Guidance on the Portuguese D7 is written for someone arriving from a country with no tax agreement with Portugal, or from one whose agreement is assumed rather than read. Anyone moving between Montenegro and Portugal is in neither position. The two states have had a full double taxation convention in force since 2017, and it answers most of the questions that D7 planning leaves open — in some places less favourably than the planning assumes.
Two of its provisions decide the outcome for the ordinary case. Article 17(2) allows the state a pension comes from to tax it to the extent the other state does not. And Article 13(4) keeps gains on shares that derive their value from Montenegrin real estate taxable in Montenegro, whatever company sits in between.
Source. Convenção entre a República Portuguesa e o Montenegro para Evitar a Dupla Tributação e Prevenir a Evasão Fiscal em Matéria de Impostos sobre o Rendimento, signed in Lisbon on 12 July 2016; approved by Resolução da Assembleia da República n.º 50/2017 of 27 January 2017 and ratified by Decreto do Presidente da República n.º 27/2017, published in Diário da República, 1.ª série, N.º 57 of 21 March 2017, from which the article text below is taken. Montenegro publishes it in "Službeni list CG — Međunarodni ugovori" 9/17. Read on 5 September 2026. General information, not advice on a particular move.
First, the fact that it is in force
This is worth stating because the official tables disagree with each other.
Article 28(1) brings the Convention into force thirty days after the last written diplomatic notification that domestic requirements are met. Article 28(2) then sets when it produces effects: in Portugal, for taxes due at source where the chargeable event occurs on or after 1 January of the calendar year immediately following entry into force, and for other taxes for income arising in any tax year beginning on or after that date; in Montenegro, for income taxes in any tax year beginning on or after the same 1 January.
Entry into force is recorded as 7 December 2017, which puts effects from 1 January 2018 — and Montenegro's own treaty list gives the same application date.
The caution is practical. The Portuguese tax authority's Tabela Prática das Convenções still carried Montenegro with the note "Falta Aviso" — notice missing — in its 2017 edition, because the confirming aviso had not yet been published. A practitioner checking that table alone in 2018 would have concluded there was no treaty. The absence of a row, or a caveat in a summary table, is not evidence that a convention does not apply. Entry into force is established from the ratification and notice instruments, not from a summary.
Both states will call you resident
Article 4(1) defines a resident of a Contracting State as a person who, under that state's law, is liable to tax there by reason of domicile, residence, place of management or any other criterion of a similar nature — expressly excluding a person liable to tax in that state only on income from sources in it.
On the Montenegrin side the test is not the day count alone. Under the Zakon o porezu na dohodak fizičkih lica, Article 3(1), a natural person is resident where they either have a prebivalište or the centre of business and vital interests on Montenegrin territory, or stay in Montenegro more than 183 days in the tax year. The two limbs are independent, and the first has no day threshold at all.
Portugal applies its own domestic test, which is a matter of Portuguese law rather than of this Convention. The practical consequence is that a person who keeps a Montenegrin home and business connection while establishing D7 residence in Portugal is very often resident in both states under domestic law. That is not a failure of planning; it is the situation Article 4(2) exists to resolve.
The tie-breaker, in order
Article 4(2) resolves dual residence for individuals in a fixed sequence:
| Step | Test | Article 4(2) |
|---|---|---|
| 1 | The state where a permanent home is available. If available in both, the state with which personal and economic relations are closer — the centre of vital interests | (a) |
| 2 | If the centre of vital interests cannot be determined, or no permanent home is available in either state — the state of habitual abode | (b) |
| 3 | If habitual abode is in both or in neither — the state of nationality | (c) |
| 4 | If a national of both or of neither — settled by the competent authorities by mutual agreement | (d) |
Article 4(3) resolves it for a person other than an individual by the place of effective management.
Two features of that ladder are worth noting for a Montenegro–Portugal move. The first step is a permanent home available, not a home owned or occupied — keeping a Montenegrin apartment available rather than let out keeps step 1 in play. And the centre of vital interests weighs personal and economic relations together, so a family remaining in one state while the business remains in the other does not resolve itself at step 1; it moves to habitual abode.
The pension clause that reverses the usual assumption
Article 17(1) provides that pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment are taxable only in that state — the ordinary residence-state rule, subject to Article 18(2) for government service pensions.
Article 17(2) then adds the sentence that matters:
Notwithstanding paragraph 1, pensions and other similar remuneration paid to a resident of a Contracting State may also be taxed in the Contracting State from which they arise, if and to the extent that they are not taxed in the first-mentioned state.
This is a subject-to-tax clause, and it is the opposite of what most cross-border pension planning assumes. Exclusive residence-state taxation under Article 17(1) is conditional on the residence state actually taxing the pension. Where it does not — whatever the domestic reason — the source state's right revives, to the extent of the shortfall.
For a person drawing a Montenegrin-source pension while resident in Portugal, or the reverse, the practical question is therefore not only "which state has the right" but "is the income actually taxed there". A favourable domestic regime in the residence state does not put the pension beyond the source state; under Article 17(2) it can hand the source state the base.
What Portugal's domestic regimes do or do not tax is a question of Portuguese law and has to be answered there, on current rules. The point from this Convention is narrower and does not change with those rules: the treaty protection in Article 17(1) is not unconditional.
Montenegrin property, whatever holds it
Article 13 allocates capital gains, and its fourth paragraph closes the structure most often used to move a gain out of Montenegro.
- 13(1) — gains from the alienation of immovable property situated in the other state may be taxed in that other state.
- 13(2) — gains on movable property forming part of a permanent establishment there, including gains on the alienation of the establishment itself.
- 13(3) — ships and aircraft in international traffic, taxable only where the effective management is.
- 13(4) — gains from the alienation of shares or comparable interests deriving more than 50% of their value, directly or indirectly, from immovable property situated in the other state may be taxed in that other state.
- 13(5) — everything else is taxable only in the alienator's state of residence.
Article 13(4) is the land-rich clause. Selling the company that owns the Montenegrin villa, rather than the villa, does not move the gain to Portugal where the company's value comes principally from that property. Read alongside Montenegro's domestic charge on a non-resident's capital gain, it means the treaty is not the answer to a Montenegrin property exit — a point we set out from the Montenegrin side in what a foreign company owes on a Montenegrin sale.
By contrast, Article 13(5) is genuinely protective for portfolio assets: a gain on shares that are not land-rich is taxable only where the alienator is resident, which is exactly where the Article 4 tie-breaker result becomes worth money.
The rates, and how relief is given
Where income keeps its source-state charge, the Convention caps it:
| Income | Cap in the source state | Article |
|---|---|---|
| Dividends | 5% where the beneficial owner is a company (not a partnership) holding directly or indirectly at least 5% of the capital; 10% otherwise | 10(2) |
| Interest | 10%, with an exemption where a Contracting State or its subdivisions is payer or beneficial owner | 11(2), 11(3) |
| Royalties | 5% for the first category defined in Article 12(3)(a); 10% for the second | 12(2) |
Note the 5% dividend threshold: at 5% of capital, it is far lower than the participation thresholds a group would meet elsewhere, so an ordinary corporate shareholding qualifies.
Article 22(1) gives relief by the ordinary credit method on both sides: the residence state deducts an amount equal to the income tax paid in the other state, capped at the portion of its own tax attributable to that income. Article 22(2) allows a state that exempts income under the Convention to take that exempt income into account when calculating the tax on the rest — exemption with progression.
The credit method matters to the pension question above. A credit relieves double taxation but does not deliver the lower of two rates as a saving; where Article 17(2) restores a source-state charge, the credit mechanism in Article 22(1) limits the relief to the residence state's own tax on that income.
The treaty polices itself
Article 27 is unusually direct for a 2016 convention, and it does much of the work an anti-abuse overlay would otherwise do:
- 27(1) — the Convention is not to be interpreted so as to prevent a Contracting State applying the anti-abuse provisions of its own domestic law;
- 27(2) — benefits are not granted to a resident who is not the beneficial owner of the income obtained in the other state;
- 27(3) — the Convention does not apply where the main purpose, or one of the main purposes, of any person concerned with the creation or assignment of the property or right in respect of which the income is paid was to obtain those benefits.
A main-purpose test therefore sits in the bilateral text itself, independently of anything added later.
On the later overlay: Montenegro's multilateral instrument obligations entered into force for it on 1 September 2026, and Montenegro reserved the whole of the instrument's article on methods for eliminating double taxation, so Article 22 above is not disturbed by it. Whether and how the instrument modifies this particular convention depends on the matching of both states' positions and notifications, which is technical and should be confirmed with the current depositary records and a Portuguese adviser before any position is taken on it.
Two things the Convention does not do
It is an income tax convention. Article 2(1) applies it to taxes on income, and Article 2(2) treats taxes on gains from the alienation of movable or immovable property and taxes on capital gains as income taxes — so capital gains are inside. What sits outside is a tax on the holding of capital or wealth, which this Convention does not cover on either side. Montenegro's own treaty list classifies the agreement as covering dohodak — income — rather than income and property.
And it decides nothing about judgments. There is no bilateral convention between Montenegro and Portugal on the recognition and enforcement of civil judgments, so a Portuguese decision has to travel to Montenegro by whatever general route applies, and the tax convention does not assist.
What this changes about the move
The Convention narrows the D7 question in a specific way. Whether Portugal or Montenegro taxes a given item is decided by the Article 4 tie-breaker rather than by which residence permit is held — a D7 card is an immigration document and does not settle Article 4. Where the item is a pension, Article 17(2) makes the answer depend on whether it is actually taxed in the residence state. Where it is a gain on Montenegrin property, or on shares that derive their value from it, Article 13(1) and 13(4) leave the charge in Montenegro. And where a structure exists mainly to obtain the Convention's benefits, Article 27(3) removes them.
None of that argues against the move. It argues for settling the Article 4 position, in writing and on facts, before the first tax year rather than during the second.
If you hold Montenegrin assets or income and are moving to, or already hold, a Portuguese residence permit, our international tax work covers the residence position and the treaty analysis, and the Portugal D7 page covers the permit itself.
