Tax obligations of EU residents for the acquisition of real estate in the Republic of Croatia

Steuerverpflichtungen von EU-Gebietsansässigen bei dem Erwerb von Immobilien in der Republik Kroatien

Natural and legal persons – residents of the EU may acquire real estate in the Republic of Croatia under the same conditions as Croatian citizens, except in the case of agricultural land and protected cultural and natural resources.

Property rights can be acquired through purchase, inheritance, real estate exchange, donation, adverse possession or otherwise. The acquirer of the real estate is tax liable.

The real estate acquisition is subject to:

  • VAT or
  • the real estate transfer tax.

When are you subject to VAT by acquiring  real estate?

The acquiring of a real estate is subject to VAT if the property is handed over by a tax-payer subject to VAT (registered in the VAT register), namely:

  • for the transfer of building land,
  • for the transfer of real estate that is less than 2 years old (in use).

The tax rate is 25% of the market value of the real estate. When acquiring real estate by purchase, VAT is calculated on the basis of the invoice issued by the seller. After receipt of payment, the buyer has no further obligations regarding the tax return / payment and the seller must notify the tax authority about the sale of the real estate and tax claims, and pay the VAT.

If the transferer of the real estate is not subject to VAT, the transfer will not be subject to VAT, and will instead be subject to the 4% real estate transfer tax on the market value of the real estate. VAT is also not applied if the property sold was in use for more than 2 years.

When  are you a subject to real estate transfer tax?

One is subject to the real estate transfer tax whenever the sale of a property is not subject to VAT (it is exempt from VAT), so then  the acquirer must  pay the real estate transfer tax.

That means, if the seller is a natural or legal person not subject to VAT, or if the object of the sale is real estate that has been in use for more than two years, the acquirer must pay the real estate transfer tax.

The tax rate for the land acquiring is 4% and is calculated according to the market value of the real estate (the purchase price in the contract, the market value of the property, that was acquired by donation, adverse possesion, etc.).

In this case, the acquirer must report the purchase of the real estate to the relevant tax authority.

The obligation to pay the real estate transfer tax is determined by the tax authority through a decision given to the acquirer, which requires the acquirer to pay the tax within the legal deadline of 15 days.

The legislation establishes a real estate tax exemption mainly in the case of acquisition by donation and inheritance.

Tax aspects of real estate rental by EU citizens

A natural person who is an EU citizen and owns a real estate in the Republic of Croatia may accommodate tourists or travelers in the Republic of Croatia without first establishing a craft trade or a trading company.

What kind of obligations does the foreign (EU) landlord have?

  • registration in the VAT system
  • registration in the register of income taxpayers
  • calculate and pay VAT
  • pay income tax

If the real estate is rented to natural persons for residential purposes, which is according to the law exempt from VAT, the landlord does not have to register in VAT register, nor calculate the VAT on the rental price.

In addition, the non-resident landlord is not obliged to register in the VAT system if the rental is operated through a travel agency based in Croatia. In this case the VAT will be calculated according to the reverse charge principle and the VAT calculation will be transferred to the travel agency.

The calculation and payment of VAT

For the accommodation provided, the landlord must issue an invoice, which will be subject to a VAT of 13%. In addition, the landlord can pay a pre-tax for all costs incurred by performing accommodation activities, and thus reduce the monthly rate of VAT. In order to keep the tax records and to create the VAT invoice, it would be advisable to hire a tax accountant who will settle accounts based on the documents submitted and will report the VAT electronically.

The VAT invoice and declaration will be issued monthly, all year round, regardless of the seasonal nature of the activity.

The income tax

EU citizens who rent real estate in the Republic of Croatia can choose between two legally defined forms of income taxation:

  • a flat-rate income tax, or
  • an income tax due to the business books

Flat rate income tax is calculated on the basis of a decision issued by the tax authority, irrespective of the result (profit / loss) achieved by the taxpayer in a financial year. The amount of income tax depends on the resort category and number of beds, ranging from HRK 150.00 to HRK 300.00 per bed per year.

Income tax based on the  books of account is paid on the basis of the annual tax return on the taxable amount (difference between income and expenditure) minus the personal deduction as well as other legal deductions. The annual discount for non-residents is HRK 45,600.00.

Income tax is calculated on the principle of progressive taxation using two different tax rates: 24% on a taxable amount of HRK 210,000 and 36% on a taxable amount above that amount.

Sale of real estate

The alienation represents the sale, exchange and other transfer of real estate, in which, in the cases prescribed by law, the obligation for the alienator arises due to the income tax on assets.

One is subject to the tax on income from the sale of assets:

  • if the property is sold within 2 years from the date of acquiring
  • if three or more equivalent real estates are sold within 5 years from the date of purchase of the real estate.

By way of exception, income tax does not have to be paid if the land parcels being sold each have the size up to 250 m2 and up to 1000 m2 in total.

The sale of the real estate within 2 years from acquisition

The income on which taxes are paid is calculated as the difference between the market value of the property to be sold and the purchase price, which is increased by the increase in producer prices of industrial products. The costs of the sale reduce the taxable amount.

By way of exception, the income derived from the sale of a real estate is not taxed if the property is used for residential purposes of the seller or the members of his close family.

The sale of three or more equivalent properties within 5 years

Taxable income is calculated as the difference between the market value of (equivalent) real estate sold within five years and its acquisition cost, which is increased by the increase in producer prices of industrial products, and the investment costs, which can be proved by credible documents.

After what tax rate is the tax paid on the income from the real estate sale?

The tax on the income from the real estate sale is paid at the legally fixed rate of 24% within 15 days, according to the decision of the tax authority.

When are You not obligated to pay tax on the income from the real estate sale?

  • if the real estate is sold after 2 years from the acquisition
  • if the sale took place between spouses and first-degree relatives, as well as between other close family members
  • if the sale took place between divorced spouses and was directly related to the divorce
  • if the sale took place in relation to the inheritance of real estate