Montenegro has the lowest wage taxes in the region, which has led to demands from employer organizations in Bosnia and Herzegovina and Serbia to reduce rates. On the other hand, in Bosnia and Herzegovina, the corporate tax is lower, while in Serbia, the upper VAT rate is slightly lower.
Depending on the salary level, due to the high threshold of the non-taxable portion, total wage taxes in Montenegro range from 23 to 38%, compared to approximately 42.5% in Bosnia and Herzegovina and around 45% in Serbia. This is influenced by Montenegro having the highest non-taxable portion of income at 700 EUR, while in Bosnia and Herzegovina it ranges from 250 to 400 EUR, and in Serbia it is 213 EUR.
The corporate income tax rate in Montenegro is progressive, ranging from 9 to 15%, while in Serbia it is nominally 15% with the possibility of certain favorable conditions, and in both entities of Bosnia and Herzegovina, it is 10%.
Montenegro has two VAT rates, 7% and 21%, Bosnia and Herzegovina has a unified rate of 17%, and Serbia has two rates, 10% and 20%.
Two years ago, Montenegro implemented a major fiscal policy reform called “Europe Now,” abolishing the payment of health insurance, which previously amounted to 10.5% of gross wages, as well as taxes on wages up to 700 EUR gross. This led to an increase in net wages by about 20% and reduced employer costs.
At the same time, progressive taxation of profits was introduced, so that the previous flat rate of 9% now applies to profits lower than 100,000 EUR. For profits between that amount and one and a half million euros, a tax rate of 12% is applied, and for amounts over one and a half million, the state receives 15%.
For example, on an average net wage of 800 EUR, total taxes and contributions amount to 230 EUR, compared to the previous 510 EUR.
Raško Konjević, Secretary-General of the Montenegrin Employers’ Association (CUP), says that the tax system is an important segment of economic policy, and tax policy should contribute to creating a competitive and predictable business environment.
He emphasizes that predictability of tax policy is more important for investors and the economy than the tax rates themselves, and any changes should result from broad consultations with the private sector. If every government that comes in changes the essence of tax policy, it sends a negative message to the economy and investors looking to invest in Montenegro.
Konjević notes that Montenegro made a breakthrough in 2021 by reducing the burden on labor, which positively affected both revenues and the reduction of the shadow economy in that segment.
