Real estate rental by citizens of the EU Member States
You have acquired a real estate property in the Republic of Croatia, and you want to use it for renting as a natural or legal person. See below about your legal and tax obligations.
Property owned by a natural or legal person can be rented for various purposes on the market. Thus, depending on the type of rent (tourist, residential, business), the tax liability of the lessor, who receives a certain income / profit in a form of rent, is differently determined.
The type of tax you have to calculate and pay depends on whether you are operating as a natural or legal person.
Usually, you are obliged to pay two types of taxes to the budget of the Republic of Croatia: income tax or profit tax (depending on the business model) and, exceptionally, value added tax.
Natural person-citizen of an EU Member State may, like other Croatian citizens, carry out the tourist lease of a household object with a capacity of up to 20 beds.
To this end, it must obtain a categorization decision from the State Office of the competent county.
The difference when compared to other Croatian citizens’ tax liabilities is that in some cases, this person must be registered for VAT purposes.
If a non-resident sells their accommodation directly to a guest (through a web portal, e-mail or any other form of a direct sale) or through foreign marketing or travel agencies (eg Bookingcom, Airbnb and others) then they must contact the tax office and register for VAT, in order to calculate and pay VAT at the rate of 13% on the provided accommodation service. On the other hand, VAT on invoices for the supply of all services and goods such as overheads, small inventory and other supplies used to carry out its activities may be recognized as a pre-tax.
The obligation to operate in the VAT system for a non-resident would not exist if he provides the user with rental services for housing purpose, since this activity is exempt from VAT in accordance with Croatian regulations.
Such an obligation would not exist even in the provision of business leasing services, but solely to the legal / natural person- taxpayer operating in the VAT system, because that taxpayer is then obligated to assume the VAT liability.
However, in all three cases, you are subject to rental income tax:
- For the type of tourist lease you pay a flat tax, the amount of which depends on the number of beds and the amount of tax liability per bed
Usually, the annual flat tax liability ranges from 150.00 to 1.500,00 kn (approx. 20 – 200 eur) per bed, depending on the decision of the local / city government body.
This form of taxation is the cheapest, but the landlord may also opt for a different form of taxation based on actual business results according to business book data.
- For the type of residental lease, tax is payable at the rate of 12%. The calculation of the income tax on rental income is different from the tourist tax, and it is determined by reducing the monthly (market) contractual rent by 30% of the flat-rate recognized expenses, and then on such reduced tax base, 12% of property income tax is being calculated.
- For the type of business lease to a legal person operating in the VAT system, the income tax liability is established in the same way as with the above-mentioned form of residental lease.
If you are acting through a legal person registered for the provision of accommodation, renting or leasing services, it is your decision wether you will register in the VAT system, as long as you earn up to HRK 300,000.00 a year.
The VAT rate is generally applicable, and it is 13% for tourist accommodation services, while the VAT on the lease service is charged at the rate of 25%.
VAT on residential lease is not calculated.
As a legal person, you are also obligated to pay profit tax at the rate of 12% (the rate is applied on the basis up to the amount of annual income of HRK 3 million).
In order to be able to determine the legal and tax model of real estate renting, it is the best to consult your lawyer, tax or financial advisor.
Of course it depends on the amount of income that real estate can generate during the year, but also on the costs that each legal form of business requires. In any case, you must always report to the competent tax office.