Under the provisions of the Corporate Income Tax Law of Montenegro, "capital gains" is considered the income derived from the sale or other transfer of assets such as land, buildings, property rights, equity in the capital or securities against consideration.
To determine what constitutes a "capital gain", the competent tax authorities would compare the acquisition price and the price at which the asset has been disposed of, the latter being the market value of the asset received as monetary or non-monetary compensation. If there is a positive difference between the acquisition price and the price at which the asset has been disposed of, this difference will be subject to taxation. If the difference between those two prices is negative, then it will be included in the financial statement as a loss.
If the tax authorities deem that the price on which the asset has been disposed of is less than the market price, than the latter shall be taken into account. This is usually the case when the contract has been concluded between related parties.
The legal entity has no obligation to file a tax return when the capital gains arise since they form an integral part of the general tax base for calculating the corporate income tax due.
When it comes to determining the tax obligations of permanent establishment (PE) of non-resident legal entities in Montenegro, they are obligated to withhold 9% tax on the gross amount of the income paid as capital gains. However, if these capital gains are considered as income attributable to that PE, there is no withholding tax due.
In the case of a contribution in-kind in the capital of the company in the form ownership of real estate or other property rights against shares in the capital of the recipient company, if there is positive difference between the value of the contribution-in-kind and the that of the shares received in exchange, the contributor will be liable to pay tax on the capital gain.
Additionally, capital gains can be generated from the sale or other transfer against consideration of any equity or securities. To determine the capital gain on these cases, as an acquisition price will be considered the following:
- For securities quoted listed on a stock exchange - the documented purchase price;
- Securities that are not listed - the documented purchase price. If the latter is not available, the nominal value shall apply.
The taxation of the capital gains derived from the sale or other disposal of real estate against consideration is postponed in the cases of merger, acquisition or company divisions as those are not considered as sales of assets. The tax liability for capital gains will arise for the newly-formed legal entity when it decides to dispose of its assets acquired in the process of corporate restructuring. The tax due shall be calculated on the positive difference between the sale price of the asset and its book value determined in accordance with accounting rules.
In addition, the payment of capital gains tax will be deferred
in the cases when the owner of a property exchanges it against
shares in a transformed company or cash remuneration provided that
the nominal value of the shares or the remuneration obtained does
not exceed by more than 10% the value of the property.
The most important tax effect is that the capital losses can be offset against capital gains derived in the same financial year. Any excess can be rolled over to the next five years on account of future capital gains.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.