Purchasing property in Montenegro offers many advantages, from stunning coastal locations to favorable investment opportunities. However, understanding the property tax system is crucial for anyone considering buying real estate in this beautiful Balkan country. Whether you’re a foreign investor or planning to buy a second home, being aware of the tax implications can help you make informed decisions and avoid unexpected costs. This guide will break down the key property taxes in Montenegro and what you need to know as a buyer or investor.
1. Property Transfer Tax
When you purchase a property in Montenegro, you are required to pay a property transfer tax. This tax is levied on the buyer at a rate of 3% of the property’s market value. The tax is due upon the completion of the purchase and must be paid within 15 days of signing the final sales contract.
For example, if you buy a property worth €200,000, the property transfer tax would be €6,000. This tax is a one-time payment, and it is essential to factor it into your budget when planning your purchase. It’s also worth noting that this tax applies only to the purchase of existing properties. If you are buying a newly built property directly from a developer, this tax is not applicable, as VAT is charged instead.
2. Value-Added Tax (VAT)
For newly built properties, the purchase is subject to Value-Added Tax (VAT) rather than the property transfer tax. The standard VAT rate in Montenegro is 21%. This tax is included in the purchase price when buying directly from a developer, so you won’t need to pay it separately.
For instance, if you’re purchasing a new apartment from a developer for €250,000, the VAT would be €52,500, making the total cost €302,500. Understanding whether your property purchase will be subject to VAT or property transfer tax is crucial for accurately calculating the total cost
3. Annual Property Tax
After purchasing a property in Montenegro, owners are required to pay an annual property tax. This tax is calculated based on the market value of the property and ranges from 0.25% to 1% per year. The exact rate depends on the property’s location, type, and market value, with more desirable areas generally attracting higher rates.
For example, if your property in Budva is valued at €300,000, and the local tax rate is 0.5%, your annual property tax would be €1,500. This tax is typically paid in installments throughout the year, and the local municipality where the property is located administers it. It’s important to stay current with your annual property tax payments to avoid penalties.
4. Capital Gains Tax
If you decide to sell your property in Montenegro, you may be subject to capital gains tax. This tax is applied to the profit made from the sale of the property and is set at a rate of 15%. The taxable gain is calculated by subtracting the original purchase price and any associated costs (like renovations or improvements) from the selling price.
For example, if you bought a property for €200,000 and later sold it for €250,000, your capital gain would be €50,000. The capital gains tax on this profit would be €7,500. However, if you have held the property for more than three years and used it as your primary residence, you may be exempt from capital gains tax.
5. Other Considerations
In addition to the main taxes, there are other potential costs to consider when purchasing property in Montenegro. Legal fees, notary fees, and real estate agent commissions are common expenses. Legal fees typically range from 1% to 2% of the property value, while notary fees are generally between €300 and €500. Real estate agent commissions can range from 3% to 5% of the property price.
Furthermore, if you plan to rent out your property, income from rentals is subject to a 9% income tax. However, you may be able to deduct certain expenses related to the rental property, such as maintenance costs, from your taxable income.
Conclusion
Understanding the property taxes in Montenegro is essential for anyone looking to buy or invest in real estate. From the initial property transfer tax to the ongoing annual property tax, being aware of these costs will help you better manage your budget and avoid any surprises. By staying informed and planning accordingly, you can enjoy the benefits of owning property in one of Europe’s most stunning and rapidly developing countries.
