Interest Rate Between Related Parties

Interest rate for transactions between related parties in 2026 amounts to 4.97%

The Ministry of Finance has adopted the Rulebook on the amount of the interest rate applied to financial instruments between related parties for 2026, published in the “Official Gazette of Montenegro”, No. 145/25 of 11 December 2025.

This rulebook establishes the reference interest rate applied to financial transactions between related parties, in accordance with the “arm’s length principle”, which is one of the fundamental principles in the field of transfer pricing.

For 2026, the prescribed interest rate amounts to 4.97% per annum.

What the “arm’s length principle” means

The arm’s length principle implies that financial relations between related parties must be treated as if they were concluded between independent parties on the market. This means that interest rates, prices, and other conditions must be market-based.

In the context of this rulebook, this means that the following:

• loans,
• borrowings and credits,
• other financial instruments between related parties

are subject to a standardized interest rate of 4.97%, unless the taxpayer can prove different market conditions in accordance with transfer pricing regulations.

Why this rate is important for companies

The prescribed interest rate plays a significant role in the tax treatment of transactions between related parties. It is used as a reference value when assessing compliance with transfer pricing rules.

In practice, this means that:

• incorrectly determined interest rates may lead to adjustments of the tax base,
• the tax authority may challenge transactions that are not in line with market principles,
• companies should document their financial arrangements with related parties.

Therefore, it is important for business entities engaged in such transactions to pay special attention to the proper application of the prescribed rate or to provide adequate justification for any deviations.

Application of the rulebook

The rulebook enters into force on the eighth day from the date of its publication in the “Official Gazette of Montenegro”, while its application applies to the period starting from 1 January 2026.

This means that this interest rate applies to all relevant financial transactions between related parties carried out during 2026.

Conclusion

The determination of the interest rate of 4.97% for 2026 represents an important element in the application of transfer pricing rules in Montenegro. This rate serves as a reference basis for assessing the market conformity of financial transactions between related parties and has a direct impact on their tax treatment.

Business entities operating with related parties should ensure compliance with these rules in order to avoid potential tax adjustments and additional liabilities.