Montenegro – NEW Property Purchase Tax
Montenegro Implements New Property Transfer Tax System: What Buyers Need to Know
Montenegro’s property market has undergone a significant change with the introduction of a tiered system for property transfer tax, effective as of January 1st, 2024. This update replaces the previous flat rate tax and aims to bring a fairer approach to property taxation across different price segments.
Previous Tax System:
Until 2024, Montenegro imposed a flat rate of 3% on the market value of properties as the property transfer tax. Regardless of the property’s price, all real estate acquisitions were subject to this rate (note: exemption at end of article.)
New Tiered Tax System:
The new system introduces a more nuanced tax structure as follows:
- Properties valued up to €150,000: These properties still incur a 3% tax rate, maintaining consistency with the previous system.
- Properties valued between €150,001 and €500,000: For this segment, a two-part tax calculation applies. Buyers pay a fixed amount of €4,500 along with 5% of the value exceeding €150,000.
- Properties valued above €500,000: The highest-priced properties face the highest tax rate. A fixed amount of €22,000 is added to 6% of the value exceeding €500,000.
Impact on Buyers:
The new tax structure may offer benefits to buyers of lower-priced properties (up to €150,000), as they continue to pay the same tax rate. However, buyers of more expensive properties experience an increase in the transfer tax compared to the previous flat rate.
For example, someone purchasing a €200,000 property would now pay €7,000 in transfer tax, compared to €6,000 under the old system. This increase becomes more pronounced for luxury properties exceeding €500,000.
Example Calculation of Montenegro’s New Property Transfer Tax
The new tiered tax system in Montenegro may seem complex initially. Let’s break it down with an example:
Scenario: You’re purchasing a property in Montenegro valued at €300,000.
Calculation:
Since the property falls within the €150,001 to €500,000 range, we use a two-part calculation:
- Fixed amount: €4,500
- Additional tax: 5% of the amount exceeding €150,000
To find the additional tax:
- Excess value: €300,000 (property value) – €150,000 = €150,000
- Additional tax: €150,000 x 5% = €7,500
Total Transfer Tax:
Add the fixed amount and the additional tax:
- Total Tax = Fixed amount + Additional Tax
- Total Tax = €4,500 + €7,500 = €12,000
Therefore, for this €300,000 property, the new transfer tax would be €12,000.
Comparison to Old System:
Under the previous flat rate system, the transfer tax would have been:
- Old Tax = 3% x €300,000 = €9,000
Thus, with the new system, the buyer pays €3,000 more in transfer tax for this specific property.
Exemption for Newly Built Properties: If you’re buying a brand-new property directly from the developer – where the price includes VAT – you won’t have to deal with the property transfer tax. This exemption applies only to the first sale of newly constructed real estate by the developer.
Key Points to Keep in Mind:
- First Sale Exemption: The exemption from property transfer tax applies specifically to newly built properties sold by developers for the first time. So, if you’re the first buyer of a freshly constructed home, you’re in luck – no extra transfer tax for you!
- Resale Consideration: However, if you’re eyeing a property that’s already been sold and is now back on the market, even if it was new when first sold, it’s no longer eligible for this exemption. In that case, you’ll have to navigate the property transfer tax based on the current tiered system.
- Verification Recommended: It’s always a smart move to double-check the details with the developer and maybe chat with a local tax advisor too. This way, you can ensure you’re fully aware of the tax implications for the specific property you’re interested in. It never hurts to be sure!
This exemption is the most common however there are others that can apply in certain situations that we have not delved into within this article.
Please contact us for further information.
