Tax treatment of real estate purchase in the Republic of Croatia as a citizen of a EU Member State

If you, as citizens of the EU Member States, intend to acquire ownership of a
vacation home or other real estate property in the Republic of Croatia,
whether for private or business purposes, your sale and purchase
transaction in the Republic of Croatia is subject to a certain tax liability,
about which you can find out more below.

Natural persons, as citizens of the EU Member States have the same rights
to acquire real estate in the Republic of Croatia as other Croatian citizens,
with the exception of agricultural land and real estate which are considered
protected property under special regulations.

Such citizens are considered non-residents in accordance with Croatian
regulations, since they have neither a residence nor a tax status in the
Republic of Croatia.

It is often the case that non-resident citizens buy real estate through a
company with headquarters in the Republic of Croatia, especially if they
intend to use the real estate for business purposes (for example, to carry
out tourist or business lease / lease activities, etc.).

Given that such company is considered to be a Croatian resident, for this
company restrictions do not apply when it comes to a purchase of land
prescribed for non-resident natural persons.

However, whether you are a natural person or a shareholder of a legal
person, your tax burden will depend on several key facts: the tax status of
the seller (whether he operates in the VAT system or not?), the type of real
estate (land or building), the status (use) of the building (the length of time
the building was in use), your tax status.

In order to calculate your tax liability in a timely and accurate manner, be
sure to consult your lawyer or tax advisor whenever you intend to buy a property,
before signing a sale contract.

You can read about the basic rules for property taxation
below.

IF YOU ARE A NATURAL PERSON

-You are acquiring a property (building) from a seller who is natural person
(does not operate in the VAT system), your tax burden will be 3% of sales
tax calculated on the market price of the sale, regardless of whether the
building was in use or not.
-If the seller is a legal (or natural) person who operates in the VAT system,
and the building you are buying is “new” (less than 2 years used) sale price
is charged with 25% VAT.
-If the building you buy from a taxpayer legal (natural) person has been in
use for more than 2 years, delivery is VAT free, and the tax burden is 3% of
real estate sales tax.

IF YOU ARE THE SHAREHOLDER OF LEGAL PERSON (for example of a
limited liability company or other similar legal form) with registered
headquarters in the Republic of Croatia and through it
you are buying property
from a taxpayer (another legal or natural person operating in the VAT system) then the
purchase of a building that has been in use for more than 2 years
is usually exempt from VAT. This means that if you, as a buyer-legal person,
operate within the VAT system yourself, the seller may apply the „reverse
charge principle“ when making the sale, and the sale can be made without
engaging additional cash in the amount of 25% tax. The condition for the
application of this principle is that both the buyer and seller are subject to
VAT and that the intention is to use the building for economic purposes.
However, one has to be careful here because the “reverse charge principle”
property purchase model is subject of the obligation to correct the tax if the
status of the property changes within a 10-year period (for example, if you
alienated / sold the property to a person which is not a tax payer, or you
choose to use the real estate for non-business purposes, for the purpose of
housing, etc.). Usually, this model pays off only if you intend to use the
building for a business period longer than 10 years after purchase.

On the other hand, if you are a “non-VAT” buyer-legal person, then you pay
3% sales tax on the sale of such real estate.

A building that is legally considered to be a new construction (shorter than 2
years in use) or if it is unfinished (rohbau) is always taxed at 25% VAT.

It is the same with the purchase of construction land which is also subject to
VAT, while agricultural land is taxed with real estate sales tax at the rate of 3%.

If you are buying a property from a legal or natural person who does not
operate in VAT system, then the purchase of the building is always subject
to the real estate sales tax at the rate of 3%.

It is important to know that when acquiring real estate, only one of the
above tax forms is paid: either VAT or real estate sales tax, and the tax
burden is ultimately borne by the buyer of the property.

Usually, you must report the acquisition of the property to the tax authority
of your country of residence.