Montenegro’s parliament adopted a major overhaul of the Corporate Income Tax Law in July 2026, introducing rules covering interest deductions, controlled foreign companies, exit taxation, hybrid arrangements and artificial tax structures. The amendments were published in the Official Gazette on 17 July 2026, with domestic provisions scheduled to apply from 1 January 2027. The main cross-border measures linked to EU membership will take effect when Montenegro joins the European Union.
Montenegro is targeting EU membership by 2028, while the EU has already started preparatory work on the country’s accession treaty. The reform does not restrict foreign investors from transferring legally earned dividends, interest or sale proceeds abroad. Instead, it changes how transactions involving related companies are taxed when they are used to shift taxable income, assets or financing costs between jurisdictions.
The changes are particularly relevant to Montenegro because the country received more than €1 billion in gross foreign direct investment in 2025, while net inflows were approximately €530 million. Real estate accounted for around €497 million, investment in companies and banks for about €132 million, and intercompany lending for approximately €319 million.
Interest deductions face a new ceiling
Under the revised rules, net borrowing costs will generally be deductible up to 30% of tax-adjusted EBITDA or €3 million, whichever is higher. The €3 million threshold applies at group level rather than independently to every company within the same corporate structure. Financing expenses exceeding the permitted amount can be carried forward for three subsequent tax periods.
Borrowing costs covered by the provision include conventional interest, financing components in leases, capitalised interest, guarantee fees, economically equivalent charges, certain foreign-exchange movements and costs related to raising finance. The rules are therefore based on the economic nature of financing rather than solely on the contractual description of a payment.
Certain standalone companies may fall outside the restriction where they are not members of a consolidated group, have no associated enterprises or permanent establishments and do not lend to or borrow from shareholders. Regulated financial companies are also excluded. Certain long-term public infrastructure projects can receive separate treatment where the project, financing, assets and income meet the prescribed EU conditions. The impact will be concentrated among multinational and highly leveraged groups, including structures used in tourism, property, renewable energy, telecommunications, marina development, retail centres and acquisition financing.
A hotel company with €4 million of EBITDA and €2 million of net borrowing costs would normally face an EBITDA-based deduction limit of €1.2 million. Because the statutory threshold is €3 million, the full €2 million could potentially remain deductible.
For a larger group generating €20 million of EBITDA and carrying €10 million of net financing costs, the standard ceiling would be €6 million. The remaining €4 million would initially increase taxable income and could subsequently be carried forward subject to available capacity. At Montenegro’s highest corporate tax rate, the immediate tax effect could reach approximately €600,000, before the use of carried-forward amounts.
Corporate tax rates have already changed
Montenegro no longer operates the single 9% corporate income tax rate that had characterised its system for many years. Profit up to €100,000 is taxed at 9%. Profit between €100,000 and €1.5 million is subject to €9,000 plus 12% of the amount above €100,000. Profit exceeding €1.5 million is taxed at €177,000 plus 15% of the excess.
Substantial foreign-owned companies therefore generally face a marginal corporate tax rate of 15%, bringing Montenegro’s top rate closer to Serbia’s flat 15% rate. The country’s investment proposition consequently increasingly incorporates its euro-based economy, tourism assets, relatively accessible company formation and prospective EU membership rather than relying solely on a low corporate tax rate.
CFC rules target low-tax foreign structures
The revised law also establishes a controlled foreign company regime. A foreign company or permanent establishment can be treated as a CFC when a Montenegrin taxpayer, alone or together with associated parties, controls more than 50% of voting rights, capital or profit entitlement, while the foreign entity is subject to substantially lower taxation. Certain undistributed profits would then be included in the Montenegrin parent’s taxable income.
Covered income includes interest and other financial income, royalties, dividends, gains from shares, financial leasing, insurance and banking income, as well as related-party sales or services that generate limited genuine economic value. The legislation provides an exemption for foreign companies carrying out substantial economic activity supported by real employees, equipment, assets and premises.
A foreign subsidiary operating a hotel, industrial facility, technology company or trading platform can therefore be distinguished from a shell company holding intellectual property, loans or passive income without meaningful operations. Montenegrin groups expanding into low-tax jurisdictions will need evidence concerning where commercial decisions are taken, where employees work, which entity assumes contractual risks and where economic value is generated.
Exit tax applies when Montenegro loses taxing rights
The reform introduces an exit-tax regime covering situations in which Montenegro loses the right to tax an asset because it is transferred abroad. The taxable amount is based on the difference between the asset’s market value and its tax value. The rules also cover transfers of tax residence and businesses operated through permanent establishments.
The measure is relevant to holding companies, intellectual property, development rights and other assets that have appreciated while located in Montenegro. When assets are transferred to an EU member state or qualifying European Economic Area jurisdiction, the resulting tax liability may be spread over five tax periods, provided an appropriate guarantee is supplied and interest is paid.
Temporary transfers lasting no more than 12 months can be excluded in specified cases, including securities financing, collateral arrangements, regulatory capital and liquidity management. The rules can create a tax liability during a corporate restructuring even when no sale proceeds have been received. Companies planning to relocate intellectual property, transfer tax residence or consolidate regional assets will therefore need to account for asset valuations and liquidity requirements.
Hybrid arrangements and anti-abuse provisions expanded
The amendments also address hybrid mismatches, covering arrangements that receive different legal or tax treatment across jurisdictions. The rules target structures that can result in the same expense being deducted twice or an expense being deductible in one country without corresponding income being taxed elsewhere. Potential cases include hybrid financial instruments, entities classified differently by two tax systems and transactions between a head office and permanent establishment.
Depending on the circumstances, Montenegro can deny the deduction, include the relevant income in the tax base or restrict withholding-tax benefits. The legislation additionally introduces a general anti-abuse rule under which tax exemptions, reductions and treaty benefits can be denied where an arrangement was established to obtain a tax advantage without significant commercial reasons reflecting economic reality. This applies to structures such as holding companies, loans, royalty arrangements and corporate restructurings where the commercial rationale, decision-making process and operational substance cannot be demonstrated.
EU groups will receive future withholding-tax relief
The new system also establishes benefits for qualifying EU corporate groups once Montenegro becomes an EU member. Dividends paid by a Montenegrin subsidiary to a parent company in another EU member state would be exempt from withholding tax where the parent holds at least 10% of the subsidiary continuously for 24 months and satisfies the applicable legal-form, tax-residence and corporate-tax requirements.
A qualifying Montenegrin parent receiving dividends from an EU subsidiary would similarly be able to exclude those payments from its Montenegrin tax base, provided the dividend is not treated as a deductible expense by the subsidiary. The exemption would not apply where an arrangement was established for tax evasion or avoidance.
Interest and royalty payments between associated companies in Montenegro and the EU would also become exempt from withholding tax where the required relationship has existed for at least 24 months. The applicable ownership threshold is generally 25%, either through direct ownership or through a common parent holding the prescribed interest in both companies. The recipient must be the beneficial owner and provide the necessary tax-residence documentation. Profit-participating loans, instruments convertible into profit rights, debt without a genuine repayment obligation and exceptionally long-dated arrangements can be excluded from the relief.
Existing withholding and transfer-pricing rules remain applicable
Until EU accession, Montenegro’s existing tax framework remains relevant. The country currently applies a standard 15% withholding tax to dividends and profit distributions paid to resident and non-resident legal entities, as well as to various payments to non-residents, including interest, royalties, rent, consulting, market-research and audit services.
Double-tax treaties can reduce or eliminate the withholding tax where their conditions are met. Payments to entities located in preferential or non-transparent jurisdictions can attract withholding tax of 30%. Montenegrin legislation also requires transactions between related parties to comply with the arm’s-length principle. Large taxpayers must submit transfer-pricing documentation together with their corporate tax returns. Other companies must maintain the documentation and provide it to the Tax Administration within 45 days of a request.
A simplified documentation format is available where related-party transactions remain below €75,000 during the relevant year.
Montenegro therefore already has mechanisms for addressing excessive interest, unsupported management fees, artificial royalty arrangements and related-party transactions that do not reflect market conditions. The new provisions expand this framework and introduce mechanisms dependent on cooperation with EU member states. The reform also provides for advance pricing agreements, allowing taxpayers and tax authorities to establish transfer-pricing methodologies in advance or during the relevant transactions.
Montenegro’s FDI structure increases the relevance of the reform
The changes have particular significance for Montenegro’s investment model. Intercompany lending accounted for approximately €319 million of FDI in 2025, while real estate received approximately €497 million. Related-party financing is used in hotels, residential developments, energy assets, holding companies and operating subsidiaries. Interest on such loans can reduce taxable profit in Montenegro while producing income for a foreign parent, shareholder or financing company. The new interest-limitation rules therefore affect a financing channel already used in parts of the Montenegrin investment market.
The comparison with Serbia is also relevant. Both countries are moving towards a 30% EBITDA interest ceiling, a €3 million threshold, CFC rules and EU-compatible treatment of qualifying dividends, interest and royalties.
Both also link key cross-border anti-avoidance provisions to EU accession. Serbia’s larger industrial and manufacturing base means its reforms affect export plants, automotive suppliers, mining, energy and leveraged industrial groups. In Montenegro, the exposure is more concentrated in property, tourism, hospitality, energy, banking and shareholder-financed development companies.
EU accession changes the investment planning horizon
Montenegro is targeting 2028 EU membership, giving the new framework particular relevance for projects being financed before accession. A hotel, marina, wind farm, solar portfolio or residential resort financed today could still be operating under the same ownership and loan arrangements when EU-linked provisions enter into force.
Project models based on unrestricted interest deductibility or current withholding-tax treatment could therefore change during the investment period. Debt-service calculations will need to account for the 30% EBITDA interest-deduction ceiling, particularly during periods of operational ramp-up. Shareholder loans will require market-rate benchmarking and evidence of genuine repayment obligations. Holding structures will need to meet beneficial-ownership and economic-substance requirements. Transfers of development rights, intellectual property or tax residence may require exit-tax valuations, while dividend structures will need to distinguish existing treaty treatment from the future EU exemption regime.
Foreign investors will remain able to repatriate legally earned profits, but the tax treatment will increasingly depend on the structure of the transaction, the economic substance of the entities involved and the documentation supporting cross-border payments. Montenegro’s corporate tax framework is consequently moving towards an EU-aligned model combining a progressive rate reaching 15%, tighter limits on related-party financing, CFC and exit-tax rules, controls on hybrid arrangements and future withholding-tax relief for qualifying EU corporate groups.
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