Buying real estate does not end with the asking price. In addition to the purchase price, the buyer must also take into account transfer tax, notary and documentation costs, and, after the purchase, annual property tax. If the property is later rented out or sold, further tax liabilities may arise. In the case of older properties, real estate transfer tax is usually payable, while for newly built properties the key issue is whether VAT is included in the price.
When purchasing an older property, the taxpayer for real estate transfer tax is the acquirer, that is, the buyer. The law treats domestic and foreign natural and legal persons equally with respect to this tax, unless an international treaty provides otherwise. This means that the basic rule is the same for both domestic and foreign buyers.
The most important distinction is that real estate transfer tax is not charged on the sale of a newly built property on which VAT is payable. The VAT Act provides that supplies of real estate are exempt from VAT, except for the first transfer of ownership rights, or the right of disposal, over a newly built building. At the same time, the Real Estate Transfer Tax Act states that the acquisition of newly built structures subject to VAT is not regarded as a real estate transfer for the purposes of that tax.
If construction land is being purchased, the VAT treatment should be checked particularly carefully from 1 April 2026 onward, because the sale of construction land for which a building permit has been issued falls within the VAT regime.
For the purchase of an older property, the tax base is the market value of the property at the time of acquisition. In a transaction for consideration, the starting point is the contract price, but if the agreed price is lower than the market price or does not reflect the actual value, the tax authority may determine the market value itself. In other words, an artificially low contract price does not guarantee a lower tax bill.
Since 1 January 2024, progressive real estate transfer tax rates have applied:
Up to EUR 150,000, the rate is 3%.
Above EUR 150,000.01, the tax is EUR 4,500 plus 5% of the amount exceeding EUR 150,000.01.
Above EUR 500,000.01, the tax is EUR 22,000 plus 6% of the amount exceeding EUR 500,000.01.
The buyer is required to calculate the tax in the tax return, submit the return within 15 days of the tax liability arising, and pay the tax at the same time as filing the return. In practice, this is one of the deadlines buyers most often overlook when their attention is focused solely on signing the contract and registering title in the cadastre.
When purchasing a newly built property from a developer in the first sale, the buyer will generally not pay real estate transfer tax, because VAT is included in the price. Montenegro’s standard VAT rate is 21%, so with every purchase of a new-build property it is essential to verify whether the advertised price is shown inclusive or exclusive of VAT.
The law provides for an important exemption for adult citizens of Montenegro with residence in Montenegro who are acquiring an apartment or house for the first time in order to meet their housing needs. The exemption applies to an area of up to 20 square metres per household member, provided that neither the acquirer nor the household members own a residential building or apartment anywhere in Montenegro. This is one of the most important reliefs available to first-time homebuyers.
After the purchase, the owner becomes subject to annual property tax. This is a local tax introduced by the municipality through its own regulations, the revenue belongs to the municipality in whose territory the property is located, and the taxpayer is the owner registered in the cadastre or other appropriate register on 1 January of the year for which the tax is assessed. If the property is co-owned, each co-owner pays tax in proportion to their share.
The tax base is the market value of the property as of 1 January. The law provides that the value is determined according to the average market price per square metre, the use, size, location, and quality of the property. The value of the building is reduced by 1% for each year of age, or from the date of the last reconstruction, up to a maximum reduction of 60% of the building’s value.
The basic annual tax rate ranges from 0.25% to 1.00% of the market value, and the specific rate is set by the municipality. For a secondary residential property, that is, an apartment or house which is not the taxpayer’s residence or habitual residence, the rate may range from 0.3% to 1.5%. For illegal structures and undeveloped construction land, the rates may be higher still.
The owner must file a tax return with the competent local authority within 30 days of acquiring the property. The tax assessment decision is issued by 30 April, and the tax is paid in two equal instalments, by 30 June and 31 October. The law further provides that tax is not payable if the total tax base of all real estate owned by one taxpayer does not exceed EUR 5,000 and the property is not used to generate income.
In practice, the sale and purchase of real estate almost always involves notarial costs. For drawing up a notarial deed in the form of a notarial record, the fee is charged on a graduated scale:
Up to €19,999.99: the notary fee is €180,
€20,000 to €39,999.99: €250,
€40,000 to €59,999.99: €350,
€60,000 to €79,999.99: €420,
€80,000 to €119,999.99: €480,
Over €119,999.99: an additional €13 for every commenced €15,000, up to a maximum of €8,000.
The notary also charges VAT on the notarial fee.
In transactions involving payment through a special notary account as a security mechanism, a notarial fee is charged for accepting funds into notarial escrow, safeguarding them, and disbursing them, in the amount of 0.3% of the value of the deposited funds, with a minimum fee of EUR 150.00.
In addition to the sale itself, the notary may, under the tariff, separately charge for drafting and submitting an application for registration in public books and registers, including the cadastre, and that fee is generally EUR 15.
Income from renting out property is treated as property income. Tax is not calculated on the full amount of the rent, but on the tax base, which is obtained by deducting standard expenses of 30% from the total income. In practice, this means that tax is usually calculated on 70% of the rent collected. A tax rate of 15% is then applied to that base, and surtax, which depends on the municipality, is added to the calculated tax. As a result, the overall tax burden in practice usually amounts to around 12% of the total rental income. The tax is declared in the annual tax return.
Example: If you rent out a property for €500 per month, the calculation is as follows:
€500 × 70% = €350
€350 × 15% = €52.50
€52.50 × 15% = €7.88
€52.50 + €7.88 = €60.38
This means that the total tax burden of €60.38 amounts to approximately 12% of the total monthly rent of €500.
In the case of short-term rental of rooms, apartments, houses, and holiday flats to tourists, the law provides special treatment for standard expenses. If tourist tax has been paid, standard expenses of 50% of the income earned are recognised. If a lease agreement has been concluded with a travel agency or local tourist organisation and an average occupancy of at least 60 days per year has been achieved on that basis, standard expenses of 70% are recognised.
The Tourist Tax Act provides that tourist tax is set within a range of EUR 0.10 to EUR 1.00, while the exact amount is determined by the municipality through its own regulation. The accommodation provider must show the tourist tax separately on the invoice, keep records, register the guest’s arrival within 24 hours, and remit the tax collected within the statutory deadlines. For that reason, in tourist rentals it is always necessary to keep track of both the national law and the relevant municipal decision.
If the owner later sells the property at a higher price than the one at which it was acquired, a capital gain may arise. The law provides that a capital gain from real estate is the difference between the sale price and the acquisition price of the property, subject to the rules on recognising costs and adjusting the acquisition value. Accordingly, if you later sell the property for more than you paid for it, tax is not paid on the full sale price, but only on the realised capital gain. That gain is reported through the annual tax return and taxed at a rate of 15%.
It is important to stress what is often inaccurately repeated in online articles: the law currently in force does not lay down a general rule that capital gains automatically become tax exempt after five years of ownership. Instead, the law lists specific exemptions, for example where the property served as the taxpayer’s sole and principal residence, where the transfer was made between spouses or life partners in connection with marriage, divorce, or inheritance, or where the transfer was made by gift to relatives in the first line of succession.
In addition to taxes and mandatory charges, buyers often face further practical costs. These include a property valuation for the bank, loan processing fees, mortgage-related costs, property insurance, translations and an interpreter if one of the parties does not use the language of the contract, as well as regular costs of building maintenance, the building manager, common areas, and utilities. These are not taxes, but they are real costs of ownership and should therefore form part of the overall calculation before purchase.
The same basic rules on real estate transfer tax apply to foreign buyers. However, for annual property tax purposes, care must be taken to distinguish between an investment or secondary property and a property that is genuinely the taxpayer’s residence or habitual place of stay. The law does not require citizenship in order to obtain the reduction for a principal residence, but it does require that the conditions linked to residence or habitual stay be met, namely the status of the only apartment or house in Montenegro together with registered residence or permanent stay.
Put simply, when buying an older property, the buyer should first check the real estate transfer tax, and when buying a new-build property, whether VAT is included in the price. After that, one should factor in notary fees, registration, and administrative costs, and later also annual property tax. If the property is rented out or sold at a later stage, additional tax obligations arise depending on the way the property is used and on the status of the property itself.
