The proposed law, when ratified by the Parliament, will create a special regime for corporate income tax applicable to companies dealing with extracting oil and gas. Per the new law, the corporate income tax rate will be 59%.
The proposed law introduces liability of payment of corporate income tax on profits gained from upstream operation related to hydrocarbons. The law will be applicable to upstream operations undertaken on the Montenegrin Sea and in international waters where Montenegro has the right of exploitation in line with international agreements. Also, the law will be applicable to the transport of hydrocarbons.
In accordance with the law, a taxpayer is a locally registered company or a foreign company's branch that is undertaking upstream operations based on a Concession Agreement with the Montenegrin government as well as other parties undertaking upstream activities in line with international agreements.
The draft law defines the following revenue as revenue of upstream operations:
- Revenue of production, transport, sale and realisation of hydrocarbons;
- Revenue of interests and other financial revenues, exchange rate difference as well as financial gain of upstream operation;
- Revenue gained from tangible assets purchased for use in activities of upstream operation; and
- Value of hydrocarbons stock.
The defined eligible expenses include upstream capital expenses, operational expenses, expenses of reinstallations funds, and financial expenses.
Revenue gained from other activities of the company that are not regulated by this law such as capital gains (including gains of transfer of concession rights for production of hydrocarbons) will be subject to taxation per Law on Corporate Income Tax with a standard corporate income tax rate of 9%.
The goverment plans to direct 20% of tax revenues from upstream activities to the Montenegrin budget, while 80% will be allocated to a special fund, which will be used for funding development projects of national interest.