Determination of Tax Residency

Procedure for Determining Tax Residency

The procedure for determining tax residency is prescribed by the provisions of Article 4 of the Montenegrin Model Convention for the Avoidance of Double Taxation, as well as by the provisions of the following laws:

Personal Income Tax Law – Article 3 defines the concept of residency for individuals (the 183-day rule, center of vital and business interests).

Corporate Income Tax Law – Defines tax residency for enterprises and companies (place of registration or place of effective management in Montenegro).

Law on Tax Administration – Regulates general rights, obligations, and procedures in proceedings before the Tax Administration. Article 3) states: During the deep due diligence procedure, persons are obliged to provide accurate information within the documentation, including a statement or a certificate of residency, to the reporting financial institution.

By-laws (Operational Level)

Rulebook on the Form, Content, and Procedure for Issuing a Certificate of Tax Residency – with prescribed forms (ZIPR, PR-1, PR-2)

• Form PR-1
• Form PR-2
• Form ZIPR

The applicable provisions of the Rulebook on the Form, Content, and Procedure for Issuing a Certificate of Tax Residency (Residency Determination Forms) prescribe the form, content, and procedure for issuing a certificate of tax residency.

Article 2: A resident taxpayer of Montenegro proves their resident status to a foreign income payer by a certificate of residency provided on Form "PR-1", which is an integral part of this Rulebook. Exceptionally from paragraph 1 of this Article, the status of a resident taxpayer of Montenegro may be proven by a certificate on a form prescribed by the competent authority of another state with which an agreement for the avoidance of double taxation (hereinafter: the agreement) has been concluded. The certificate of residency from paragraph 1 of this Article is issued in the Montenegrin and English languages.

Article 3: A non-resident proves their status as a resident taxpayer of another state with which an agreement has been concluded to a domestic income payer by a certificate of residency provided on Form "PR-2", which is an integral part of this Rulebook, and which is certified by the competent authority of the other contracting state of which they are a resident. Exceptionally from paragraph 1 of this Article, the status of a resident taxpayer of another contracting state may be proven by a certificate on a form prescribed by the competent authority of that other state. The certificate of residency from paragraph 1 of this Article is issued in the Montenegrin and English languages.

Article 4: The certificate of residency from Article 2 of this Rulebook is issued by the competent tax authority based on a request for the issuance of a certificate of residency, which is provided on Form "ZIPR", which is an integral part of this Rulebook. The competent tax authority issues the certificate from paragraph 1 of this Article according to the domicile, residence, or place of effective management of the applicant.

When concluding agreements for the avoidance of double taxation, Montenegro uses the Montenegrin Model Convention, which is based on the OECD (Organisation for Economic Co-operation and Development) Model Tax Convention. The procedure for determining the tax residency of a taxpayer is prescribed by Article 4 and reads as follows:

For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, or any other criterion of a similar nature, and also includes that State and any political or administrative subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.

Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him;

b) if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

c) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

d) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

e) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.