The pitch is familiar enough that you can predict it. Put the intellectual property in a Montenegrin company, licence it out, pay corporate tax at what people still call nine per cent, and take the royalties.
Every clause of that sentence has a problem, and the problems are not the ones usually raised. The rate is not flat. The withholding that applies to a royalty leaving Montenegro depends on a list published by the Ministry rather than on the contract. The European exemption that makes this structure work elsewhere is already written into Montenegrin law — and does not apply yet. And the moment your counterparty sits in one of the listed territories, a statutory provision makes them a related party whether or not anyone owns anything.
What follows is the current state of the four provisions that decide it, read from the consolidated text.
Sources, checked on 20 September 2026: Zakon o porezu na dobit pravnih lica, consolidated text 065/01 to 088/24 of 13 September 2024 — Articles 3, 4, 11, 15, 19, 20, 28, 29, 29a, 29b, 29c to 29h, 38, 38a, 38b, 38c and 45a. The deferral in Article 45a was extended by Article 17 of the amending act at "Sl. list CG" 104/2026 (EPA 1059 XXVIII). The Ministry of Finance list of territories under Article 29(5) is the one dated 28 March 2025. This page states Montenegrin law only; how the recipient's own state taxes the same receipt, and what its treaty position is, are questions for counsel there.
First: what the law calls a royalty is wider than the contract
Article 29b(2) defines royalties for the purposes of the withholding article. They are payments of any kind received as consideration for the use of, or the right to use:
- any copyright in a literary, artistic or scientific work, including cinematographic films and software;
- any patent, trademark, design or model, plan, secret formula or process;
- information concerning industrial, commercial or scientific experience;
- and payments for the use of, or the right to use, industrial, commercial or scientific equipment.
Software sits inside that definition by name. A great many arrangements are drafted as a services agreement, an access fee, a subscription or a maintenance contract, and then assessed as a royalty because what is being paid for is the right to use software. The label on the invoice does not decide it.
It is worth reading the neighbouring definition too. Article 29b(4) treats as consulting services the advisory and intellectual services of foreign legal persons — including legal, tax, accounting and audit services supplied to domestic entities for a fee — and then carves out a specific list: seminars, lectures and workshops; services of engineers, architects and similar professionals whose result is a written document for action such as concept and execution designs, drawings and instructions; brokerage and agency; and the use of databases. Those carve-outs decide a surprising number of invoices.
Second: the rate is 15 per cent, unless the Ministry's list says 30
Article 29(1) imposes withholding at 15 per cent on the gross amount for royalties paid to a non-resident, alongside interest, capital gains, rent, consulting, market research and audit fees.
Article 29(5) raises that to 30 per cent where the recipient is from a territory with a low tax burden or one that does not exchange information. Article 29(6) then tells you when a person counts as being from such a territory: incorporation there, registered seat there, seat of management there, or place of effective management there. Any one of the four is enough.
Article 29(7) is regularly misread. It does not say that a double tax treaty switches off the 30 per cent rate. It says that the definition in paragraph 6 does not apply to a person who is also treated as a resident of a treaty state. The paragraph being disapplied is the one that catches you, not the one that sets the rate — the practical outcome is often the same, but the reasoning matters when you are arguing it.
Two further paragraphs are operational rather than conceptual. Article 29(8) makes a permanent establishment a withholding agent as well, with Article 29(9) excepting the case where the payment is recorded as income of that PE. And Article 29(10) puts the list on the Ministry's website, while Article 29(11) requires an annual report by the end of February.
The current list runs to 45 jurisdictions. The classic holding locations are on it — BVI, Cayman, Jersey, Guernsey. Hong Kong, Singapore, the UAE and Malaysia are not. Bahrain is. The full analysis is in the 30 per cent withholding list, and it is worth checking against the payee on the day of payment rather than on the day the contract was signed.
Third: the treaty rate is not self-executing, and the payer carries the risk
Article 29a(1) and (2) are the provisions that catch payers who assume a treaty applies because the recipient says so. The payer may apply the reduced rate only if the non-resident proves that it is resident of the treaty state and that it is the beneficial owner of the income. That proof is held by the payer, in a document certified by the competent authority of the other state — which means it must be in hand at the moment of payment, not obtained afterwards.
Then Article 29a(3): where the treaty was applied but the conditions in paragraphs 1 and 2 were not met, and less tax was paid as a result, the difference is paid by the payer. A declaration from the recipient abroad does not carry that risk; the Montenegrin company does.
If the residence side of that evidence is what you are missing, the residence certificate page sets out which form proves what.
Fourth: the EU exemption exists in the statute and does not apply
This is the provision that changes whether the structure works at all.
Chapter VIIa of the Act implements the European regime on payments of interest, royalties, dividends and profit shares between associated companies: Article 29d and following provide that payments of interest and royalties made by a Montenegrin payer to an associated company in another Member State are not subject to withholding where the conditions are met, with the association tested at a direct minimum 25 per cent holding. Article 29g(2) adds an arm's-length cap — where the amount exceeds what would have been agreed absent the relationship, the exemption applies only to the amount that would have been agreed — and Article 29g(3) disapplies the chapter entirely where the payments were made for tax evasion or avoidance.
Article 45a of the consolidated text then says, in one sentence:
The provisions of Chapters VIa and VIIa of this Act shall apply from the day of Montenegro's accession to the European Union.
Article 17 of the 2026 amending act at "Sl. list CG" 104/2026 rewrote that provision and widened it: Chapters VIa, VIIa and Xa, as well as Articles 38m and 40a, apply from the day of accession. Chapter Xa is the anti-profit-shifting block — the interest limitation, controlled foreign companies, exit taxation and hybrid mismatches. Article 38m is advance pricing agreements. Article 40a is the general anti-abuse rule.
So the position today is a specific and slightly strange combination:
| Instrument | In the statute? | Applies today? |
|---|---|---|
| 15% / 30% withholding on royalties (Art. 29) | Yes | Yes |
| Treaty relief with certified proof (Art. 29a) | Yes | Yes |
| Transfer pricing and documentation (Arts. 38–38c) | Yes | Yes |
| EU interest and royalties exemption (Ch. VIIa) | Yes | No — from accession |
| Interest limitation, CFC, exit tax, hybrids (Ch. Xa) | Yes | No — from accession |
| Advance pricing agreement (Art. 38m) | Yes | No — from accession |
| General anti-abuse rule (Art. 40a) | Yes | No — from accession |
Read the right-hand column as a whole. Montenegro currently has arm's-length pricing without a general anti-abuse rule, without CFC rules and without an advance-ruling mechanism for pricing. Anyone designing on that basis should also read it as a countdown: every line in the lower block starts on the same day, and that day is not fixed. The detail on the anti-profit-shifting package is in the 104/2026 note.
The provision that makes your counterparty related without owning anything
Article 38 defines related persons for transfer pricing. The ordinary tests are familiar: direct or indirect participation in management, control or capital; at least 25 per cent of shares or stakes; or the actual ability to control business decisions, which Article 38(4) breaks down into at least 25 per cent of voting rights in the management organs, at least a 25 per cent right to profit, or being a family member. Article 38(5) defines family widely — blood relatives in the direct line and collaterally to the fourth degree, spouse or common-law partner, same-sex life partner, affinity to the second degree regardless of whether the marriage ended, and adoptees with their descendants.
Then Article 38(6), in one line: a non-resident legal person referred to in Article 29(5) and (6) also has the status of a related person.
No shareholding is required. If your licensor or licensee sits in one of the 45 listed territories, the statute makes it your related party, and the whole transfer pricing apparatus attaches — on top of the 30 per cent withholding. Most structuring conversations treat those as two separate issues. The Act connects them.
What the documentation duty actually is
Article 38a requires the taxable profit of anyone with related-party transactions to be determined on the arm's-length principle, and Article 38b lists the methods: comparable uncontrolled price, and four others, plus a sixth catch-all where none of the named methods is possible. For loans, Article 38b(3) has the Ministry prescribe arm's-length interest rates by 31 December for the following year.
Article 38c sets the filing obligations:
- Large taxpayers must submit transfer pricing documentation together with the annual return.
- Everyone else must hold the documentation when the return is filed and produce it within 45 days of a request.
- Short-form documentation is permitted where related-party transactions do not exceed €75,000 in the year.
- Transactions between a permanent establishment and its non-resident head office are subject to the documentation requirement.
That last point pairs with Article 11(5), which disallows administrative expenses charged by a PE to its non-resident head office — not as a matter of pricing but absolutely. Where the IP sits above a branch rather than a subsidiary, that is the provision to model first. The line between the two is drawn in permanent establishment versus tax residence.
And the rate at the bottom is not nine per cent
Article 28 sets corporate tax progressively: 9 per cent up to €100,000; €9,000 plus 12 per cent on the slice from €100,000.01 to €1,500,000; €177,000 plus 15 per cent above €1,500,000.01. A royalty stream of any size runs into the second band quickly, and the modelling that assumed a flat rate is wrong by the time it matters.
Two smaller provisions round out the picture for a leveraged IP company. Article 19 recognises interest and related costs owed to a related-party creditor only up to the arm's-length amount at the time the loan was granted. Article 20 works the other way: interest income from a related-party debtor must be booked at no less than arm's length.
What this page does not decide
Whether the licence is priced correctly is a valuation question, not a legal one, and the Act expressly points to the OECD guidelines for the method. Whether the recipient's state taxes the royalty, gives a credit for Montenegrin withholding, or treats the Montenegrin company as controlled from elsewhere is outside this page. And nothing here addresses VAT on the licence, which is a separate statute with its own place-of-supply rules.
Who we act for
We act for the party named in the instruction. On a licensing structure we are either advising the Montenegrin company that will be the payer and carries the Article 29a(3) risk, or advising the recipient — not both. Fees are fixed and published, and a first consultation is charged and credited against the engagement if it proceeds.
Before the next payment leaves
Send the licence agreement, the payee's certificate of residence with its date, the group structure showing who sits where, and the last annual return. We come back with a written note: whether Article 29b makes the payment a royalty, which of 15 or 30 per cent applies on the Ministry's current list, whether the Article 29a evidence in your file would actually survive a challenge, and whether Article 38(6) has already made your counterparty a related party.
