MONTENEGRO Law and Practice Contributed by: Milan Keker, Aleksandra Bujkovic, Ivan Pejovic and Iva Rolovic, Keker, Bujkovic & Pejovic
7.6 Liens or Encumbrances in the Event of Non-Payment While it is legally possible for contractors or designers to encumber a property in case of non-payment, this is not a commonly used mechanism. Such encum - brance would require an explicit agreement between the parties and proper registration in the real estate registry to be effective. Any registered lien can be removed through a deletion statement, typically following payment or a settlement between the parties. In practice, contractors do not usually hold security over the property. Construction contracts are generally structured around progress payments, made upon the investor’s acceptance of certified work stages submitted by the contractor. 7.7 Requirements Before Use or Inhabitation A project may be used for its intended purpose only after a use permit has been issued by the authority that granted the construction permit. This permit confirms that the building is suitable for use and is issued fol - lowing a technical inspection of the completed works. The technical inspection assesses compliance with the construction permit, the approved design and all applicable standards and regulations. For fam - ily residential buildings, a technical inspection is not required; instead, a contractor’s statement confirming compliance is sufficient to establish suitability for use. VAT at 21% applies to the first sale of newly built prop - erties and the sale of land designated for construction by a VAT-registered entity. In such cases, RETT does not apply. See 2.10 Taxes Applicable to a Transac- tion . A 0% VAT rate applies to transactions involving real estate intended for the official use of diplomatic mis - sions, the personal use of foreign diplomatic and con - sular staff (including family members), and the official or personal use of international organisations and their foreign staff, where such exemption is provided by an international agreement. 8. Tax 8.1 VAT and Sales Tax
8.2 Mitigation of Tax Liability Taxes are mandatory, and there is no legal way to fully avoid them. While parties may structure transactions through different mechanisms – such as an asset deal or a share deal – to better align with their commercial or tax planning objectives, some form of tax liabil - ity will still be triggered in either case. The choice of structure may influence the type and timing of taxa - tion, but it does not eliminate the obligation entirely. 8.3 Municipal Taxes There is no direct municipal tax equivalent to busi - ness rates. Instead, municipalities generate revenue through two primary local taxes: property tax and a municipal surtax on personal income tax. Property tax is levied annually on real estate owners, including businesses, with rates generally ranging from 0.25% to 1% of the property’s market value. The municipal surtax is applied to personal income tax (eg, personal income from rent), with rates varying by municipality – typically 13% to 15%. 8.4 Income Tax Withholding for Foreign Investors Foreign investors earning income from Montenegrin sources are subject to a 15% withholding tax. This applies to various types of income, including divi - dends, interest, royalties and capital gains. However, the applicable rate may be reduced under a Double Taxation Treaty (DTT) between Montenegro and the investor’s country of residence. Montenegro has signed DTTs with over 40 countries, including France, Germany, Italy and the UK, but not with the United States or Canada. Rental income is taxed at a flat rate of 15%. Property owners, regardless of resi - dency status, are responsible for this tax. Taxpayers can deduct actual expenses incurred in generating rental income, provided these are documented. Alter - natively, standard deductions are available: 30% for long-term rentals, 50% for short-term rentals regis - tered with Montenegro’s tourist tax system and 70% for short-term rentals facilitated through travel agen - cies. Rental income must be reported in the annual tax return, typically due by 30 April of the following year. Capital gains from the sale of real estate are taxed at 15%. The seller is liable for this tax, and for non-residents, a 15% withholding tax is applied to
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