Double Taxation: How the Serbia–Montenegro Tax Treaty Works

Serbia and Montenegro have had a double taxation treaty in force since 2011 — the "Ugovor o izbegavanju dvostrukog oporezivanja u odnosu na poreze na dohodak," an agreement on avoiding double taxation on income, signed on 20 July 2011 in Belgrade and in force since 1 January 2012¹. It covers corporate profit tax and personal income tax in both countries — but not VAT and not property tax, which fall outside the treaty entirely². If, under the domestic law of both countries, you end up a tax resident of both Serbia and Montenegro at the same time, Article 4 of the treaty sets out a step-by-step test for which country ultimately counts as the "primary" one for the treaty's purposes³. Dividends, interest, and royalties paid from one country to a resident of the other are subject to withholding tax at no more than 10% (5% or 10% for royalties, depending on type)⁴. And the actual mechanism for eliminating double taxation is a tax credit: the country of your residence credits tax already paid in the other country against its own tax on the same income, but never more than it would have charged itself⁵.

The document's full name is the "Ugovor između Republike Srbije i Crne Gore o izbegavanju dvostrukog oporezivanja u odnosu na poreze na dohodak." It was signed on 20 July 2011 in Belgrade and published in the "Službeni glasnik RS — Međunarodni ugovori" No. 10/2011¹. Article 2 lists exactly which taxes the treaty applies to: on the Serbian side, corporate profit tax (porez na dobit pravnih lica) and personal income tax (porez na dohodak građana); on the Montenegrin side, the same two categories under their Montenegrin names (porez na dobit pravnih lica and porez na dohodak fizičkih lica)². VAT and property tax are not on that list — the treaty is deliberately limited to taxes on income, not taxes in general. This matters to understand from the start: if, say, you pay property tax (porez na nepokretnosti) in Montenegro, this treaty has nothing to do with it — it only concerns what is earned as income, not what is owned.

Before getting into how the treaty eliminates double taxation, it helps to understand who it actually protects. A person is usually considered a tax resident of the country where they have a permanent home, or where they spend more than 183 days a year — these criteria are set independently by each country's domestic law, and it's entirely possible to be a Serbian resident under Serbian rules and, at the same time, a Montenegrin resident under Montenegrin rules. This is exactly the situation Article 4, paragraph 2 of the treaty addresses, through a sequential set of criteria known as tie-breaker rules³: first, which of the two countries has a permanent home available to you; if you have one in both (or neither), then where your "centre of vital interests" lies (closer personal and economic ties — where your family is, where your main business is, where your bank accounts are); if that still doesn't give a clear answer, then your habitual abode; if that doesn't help either, then citizenship; and if you're a citizen of both countries or of neither, the two countries' competent tax authorities settle the question directly, by mutual agreement³. In practice, for most Zen Gardens owners the very first criterion — a permanent home — settles the question: if your main residence and registration are in one country, and the Montenegrin apartment is used for holidays or rented out, your residency status most likely stays with the country where you actually live.

Since 1 October 2024, Montenegro has applied a progressive scale to salary tax as part of the "Europe Now 2.0" reform, rather than the flat rate used before⁶. It works like this: the portion of monthly gross salary up to €700 is tax-free; the portion from €700.01 to €1,000 is taxed at 9%; everything above €1,000 is taxed at 15%⁶ ⁷. This is not a flat rate applied to the whole sum, but a progressive scale — meaning the higher rate applies only to the part of the income above each threshold, not to the entire salary. On top of the income tax itself, a municipal surtax (prirez) is charged — 13% of the assessed tax in most municipalities, and 15% in Podgorica and Cetinje⁷. This is confirmed by two independent sources, including an official PwC overview⁶ and a review of current Montenegrin tax rates updated as of June 2026⁷ — both explicitly reference the "Europe Now 2.0" reform, which explains the discrepancy with older material still circulating online that cites a flat 9% rate with no threshold breakdown.

In Serbia, salary tax (porez na zarade) is a flat 10% of the tax base⁸. As of 1 January 2026, the tax-free minimum salary was raised to 34,221 dinars a month — confirmed both by a Paragraf.rs statistical overview and by a separate KPMG Serbia tax review covering the changes adopted at the end of 2025⁸ ⁹. Before that, the tax-free minimum was 28,423 dinars — an increase of more than 20%⁹. The tax base is the portion of salary above the tax-free minimum; the 10% rate applies only to that portion, not to the full amount.

A separate — and arguably the most practically significant — part of the treaty for anyone whose income and assets are split between the two countries is Articles 10, 11, and 12, which set the upper limit on the withholding tax the source country is allowed to apply when paying a non-resident⁴. For dividends, the cap is 10% of the gross amount⁴. For interest, also 10%⁴. For royalties, the rate depends on the type: 5% for payments for the use of, or the right to use, literary, artistic, and scientific works, and 10% for patents, trademarks, and technical know-how⁴. It's important to understand: this is a ceiling set by the international treaty, not a final rate — a given country may withhold less (if its domestic law provides for a lower rate), but never more than this cap for a resident of the other treaty country. This is a separate mechanism from the general income tax rate on salary discussed above — it applies specifically to cross-border payments of dividends, interest, and royalties, not to wages.

For Zen Gardens owners considering renting out their apartment, there's a separate practical question — how rental income itself is taxed inside Montenegro. The nominal personal income tax rate on rental income from real estate is 15% of the tax base, but the tax base isn't the full amount received — it's reduced by a standard (normalized) expense deduction of 30%, meaning the tax is actually paid on 70% of the income¹⁰. That's where the "effective rate of about 10.5%" you'll often see in local sources comes from — it's simply 15% applied to a base reduced by 30% (15% × 70% ≈ 10.5%), not a separate preferential rate¹⁰. This figure isn't among the rates mentioned directly in the double taxation treaty itself — the treaty only regulates the withholding cap for dividends, interest, and royalties, while each country sets its own domestic tax on rental income independently. Since Montenegrin tax law has changed several times over the past two years, and different sources quote different deduction percentages, it's worth double-checking this rate with a local accountant right before filing your return, rather than relying solely on the figure given here.

The treaty's core mechanism is set out in Article 23 — the tax credit method (poreski kredit), not a full exemption from tax in the country of residence⁵. Here's how it works: if a resident of one country receives income that, under the treaty, may also be taxed in the other country, the country of residence doesn't give up its taxing right entirely — instead, it credits, as a deduction, an amount equal to the tax already paid on that income in the other country⁵. But that credit has a ceiling: it can never exceed the portion of the residence country's own tax that corresponds to that particular income⁵. In plain terms: if you paid more tax in the other country than you would have owed under the residence country's own rules on the same amount, you don't get the difference refunded — you simply overpaid in the country that withheld the tax. And if the tax in the other country turns out to be lower, the country of residence will require you to pay the difference up to its own rate. The treaty doesn't make the tax zero in either country — it eliminates the situation where the same income is taxed twice in full.

Let's separately go over what falls outside this agreement, so you don't rely on it where it doesn't apply. The treaty doesn't regulate VAT in either country². It doesn't regulate tax on real property — the fact that you own an apartment in Montenegro and pay local property tax on it has nothing to do with this treaty and creates no "double taxation" risk of the kind this treaty is designed to solve². It also doesn't remove the obligation to file a tax return wherever domestic rules require one — the treaty eliminates double payment of tax, not double filing: in some cases you still need to file a return in both countries, even if, thanks to the credit, there's ultimately nothing extra to pay.

It's worth separating two different things that property buyers sometimes mix up. Simply owning an apartment in Montenegro does not make someone a Montenegrin tax resident — residency is determined by permanent home, centre of vital interests, and days spent in the country, not by property ownership. In the same way, having obtained a residence permit through a property purchase doesn't automatically switch your tax residency either — that's a permission to stay, not a tax status. Residency and residence-permit status are established through different procedures and different criteria, and treating one as an automatic consequence of the other would be a mistake.

The first is assuming that because the treaty exists, no tax needs to be paid in either country at all. That's not the case: the treaty eliminates double payment, not the underlying obligation to pay tax wherever grounds for it exist.

The second is confusing the treaty's withholding cap (10% on dividends and interest, 5–10% on royalties) with each country's own income tax rate on salary — these are different mechanisms that apply to different kinds of income.

The third is determining tax residency by guesswork, without actually running the Article 4 test, especially when you have formal ties to both countries — a home, registration, a job. In a borderline case, it's smarter to clarify your status with a tax adviser in advance than to sort it out after the fact together with the tax authority.

If you have income potentially taxable in both countries — a salary in one, property or a business in the other — start by determining your tax residency: first under each country's domestic rules separately, and if you come out a "resident of both," go through the Article 4 test in order. If you receive dividends, interest, or royalties from the other treaty country, check with the payer or the local tax office whether the treaty's capped rate has been applied (rather than a higher default domestic rate) — sometimes this requires submitting a certificate of tax residency in advance. If you're renting out property in Montenegro, check the current rate and the normalized expense percentage with a local accountant at the time you file, rather than relying on figures from general sources without verifying the date. And in any borderline case — dual residency, income from both jurisdictions at once, large sums — consult a tax adviser familiar with both countries' legislation before, not after, filing your returns.

We've applied this same principle — reading the primary source instead of "as a rule" paraphrases — in our earlier pieces on residence permits through property, currency control, and pensions and social security between Serbia and Montenegro. If you're considering the project, you can find the details and a contact form on the project page.

Sources

1. "Zakon o potvrđivanju Ugovora između Republike Srbije i Crne Gore o izbegavanju dvostrukog oporezivanja u odnosu na poreze na dohodak," paragraf.rs — signed 20.07.2011 in Belgrade, published in "Sl. glasnik RS — Međunarodni ugovori" No. 10/2011; Article 28 (entry into force — from the first day of the tax year following completion of ratification), in force since 01.01.2012.

2. Same source — Article 2 (list of taxes covered by the treaty: corporate profit tax and personal income tax in each of the two countries; VAT and property tax are not included).

3. Same source — Article 4, paragraph 2 (sequential criteria for determining residency in case of dual residency of an individual: permanent home → centre of vital interests → habitual abode → citizenship → mutual agreement of the competent authorities).

4. Same source — Articles 10 (dividends, cap of 10%), 11 (interest, cap of 10%) and 12 (royalties, 5% for literary/artistic/scientific works, 10% for patents, trademarks and technical know-how).

5. Same source — Article 23 (elimination of double taxation by the tax credit method, with the credit capped at the share of domestic tax attributable to that income).

6. "Montenegro — Individual — Taxes on personal income," PwC Worldwide Tax Summaries, taxsummaries.pwc.com — progressive salary tax scale: 0% up to €700, 9% from €700.01 to €1,000, 15% above €1,000; municipal surtax 13% (15% in Podgorica and Cetinje).

7. OpenAccountants, "Montenegro Payroll" (updated 04.06.2026), openaccountants.com — same thresholds and rates, referencing the "Europe Now 2.0" tax reform in force since 01.10.2024; independently confirmed also by a 2026 review from Ekonomik.co.

8. "Poreski tretman i usklađeni neoporezivi iznosi za određena lična primanja zaposlenih i ostalih fizičkih lica," Paragraf.rs — Serbian salary tax rate of 10%; current tax-free minimum of 34,221 dinars a month for 2026.

9. "Usvojene izmene poreza na dohodak građana i doprinosa za obavezno socijalno osiguranje," KPMG Srbija, kpmg.com/rs — confirms the tax-free minimum was raised from 28,423 to 34,221 dinars as of 01.01.2026, adopted by the National Assembly of Serbia.

10. "Porez na nekretnine u Crnoj Gori — kompletan vodič 2026," Stanoviinekretnine.me, and independently — the review "Glavni porezi u Crnoj Gori u 2026. godini," Ekonomik.co — rental income tax rate in Montenegro of 15% of the tax base; normalized expense deduction of 30% of income, effective burden ≈10.5% of gross income (15% × 70%). An earlier source, Asistent.me, cited a different deduction percentage (40%/50%) — preference given to the two newer sources that agree with each other.

— Currency Control and Legal Payment in Montenegro — how to pay for a purchase — and other large expenses, including a renovation — without tripping currency-control rules.

— Mortgage in Montenegro for Foreigners: Real Rates — for anyone financing the purchase instead of paying by transfer in full.

— Cost of Living in Montenegro — a realistic monthly budget, so utility bills and renovation costs don’t come as a surprise.

— Car and Driving License in Montenegro — the other piece of bureaucracy that usually follows right after you settle into a new place.

— How to Get a Residence Permit in Montenegro — the general routes to a boravak for anyone relocating.