From a corporate perspective, of interest to companies are certain cases such as severance payments which have a specific tax treatment.
The legislation defines that severance payments related to retirement as well as related to a termination of employment in redundancy procedures, which do not exceed €1,000 ($1,400) are exempt from social contribution deductions and personal income tax. In other scenarios of severance payments, such as mutual settlements for employment termination, the severance payment is taxed at the rate of 9% but such payments are nevertheless exempted from social contributions payments, irrespective of amount.
A similar logic applies when a company is granting vouchers, goods or discounts to its employees. All of these are considered as personal income in a tax sense and are subject to taxation. Just like with severance payments, mandatory social contributions are not applicable to this type of personal income.
According to the Law on Personal Income Tax, the company (employer) is responsible for the calculation and payment of the tax as well as mandatory social contributions. Even though certain countries allow physical person to calculate and pay their own tax liability, the Montenegrin legislation obligates the legal entity to calculate and pay all taxes and contributions on behalf of its employees, including local taxes.
© 2019 Euromoney Institutional Investor PLC. For help please see our FAQ.