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The concept of "illegalized" or "illegal" real estate

In the Montenegrin document on the ownership of real estate (list nepokretnosti) you can find a note: nema dozvolu, that is, “there is no building permit”. If you saw such a phrase, then you have a document for “illegalized” or “illegal” real estate. Tens of thousands of buildings in Montenegro do not have building permits, but at the same time they are the subject of turnover in the market - they are sold, bought, inherited and used for decades.

Background: where did illegal houses come from in Montenegro

In 1991, the disintegration of Yugoslavia began. Over the next 15 years, seven independent states appeared on this territory.

Local authorities did not have time to draw up new projects for the development of territories. In some regions, DUPs (Detailed Urban Plans) have not been developed for 20-30 years. This meant that the owners had no chance of obtaining an official building permit.

Having built a house, the owner registered it with the cadastral and tax services. The state accepted this building and issued a certificate of ownership (leaf of inaccuracy) with the mark “Nema gradzhevinske allowed”. After that, the object was included in the turnover in the real estate market. It was possible to perform any operations with it - to sell, give, rent.

This happened not only with private owners who built houses for personal residence, but also with developers. As a result, thousands of apartments in high-rise buildings entered the market without permits.

Start of legalization

A few years ago, the Montenegrin authorities finally took up cadastral issues.

Demolition of private property is not possible unless the property is located in a protected area. The owners are not to blame for the fact that during the transition period, state institutions were not ready to accompany the construction. Therefore, in 2016, the Montenegrin authorities launched the process of mass legalization of real estate. The Parliament adopted the Law “On the Regulation of Informal Objects” (Zakon o regularizaciji neformalnih objekta), which made it possible to bring all squatter construction out of the shadows. For legalization, you need to submit an application, collect a small package of documents and pay a tax for connecting to city communications (komunalije).

The deadline was July 15, 2018. But it failed to meet the deadline. In October 2019, the authorities reported that they received 51,000 requests, of which about 30,000 were processed.

It was decided that legalization would become indefinite, but only for objects that appeared before 2018 and were marked on orthophotomaps, which were made just during this transitional period. Thus, houses built after the deadline will not be legalized.

Real estate without building permits is still the norm in the Montenegrin market, there are still many such housing. You should not be afraid of buying such apartments and houses, but you need to carefully check the documents.

Recommendations

What if you are thinking about buying a house or apartment without a building permit? Here are our tips:

1) Find out if the owner of the property has submitted documents for legalization and whether they were accepted by the “opshtina”. If documents for legalization have been submitted and the owner confirms the presence of Elaborat, then you just need to wait until the cadastral service begins the legalization process in your area.

2) Be prepared to pay the so-called "communal", a tax for connecting to city communications. On average, the fee on the coast is €70–150 per m2 of real estate. With a one-time payment, the amount is reduced by about 40%; you can also arrange an installment plan for any period up to 10 years.

3) Contact our specialist in order to find out all the details: whether the Technical Conditions were observed during the construction of the building, for example, whether extra floors were built, or that the building did not go overboard on someone else's site.

Stages of legalization

• Applying

• Confirmation of application submission

• Analysis of object stability and safety

• Decision on legalization

• Standard package of documents for legalization of a house up to 500 sq. m

•    Statement. It can be submitted by the owner himself or his representative.

• Certificate of ownership - the so-called sheet of inaccuracy, an extract from the state register.

• Survey of the state of the object (elaborat), certified by a licensed geodetic organization (three copies), a copy of the cadastral plan or an excerpt from the cadastral plan.

• Seismic Safety Certificate – This is also prepared by a licensed professional such as an architect.

• Architectural design (three copies) by a licensed company. In addition to the basic characteristics of the object, it contains drawings of the foundation, cross sections and facades, a description of engineering solutions and communications. An architectural project does not need to be submitted for objects that are used as the main residence.

Residence permit (temporary borawak or borawak) is an official document (plastic card) that is issued to a foreigner as confirmation of a residence permit in the country, usually for 1 year.

The main ways to obtain a residence permit in Montenegro:

1. Employment under a contract in Montenegro.
2. Opening a company is entrepreneurial activity, doing business in the country.
3. Family reunion.
4. Marriage with a citizen / citizen of Montenegro.
5. Owning your own yacht or real estate in the country.
6. Vocational training or education (school or university).
7. Obtaining the status of a "digital nomad".

The main conditions for obtaining a residence permit:

• the age of the applicant must be at least 18 years old (not necessary for a residence permit for family reunification);
• it is necessary to provide a passport with a valid expiration date (at least three months more than the period for which the residence permit is approved);
• proof of livelihood (statement from a local bank account or confirmation from an employer) and a place to live (a notarized lease agreement or a document of ownership of real estate) is required.
• citizens who already have a residence permit or permanent residence in Montenegro can transport their family members (spouse / spouse, minor children) to the country and issue a residence permit for them, indicating the main reason for moving - family reunification.

Advantages of obtaining a residence permit in Montenegro compared to the status of a tourist:

• It is extremely difficult for ordinary tourists to open a bank account. A foreign citizen with a residence permit can open an account.
• Having a residence permit, you can buy a car and register it in your name.
• A residence permit for business makes it possible to receive treatment and medical examination free of charge (including family members, provided that they receive a residence permit for family reunification).
• Children with a residence permit have the right to attend a municipal kindergarten and school
• There is no need to do a "visaran", that is, to travel outside the country every 30 days.
  
  

Consider 2 main ways to obtain a residence permit in more detail.

RESIDENCE PERMIT WHEN OWNING REAL ESTATE

If you own a house or apartment (you own at least ½ of any real estate in Montenegro, with the exception of land plots), you have the right to obtain a residence permit (boravka). The document is issued for 1 year and it can be extended an unlimited number of times while the object is owned. After receiving a plastic card, the homeowner has the right to issue a "boravka" for close family members (children under 16 years old and spouse).

Documents required to obtain a residence permit for real estate:

1. A foreign passport or identity card valid for at least 3 months beyond the desired date of receipt of the boravka. That is, if you want to get a residence permit for a year, your passport must be valid for at least 15 months at the time of submission of documents.
   A document on the ownership of real estate ("leaf of vagueness").
2. Medical insurance for a period of 30 days or a copy of the "health booklet" (Montenegrin state health insurance).
3. Certificate of availability of an amount of at least 3,650 euros per person on an account in a Montenegrin bank (in some regions, from 2022, this amount is at least 5,400 euros per person).
4. For the initial submission of documents using this method: a certificate of no criminal record (with a court translation into Montenegrin) not older than 6 months (recommended not older than 3 months at the time of submission of documents).
5. Receipt of payment of the tourist tax ("tourist registration").
6. Receipts for payment of fees (47 euros).
   
   

RESIDENCE PERMIT WHEN OPENING A COMPANY

The right to a residence permit are foreigners working in Montenegro in their company or doing business as an Individual Entrepreneur (IP). The minimum authorized capital is only 1 euro. The usual form of ownership is D.O.O., an analogue of our LLC.

The company may be registered in the name of the applicant applying for a residence permit, but the applicant must also be a director of the company. Just the founder of D.O.O. Montenegro will not receive a residence permit.

An entrepreneur is obliged to pay taxes and submit accounting and tax reporting, even zero.

The main documents required to obtain a residence permit when opening a company:

1. A foreign passport or identity card valid for at least 3 months beyond the desired date of receipt of the boravka. That is, if you want to get a residence permit for a year, your passport must be valid for at least 15 months at the time of submission of documents (with a court translation into Montenegrin).
2. Medical insurance for a period of at least 30 days on the date of submission.
3. Confirmation from the employer of employment indicating the salary or the availability of funds in the amount of at least 3,650 euros in a Montenegrin bank account (in some regions, from 2022, this amount is at least 5,400 euros per person).
4. Confirmation of the opening of the company (D.O.O.), namely an extract from the “CRPS” (valid for 30 days).
5. Confirmation of education - the original diploma of the university or school certificate, including an insert about grades (with a court translation into Montenegrin).
6. Nostrification of a school certificate or diploma of education.
7. Certificate of no criminal record (with a court translation into Montenegrin), not older than 6 months (recommended not older than 3 months at the time of submission of documents).
8. A document confirming the presence of a place of residence in Montenegro (a notarized long-term rental agreement and a “leaf of insecurity” or only a “leaf of insecurity” if you own real estate).
9. A medical certificate confirming the applicant's satisfactory state of health (“proof of sanity”).
10. Receipt of payment of the tourist tax ("tourist registration").
11. Receipt of payment of fees (67 euros).

Our specialists will always help you in obtaining a residence permit of any type

Cost of services*:

1. PERMIT WHEN OPENING A COMPANY

Opening D.O.O. – from 200 €*

Comprehensive service: opening a D.O.O. + Residence permit for 1 person with certificate nostrification – 750 €*

Comprehensive service: Opening D.O.O. + Residence permit for 1 person with diploma nostrification – 850 €*

Residence permit for family members for family reunification for 1 person – 250 €*

Full package: residence permit for a family of 4 people (father, mother, 2 children) with certificate nostrification – 1500 €*

Full package: residence permit for a family of 4 people (father, mother, 2 children) with diploma nostrification – 1600 €*

2. PERMIT WHEN OWNING REAL ESTATE

Comprehensive service - from 250 € (depending on the location)

*Depending on the location

**These services include preparation of a package of documents and submission to the necessary authorities, payment of state fees, support of the applicant to submit documents to the MUP

***These services DO NOT include the opening of an account for a legal entity, individual entrepreneur, tourist registration, notary agreement on rental housing (confirmation of place of residence)

One of the main issues when buying real estate is the question of property taxes. So how much and when will a buyer in Montenegro have to pay?

1. ONE-TIME TAX ON THE ACQUISITION OF REAL ESTATE
After buying a property, the buyer must pay a tax of 3% of the value of the property. At the same time, if you bought an apartment from a developer (“investor”), then no tax is paid.

But from January 1, 2023, there will be changes in the calculation of tax on the purchase of real estate! They will affect those who bought real estate worth 150,000 euros or more. So, if the purchase price is 150,000 or more, then you are required to pay a fixed amount of 4,500 euros, plus 5% of the amount above the designated threshold. For example, if your apartment costs 200,000 euros, then you need to pay 4,500 euros and 5% of 50,000. If a house or apartment costs more than 500,000, then the buyer will pay 22,000 euros plus 6% on the price difference. That is, if the property costs 600,000, then you need to pay 22,000 euros and 6% of 100,000. 

How tax is calculated?

Tax on the purchase of real estate is calculated by the tax office. The officer will give you a form to fill out. If you have not yet been given a “matichni broi” (JMBR), a unique number (an analogue of the Russian TIN), then you must first be assigned it. It is important to indicate this number in the payment order when paying the tax.

The inspector gives an opinion on the market value of your home. Certain parameters are taken into account, as well as the price in the contract. If the price in the contract seems to the employee to be too low, then the tax will be calculated for you based on the conclusion of the appraiser on the market value.

When do you have to pay tax?

The tax authorities operate in parallel and independently of the cadastre. As a rule, the buyer receives a Tax Decision before the title is transferred to him. The tax must be paid within 15 days from the date of receipt of the decision of the tax office. In the event of a delay in tax payment, penalties may apply.

Property acquisition tax is not paid if:                                                                                                                                                                                                                        

· The property is donated to the heirs of the first stage or to the spouse;

· When dividing joint property in the event of a divorce proceeding;

· Real estate is contributed as the authorized capital of a Montenegrin legal entity or as an increase in the authorized capital;

· Real estate is transferred in the event of a merger, acquisition and separation of a legal entity;

According to the Law on Inheritance, foreigners are equal in rights with the citizens of Montenegro in matters of inheritance. The heirs of the first stage include the spouse and children. The inheritance among the heirs of the first stage is divided in equal shares. Second line heirs include parents, sisters and brothers.

2. ANNUAL PROPERTY MAINTENANCE TAX

Taxable real estate includes: land, houses, construction objects (commercial, residential and others); individual parts of a residential building (apartments, commercial premises, garages or parking spaces, etc.).

A taxpayer is a legal or natural person who owns real estate on January 1 of the year for which the tax is calculated.

The annual property tax established by the Real Estate Law is 0.1%-1% of the market value of the property.

Each municipality may determine a higher tax rate than that established by law. Thus, the tax can be increased by 25% - 150% of the original rate. When determining the tax rate, a number of indicators are taken into account, including distance from the sea, year of construction, condition, size, type of object, and so on.

The tax rate for illegal objects is higher than for legalized ones!

Tax incentives are available for residential properties that serve as the main place of residence. Relief for the main taxpayer from 20% and for each member of the household from 10% (this rebate can be up to 50% of the established tax liability).

3. TOURIST TAX
Tourist tax (Serbian: turistička taksa - tourist tax) is charged annually along with the annual property tax. It is charged on all real estate on the coast, regardless of the citizenship of the owner. Foreign citizens with permanent residence or citizens of Montenegro can be exempt from tourist tax if they can prove that this is the only housing or permanent place of residence (if there is other real estate).

Non-residents pay higher property taxes than residents! Tax rates for foreigners are equalized with taxes for Montenegrins upon obtaining permanent residence.

4. RENTAL TAX

Long term rental

When renting a property for a long period, for example, for a year, the owner must pay an income tax of 15% (tax changed from 2022). The tax is paid by March 31 for the previous year. To pay tax, you must submit a tax return to the tax office at the location of the property.

Short term rental

Renting real estate for short-term rent, by the day, requires the obligatory execution of the relevant Permit. This procedure is called object categorization. The procedure for issuing, as well as the period of validity of the Permit, depends on the type of object.

With a short-term lease, the property owner pays an imputed income tax, which is calculated by the tax authority depending on the category of the object, the number of places for accommodation and other indicators.