On 2 February 2026, the National Assembly of Montenegro adopted the amendments to the Value Added Tax Act (“VAT Amendments“) with a view to the closing of Chapter 16 (Taxation) in the EU integration process.
Transfer of construction land will be subject to VAT as of 1 April 2026
The definition of taxable supply of goods now includes supply of construction land, defined as land with construction permit. Under the previous version of the VAT Act, transfer of any land, including construction land, was exempt from VAT. Instead, transfer of construction land, just like transfer of any other type of land, has been subject to transfer tax at the progressive rates of 3%-6%. Explaining the amendment, the Government has said that the exemption of construction land from VAT had been an incentive for tax evasion by artificially decreasing the VAT basis in case of supply of buildings though inflating the value of the construction land component of the entire project.
The VAT Amendments specify that the developed land becomes a constituent part of the real estate project being sold, so that upon the sale of the constructed object only one taxable supply occurs.
A corresponding change was introduced in the definition of taxpayer, which now covers person who occasionally supply not only newly constructed buildings but also construction land as defined above.
Transfer of construction land will be subject to VAT starting from 1 April 2026. VAT will not apply to the portion of the total purchase price paid as an advanced payment prior to this date. Obviously, the amendment may result in price hike on the primary real estate market.
Introduction of VAT numbers from 1 January 2026:
All VAT payers will get VAT numbers consisting of the country prefix “ME” and their tax identification number known as TIN (PIB). This is intended to simplify the identification of Montenegrin taxpayers within the VAT Information Exchange System (VIES), an EU search engine, which will be linked with the Montenegro tax authority’s new Integrated Revenue Management System (IRMS), a centralised online platform for taxpayers which went live in January 2026 (available at: https://irms.tax.gov.me).
Place of supply rules for services and the obligation of foreign service providers to establish a branch or appoint a local VAT representative
Place of supply rules are now fully aligned with the VAT Directive.
Furthermore, where place of supply rules for services point to Montenegro as place of supply, non-resident suppliers of services to consumers will have to either open a branch in Montenegro or appoint a local VAT representative to act as VAT payer. Under the previous version of the VAT Act, when a non-resident entity with no branch established in Montenegro supplied goods or services and the place of supply rules pointed to Montenegro, the VAT payer was either a local VAT representative appointed by the non-resident supplier or, if no one was appointed, the recipient of goods or services (business or ) under the reverse charge mechanism. Since non-resident supplier was free not to appoint local VAT representative, in reality reverse charge always applied.
Tax relief for bad debts
The VAT Amendments introduce stricter conditions for VAT relief for bad debts. Under the new rules, in order to claim this relief, the creditor must provide evidence that its claim has not been fully settled in insolvency, insolvency reorganization or enforcement proceedings and that it had initiated court proceedings seeking payment of the debt before the commencement of insolvency or insolvency reorganization proceedings.
Reverse charge statement
Where reverse charge applies, taxpayer must include a reverse charge statement in the invoice. This applies when the place of supply of service is outside Montenegro and in case of supply of electricity, natural gas, heating and/or cooling energy to wholesalers in Montenegro.
Clarification of clawback rules
Clawback rules requiring payment to the tax authority of a portion of the input VAT previously deducted on the purchase of capital assets (equipment and business-related real property) in case of subsequently changed circumstances are clarified. Specifically, the VAT Amendments now stipulate that the changed circumstances triggering clawback include the cessation of VAT taxpayer status, cessation of the taxpayer’s business activity which justified VAT deduction upon purchase of the capital asset, or sale of the capital assets which does not give the right to deduction of input VAT (e.g. sale of a building which does not qualify as newly-built), in each case when the change occurs within 5 years with respect to the equipment or 10 years with respect to the immovable property.
Transfer of going concern
Transfer of entire assets or a portion thereof constituting business as a going concern (TOGC) rule is upgraded. The main rule remains unchanged – Transfer of entire assets or a portion thereof constituting business is not regarded as a taxable supply of goods provided that the transferee is, or become as a result of the transfer, a registered VAT payer and, following the receipt of the assets, carries on the same taxable business activity as the transferor. In this case, the transferee is regarded as the successor of the transferor with respect to the assets received. According to a new provision, however, the transferee who, following the TOGC, uses the transferred assets for the purposes which are not compatible with the rules allowing deduction of input VAT (e.g. if it terminates the operations with the assets or changes business from taxable to the one which is exempt without the right to deduct input VAT) is obliged to reverse charge VAT on the value of the assets received. In case of the TOGC with consideration, the value of the assets received is equal to the amount of the consideration paid per each separate asset transferred, and in case of a free-of-charge transfer, it is equal to the on the market value of the relevant assets at the time of the transfer. With respect to the transferee’s right to deduct the reverse charged VAT as its input VAT, the general rules apply.
It is also clarified that if the TOGC involves capital assets (equipment and real property), the clawback obligation that may arise in case of changed circumstances is on the transferee as the successor of the transferor.
