The Ministry of Finance is introducing a 21 percent value added tax obligation on the sale of construction land, as stated in the draft law on amendments to the VAT Law, which has been put up for public debate.
The explanation stated that this taxation could have an impact on future increases in real estate prices, and that they expect this norm to increase state budget revenues by at least three to four million euros.
It was pointed out that this norm is being introduced in order to harmonize the law with the European Union (EU) directive, but also to prevent tax evasion because tax authorities have noticed that in contracts for the sale of constructed facilities, the value of the land is represented by up to 50 percent of the purchase price in order to reduce tax liability.
According to the Law on Condominium Ownership, owners of residential and commercial properties in buildings are also co-owners of the construction land - the urban plot on which the property was built, which is why it is also included in the purchase price and would now be taxed.
The public debate on the draft amendments to the law will last until December 14, and comments can be submitted to the Ministry of Finance.
Growth of at least 50 euros per square meter
An interlocutor of "Vijesti" from companies involved in housing construction said that it will certainly affect the price and that it could be higher by at least 50 euros per square meter on this basis alone.
"If you have a plot of 2.000 square meters of construction land that in Podgorica does not cost less than 500 euros per square meter, its value would be one million euros, and VAT on that amount would be 210.000 euros. On that plot, you can build up to 4.000 square meters of residential space, which is a VAT cost of 52 euros per square meter. If the plot is larger and more expensive, and often the price is over 500 euros, then the tax is higher and has a greater impact on the final price. It remains for them to explain to us whether this amount would be included in the basis for calculating the real estate transfer tax," said the interlocutor of "Vijesti."
The EC searched, saw and found fraud
"According to the current legal norms, the turnover of products does not include the turnover of land, which is not in line with EU Directive 2006/112. The European Commission has repeatedly indicated that this issue must be subject to harmonisation. In practice, it is common for invoices for the turnover of newly built buildings and the associated land to show the value of the land as 50% of the total invoice value. Such conduct clearly indicates abuse of the legal norm and an attempt at tax evasion," the explanatory memorandum to the law prepared by the Cabinet of the Minister of Finance states. News of Vuković.
The Ministry of Finance points out that this current approach is not in line with the principles on which the value added tax on newly constructed buildings is based, as well as with European legislation, since construction land has commercial value and is used to carry out economic activities, which is why this turnover should also be taxed with VAT.
"The proposed legal amendments would have a direct positive impact on the Montenegrin budget, through an increase in revenues of around 3-4 million euros per year, based on the taxation of construction land with newly built facilities. The introduction of construction land taxation into the VAT system reduces the possibility of concealing real prices in the construction sector. The Tax Administration will have more precise and high-quality information on the turnover and prices of newly built facilities, as well as more reliable data on the taxpayers themselves. The negative impacts of the proposed legal amendments are reflected in the possible increase in real estate prices on the Montenegrin market, if investors decide to increase the price of newly built facilities in order to pay the land tax. However, it is difficult to assess whether this will actually happen in practice, given the already high prices on the real estate market," the explanation states.
The obligation begins upon obtaining a building permit.
Special attention during the preparation of this draft law, as they point out, was devoted to a more precise definition of the tax treatment of construction land transactions.
"In accordance with current EU regulations, the transfer of construction land that is functionally and legally linked to the construction of a building is considered a single transaction, i.e. a transaction that follows the fate of the building. This avoids the artificial separation of land and building for tax purposes, which contributes to greater legal clarity and the prevention of tax abuses. In this context, a clear definition of construction land has been given as land for which a construction permit has been issued, in accordance with the law regulating the manner and conditions of construction of buildings. The definition of a taxpayer who occasionally performs an activity has also been supplemented, in that, among other things, an occasional activity related to the delivery of newly constructed buildings or parts of buildings as well as construction land is also considered a taxpayer," the explanation states.
Construction land, which will be subject to taxation, is considered to be land for which a construction permit has been issued, in accordance with the law regulating the manner and conditions of construction of buildings, and the construction land on which the building is built is an integral part of the total turnover of the newly constructed building.
This means that future purchase contracts must specifically state the size and value of the land belonging to the facility, which is being transferred to the buyer, and a separate VAT calculation for it.
Tax will not apply to contracts before the law
For contracts concluded before the entry into force and for which an advance payment is made in full, the current provisions will apply, i.e. there will be no VAT on construction land.
"This creates the possibility for companies that have already started their activities, while fulfilling additional prescribed conditions, to be exempted from the application of the general tax rate to already established land prices. This measure aims to ensure the continuity of business plans and investment activities, while simultaneously respecting tax rules and preserving legal certainty for entities that acted in accordance with applicable regulations at the time of project initiation," the explanation states.
From January 1st, VAT number with the prefix “ME”
As part of the planned measures for harmonization with the practice of EU member states, the introduction of a VAT number characteristic of the EU system is envisaged.
"As a prerequisite for efficient data exchange in cross-border trade, the VAT registration number will be formed by adding the designation "ME" in front of the existing tax identification number (TIN). This structure enables standardization and facilitates the identification of taxpayers from Montenegro in future information exchange systems within the EU. The introduction of the new VAT number is planned from 1 January 2026, with the implementation of the new IRMS system by the Tax Administration of Montenegro," the Ministry of Finance states.
This amendment represents a step towards harmonization of the tax system, creating a technical prerequisite for the future exchange of information on turnover and value added tax and the digitalization of administrative procedures.
Disabled people will not pay VAT when importing cars
The draft law also defines that the import of passenger vehicles by persons with disabilities, which are exempt from paying customs duties, under the conditions prescribed by customs regulations, is exempt from paying VAT upon import, without the additional condition of "special adjustment".
"The reform has elaborated the article defining the place of supply of services, which has often been the subject of different interpretations in practice, and has been improved, and taxpayers will be provided with a clearer definition of the basic principle of determining the place of supply, as well as exceptions that have been elaborated through additional articles of the law," the Ministry of Finance said.
The reform specifies that the zero VAT rate applies to the supply of products and services intended for the personal needs of foreign personnel, diplomatic and consular missions, including members of their families, exclusively on the condition of reciprocity.
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