One of the most daunting things about purchasing a property or moving abroad can be understanding taxes. Who pays? When? How much?
Of course each country has their own rules and rates but in Montenegro it is fairly easy and low compared to a lot of other countries. Montenegro is set to soon join the EU and because of this, in 2022 the country announced a tax reform. However, the tax rate in Montenegro is still very low, especially compared with western European countries and is between 9% and 15% for both individual and corporate tax, with a non-taxable salary up to 700€.
Let’s begin with property taxes in Montenegro.
Taxes on real estate in Montenegro are paid by both the buyers and sellers and also by landlords and owners.
When you buy a property from the developer, the transfer of ownership rights is subject to 21% VAT though this is included in the property price and is only applied to buildings built since 1st April 2003. After this any subsequent sales are subject to stamp duty which is charged at 3% of the property’s market value. This must be paid for within 15 days from the signing of the purchase contract.
When you own a property, an annual property tax is charged on both buildings and land. The tax base for this is the market value of the property and generally ranges from 0.25% to 1.0%. Some types of real estate, such as hotels can reach 5.5% though citizens and permanent residents qualify for reduced rates. Property tax is paid in two payments, once on 30th June and then again on 31st October. Owners will receive a notice of the tax amount which is assessed by 30th April.
Rental Tax
Rental income is taxed at 15% thought there is a deduction of costs incurred for the running of the property.
Sellers Tax
Any capital gain that a seller acquires is taxed at 15%. Capital gain tax will not be charged if in questions is one of the following:
- A transfer of real estate
- The property is taxpayer's residence
- The property is transferred between spouses, parents or children
Citizenship by Investment
Montenegro offers a citizenship by investment programme which is applicable to those who buy a property for 250,000€ or more in the northern region or 450,000€ or more in the coastal region.
Individual & Corporate Tax
The range of tax rates are the same for both individual and corporate tax, tax residents of Montenegro pay tax on their global income whereas non-residents pay tax on only income earned in Montenegro. Tax residents are also exempt from withholding taxes on interest and royalties. Once an individual spends more than 183 days in Montenegro they become a tax resident or if they have a company incorporated in Montenegro. The fiscal year is the calendar year in Montenegro, employment income tax is calculated from monthly salary and self-employed income tax is calculated from yearly income. A surtax is also charged by each municipality which is between 13% - 15% depending on the municipality. The total tax charged for employers ranges from approximately 20% to 32%. The employers will also deduct a certain amount from their employees’ salary, for instance: - 6% for social contributions, approximately 6% for pension and disability insurance and another 0.5% for unemployment insurance.
Tax Incentives
There are also some tax incentives, for example if you start a company in a more economically underdeveloped area of Montenegro, it is eligible to an exemption in income tax for up to 8 years. This is however limited to €200,000 for the entire period. The exemption also cannot be applied to certain types of businesses such as the production of agricultural products, transport sector, steel production or catering. For an individual whose turnover exceeds €30,000 a year, VAT registration is compulsory, however if it is less than this, it is for each individual to decide whether or not to register for VAT.