Montenegro regulates Taxation of Hydrocarbons’ Production Activities

Montenegro/March 2014

On the February 1st session of the Montenegrin Government, the Government adopted the Draft Law on Taxation of Hydrocarbons, whereby tax policies on profit gained from extracting oil and gas, construction of facilities and related equipment as well as delivery and transport of oil and gas have been defined.

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 expolatation in line with  international agreements. Also, the Law will be applicable to the transport of hydrocarbons.

In accordance with the Law, a tax payer 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 realization 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 inactivities of upstream operation

-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 CIT rate 9%.

The Government plans to  direct twenty per cent 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.

Jelena Zivkovic
Eurofast Global, Podgorica Office
+382 20 228 490