Tax rates in Montenegro compared to Germany: an overview
The choice of domicile and registered office can have a significant impact on the tax burden of an individual or a company. Montenegro has established itself as an attractive location for emigrants and entrepreneurs in recent years, particularly due to its comparatively low tax rates. In this article, the tax rates of Montenegro compared to Germany are explained in detail and the tax advantages of Montenegro are emphasized.
Overview of the tax system in Montenegro
Montenegro is a small country on the Adriatic coast and has been trying to attract foreign investment since its independence in 2006. Part of these efforts consists of creating a favorable tax environment. Tax rates in Montenegro are very low by European standards, which makes the country particularly attractive for entrepreneurs and the self-employed.
Overview of the tax system in Germany
Germany, on the other hand, has a more complex and higher tax system. As one of the largest economies in Europe, Germany levies a large number of taxes on income, companies and consumption. Tax rates are generally higher than in Montenegro, which represents a significant difference in the net burden on individuals and companies.
Comparison of tax rates
Income tax
Montenegro:
- Uniform income tax rate of 9% for all income up to EUR 750 per month and 15% for income over EUR 750 per month.
Germany:
- Progressive tax rate that starts at 14% and goes up to 45% for top earners.
- The basic tax-free allowance is EUR 10,908 per year (as of 2023), up to this amount income remains tax-free.
Corporate income tax
Montenegro:
- Uniform corporation tax rate of 9%.
Germany:
- Corporate income tax rate of 15%.
- Added to this is the solidarity surcharge (5.5% on corporation tax) and trade tax, which varies from municipality to municipality, but averages around 14-17%. The effective tax burden can therefore be up to around 30%.
Value added tax (VAT)
Montenegro:
- Standard VAT rate of 21%.
- Reduced rate of 7% for certain goods and services, such as food and medicines.
Germany:
- Standard VAT rate of 19%.
- Reduced rate of 7% for certain goods and services, such as food, books and newspapers.
Capital gains tax
Montenegro:
- Capital gains tax of 9%.
Germany:
- Withholding tax of 25% plus solidarity surcharge and, if applicable, church tax, which raises the total burden to approx. 26.375% (excluding church tax).
Wealth tax
Montenegro:
- No wealth tax.
Germany:
- No wealth tax currently levied, although it is enshrined in the German constitution and there are discussions about a possible reintroduction.
Gift tax
Montenegro:
- No gift tax is payable for direct relatives such as spouses, children and parents
- For non-relatives and friends, the gift tax in Montenegro is 3% of the value of the gifted assets.
Germany:
- Progressive rates depending on the degree of relationship and the value of the gift, which can range from 7% to 50%. There are allowances that vary depending on the degree of relationship (e.g. 500,000 euros for spouses).
Inheritance tax
Montenegro:
- Spouses and direct descendants are fully exempt from inheritance tax
- An allowance of 5,000 euros applies for distant relatives and unrelated persons.
- For non-relatives/ friends/ distant relatives: Inheritance tax in Montenegro is levied at a fixed rate of 3% on the market value of the inherited assets
Germany:
- Progressive rates depending on the degree of kinship and the value of the inheritance, which can range from 7% to 50%. There are allowances that vary depending on the degree of relationship (e.g. 500,000 euros for spouses).
Trade tax
Montenegro:
- No specific trade tax. Companies only pay corporation tax of 9%.
Germany:
- Trade tax is a municipal tax, the amount of which is based on trade income. The assessment rate varies depending on the municipality, but averages around 400%. This corresponds to an effective tax rate of around 14-17%.
Speculation tax
Montenegro:
- No specific speculation tax. Capital gains are taxed at the capital gains tax rate of 9%.
Germany:
- Profits from the sale of properties that are sold within ten years of acquisition are subject to income tax (speculation tax), unless the property was used exclusively for own residential purposes in the year of sale and in the two preceding years. Share gains are subject to a flat-rate withholding tax of 25% plus solidarity surcharge.
Property tax
Montenegro:
- Property tax is set by the local authorities and varies, but is between 0.1% and 1% of the property value.
Germany:
- Property tax is also levied by the municipalities. The assessment rate varies, but averages around 0.26% to 0.35% of the assessed value of the property.
Real estate transfer tax
Montenegro:
- For properties with a value of up to 150,000 euros, the tax is 3% of the purchase price.
- If the value of the property is between EUR 150,000 and EUR 500,000, a property tax of EUR 4,500 is levied, plus 5% on the amount exceeding EUR 150,000.
- For properties with a value of more than 500,000 euros, the property tax amounts to 22,000 euros plus 6% on the amount exceeding 500,000 euros.
These tax rates apply to purchases from a private seller. If you buy directly from a property developer, there is no land transfer tax. The tax value of the property is determined by the tax authorities on the basis of the market value and not the price stated in the purchase contract.
Germany:
- Real estate transfer tax varies between 3.5% and 6.5% of the purchase price, depending on the federal state.
Table: Comparison of tax rates
| Tax type | Montenegro | Germany |
|---|---|---|
| Income tax | 9% up to 750€/month, 15% above | 14% – 45% |
| Corporate income tax | 9% | 15% + solidarity surcharge + trade tax (effectively up to approx. 30%) |
| Value added tax | 21% (standard), 7% (reduced) | 19% (standard), 7% (reduced) |
| Capital gains tax | 9% | 25% + solidarity surcharge |
| Wealth tax | None | None (currently) |
| Gift tax | None/ 3% | 7% – 50% (depending on degree of relationship and value) |
| Inheritance tax | None/ 3% | 7% – 50% (depending on degree of relationship and value) |
| Trade tax | None | approx. 14-17% (depending on municipality) |
| Speculation tax | No income tax | Income tax on real estate gains (within 10 years), 25% on share gains + solidarity surcharge |
| Property tax | 0,1% – 1% | 0,26% – 0,35% |
| Real estate transfer tax | 3% up to €150,000 5% up to €500,000 6% over €500,000 |
3,5% – 6,5% |
Tax advantages of Montenegro
Lower tax burden
The most obvious advantage of Montenegro is the lower tax rates in almost all categories. For individuals and companies, this means a lower tax burden and therefore more disposable income or more profit. This can be crucial for small and medium-sized companies in particular, as they are less burdened by taxes and therefore have more capital available for investment and growth.
Simple tax system
The tax system in Montenegro is also simpler and more transparent. With only two income tax rates and a single corporate tax rate, tax planning is much simpler. This reduces the administrative effort and costs for tax advice.
No wealth, gift and inheritance tax
Another significant advantage of Montenegro is the absence of wealth, gift and inheritance taxes for direct relatives and family members. This can be particularly attractive for wealthy individuals and families who are looking for long-term planning for the transfer of assets. In Germany, these taxes can amount to considerable sums depending on the value and degree of relationship, whereas in Montenegro they do not apply at all.
No trade tax
A decisive advantage for companies in Montenegro is the lack of a specific trade tax. While companies in Germany often have to pay a substantial trade tax in addition to corporation tax, there is no such burden in Montenegro. This leads to a significantly lower overall tax burden for companies and increases their competitiveness.
No speculation tax
The lack of a special speculation tax on profits from the sale of real estate and securities in Montenegro is also an advantage for investors. In Germany, real estate gains made within ten years may be subject to income tax, while share gains are taxed at a flat rate with the flat-rate withholding tax. In Montenegro, capital gains are only subject to capital gains tax of 9%.
Lower property tax and land transfer tax
Montenegro has lower property and real estate transfer taxes than Germany. This makes buying and owning real estate in Montenegro more attractive, especially for investors and expatriates. The lower taxes reduce the running costs for property owners and make the real estate market more accessible overall.
Attractive conditions for investors
Montenegro also offers special incentives for foreign investors, including tax breaks and other support measures. The country has concluded a number of double taxation agreements in order to further minimize the tax burden for international investors. These agreements prevent investors from having to pay taxes on the same income in both countries.
Conclusion
Montenegro offers significant tax advantages compared to Germany, in particular due to its low and simple tax rates and the absence of wealth, gift, inheritance, trade and speculation taxes. For entrepreneurs, the self-employed and investors, this can mean considerable savings and therefore a significant financial advantage. The simplification of tax planning and the reduction of the administrative burden also make Montenegro an attractive option for those seeking tax optimization.
Further considerations
While Montenegro offers clear tax advantages, potential emigrants and investors should also consider other factors. These include the political stability of the country, the quality of the infrastructure, the education system and healthcare. Montenegro is a small market and although it has made progress in recent years, it is still a developing country with corresponding challenges.
Quality of life
The quality of life in Montenegro is high, with breathtaking scenery, a mild climate and a vibrant culture. The cost of living is low compared to many Western European countries, which makes the country an attractive place to live. In addition, Montenegro offers a good balance between work and leisure, with many recreational opportunities such as hiking, sailing and skiing.
Real estate market
The real estate market in Montenegro is particularly attractive for foreign investors. Prices are low compared to Western European standards, and there is a growing supply of high-quality real estate. The low property tax and land transfer tax make the purchase of real estate even more attractive. However, it is advisable to carry out thorough research and legal checks before investing in the real estate market. We will be happy to help and provide you with advice and support.
Corporate environment
Montenegro has established itself as a business-friendly country. The government has taken measures to reduce bureaucracy and make it easier to set up companies. The low tax environment and low level of regulation are further factors that make the country attractive for entrepreneurs. There are also numerous support programs and incentives for start-ups and small companies.
Summary
Compared to Germany, Montenegro offers considerable tax advantages that make it an attractive destination for entrepreneurs, investors and emigrants. The lower tax rates, the absence of certain taxes and the simpler tax structure are significant advantages. In addition, the country offers a high quality of life, attractive investment opportunities in the real estate market and a business-friendly environment.
However, it is important to carry out a comprehensive assessment of all relevant factors before deciding to relocate to Montenegro. The political, economic and infrastructural framework conditions should be taken into account as well as the tax advantages. Overall, however, Montenegro remains a worthwhile destination for many due to its tax appeal and the associated benefits.
