Montenegro’s real estate will become more expensive due to a 21% VAT on construction land

Montenegro plans to introduce a 21% VAT on transactions involving construction plots, which may add at least €50 per square metre to the cost of new housing. The draft amendments have been submitted for public consultation, reports Investitor.me. The changes are part of a broader reform programme aimed at aligning national legislation with European Union rules and will also affect owners of units in multi-apartment buildings.

What will change

The Ministry of Finance explains that the current rules allow tax obligations to be understated: in some contracts, the value of the land is artificially increased to half of the total price of a new building. The new system is expected to eliminate this practice. Additional oversight during property sales will reduce opportunities to conceal actual prices and allow for more accurate monitoring of market participants.

According to the Condominium Law, owners of residential and commercial units in multi-apartment buildings are co-owners of the land beneath the structure, clarifies Vijesti. These plots are included in the purchase price and will now also be taxed. Sale contracts must specify the size and value of the land transferred along with the property and calculate VAT for it as a separate element. Agreements signed before the law comes into force and fully prepaid in advance will retain the previous rules: no VAT will be charged on the land. This will allow companies to complete projects launched under the current regulations. The new measures are expected to increase budget revenues by €3–4 million annually. Public consultation will continue until 14 December.

How much it will cost

Representatives of construction companies interviewed by Vijesti believe that introducing VAT on land will inevitably affect the price of new housing. As an example, they cite a 2,000-sq-m plot in Podgorica, where land prices start at €500 per sq. m: the total value reaches around €1 million, and VAT amounts to about €210,000. On such a site, developers can build around 4,000 sq. m of housing, forming a tax burden of roughly €52 per square metre. If the plot is larger or more expensive — which is common — the final price increase will be higher. Developers also expect clarification on whether this amount will be included in the base for calculating the real estate transfer tax.

The overall structure of property taxation in Montenegro adds complexity for buyers. According to Sotheby’s International Realty, the market includes several types of charges that influence total ownership costs. New developments are subject to a 21% VAT, usually already included in the price, while secondary-market transactions fall under the property transfer tax.

In addition, owners pay an annual property tax ranging from 0.25% to 1%, depending on the municipality. Investors also face rental-income tax, and capital gains tax when reselling if the property is sold for more than its purchase price. Thus, introducing VAT on land becomes yet another component of a complex taxation system, with final expenses depending on the stage and format of the purchase.

Investor reaction

Analysts at International Investment note that the tax reform concerning construction land is only one part of a broader transformation package Montenegro is implementing to harmonise its legislation with EU standards, as the country aims to join the bloc by 2028. Recently, financial requirements for foreigners buying property to obtain a residence permit were tightened: the minimum threshold was set at €200,000. Previously, authorities had not set any price requirements, which attracted many buyers.

Investors have already become more cautious during the reform discussions, and activity among some groups of buyers has decreased. Russians, who for many years ranked among the most active market participants, have dropped out of the top five. Further regulatory changes should be expected, which may negatively affect returns.