Real estate tax

Croatia, with approximately 3.87 million inhabitants, has over 2.4 million housingunits, including 600,000 unoccupied ones and 231,000 holiday homes.

These figuresand the issue of long-term housing availability have prompted the government todraft a new Real Estate Tax Act.

The primary aim is to reduce the tax disparitybetween income earned through labor and rental income, as rental income has sofar been taxed more favorably.

This act, part of a broader tax reform, focuses onencouraging investment in productive sectors rather than solely in real estate.

Thegoal is for this tax to completely replace the holiday home tax.

Key changes

• The first change involves the introduction of a definition of real estate intolegal regulation. According to the draft, real estate is defined as anyresidential building or residential part of a mixed-use building, or anapartment, as well as any other standalone functional space intended forresidential use. It also specifies what is excluded from the definition of realestate: agricultural buildings used exclusively for storing farming machinery,tools, and other equipment, as well as properties classified as production ornon-production business premises according to municipal utility fee decisions.
• The draft introduces mandatory real estate taxation. Under the current law,the imposition of the holiday home tax (to be replaced by the real estate tax)was not obligatory, leaving the decision to local government units. However,the upcoming legislative changes will make the real estate tax mandatory forall local units.
• Municipalities or cities will be able to impose zonal tax rates based onlocation, street, neighborhood, or zone where the property is situated. Thismeans that tax rates may differ within a local government unit, allowing forhigher taxes in central or coastal areas, for instance.
• Domestic and foreign legal and natural persons who own real estate as ofMarch 31 of the year for which the tax is determined will be liable to pay thistax. For newly constructed properties, the tax obligation begins on the date ofthe occupancy permit or on the date of use if the property is used without apermit.
• Real estate tax will be payable annually and will range from 0.60 to 8.00EUR/m² of the usable area of the property. The specific rate, within theselimits, will be determined by the local government’s representative body. If thedecision is not made within the set deadline, the default rate will be 0.60EUR/m². Local government units must consider criteria such as street,location, neighborhood, or property zone when determining the tax amount.Additional factors such as property age and available amenities may also beapplied.
• Tax revenues will be divided between the state (20%) and the municipality/city(80%).
• The tax treatment of long-term and short-term (tourist) rentals will be adjusted.Under the current legislation, short-term rentals are taxed more favorably thanlong-term ones. Specifically, long-term rental taxation is 8.4%, while theaverage short-term rate is around 2%, excluding other charges such as touristfees or VAT on platform services. It is proposed to establish a flat-rate tax forshort-term rentals based on the tourist development index of the municipality or city. Local governments will decide the flat tax amount within prescribedlimits.

The flat tax will range as follows:

• 150 to 300 EUR per bed in the most developed units.
  
• 100 to 200 EUR per bed in the second group.
  
• 30 to 150 EUR per bed in the third group.
  
• 20 to 100 EUR per bed in the least developed tourist areas.

Exemptions from real estate tax

1. Properties used as permanent residences.
2. Properties rented under a lease agreement for permanent residence(minimum of 10 months annually).
3. Properties for public use and those intended for institutional accommodation.
4. Properties recorded in company books as intended for sale if less than sixmonths have passed between their entry into the books and March 31 of thetax year.
5. Properties acquired in exchange for unpaid claims if less than six monthshave passed since their acquisition and March 31 of the tax year.
6. Properties unsuitable for residential use due to natural disasters during the taxperiod.
7. Other cases where it is evident that the property cannot serve as residentialspace.
8. Properties owned by the Republic of Croatia.
9. Properties owned by local government units located exclusively within theirterritories.

Local government units may also exempt properties owned by socially vulnerablecitizens from taxation, according to clearly defined criteria.

As of today, the draft of the Local Tax Act which includes above listed provisions hasbeen confirmed and accepted. It will come into force on January 1st 2025.