The Law of Contracts and Torts (“Official Gazette of FRY”, no. 29/78, 39/85, 45/89 – decision of the Constitutional Court of Yugoslavia and 57/89, “Official Gazette of FRY”, no. 31/93, “Official Gazette of Serbia and Montenegro”, no. 1/2003 – Constitutional Charter and “Official Gazette of RS”, no. 18/2020) prescribes that the agreement on the purchase and sale of immovable property must be concluded in a form prescribed by a special law governing transactions of immovable property, under the threat of nullity.
Along with the prescribed form, the same Law prescribes the mandatory contents of the sales agreement which must detail the precise thing being sold, i.e., the immovable property, as well as the specific price which the buyer is obligated to pay to the seller. Along with the stated mandatory elements of the agreement, the agreement may also include other provisions related to the contracting parties and the fulfilment of the agreement itself. The agreement, even though this is not explicitly provided by Law, must also include a statement, made by the seller whose right is being limited, encumbered, revoked, or transferred to another person, that a legal successor can register the right to immovable property (clausula intabulandi), and this statement can be given in the form of a separate document or through the agreement itself.
The Law on Immovable Property Transactions (“Official Gazette of RS”, no. 93/2014, 121/2014 and 6/2015) prescribes that the Agreement on immovable property transactions shall be concluded in the form of a notary public certified (solemnized) document, before a notary public competent for the region including the location of the immovable property. Hence, according to the Republic of Serbia law, every agreement governing a transaction of immovable property must be concluded in the specified form, otherwise the agreement missing that form will be null and void and produce no legal effect. Should the contracting parties conclude a preliminary agreement, it is necessary for that agreement to also take the form provided for the sale and purchase of immovable property itself. This law also determines the obligation of the notary public to submit the authenticated agreement on the purchase and sale of immovable property to the competent authority for determination and collection of public revenues, i.e., to the tax administration, while the Law on the Registration Procedure in Real Estate Cadastre and Utility (“Official Gazette of RS”, no.41/2018) prescribes the obligation of the notary public of submitting such agreement to the real estate cadastre, thereby initiating the registration procedure of the property rights of the buyer.
In view of immovable properties built without a construction permit, there is a possibility of transaction if the process of legalization has been initiated for the subject immovable property, along with a confirmation issued by the competent Secretariat for Legalization. In practice, it is necessary to check with the notary public, even though the Law itself prescribes the option of concluding such an agreement, with informing the contracting parties of the fact that the immovable property has not been legalized, there have been cases where the notary public has refused to solemnize such an agreement, contrary to the provisions of the law.
After the execution and conclusion of the agreement in a legally prescribed form, the buyer and the seller will approach the authorized business bank with their bank accounts for the purpose of money transfer in the name of the purchase and sale price of the immovable property. In practice, all costs related to the agreement on purchase and sale of immovable property, such as the cost of verification by the competent public notary, the cost of money transfer from the account of the buyer to the account of the seller, registration costs, are borne by the buyer. Through the agreement the buyer also obliges to pay the tax on the transfer of absolute rights, even though this is the seller’s legal obligation, this obligation in in practice transferred to the buyer. The tax rate is 2.5% and it is calculated on to the purchase and sale price as a base.
It should be borne in mind that the seller may, depending on the fulfilment of legal requirements, also have the obligation of paying the capital gains tax, as income generated through the sale of immovable property. The tax base for capital gains represents the price difference between the price at which the seller had acquired the immovable property and the price at which the immovable property is being sold and amounts to 15% of the specified price difference in the Republic of Serbia law. The seller is obligated to file a tax return within 10 days of the agreement date of conclusion. It is important to highlight that persons that have had property rights over the subject of sale for more than 10 years have been exempt from this tax, as well as sellers that had acquired the immovable property by inheritance in the first hereditary line, as well as in other circumstances prescribed by law.
