Obligations of real estate lessors in Croatia
Given the rich tourism industry, which represents 1/5 of Croatia’s GDP, the owners are making the most of their properties by putting them in profitable use by short term rentals to tourists during the season. This article aims to present the methods of registration, taxation and administration for getting the most from the tourist lease.
The Law on the hospitality provides simplified requirements for small lessors, who can offer the following domestic hospitality services:
- rooms, apartments or vacation houses leasing services, with the capacity up to 20 beds;
- camp leasing services with the capacity up to 10 units, but no more than 30 guests at the same time; and
- breakfast, full or half board services for the guests to whom the lessor provides accommodation services.
The services of apartment, room and bed leasing to tourists and passengers, may be carried out in Croatia by the Croats citizens, citizens of the European Union and Switzerland, while the requirements to perform the activity depend on the state of tax residence.
Citizens of third countries can offer these services only through a craft or registered company.
Generally, natural persons who reside regulary or permanently in the Republic of Croatia or who do not reside regulary or permanently in the Republic of Croatia but are public employees who receive salary, are considered residents.
Non-residents have neither regular nor permanent residence in the Republic of Croatia.
The residence is established, not only according to the Croatian tax legislation, but also in accordance with international agreements to avoid double taxation, of which the Republic of Croatia is a signatory.
Lessors may be subject to four types of tax, depending on their status, and these are: income tax, surtax on income tax, profit tax and value added tax.
Income tax can be calculated as lump sum income tax or as income tax on activities of self-employed persons. Small lessors who rent out up to 20 beds or 10 camp units, but no more than 30 guests, are subject to lump sum tax on income.
The lump sum tax amounts to 300,00 kunas per bed and 350,00 kunas per unit, which does not include extra beds. The lump sum taxation system is the most favorable for small private lessors. But, it must be said that foreign lessors, can not be subject to the lump sum income tax system.
Lessors who have greater number of beds or units then above stated, who are in the VAT system, who have opted for this taxation system and foreign lessors, are subject to income tax on activities of self-employed persons.
The main obligation of these lessors is to present the annual tax declaration by the end of February for the previous year and to keep the business records. Even if the forms are available to the public, regularly it is advised the lessors request the accounting services from authorized persons. The taxpayers are obligated to request the enrollment in the register of income taxpayers.
Income tax is calculated on the difference between the declared income and expenses, according to a progressively increasing rate:
- 12% on income up to 26.400,00 kunas,
- 25% on income exceeding 26.400,00 kunas up to 158.400,00 kunas (on the next 132.000,00 kunas),
- 40% on income exceeding 158.400,00 kunas a year.
The value added tax (VAT) refers to lessors with annual income that exceeds 230,000.00 kunas in the previous year, with 13% tax rate applied, and lessors who receive services from foreign taxpayers, such as foreign travel agencies or brokers as Booking.com or Airbnb.
These last taxpayers do not pay VAT on the service but on the commission of the agency with the 25% tax rate. Taxpayers are obliged to submit a monthly form by the 20th of each month to the competent tax authority, to request the enrollment in the register of VAT payers and to obtain a VAT identification number.
The surtax to income tax is the income of municipality or city in which the leased real estate is located, and varies from 0% to 18%. It is calculated on the income tax sum and it regularly amounts to a fairly low sum.
The tax on profits from leasing activities is paid by legal entities registered to carry out the activities of the reception and hospitality and taxpayers to who the Tax Administration granted such status or are obliged to enter into this system because their annual income exceeded the amount of 400.000,00 kunas. These taxpayers are obliged to maintain double accounting and are taxed with the 20% tax rate.
Foreign lessors from third countries who have registered crafts, are obliged to pay the tax on income from crafts or the VAT (if their income exceeds 230.000,00 kunas), and if they have registered a company, they are subject to profit tax.
Foreign lessors must, within 8 days of crafts registration, request the enrollment in the register of craftsmen income taxpayers. New lessors from the EU and European Economic Area are required, before enrolling in the appropriate registers, to obtain permission to carry out leasing activities with the competent administrative office.
The penalties prescribed for non-registered contributions amount up to 200.000,00 kunas and it is therefore advisable to seek assistance from a professional before starting the activity.
It should be noted that lessors are also obliged to pay the tourist tax to the tourist board in the annual fixed amount that varies from 150,00 kunas to 300,00 kunas, the same as the annual tourist fee to the tourist board in the ammount of aproximatelly 300,00 kunas.
