VAT rules updates as country readies for EU membership
The east European state of Montenegro is continuing to harmonise its Value Added Tax regime with that of the European Union. This is part of its longterm accession negotiations which include the obligation to adopt the EU VAT Directive.
Montenegro commenced formal negotiations with the EU in June 2024 at a first intergovernmental conference. The earliest date for Moldova to join the EU is January 2030.
The new changes include:
- Introduction of a reduced VAT rate of 15%. The standard VAT rate is 20%, and there is a reduced rate of 8% for basic foods, fuels and others.
- Ending zero-rating of construction and other reliefs
- Updating the range of supplies exempt from VAT – likely to include: printed publications and children’s food;
- Ending the low-value consignment threshold of €75 which provides a VAT exemption on consignments shipped to consumers. The EC scrapped this threshold in July 2021 in its e-commerce VAT package.
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Montenegro VAT regime
Montenegro operates a value-added tax (VAT) regime based on the standard European VAT model. The standard VAT rate in Montenegro is 21%, applied to most goods and services. In addition, there are two reduced rates: 7% for certain essential items like medicines, books, and basic foodstuffs, and 0% for exports and certain financial and medical services. Businesses with an annual turnover exceeding €18,000 are required to register for VAT.
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Once registered, businesses must charge VAT on their sales and submit VAT returns, typically on a quarterly basis. The VAT collected is remitted to the tax authorities, but businesses can also reclaim VAT paid on purchases related to their business activities.
Montenegro’s VAT system operates on the principle of “destination-based” taxation, meaning that VAT is levied where goods and services are consumed, not where they are produced. For cross-border transactions within the European Economic Area, the reverse charge mechanism may apply, shifting the VAT reporting responsibility from the seller to the buyer.
Overall, Montenegro’s VAT regime is designed to be aligned with EU VAT practices, offering clarity and consistency for businesses operating in or trading with the country.
