consequences
If such expenses are paid from the company’s bank account, they will increase your tax base, and corporate income tax will be calculated at rates of 9%, 12%, or 15%, depending on the level of profit achieved.
We recommend careful planning of expenses and consulting with us to avoid additional costs and obligations when calculating taxes.
Our team is here to help you understand local regulations and optimize your business operations.
