Purchasing real estate through a company entails specific tax obligations, including value-added tax (VAT) and the tax on the transfer of absolute rights.
For instance, when a company acquires an apartment in a new building, it is subject to a VAT of 10%. However, for older buildings or other real estate transactions, a tax on the transfer of absolute rights of 2.5% of the purchase price applies. After purchasing the property, the company is also required to pay an annual property tax, which varies depending on the location and value of the property. In some cases, companies may be eligible for tax benefits, especially if the property is used for business purposes.
“An entrepreneur in Serbia can buy real estate through their company, but there are key aspects to consider. Regardless of whether they are a lump-sum taxpayer or one who keeps financial records, the entrepreneur is a natural person carrying out business activities. Legally, the property is registered in their name, not in a ‘special’ legal entity as it would be with a limited liability company,” explains lawyer Nevena Petrović.
She notes that if an entrepreneur purchases real estate for business purposes, such as office space, a warehouse, or a store, they can record the property as a fixed asset in the company’s books. This allows them to deduct depreciation costs, maintenance, utilities, and other related expenses. However, if the property is used for personal purposes rather than for business, there is a risk that the Tax Administration could challenge the related costs. Furthermore, the entrepreneur must be mindful of the 2.5% tax on the transfer of absolute rights or VAT if purchasing a new property from an investor. Unlike a limited liability company, where the property is owned by the company (a legal entity), the property is considered the entrepreneur’s personal asset, even if it is used for business activities.
Real estate agents advise entrepreneurs to carefully evaluate all financial aspects and potential challenges related to property ownership before proceeding with a purchase.
“The first step is to explore financing options, such as fixed, variable, or combined interest rates. A fixed interest rate offers stability, as the monthly payment remains the same throughout the loan period. A variable interest rate, while lower initially, carries the risk of increasing based on market conditions. A combined interest rate starts with a fixed rate and later switches to a variable one,” the agents explain.
However, interest rates are not the only factor to consider. Borrowing typically comes with additional costs, which can significantly impact your budget. These costs may include credit application processing fees, promissory note issuance, Credit Bureau report charges, insurance premiums for the National Home Loan Insurance Corporation, comprehensive insurance, mortgage registration fees, and real estate valuation. While each individual cost may seem small, together they can substantially raise the overall price of the property.
“Real estate can offer significant benefits to a business, whether used as a commercial space or as an investment generating passive income,” concludes the real estate expert.
