In a significant legislative move, Montenegro has enacted reforms to its corporate tax framework, aligning with European Union standards. The Montenegrin parliament approved changes to the Corporate Income Tax Law in July 2026, introducing regulations on interest deductions, controlled foreign companies, exit taxation, hybrid arrangements, and artificial tax structures.
The amendments were officially published on 17 July 2026, with domestic provisions set to take effect from 1 January 2027. However, key anti-avoidance measures will only be enforced upon Montenegro’s accession to the EU, which is targeted for 2028.
This reform positions Montenegro similarly to Serbia but potentially allows for a quicker transition. The EU has initiated preparatory discussions regarding Montenegro’s accession treaty. The new tax regulations aim to prevent foreign investors from shifting profits out of the country without appropriate taxation while not imposing capital controls that would hinder legitimate repatriation of dividends or proceeds.
Montenegro’s economy relies heavily on foreign investment, receiving over €1 billion in gross foreign direct investment in 2025, with net inflows approximating €530 million. Key investment sectors included real estate, companies and banks, and intercompany lending.
The new rules specifically target transactions that facilitate the relocation of taxable income among related entities. Under the revised interest limitation rule, net borrowing costs will be deductible only up to 30 percent of tax-adjusted EBITDA or €3 million, whichever is higher. This allowance applies at the group level rather than individually to each company within a consolidated structure.
The definition of borrowing costs is comprehensive and includes conventional interest and various financing-related fees. Standalone companies without associated enterprises may not be subject to these restrictions, nor will regulated financial entities or certain long-term public infrastructure projects that meet EU conditions.
The implications are particularly significant for multinational corporations and highly leveraged firms operating in Montenegro’s tourism and property sectors. For example, a hotel development generating €4 million in EBITDA with €2 million in net borrowing costs would benefit from the statutory threshold of €3 million, allowing full deductibility of interest expenses.
Conversely, at the group level, a larger entity with €20 million in EBITDA and €10 million in financing costs would face a deduction limit of €6 million, increasing taxable income by €4 million. This could lead to an immediate tax impact of approximately €600,000.
The new corporate tax system replaces Montenegro’s previous flat rate of 9 percent, introducing a progressive structure where profits up to €100,000 are taxed at 9 percent, profits between €100,000 and €1.5 million are taxed at a formula amounting to €9,000 plus 12 percent of the excess, and profits exceeding €1.5 million incur a tax of €177,000 plus 15 percent on the surplus.
This change means most foreign-owned firms will now have a marginal corporate rate of around 15 percent, bringing their effective rates closer to Serbia’s flat rate. The attractiveness of investing in Montenegro now hinges more on its euro-based economy and tourism assets rather than solely on low corporate taxes.
The legislation also introduces a controlled foreign company regime where Montenegrin taxpayers controlling more than 50 percent of voting rights or profit entitlement in a foreign entity subject to lower taxation will have certain undistributed profits included in their tax base.
A new exit taxation measure will apply when assets are transferred abroad, taxing the difference between market value and tax value. This rule is particularly relevant for companies transferring appreciated assets or functions outside Montenegro without a sale taking place.
The government is also addressing hybrid mismatches that allow for dual legal or tax treatment across jurisdictions. These rules aim to prevent deductions for expenses that do not correspondingly generate taxable income elsewhere.
A general anti-abuse provision will empower the Tax Administration to challenge arrangements lacking genuine commercial rationale despite formal compliance with specific provisions.
The reform ultimately aims to benefit genuine EU corporate groups once Montenegro joins the EU by exempting dividends paid by Montenegrin subsidiaries to qualifying parent companies from withholding tax under certain conditions.
The existing withholding tax regime remains until accession, with standard rates currently set at 15 percent. Payments made to entities in non-transparent jurisdictions may attract a higher withholding tax rate of 30 percent.
This comprehensive reform demonstrates Montenegro’s commitment to enhancing its regulatory framework ahead of potential EU membership while maintaining an environment conducive to foreign investment.
