Setting up a Limited Company to Buy Property in Montenegro
If you own or are considering purchasing investment property in Montenegro, it is worth considering whether doing so through a limited company is the most beneficial choice for you. Real estate investment companies can be more tax-efficient and a safer way to hold a property investment portfolio.
KEY TAKEAWAYS
- Buying a property in your personal name means that your name appears on the deeds, and you’ll have to pay personal income tax on rental profits and capital gains tax on any appreciation.
- It also means that you are personally liable if anything goes wrong.
- If you buy serviced apartments, furnished vacation rentals, or any other type of rental real estate through a limited company, you will pay corporate income tax on rental profits (after deducting documented allowable expenses) as well as dividend tax when distributing profits from the company to its shareholders.
Advantages
One of the main reasons investors prefer setting up a company to hold investment real estate is the added flexibility and limited liability that a company structure provides. Companies typically offer a better way to manage your tax responsibilities, especially if you’re building a larger portfolio of properties.
Corporation Taxes can be Lower
Because companies pay corporate income tax on rental income, which can be as low as 9%, instead of rental income tax, you may potentially save on taxes when transferring property into a limited company. The corporate tax rates in Montenegro depend on the amount of annual profit:
- 9% for the first 100,000€
- 12% for profits between 100,001€ and 1,500,000€
- 15% for profits above 1,500,001€
When distributing after-tax profits, as a shareholding director of your limited company, you can pay yourself through a combination of salary and dividends. Dividends are taxed at a flat rate of 15%, while salaries are subject to salary tax and social security contributions above the tax-free personal allowance of 8,400€ per year.
Offsetting Mortgage Interest & Director’s Loans
Holding properties through a company allows landlords to deduct mortgage interest payments from the rental income. Interest you charge your company on a personal loan is also treated as a tax-deductible business expense, thereby reducing the company’s taxable profit and, consequently, the amount of corporate tax owed to Montenegro’s tax authorities.
Potentially better for Estate Planning
Real estate held within a limited company may be advantageous for estate planning, particularly when it comes to transferring your investment properties to beneficiaries. Plan to transfer shares of your property-holding company to members of your non-traditional family, such as an unmarried partner or their children? It may be simpler than passing down a privately held property.
Since the property portfolio remains owned by the company, it may also be protected from real estate transfer tax and capital gains tax liabilities. Depending on how the limited company is structured, you could add your biological and/or non-biological children and partner as shareholders, effectively gifting the property before your death.
Better for Expanding your Property Portfolio
When running a property investment company, you’ll especially be interested in keeping profits accumulated within the business to fund further real estate purchases without them being subject to taxation. Retaining earnings in such a way helps you grow your investment portfolio faster and more tax-efficient. You’ll then only need to pay taxes on property disposal and when you decide to take profits out of the limited company as dividends.
Downsides of Buying Properties Through a Limited Company
As with all our advice, we would like to make you aware that setting up a property investment corporation might not be the best choice for everyone: if you only have one or two small properties, you may probably be better off buying real estate in your individual name. Read on to learn about some of the key disadvantages of owning real estate through a limited company:
Two Layers of Taxation
Unlike individuals and sole proprietorships, which are only taxed at the personal level, limited companies are subject to both corporate income tax and dividend tax. Assuming your company generates 95,000.00€ in annual income, you would pay 9% corporate income tax (totaling 8,550€) and an additional 15% (totaling 12,967.50€) when distributing those profits as dividends.
Info: Be aware that there are available tax strategies in place to minimize double taxation by regularly taking profits from your company besides dividends.
No Capital Gains Tax Allowance
Capital gains tax in Montenegro (15%) is applied when an investment property is sold for a higher price than its original purchase price. When realizing gains as an individual on a property that serves as your primary residence, you are eligible for principal residence relief, which exempts the full amount of capital gains tax owed.
Real estate transactions conducted by a limited company are not eligible for this tax-free allowance, and all capital gains must be reported on a separate form alongside the company’s income statement. If selling real estate is a crucial element of your strategy, it’s worth getting some tax advice before making important decisions.
Record Keeping & Additional Responsibilities
As a company director, you are legally obligated to maintain up-to-date statutory records and file income tax and Value-Added Tax (VAT) returns if your business exceeds the 30,000€ VAT threshold over a 12-month rolling period. Additionally, as a company director, you will need to apply for a temporary residence permit in Montenegro.
It is highly recommended that you appoint an accountant (like adriacom) to assist you with these obligations. We’re offering specialist property accounting services while you can focus on building your investment portfolio.
Conclusion: Making the Right Decision
Determining whether it is more advantageous to set up a limited company for investing in Montenegrin real estate or to purchase property as an individual depends on careful consideration of the associated tax implications, your financial goals, and the planned scale of your investment.
As a general rule, when managing multiple investment properties with co-investors, the advantages of holding real estate through a property investment company almost always outweigh the added complexity. Having it sheltered in a Special Purpose Vehicle (SPV) allows the capital stock to appreciate while supporting long-term financial goals.
Initially, you may be purchasing real estate in Montenegro primarily for personal use. However, it is important to also plan an exit strategy from the start. Are you going to sell these properties to fund your retirement or to pass their value on to your children? When properly coordinated, a limited company can offer benefits for future estate planning.
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Get in touch with our team; we can advise you on how to establish your property investment company and provide an after-care service once your business is up and running.
