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| Important information concerning the issues of ownership and registration With regard to documents which present proof of ownership, when buying and selling real estate one should differentiate between registered and non-registered real estate. I would like to point out that in the next several years all the immovable property on the territory of the Republic of Serbia will have been registered; in light of this, it is vital to bear the following instructions in mind. When it comes to registered apartments, houses, or business premises, the purchaser’s legal security is for sure closest to the absolute having in mind that a an extract from the land register or an extract from the real estate register serves as proof that the vendor is the actual owner of the residence and that the residence is under no encumbrances whatsoever. An extract from the real estate register should be of the most recent date possible, while the vendor should be bound to present a new extract prior to the realization of payment of the total selling price. In addition, the vendor must also have an original document which proves the way in which they acquired the right of ownership of the real estate in matter (a sales contract, a barter contract, an agreement to give, a valid court decision, or any other document on the basis of which ownership may be acquired), as well as a receipt on the tax paid issued by a competent Tax Authority. It is advisable, but not necessary, that the vendor should present documents which serve as proof of ownership of their legal predecessors. As regards real estate that is not registered, a difference is made between ‘old’ real estate and real estate under construction, i.e. newly built real estate. As for ‘old’ non-registered real estate, the difference is to be made between the real estate located on the territory where records of real estate are kept by the Republic Geodetic Authority – Real Estate Cadastre Service (Stari Grad, Vracar, Savski venac, Stara Rakovica, some suburban municipalities, and Novi Beograd) and the real estate for which land register courts are competent (other municipalities). When it comes to the cadastre, and the residence in matter is repurchased, it is sufficient that the vendor should present all the documents starting from the contract on the residence repurchase to the proof of its ownership; of course, all these documents need to be supported with a receipt on the tax paid issued by a competent Tax Authority. As to the real estate that is not repurchased, the vendor is obliged to present all evidence of ownership starting from documents provided by the project investor (a building and an exploitation permit, a list of physically divided parts of the building) to those which the vendor as the present owner provides. When the register of real estate is maintained by the land register court, irrespective of whether the real estate is repurchased or not, the vendor must present all the documents starting from those related to the first owner. As for newly built real estate, in most cases the vendor is at the same time the project investor. Therefore they are supposed to present documents such as a building permit, an acknowledgment of receipt of the documents required, i.e. a confirmation of reported construction works, a report on the technical inspection of the building, and an exploitation licence depending on the phase of construction. I believe that a building under construction should not be paid out before the investor has received an acknowledgment of receipt of the documents required (a confirmation of reported report) since this document is proof that the main project has been certified and a contract laying down payment of a charge for exploitation of the urban building land concluded with the Belgrade Land Development Public Agency. The investor needs also to present a land register extract (an extract from the real estate register) as proof of their right to land exploitation. If the building permit refers to several investors, what is also deemed necessary is to inspect a contract on joint construction work or a contract on physical division so as to ascertain whether the real estate concerned is the investor’s exclusive property. In my opinion, one should be particularly careful when purchasing real estate owned by the vendor on the basis of an agreement to give. In this case the purchaser should request court certified statements given by other donor’s heirs who are entitled to a portion of inheritance, which will serve as a confirmation that they consent to the agreement to give and to the sale of real estate. The vendor is also obliged to present court certified consent to the sale of the real estate given by their spouse, and if the vendor has not acquired the property in the course of their marital life, they are obliged to present their birth certificate. If a vendor sets out to sell their real estate through a mandatory, either an attorney or a mandatory that is not an attorney, the proxy in writing must be certified in the court. This is the so-called special power of attorney which must encompass authorization for all the actions needed for the sale of real estate to be realized, in particular the authorization to conclude and certify a contract in the court and the authorization to open a foreign exchange or a dinar account. Finally, when the subject of the sale is real estate co-owned by two or more persons, each co-owner must conclude the sales contract. If only a part of the real estate is to be sold, other co-owners must be offered to buy it in accordance with the right of pre-emption since by the law they are holders of this right. Should they decline the offer or fail to respond to it within 15 days as of the day the offer has been received, the co-owner is authorized to sell the real estate concerned to a third party under the same or less favourable conditions. An explicit rejection of the offer must be provided in the form of judicial legalization. Should the party offered to buy be ‘silent’, the co-owner must have in their possession the offer in written form, as well as proof of sending the offer in a registered letter with a redelivery note. Otherwise, a competent court will not verify the contract of sale of the share in co-ownership. Of course, all the documents must be certified by the court and supported with a receipt issued by a competent Tax Authority on the settled tax on the transfer of absolute rights, inheritance tax, or gift tax. How to realize the sale? When the agreement is reached as to all the elements of the buying and selling procedure, it is common for contracting parties to conclude a preliminary contract of sale by means of which the elements mentioned above are contracted in written form as well. When concluding a preliminary contract, the purchaser pays the vendor a deposit the level of which is a matter of their mutual agreement but according to the customary law equals 10% of the contracted selling prices. If one of the contracting parties decides to opt out of the agreement, the deposit will have its regular effect. A preliminary contract also stipulates deadlines for payment of the rest of the selling price (balance), conclusion of the principal contract, and vesting the real estate in the purchaser. Under legal provisions, a preliminary contract needs to be identical in form to the principal contact, i.e. it needs to be in the form of judicial legalization. However, in practice, contracting parties will seldom validate a preliminary contract. If at the time of conclusion of a preliminary contract the vendor does not possess all the necessary documents, and an attorney believes these can be obtained, the purchaser’s obligation to provide these papers is entered in the preliminary contract as a prerequisite for conclusion of the principal contract. On the day of the conclusion, i.e. validation of the principal contract, the purchaser is to pay to the vendor the rest of the selling price, and the vendor is to vest the real estate, emptied of people and objects, in the purchaser. Payment of the selling price in foreign currency is done via commercial banks through the transfer of money from the purchaser’s foreign currency account to the vendor’s foreign currency account. If both contracting parties have opened their accounts in the same bank, which is recommendable and a common practice, the transfer is done instantly and the bank’s commission is much lower than in the case of an inter-bank transfer. Banks’ commission fees vary; they are expressed as percentage of the transferred sum (0.2% usually) or as a fixed charge (from RSD 750.00 to RSD 8,000.00), so it is advisable one selects the cheapest bank possible since the transaction in matter is an ad hoc one. Under valid regulations, payment of the selling price via banks not located on the territory of the Republic of Serbia is not permitted. Court costs of validating a preliminary contract and the principal contract as well as other statements or proxies are chargeable to the purchaser. Stamp taxes for a preliminary contract and the principal contract hinge on the contracted deposit sum, i.e. the selling price but they do not exceed the sum of RSD 26,033.00, whereas statement taxes normally equal RSD 358.00 dinars. Housing loans The procedure for purchasing a residence by means of a housing loan does not differ much from the procedure for realizing the purchase with one’s own funds, but there are still some subtle differences. Our advice for purchasers is to have a detailed inquiry with the bank about whether they meet all the conditions concerning their earnings, age, etc. before they actually decide to give a deposit. When it comes to the real estate itself, purchasers may seek from a sales agent information about whether the real estate in matter is adequate for sale or not. Apart from the interest and fixed charges they ought to pay to the bank, which is something bank officers must inform them about in advance, the purchaser bears costs of providing the opinion of a civil engineering expert, who assesses the value of the real estate provided as security, i.e. mortgaged, as well as costs of judicial legalization of statements the purchaser is to present to the bank. A deposit given to the vendor by the purchaser is treated by the bank as purchaser’s down payment in the process of obtaining a housing loan, and the minimum down payment in most banks varies between 10% and 20% of the total selling price. Extension of the loan is in most cases realized on the very day of validation of the sales contract, and that in dinar equivalent value at the exchange rate which varies from bank to bank. The loan is usually transferred directly to the vendor’s account, and the vendor on their part instantly issues an order for the conversion of funds into foreign currency. Thus the purchaser is obliged to compensate the vendor for the currency adjustment charge for conversion of the dinar into another currency without delay. Prior to payment of the total selling price, the vendor is obliged to validate in the court a lien statement, the contents of which are composed by the bank, for the purpose of arranging a mortgage on the real estate to be sold. I would like to point out that the mortgage is arranged in favour of the bank so that it would be secured against the purchaser on the basis of a loan contract; the mortgage is related to the real estate and not to the vendor and, consequently, the vendor is placed under no obligation whatsoever. Of course, the vendor can always ask why they have to arrange a mortgage without having received the amount denoted as a selling price. The answer to this would be as follows: on the basis of a loan contract concluded with the purchaser the bank cannot register mortgage because the purchaser is still not the owner of the real estate concerned - according to the land register it is owned by the vendor. If the purchaser never registers the property, the bank will end up being unable to secure its claim; for this reason the bank will register mortgage while the real estate is still owned by the vendor. However, it is vital one should know that unless loan funds are extended to the vendor immediately, the bank urgently issues a statement on the entry of satisfaction of mortgage – thus the vendor is not exposed to any risk. So far it has never happened that mortgage has been registered without the vendor receiving the selling price simply because mortgage is established only when the loan is already extended to the purchaser. Tax liabilities Tax duties related to the real estate trading are charged depending on whether real estate was built some time ago or has been built recently, i.e. whether real estate is traded for the first time or the ownership of the real estate has changed several times. If the real estate is subject to first trading, i.e. it is newly built, the vendor is the taxpayer and once the principal contract has been concluded they are obliged to pay the value added tax (VAT) of 8% for housing premises and 18% for other real estate; the tax base is estimated by a tax authority and is the same as or similar to the market value. VAT is included in the selling price. The vendor is obliged to issue to the purchaser a receipt with VAT indicated, and proof of payment of VAT in a form suitable for registration of the purchaser’s property right. If the real estate that had been traded several times is to be purchased, regardless of when it was built, a sales contract is liable to the tax on the transfer of absolute rights. The tax equals 2.5% of the base determined in a way described in the previous paragraph, and payment is in most cases a duty of the purchasers in spite of the fact that by the letter of the law the vendor is the tax payer. The purchaser is obliged to submit a tax declaration within 10 days as of the day the principal contract has been concluded, while the deadline for tax payment is 15 days as from the day the tax decision has been delivered. Quite often it happens that vendors have not defrayed the tax liability stemming from acquisition of the right of ownership, and so they are bound through a preliminary contract to take care of this before the principal contract is concluded. What one needs to know in cases like this is that the rate of inheritance tax and tax on a gift inter non-relatives is at 2.5% of the base (this also applies to persons belonging to the second and the third order of succession, in which case the rate is slightly reduced), while relatives of the first order of succession (a spouse, all descendants), as well as relatives of the second order of succession are exempt from paying taxes if they had lived with the defunct, i.e. the donor in the real estate concerned for at least one year before the death of the defunct, that is before an agreement to give was concluded. Under the contract for sustenance, the tax on the transfer of absolute rights at the rate of 2.5% is also to be paid, and if a person providing sustenance is an heir of the first order of succession, they will pay the tax for the portion they would not inherit under the legal order of succession (e.g. if there are two legal heirs, they are to pay the 2.5% tax for a half of the real estate value). When it comes to exemption of the purchaser of the first residence, it is important to be aware of the following: when purchasing a residence liable to the tax on the transfer of absolute rights, a prerequisite for exemption is that the purchaser is an adult citizen of the Republic of Serbia and that they had not owned real estate on the territory of the Republic of Serbia in the period starting from 01.07.2006 to the day of validation of the principal contract; when purchasing a residence liable to VAT, apart from all of the previously mentioned, one needs to provide a vendor’s certificate stating that the purchaser has paid the total selling price sum. As for the tax on the transfer of absolute rights, a decision is issued laying down the purchaser is exempt from taxes, while as regards VAT a decision is issued which lays down the return of VAT to the amount indicated in the receipt provided by the vendor. Any real estate vendor is a potential taxpayer of the capital gains tax, which is paid for the difference between the price at which the real estate has been sold (a selling price) and the price at which the purchaser acquired the right of ownership of the real estate concerned (a purchase price), as assessed by the Tax Authority. The tax rate that applies to the difference is 20%. All vendors who had acquired their right of ownership in any way before 24.01.1994 are entitled to exemption from the capital gains tax, as are vendors who acquired their right of ownership through inheritance, and those who invest funds realized through the real estate sale in tackling their own housing issue or that of a member of their family household or they invest the funds in enhancement of living conditions in the real estate they occupy. If they do not spend all the funds generated through the sale for the purposes stated above, but only a part, the tax liability will be reduced proportionally. The status of a foreign national in the buying and selling affairs Under Serbian valid legislation, foreign natural persons are allowed to alienate real estate and acquire the right of ownership just like domestic natural persons on condition that there is reciprocity (mutuality) established with the country whose citizens they are. Republic of Serbia has concluded bilateral agreements with the majority of countries, and thus foreign natural persons may conclude and validate sales contracts without obtaining any additional permits, i.e. without any limitations. Foreign legal entities operating on the territory of the Republic of Serbia may acquire ownership of the real estate they need for operating properly if, of course, there is reciprocity established. Should there be no reciprocity with the country a foreign national comes from, a competent government organ may be asked to provide its opinion on whether the sale is allowed or not. A court officer in charge of contract validation may refuse to validate a contract written in the Serbian language and ask for a contract drafted in the language of a foreign national and certified by a court interpreter if they ascertain a foreign national is unable to speak or read Serbian. Foreign legal entities and natural persons must obtain from a competent Tax Authority a tax identification number (VAT number) in order to be able to defray tax liabilities when selling real estate, i.e. to pay the property tax when buying real estate. To sum up, except for the limitation of reciprocity, there are no differences in the treatment of foreign nationals and Serbian citizens. The issue of acquiring the right of statement of domicile and residence or the right to citizenship is not related to the right to acquire property, and they should not be mixed. |
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