Buying Real Estate Through a Company – A Smart Move or a Hidden Cost?

Purchasing real estate through a company can be a great way to optimize costs in the long term and  ensure business stability. However, before making a decision, it is essential to understand the tax benefits and implications, depreciation rules, and limitations related to VAT deduction.

KEY BENEFITS OF BUYING REAL ESTATE THROUGH A COMPANY

1. TAX RELIEFS AND DEPRECIATION

Buying real estate through a company can significantly reduce the tax base, as the property is recorded as a fixed asset and is subject to tax depreciation. According to the current regulations in Montenegro, effective from January 1, 2025:

• The tax depreciation rate for commercial and residential buildings is 2.5% per year.

Maintenance, insurance, renovation, and utility costs can be recorded as business expenses, further reducing the taxable base.

2. VAT DEDUCTION – ONLY FOR FIRST PROPERTY SALES

One of the key considerations when purchasing real estate is the possibility of VAT deduction. A company can claim a VAT deduction only if it purchases commercial property from a legal entity that is a VAT payer and if it is the first sale of the property.

Otherwise:

• If you buy real estate from an individual or a property that has already been traded, there is no right to VAT deduction.
• If you buy an apartment or house, regardless of the purpose and who the seller is, VAT cannot be deducted, as it is considered a residential, not a commercial, property.

3. REAL ESTATE TAX

Additionally, when acquiring real estate, the buyer is subject to a progressive transfer tax:

• Up to 150,000€– 3%
• From 150,000€ to 500,000€ –4,500€ + 5% on the amount exceeding 150,000€
• Over 500,000€ –22,000€ + 6% on the amount exceeding 500,000€

IMPORTANT: If you have paid VAT, you are exempt from paying real estate transfer tax.

4. REAL ESTATE TAX – AN ANNUAL OBLIGATION

Real estate tax is paid annually, and the tax base is determined based on the book value of the property as recorded in the company’s financial statements on December 31 of the previous year.