I INSTITUTIONAL SOLUTIONS System of financing of the local governance has been regulated by the Law on Local Governance (“Official Gazette of the Republic of Montenegro”, number 42/03 and 44/03).
Provisions of the law stipulate that the funds for financing source competences of the municipalities shall be provided from their own budgets and that the municipalities shall be independently in possession of those funds.
Competences of the local governance encompass:
providing utility service (water-supply, maintenance of the hygiene in municipality, funeral services, green vegetation in towns, construction of local roads, protection of natural river watercourses),
spatial management and protection of the environment (adopting of different plans, programs, etc.),
local public transportation (including taxi transportation),
creation of conditions for citizens’ sports activities (recreation),
as well as performance of other competences stipulated by the Law on Local Governance (“Official Gazette of the Republic of Montenegro”, No.42/03, … 13/06) and special laws.
For execution of the delegated and assigned works entrusted by the certain ministries and other republic bodies of public administration, funds for the local governance shall be provided from the Budget of the Republic.
II FINANCING OF THE LOCAL GOVERNANCE Provisions of the Law on local governance stipulate that the funds for financing source competences of the local governance shall be provided from the following four sources:
source revenue (municipal tax, tariffs, remunerations, etc.) independently imposed by municipalities impose, in compliance with the special laws;
assigned (divisional) republic revenues (revenues from the taxes under private individuals’ income, revenues from the tax on the property sale and revenues from the remunerations on concession for use of natural goods);
Equalization Fund for funds which are provided from the taxes on income under private individuals’ income amounting to more than 10% of the unpaid revenues on that base;
conditional subsidies from the Budget of the Republic.
Source revenues of the local governance
Municipalities, in compliance with their authorization under the Law on Financing of the Local Governance and special laws on taxation may introduce following forms of taxation:
local taxes (property tax, additional tax on taxes on private individuals’ income, taxes on consumption, taxes on firm or name, taxes on non-developed construction land, taxes on games of chance and entertainment games);
local tariffs (tourist taxes, local administrative tariffs and local utility tariffs);
local remunerations (remuneration for the use of construction land, remuneration for management of the construction land and remuneration for the use of municipality’s roads).
Local taxes Property tax – Payment of this tax has been governed by the Law on Property Tax (“Official Gazette of the Republic of Montenegro” No. 65/01) and Regulation on the Detailed Criteria and Methodology for Determining of the Market Value of Property (“Official Gazette of the Republic of Montenegro”, number 23/03, 26/04 and 31/05). Taxpayer of the property taxes is legal entity and private individual who is the owner of the property (land, building, housing and business unit of the building or some other type of building) on the day of January 1st of the year for which the tax has been determined, and the base for the payment of this tax is the market value of the property on that date. Property tax rate may vary from 0,08% to 0,8% of the property market value and its amount is determined by the decision of the municipality, depending on the type, location, quality and age of the property.
Surtax to the Personal Income Tax – This tax is paid on revenues from the income taxes of private individuals, from all the sources (personal revenues, independent activities, property and property rights and capital). Additional tax rate on the personal income tax may amount up to 13%, except for the administrative capital town and the old capital town, for which the tax rate may amount up to 15%.
Tax on Consumption – This tax is paid for the trade of alcoholic and non-alcoholic beverages in catering firms, except for the trade of coffee and tea. Taxpayer of the tax on consumption is legal entity or private individual who provides services of catering. Tax rate for consumption may amount up to 3%, except for the administrative capital town and old capital town for which the tax rate may amount up to 5%. The amount of the tax rate for consumption has been determined by the decision of the municipality.
Tax on Firm or Name – Taxpayers of this tax are legal entities and private individuals who are payers of the personal income tax or income taxes of the legal entities and those which are registered for performing activities. Tax on firm or name is paid in the annual amount which cannot be higher than 300€ per firm, that is per name. Municipality decides on the amount of the tax on firm, depending on the size of the business area, location and other specificities.
Tax on the non-developed construction land – Taxpayers of this tax are legal entities and private individuals, owners of the non-constructed construction land. Tax base on non-developed construction land is the size of the non-developed construction land expressed in square meters. Tax on non-developed construction land is paid annually in height of 0,03 to 0,30€ per m2 of that land.
Tax on Games of Chance and Entertainment Games – obligation of payment of this tax has been regulated by the Law on games of chance and entertainment games (“Official Gazette of the Republic of Montenegro” No. 27/06). The law regulates basic elements (taxpayer, tax base, etc.), and municipality by its decision decides on its amount, methods of calculating and payment of the tax. Taxpayers of the tax on games of chance are business enterprises which are registered at the competent court and which get the license for providing such games from the Ministry of Finance. Taxpayers of the tax on entertainment games are legal entities and entrepreneurs which use machines for entertainment games. Tax rate for arrangement of the games of chance (except those with machines) may amount up to 10% of the concession remuneration which is paid for providing these games. For providing of the games of chance on machines, tax may amount up to 20€ per machine. For providing of the entertainment games, the tax may amount up to 15€ per machine.
Local tariffs Residence Tax – System of payment of this charge is regulated by the Law on Residence Tax (“Official Gazette of the Republic of Montenegro”, No.11/04 and 13/04). Taxpayer of the residence tax is the person who is outside of its own place of residence and is using the services of the accommodation in the lodging facilities in which tourism or catering activities are performed. Residence tax is paid for every day of residence in the tourist facility up to 30 days. Law stipulates that the residence tax may amount from 0,10 to 0,80€.
Local Administrative Charge – System of payment of this charge is regulated by the Law on administrative tariffs (“Official Gazette of the Republic of Montenegro”, number 55/03 and 81/05). Taxpayer of the local administrative charge is the person on whose request the procedure is launched, that is activity is performed anticipated by the charge rate for the local administrative charges. The amount of the local administrative charges is determined by the decision of the municipality. Local administrative charge may not be higher than the charge which is paid for similar acts and legal actions which are performed by the republic organs of public administration.
Local utility charges – System of payment of this charges is regulated by the Law on Local Utility Charges (“Official Gazette of the Republic of Montenegro” No.27/06). Taxpayer of the local utility charge is user of the rights, facilities and services for which use the payment of the local utility charges has been prescribed. The amount of the local utility charges is determined depending on the type of the activity, size, location, that is the zone in which facilities are placed, facilities, that is performance of the services for which the payment of the charge has been prescribed. Law on Local Utility Charges gave the opportunity to the municipalities to impose charges based on the use of the infrastructure facilities (facilities for transfer of electric energy, facilities in the telecommunication area, radio-diffusion, etc.) by the end of the year 2007 and in the amount which is stipulated by the Law.
Local remunerations Remuneration for the use of construction land – Obligation of payment of this remuneration has been determined by the Law on Construction Land (“Official Gazette of the Republic of Montenegro” No. 55/00). Remuneration for use of construction land is paid for the use of the construction land (developed and undeveloped). Payer of the remuneration for use of developed construction land is the owner, that is rightful claimant for the use of the housing, business facility or open business area. Payer of the remuneration for the use of the undeveloped town construction land is the owner of the undeveloped land or the person who gained the right for the temporary use of that land. The amount of the remuneration for the use of the construction land is determined by the decision of the municipality, depending on the level of the communal equipment of the land and benefits which users gain or have by their use.
Remuneration for developing of the construction land – Obligation of payment of this remuneration is determined by the Law on construction land (“Official Gazette of the Republic of Montenegro” No. 50/00). Remuneration for management of the construction land is paid by the investor of the building and its amount depends on the level of the development of the construction land and the program of the development of the construction land. Payment of the remuneration of the construction land is defined by the special agreement concluded between the investor of the construction of the building and the municipality.
Remuneration for the use of the municipality’s roads – obligation of payment of this remuneration is determined by the Law on Roads (“Official Gazette of the Republic of Montenegro” No.42/04). Law stipulates types of the remunerations for the use of the municipality’s roads which may be introduced by the municipality. The amount of the remuneration for the use of the municipality’s roads is determined by the decision of the municipality.
Assigned republic revenues
Part of the funds for financing the local governance competence is provided from the republic revenues as follows:
10% of the revenues from the Personal Income Tax for all municipalities, except for the old capital town for which 15% of the mentioned tax is assigned,
50% of the Tax on Property Sale realized on the territory of the municipality in question,
30% of the revenues of the concession remunerationsfor use of the natural goods (forests, waters, mines),
Equalization Fund fond has been established with the aim of equalizing financial conditions of the less developed municipalities. Funds of the Equalization Fund are provided from the revenues from the Personal Income Tax in the amount of 10% of those revenues, which are paid to the special account of the Ministry of Finance and are used as Equalization and stimulating subsidies, in proportion of 90% : 10%. Special Committee which counts seven members (one member from the Ministry of Finance, one member from the Ministry of Justice and five members which are representatives of the municipality) decides on the allocation of the funds of Equalization Fund.
Allocation of the funds based on the Equalization subsidies is performed based on the three criteria: fiscal capability index, budget spending index and level of development of the local infrastructure of every municipality. These criteria participate in the allocation of the funds in proportion of 50% : 40% : 10%.
Municipalities which registered the growth of the source revenues in the current year in relation to the previous year have the right to use the stimulating subsidies.
In order to finance capital investments, municipalities have the right to request approval of the conditional subsidies from the Budget of the Republic. Municipalities which acquired multi-annual investment plan and the revenues of which are under the average achieved revenues of all other municipalities have the right to use conditional subsidies.
On the basis of the conditional subsidies municipalities may be approved funds in the amount from 10% to 50% of the calculated value of the priority investment project, depending on the level of the gained revenues. Government of the Republic of Montenegro decides on the allocation of the conditional subsidies.
The following tables (Table 1 and Table 2) present the overview of the revenue structure of the local governance and participation of the expenditures of the local governance in GDP.
Overview of the local governance revenues structure
Funds from the Equalization Fund
Subsidies from the Budget of the Republic
Overview of the local governance expenditures in GDP Table 2
Gross Domestic Product (mill. €)
Participation of the local governance expenditures in GDP (%)