Summary
Buying commercial real estate in Croatia entails one of two taxes, never both at once: real estate transfer tax of 3% or VAT of 25%. Which one applies depends on whether you are buying from a seller who is in the VAT system and whether more than two years have passed from the first use of the property until the sale. The difference between 3% and 25% is not cosmetic, so the status of the seller and the property should be checked before signing the pre-contract, not after. In this guide, we break down when which tax is paid, how the taxation option and input tax work, and what to check before the contract.
Key facts
- When buying, either 25% VAT or 3% real estate transfer tax is paid — never both.
- Which tax applies depends on the seller's status and the two-year period from the first use.
- New real estate, or real estate used for up to two years, purchased from a VAT payer, is subject to VAT.
- Real estate older than two years is generally taxed with transfer tax.
- The rate does not depend on the buyer's citizenship, but on the seller and the real estate.
- A VAT payer can, under certain conditions, deduct input VAT; a tax advisor decides on this.
For a buyer operating through a company, the tax mechanism when purchasing business premises is not a mere technicality – it directly changes the total cost and what can be deducted as input tax. The same property can be subject to VAT or real estate transfer tax, depending on who is selling it and how long it has been in use.
The rules are regulated by the Value Added Tax Act and the Real Estate Transfer Tax Act, and as tax regulations change, it is worth confirming the current treatment with a tax advisor before each purchase. Below, we explain the logic of the two taxes, when VAT is paid, when real estate transfer tax is paid, and what to look out for before signing.
Two taxes, never both
Business premises are taxed by the same logic as an apartment, but with different consequences for a buyer operating through a company. One of two taxes applies to the acquisition. Real estate transfer tax amounts to 3% of the market value and is paid by the buyer, and it applies to properties taxed outside the VAT system. VAT amounts to 25% and applies when the property is supplied by a seller within the VAT system, in cases prescribed by law; in such cases, VAT replaces real estate transfer tax and is usually already included in the agreed price.
Which of these applies does not depend on the agreement of the parties, but on two objective criteria: whether the seller is a VAT payer and whether more than two years have passed from the first occupancy or use of the property until the supply. We elaborate on these two criteria below.
Professional advice: Before comparing two offers by price, determine which tax applies to which — the difference between 3% and 25% can change the total cost more than the mere price difference, so a "cheaper" property is not always cheaper.
When VAT is paid
VAT is paid for new construction and for properties that have been in use for less than two years, when supplied by a seller within the VAT system. A typical example is business premises on the ground floor of a new residential-commercial project sold by an investor. According to the Value Added Tax Act, the supply of a building is subject to VAT if it is a supply before first occupancy or use, or if not more than two years have passed from the first occupancy or use until the next supply. Several things apply to such a purchase: the price in the offer may be stated without VAT, in which case the total cost is up to 25% higher than the figure in the advertisement; real estate transfer tax is not paid; and a buyer who is also within the VAT system can, under certain conditions, deduct input tax. This is precisely why companies purchase business premises differently from private individuals – for a VAT payer, the net cost can be significantly different from the gross amount, but this is a calculation for a tax advisor, not for an advertisement.
Professional advice: When the price is stated "without VAT," always request the final amount including VAT in euros — a 25% difference is too large to be assumed, and the contract must unambiguously state what the price includes.
When real estate transfer tax is paid
Real estate transfer tax of 3% is paid for properties exempt from VAT — typically for business premises used for more than two years, or purchased from a seller who is not in the VAT system (e.g., from a private individual). This is the same rate as for an apartment on the market. The tax is calculated by the Tax Administration through a decision after the contract is concluded, and it is paid by the buyer.
For buyers from abroad or those buying through a company (d.o.o.), two notes apply. Firstly, the rate does not change according to the buyer's nationality, but according to the seller's type and the property's status. Secondly, it is worth checking the deadlines for reporting and payment and the method of issuing the decision with the Tax Administration for a specific case, as they depend on the circumstances of the acquisition.
Professional advice: Request the property status (how long it has been in use) and the seller status (whether they are a VAT payer) in writing before the pre-contract — these two pieces of information, not the agreement of the parties, determine which tax is paid.
Input tax and option for taxation for companies
For VAT-exempt properties (used for more than two years), a seller who is a VAT payer has the right of choice for taxation — they can still opt for VAT calculation instead of real estate transfer tax. This choice is only possible if the buyer is also a VAT payer with the full right to deduct input tax. In this case, domestic reverse charge applies: VAT is not calculated by the seller, but is declared and paid by the buyer in their return, who can simultaneously deduct it as input tax.
Therefore, for a company operating within the VAT system, the net cost of purchase can be significantly different from the amount paid by a private individual. However, it is worth knowing that the right to deduct input tax also carries the obligation to correct it if the purpose of the property changes during the prescribed period. A tax advisor assesses which treatment applies to your case and whether the option for taxation is worthwhile — this is a decision with specific financial consequences, not a general rule.
Professional advice: If you are buying business premises as a VAT payer, resolve the issue of input tax and the option for taxation with a tax advisor before signing — a correctly structured contract can significantly reduce the net cost, while subsequent corrections can be expensive.
What to check before the contract
Before the pre-contract, request written confirmation of three facts that determine the tax treatment and total cost:
- Whether the seller is in the VAT system and whether they will calculate the sale with VAT or as an exempt supply.
- When the property was first occupied or used, as the two-year period determines whether VAT or real estate transfer tax is paid.
- Whether VAT and fees are included in the offer price or stated separately, with the exact amount in euros.
Since the VAT Act and real estate transfer tax rules occasionally change, confirm the currently valid treatment with a tax advisor or lawyer before each purchase. As intermediaries, we help verify the property status and collect documentation, but we leave tax calculations and legal interpretations of contracts to experts; we write about the complete purchase process in the guide how the real estate purchase process works.
Professional advice: Request all three facts in writing and include them in the pre-contract — oral assurances about tax are difficult to prove later, and a wrong assumption about 3% or 25% can disrupt the entire purchase calculation.
How Regent can help you
When buying business premises, we help you find a property that suits your purpose and budget and verify its legal and land registry status before any payment. The tax mechanism applicable to a specific property, the right to deduct input tax, and the option for taxation are discussed with a tax advisor, and the legal interpretation of the contract with a lawyer or notary public — we guide you through the whole process and point out what needs to be clarified before the contract.
For search and advice, see how buying with Regent works or contact us.
Frequently Asked Questions (FAQ)
Is both VAT and real estate transfer tax paid when buying business premises?
No. One or the other applies, never both. For new properties or those used for less than two years, purchased from a VAT-registered seller, VAT of 25% is paid. For properties used for more than two years, real estate transfer tax of 3% is generally paid.
What determines whether VAT or real estate transfer tax will be paid?
Two things: whether the seller is in the VAT system and whether more than two years have passed from the first occupancy or use of the property until the sale. New properties or those used for up to two years from a VAT payer are subject to VAT; properties older than two years are generally subject to real estate transfer tax.
Is the price in the advertisement with or without VAT?
This must be explicitly checked. If the price is stated without VAT, the total cost is up to 25% higher than the figure in the advertisement. Request the amount in euros including VAT and fees, in writing, before signing the pre-contract.
Can I as a company deduct VAT paid when buying business premises?
If the company is in the VAT system and uses the premises for taxable activities, input tax deduction is generally possible under prescribed conditions, and for exempt supplies with the option of taxation, reverse charge applies. A tax advisor determines the specific right and any correction of input tax.
Does the same rate apply to foreign buyers?
Yes. The rate depends on the seller and the status of the property, not on the buyer's nationality. A foreign national buying through a Croatian company (d.o.o.) is considered the same as a domestic company.
What is the annual property tax for business premises?
The annual property tax is a local tax that each city determines within the legal range of 0.60 to 8.00 euros per m² of usable area, so the amount should be checked in the decision of the competent city. This is a different tax from the one-time tax at purchase.
Recommended
- Real Estate Transfer Tax and Capital Gains
- Leasing Business Premises: Documents
- How the Real Estate Purchase Process Works in Croatia — Step by Step
- Property Inspection Before Purchase: Legal Due Diligence, Technical Assessment, and Handover
