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Montenegro: Montenegro-Portugal income tax treaty enters into force

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On December 10 2018, Portugal published Notice 144/2018 in the Official Gazette, announcing the new income tax treaty with Montenegro.

The treaty covers corporate profit tax and personal income tax (PIT) in Montenegro, as well as Portuguese PIT, corporate income tax (CIT) and surtaxes on CIT. The treaty applies from January 1 2019 and follows the general OECD model.

The treaty introduced the following principles and rates.

Withholding tax rate changes

  • Dividends: 5% of the gross amount of the dividend will apply if the beneficial owner (BO) is a company which holds at least 5% of the capital of the company paying the dividends (directly or indirectly). In other cases, a withholding tax (WHT) of 10% will apply to all other dividends;

  • Interest: A 10% WHT will apply to the gross amount of the interest; and

  • Royalties: A 5% WHT will apply for the use of (or the right to use) any copyright of literary, artistic, or scientific work, including cinematographic films and recordings on tape, or other media used for radio or television broadcasting, or other means of reproduction or transmission or computer software. Otherwise, a 10% WHT will apply to the gross amount of the royalties for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience.

Capital gain changes

One of the two states may tax capital gains derived by a resident of the other state in the following scenarios:

  • Gains acquired from the alienation of immovable property situated in another state;

  • Gains from the alienation of movable property forming part of the business property of a permanent establishment (PE), which a company of one state has in the other state; and

  • Gains derived by a resident of one state from the alienation of shares deriving more than 50% of their value, directly or indirectly, from immovable property situated in the other state.

Furthermore, gains from the alienation of ships or aircraft operated in international traffic will be taxable only in the country in which the place of effective management of the company is located. When it comes to the gains acquired from the alienation of other properties than to which have been referred, such gains shall be taxable only in the state where the alienator is a resident.

The treaty was concluded in English, Portuguese and in Montenegrin. In the case of any divergence of interpretation, the English text prevails.

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