Visit-Montenegro.com : Majority of Apartments Rented Without Tax

Podgorica – Apart from the sky-high prices of real-estate, Montenegrin market is becoming recognizable for the high prices of rental-flats. Average lease for a flat ranges between Euro 250 and Euro 800. Most luxurious options also provide prices ranging between Euro 1,500 and Euro 2,500.

Official data on the number of flats being rented out, or the incomes of the state from this “industry”, are not available.

Owners rent real-estate thanks to advertisements published in the media, without notifying the state on their incomes. They hire one of the agencies only if they are in possession of a luxurious space. This option is also avoided for another reason, as doing business with the agency prevents them from evading taxes and makes them pay commissions to these agencies.

Several agencies which handle selling and rental of real-estate have told “Vijesti” that the rentals are mostly conducted illegally. As evidence to this claim, they provide data that they have not signed a single contract valid Euro 500 since the beginning of the year.

“We most usually hear from people offering expensive real-estate. Lease for such real-estate can reach Euro 2,500. Clients for such apartments are embassies or other foreign organizations.

Owners understand that none of the foreigners would buy a daily paper and look for an apartment, which is why they ask for help from the agencies.

Cheaper apartments are rarely reported. They do their business on their own, with the use of advertisements in the papers.

There is a huge demand and they know they’ll be able to rent this apartment immediately. If they hire an agency, they will have to pay.

When we respond to some of the adds, published in the daily papers and offer cooperation to the owner, we receive a resolute ‘no’.

With such renting practices, both the state and the agencies are at loss, while the owners profit”, representatives of “AS” agency have told “Vijesti.” As an example, they say they did not have a furnished studio in Podgorica’s part across the Moraca River for – two years.

Representatives of “IN” agency are facing the same problem. They explain they did not sign a single rental contract since the beginning of the year.

“Apartment owners are avoiding us, as we charge one monthly rental per year. They also avoid paying taxes to the state. During the last year, we have completed only several contracts on this basis. This is the problem that almost all the agencies have to cope with”, Svetlana Brajovic said.

She emphasizes that the state should consider, more carefully, how to resolve this problem and how to introduce European business practices in this field, which stipulates that the flat can be rented only through an authorized agency.

“For instance, in Austria, Germany or Switzerland, one cannot rent an apartment without an agency.

When the owner decides that his apartment will go on the rental market, he calls the agency which finds the client and who must pay the lease through a bank-account.

This type of organization allows the state to have a precise insight into all the rentals and to collect taxes on this basis. Such practice does not exist here.

State does not do things like that. Certain attempts of the agencies to launch such initiatives have failed to show results. Beside the owners, there are also persons who work illegally by using those adds in papers.

If you dial some number advertised and ask if the person owns the place, they will say that this place is owned by their friend, neighbor, or acquaintance”, Brajovic says.

The agency “Center for Real Estate” is also among those which did not sign a single contract of Euro 500 value during the past six months.

“We have not signed a single Euro 500 contract this year. They are avoiding us because of the money. Some agencies charge commissions on the basis of the contract, while the others charge on the basis of the annual lease. Beside that, one must also pay the taxes to the state.

Flat-rentals should be regulated with the legal framework, as this is the only way that can regulate this field”, representatives of this agency told “Vijesti.”

Tax Authority representatives tell “Vijesti” that Montenegrin tax laws system includes all incomes of private citizens or companies, including the incomes from apartment renting.

“When it comes to individuals, position of the person who is renting the apartment is also important. It is possible that person at stake is simply renting the space or that renting it for business purposes.

Law stipulates that, in both cases, the tax is 15 percent from the revenues.

Difference is because those who rent for commercial purposes also pay social welfare. In both cases, one pays additional income taxes of two percent.

Montenegro has a rare situation where an individual can register renting as its’ occupation, as this is more characteristic for private persons.

Incomes of the company which rent out real estate are calculated in the same way, as are the other activities with the tax of nine percent and VAT”, Tax Authority clarifies.

Tax Authority could not provide information on the number of tax payers who are paying taxes for apartment renting and what the revenues from these rentals for the state were.

“One must start with considering the fact that those who rent apartments are not taxed solely on this ground.

Self-taxation system always has to do with large incomes of the tax-payer, no matter whether it is an individual or a company.

Questions which are most commonly asked are those about the incomes in certain sector. However, one does not take into account that it is not easy to compare any two individual tax-payers.

For instance, one tax-payer rents the property and provides hotel services, while the other tax-payer rents property and produces something.

Incomes subjected to taxation of both tax-payers are the amounts they have earned. It is clear that the incomes of these two individuals
cannot be measured in the same way and cannot be compared, if one takes only the amount earned into account.

For the reason that tax-payer as a term is somewhat a complex category, state has introduced the system of self-taxation, where one submits his or her tax declaration and presents his or her incomes.

It is not possible - neither in accordance with the regulations on taxing procedure, nor is it technically feasible - to monitor only those individuals who are earning their incomes from apartment rentals. It is not possible to provide a precise number of such individuals”, Tax Authority representatives explain, adding that agencies for apartment rentals do not have an association which would be interested in provision with the data on those who are renting apartments or which would want to receive assistance of experts on taxes.

Contracts Signed Rarely

Asked if they had the estimate on the number of apartments being rented without agencies and whether these owners were diligently fulfilling their obligations to the state, Tax Authority responds that this situation is a result of year’s of such practices of flat rentals without agencies and without contracts and that this situation would need to be handled by other state authorities.

“Based on the research of other state authorities, we could conduct an estimate of possible loses in tax-revenues.

We think that we cannot expect high source of expected incomes in this sector. Solution to the problem is not in the scenario where a flat is rented with or without the agency. It has to do with whether the owner has signed a legitimate contract and whether the tax has been reported.

It is possible that the agency might get two persons in communication and charge the commission, but that the deal does not result with the signing of the contract or report of taxes.

So, one may say that every business which is concluded through the agency cannot be seen – in advance – as something that is absolutely legal, or something that should not be subjected to scrutiny.

We can conclude that, in large number of cases, when apartments are rented without a signed contract, loss of revenues is marginal, considering the fact that the projections of possible revenues achieved from apartment rentals’ remains low in terms of their participation in the budgetary incomes”, Tax Authority concludes.

(11 August 2008)

By: Ma.M.