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ACQUIRING CROATIAN REAL ESTATE
PURCHASE OF REAL ESTATE
This paragraph discus the most important tax implications for the purchase of real estate. First of all is discussed the impact for resident individuals and non-resident individuals is discussed. Thereafter is discussed the impact for resident companies and non-resident companies is discussed.
In Croatia, from the tax point of view, there is no direct or indirect purchase, the purchase is always direct.
Resident Individuals
Real estate in the Republic of Croatia, if purchased by a Croatian citizen, is taxable by Value added tax (25%) or Real Estate Transfer tax (3%).
Real estate transfers are either taxed by Value Added tax or Real Estate Transfer Tax. These taxes can’t both be applicable on the same transaction.
Which of these two taxes will be applied when an individual buys real estate, depends on whether it is bought from another individual or from a company.
Transfer Taxes
According to the Real Estate Transfer Tax Act, a resident individual who buys any type of real estate (agricultural land, construction land or building) from another individual is liable for real estate transfer tax.
A resident individual who buys agricultural land from a company, it is subject to Real Estate Transfer Tax because agricultural land is exempt from Value Added Tax.
A resident individual who buys a property from a company that has been used for more than 2 years is exempt from VAT, and thus pays Real Estate Transfer Tax. In this case Real Estate Transfer Tax is calculated on the market value of the real estate which is usually purchase price from the purchase agreement.
Value added tax
A resident individual, who buys construction land, a new building or a building that has been used for less than 2 years from a company, is paying Value Added Tax as a company has to charge Value Added Tax as part of the selling price.
Non-resident individuals
A non-resident individual from the EU can buy real estate in Croatia just like Croatian citizens and pay the same taxes as resident individuals.
Citizens of third countries can buy real estate only if there is reciprocity with that country, which means that Croatian citizens can acquire ownership of real estate in that country. If this condition is met, citizens of third countries can buy real estate in the Republic of Croatia under the same conditions as Croatian citizens.
The only difference is that non-resident individual from the EU and citizens of third countries cannot buy agricultural land in the Republic of Croatia, but can acquire it by inheritance.
Always see a legal specialist for advice for your legal problem(s).
Resident companies
Transfer Taxes
A company that buys any type of real estate (agricultural land, construction land or building) from an individual is liable for real estate transfer tax.
A company that buys agricultural land from another company is liable for Real Estate Transfer Tax because agricultural land is exempt from Value Added Tax.
A company that buys building or building land from another company is liable for Real Estate Transfer Tax if the building has been used for more than two years and if the right to choose taxation is not used. This right to choose taxation is more explained in another part of the guide (transfer of real estate).
Real estate transfer tax in any given case increases the value of that real estate and is part of the acquisition costs.
Value added tax
A company that buys building from another company that has not been inhabited or used for more than two years is subject to VAT. Building land is also subject to VAT.
A company that buys a building or building land from another company that has been inhabited or used for more than two years is liable for Real Estate Transfer Tax. Such real estate becomes an exempted building with the right to choose taxation (the seller and buyer can choose to be taxed with VAT or Real Estate Transfer Tax). If they decide to be taxed with VAT, then the domestic reverse charge is applied. The buyer of the real estate will in his bookkeeping and tax records, show the obligation and use the input tax. In this case, the real estate buyer is not obliged to pay the real estate transfer tax, and the seller is not obliged to correct the input tax.
Non-resident companies
Non-resident companies are treated in the same way as resident companies when buying real estate in Croatia. By purchasing real estate in Croatia, a non-resident company must perform economic activity on the territory of Croatia with that real estate.
This means non-resident company must establish a company in Croatia and become taxpayers in the Republic of Croatia.
In case that non-resident company is buying real estate only to resell, and if the subject of purchase is real-estate bought from natural person, the non-resident company will have to pay 3% of real estate transfer tax.
If a non-resident company is buying a building with attached land that has been used for less than 2 years or building land from a company (tax obligor), the purchase is taxable with 25% of VAT.
If non-resident company is buying a building with attached land that has been used for more than 2 years or agriculture land from a company (tax obligor), the purchase is free of VAT and non-resident company will have to pay 3% of real estate transfer tax.