January 25, 2024
Are you planning on buying or investing in a real estate property in Montenegro? If so, you may already know that Montenegro has increased property transfer tax rates (also called real estate purchase tax) from January 2024. The rates are now different and depend on the property purchase price and market value. This increase was announced in March 2023, so there has been plenty of time to close your deal at a lower rate. If not, well, prepare to pay a little more for the property you want to buy.
Of course, when buying a property and making a significant investment, there are other things to know besides the rates. In which cases is the property transfer tax applied? Are there any exceptions? When is the tax due and who pays for it? Here is the ultimate guide about taxing your property purchase in Montenegro.
The property transfer tax has become progressive, and unlike the previous 3% flat rate, there is a progressive scale, based on the value of the transaction, or the market value of the property.
The new property transfer tax rates are as follows:
- Property value up to €150,000: 3%;
- Property value from €150,001 to €500,000: €4,500 plus 5% on the amount above €150.001;
- Property value above €500,001: €22,000 plus 6% on the amount above €500,001.
So, in case you buy a property for €250,000, your transfer tax will be €9,500 (€4,500 plus €5,000 for the difference between €150,000 and €250,000). The same transaction would have cost you €7,500 in the previous year.
If you want to splurge and buy a €700,000 property, you will end up with a property transfer tax bill of €34,000 (€22,000 plus €12,000), while in the previous year the same would be €21,000.
However, if you buy a newly built apartment directly from the developer (and it’s the first sale of the said apartment), a VAT tax of 21% applies, while the property transfer tax doesn’t apply. The VAT is usually included in the advertised prices of the new apartments.
When is the Transfer Tax (not) Applied and Who Pays for It?
The property transfer tax applies to every property transaction and change of ownership, including purchase, exchange, gift, liquidation process, court ruling, or inheritance if the successor is not the first of kin.
The real estate transfer tax is paid by the acquirer in all cases in which the tax applies. If there is more than one acquirer, they pay the tax in the shares that are equal to their ownership shares. In the property exchange process, both sides pay the transfer tax for the property they are acquiring.
As said above, for the first purchase of a newly built apartment directly from the developer, the transfer tax doesn’t apply, but VAT does. But, is there a case in which you won’t pay any tax for acquiring real estate in Montenegro? Yes, there are some cases in which no tax applies.
The tax is not applied for the inheritance of a property, when the successor, or successors, are the first of kin, such as a spouse, children, or parents. Also, it’s not applied in case a property is a gift to the first of kin relative.
When it comes to family matters, the property transfer tax is not applied when real estate is acquired in the division of joint property in divorce proceedings.
In addition, the property transfer tax is not applied when a real estate property is brought in a company (including LLC) as founding capital, or as an increase of the existing founding capital of the company. The same goes when a company obtains real estate in a procedure of acquiring, merging, or division of companies which is done under the Company Law.
How is the Tax Base Determined?
The tax base for the real estate transfer tax is the market value of the property in question. When there is a purchase, it’s the price of the property from the contract. When a property is purchased in money and other things such as assets, services, or acquired debts, the tax base is the total value of the assets with which the property was paid. In case of an exchange, the tax base is the market value of each property, for each participant of the exchange.
In cases when more than one owner acquires a property, the tax base is determined for each new owner, per their ownership share.
When a contract value is too low, or when there is no money transaction involved in the acquisition of the property, the local tax authority determines the market price, usually by comparing the property with similar properties and transactions. If the tax authority can’t determine the value, they may hire an independent appraiser to set the value which will be the tax base.
When is Your Property Transfer Tax Due?
Your real estate transfer tax liability arises at the moment of concluding the contract or any other legal process by which you obtain the property ownership. In cases when you are buying a property that is to be built or finished in the future, your liability comes at the moment of the handover of the property, that is when you officially assume ownership.
You are obliged to calculate and file the tax within 15 days from the day your tax liability arises. With the tax filing, you need to present the contract or other legal basis for acquiring the ownership and proof that you paid your property transfer tax. In case of missing the deadline, not paying, or misrepresenting the property purchase value, you may be fined by the relevant tax authority.
To Whom Do You Pay the Real Estate Transfer Tax and Where Does it Go?
The property transfer tax is paid to the municipal tax authority in the municipality in which the property is located. In case you are wondering where your money goes, 80% of the tax goes to the municipality and 20% goes to the Government’s equalization fund, through which it finances the less developed municipalities.
Market Impact of the New Taxes
This year will be very interesting for the property market in Montenegro, as the tax increase will not be the only significant policy change. There will also be some changes that concern real estate agencies and the way of mediation for properties. Although not favorable, the transfer tax increase probably won’t be a too big negative for the attractiveness of the Montenegrin property market. Notably, there will probably be some changes in demand due to other factors, so it will be hard to determine the exact impact of this change.
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