Real Estate Tax - detailed

Everything you need to know about taxes related to acquiring real estate ownership in Croatia

Sources say that Albert Einstein, when filling out tax documentation, said, “This is too difficult for a mathematician. You need to be a philosopher.” And indeed, navigating tax regulations can be a real pain, but you can rest assured. Below, we bring you a comprehensive guide to everything you need to know regarding real estate taxation in Croatia. If, however, you do not have time to study legal rules and regulations, contact Regent agents who will inform you about everything related to tax obligations in your specific situation.

So, to begin with, it is necessary to distinguish between direct property tax, real estate transfer tax, and value-added tax (VAT). Direct property tax (real estate)

Unlike most EU member states, Croatia does not have a direct property tax but taxes immovable property through the following tax forms:

1.) Real estate transfer tax
2.) Tax on holiday homes
3.) Tax on the use of public areas
4.) Inheritance and gift tax
5.) As a source of income, which is part of the income tax and includes: income from property and property rights based on the disposal of real estate,

• income from property and property rights based on the lease or lease of real estate,
• income from property based on renting apartments, rooms and beds to travelers and tourists and organizing camps on their own land
• temporary transfer of copyrights, industrial property rights and other property rights

6.) Taxation of property through communal fees.
But, apart from complicated legal regulations and rules, we can say that annual levies on real estate in Croatia are mostly negligible or small. However, the main financial expenses in this sense will appear during the purchase and sale, in the form of real estate transfer tax or value-added tax. The good news is that one excludes the other, and you can find out in which cases which is paid below.

What is real estate transfer tax?

Real estate transfer tax is a tax paid upon acquiring real estate, and it currently amounts to 3% (from January 1, 2019) of the market value of the real estate.

The taxpayer is the acquirer of the real estate (buyer, donee, each participant in the exchange of real estate…)

The tax base is the market value of the real estate at the time the tax liability arises.

Paying real estate transfer tax is the buyer's obligation, and it is paid after the conclusion of the purchase agreement and after the tax administration issues a decision on the obligation to pay tax.

If the purchase agreement is signed before a Croatian public notary, the notary will file the tax return. If the document on the acquisition of real estate is not certified by a Croatian public notary, i.e., it was not issued by a court or other public body, then the acquirer of the real estate is obliged to personally, in the competent office of the Tax Administration according to the place where the real estate is located, report the transfer of real estate by submitting Real Estate Transfer Report and the document on the acquisition of real estate within 30 days of the date of its occurrence.

Are there situations in which the buyer is exempt from paying real estate transfer tax?

Yes, and these are the following situations:

• when donating, inheriting and otherwise acquiring real estate free of charge, a spouse, common-law partner, formal and informal life partner, descendants and ancestors who form a vertical line, and adoptees and adopters who are in that relationship with the deceased or donor
• former spouses, former common-law partners and former formal and informal life partners when regulating their property relations
• a spouse, common-law partner, formal and informal life partner, descendants and ancestors who form a vertical line, and adoptees and adopters who are in that relationship with the recipient of maintenance and acquire real estate from him/her based on a life-long support contract or based on a contract on life-long maintenance
• persons who, by dividing co-ownership or dividing joint ownership, acquire special parts of those or those real estates, regardless of the ratios before and after the division of co-ownership or division of joint ownership
• persons who acquire real estate in the procedure of returning confiscated property and consolidation of real estate
• exiles and refugees who acquire real estate by exchanging their real estate abroad
• protected tenants who buy a residential building or apartment in which they live based on a lease agreement
• citizens who buy a residential building or apartment (including land) on which they had tenancy rights or with the consent of the holder of tenancy rights according to the regulations governing the sale of apartments on which there is tenancy rights
• persons who acquire real estate in accordance with the regulations governing the transformation of social ownership into other forms of ownership

There is also a tax exemption when entering real estate into a company

• When real estate is entered into the capital of a company, real estate transfer tax is not paid.
• Real estate transfer tax is not paid when real estate is acquired in the process of merging and joining in the sense of the law regulating companies and in the process of dividing a company into several companies.
• If, during the tax supervision, the Tax Administration determines the fictitiousness of a legal transaction based on which the real estate was acquired, in accordance with paragraphs 1 and 2 of this article, the corresponding real estate transfer tax is determined.

Real estate transfer tax or VAT?

When real estate is sold by a legal entity that is in the VAT system, the buyer is not liable for real estate transfer tax. The legal entity must then issue an invoice for the sale of the real estate, from which it is evident that VAT has been calculated and included in the price of the real estate and in that case there is no double taxation. This is usually the case with newly built apartments and houses that are bought from legal entities.

Therefore, if a natural person acquires real estate from a taxpayer who is registered in the VAT register, and the same performs a supply:

• building or part of it that has never been inhabited or used, including the land on which it is located (most often new construction)
• building or part of it, including the land on which it is located, where no more than two years have passed from the date of first habitation or use to the date of the next delivery
• building land.

The tax base is the compensation that constitutes everything that the supplier has received or should receive from the buyer.

Is income tax paid when selling real estate in Croatia?

In Croatia, there is an income tax on the disposal (sale) of real estate that is paid by the seller, and it is calculated in cases where the real estate is sold within two years from the date of acquisition. The basis for calculating income tax is the difference between the market value of the real estate (selling) and the purchase (buying) price of the real estate, and the tax is calculated at a rate of 20%. Tax is not paid if the real estate was used for housing by the taxpayer or supported members of his/her immediate family.

If the real estate is sold after the expiration of two years from the date of acquisition of the real estate, income tax on the disposal of real estate is not paid. Also, in the case when the owner permanently resides (has a registered residence) in the real estate in question, income tax on the disposal of real estate will not be applied even in the case of sale of the real estate before the expiration of the period of two years.

Furthermore, income tax on the disposal of real estate is calculated in cases when the seller disposes of (i.e. sells) three or more real estates within five years. Please note that different tax rules apply to legal entities that sell real estate.

Tax on holiday homes

If you own a holiday home (a building, part of a building, or an apartment that you use occasionally or seasonally), you pay an annual tax on holiday homes. The tax ranges from 0.66 euros to 1.99 euros per square meter of usable area, depending on the decision of the municipality or city in which the house is located.

You do not pay tax if you cannot use the holiday home due to war destruction or natural disasters (fire, flood, earthquake), age and dilapidation, and you are exempt from payment while exiles and refugees are (were) housed in the house.

You must submit information about your holiday home (location and usable area) to the competent office of the Tax Administration, i.e. the competent body of local self-government if it only calculates and collects it, by March 31 of the year for which the tax is determined. The tax on holiday homes is paid within 15 days from the date of delivery of the decision on determining that tax.

Find out more detailed information about the tax on holiday homes here.

For more information, contact us and we will connect you with tax and accounting experts.