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SALE OF REAL ESTATE
In Croatia, from the tax point of view, there is no direct or indirect selling of real estate, the transfer is always direct.
When determining the tax position of the sale of real estate, it is important to determine the tax status of the seller and the buyer, what type of real estate is being sold, and whether the real estate has been used for more than two years or less.
Resident individual
If any real estate is sold by an individual (not a VAT liable), the sale can be taxable with income tax.
Income tax from the property sale is paid if the sale is done in a period of 2 years from the date of purchase. Income tax from sale is not applicable in following cases:
- if the real estate was used as a residence for the taxpayer or dependent members of family,
- if the property was sold after two years from the date of purchase
- if the sale was made between spouses and relatives in the first line and other members of the immediate family
- if the sale was made between divorced spouses
Income tax from sale is paid in case when more than three properties of the same kind are sold within a period of five years from the date of acquisition of the real estate.
The tax base is difference between the receipt determined according to the market value of the real estate that is sold and the purchase price increased by the rise of the producer prices of industrial products. The costs of sale can be deducted as expenses.
The tax rate is 24%
Non-resident individual
If a non-resident individual sells real estate in Croatia, the same rules are applied as for resident individuals.
Different rules may apply based on the provisions of Double Taxation Avoidance Agreements if applicable for their residential country.
Resident company
Capital gains
When a company sells property and realizes a capital gain, then the difference between the agreed price and the book value is subject to corporate income tax.
VAT/transfer taxes
If the company sells construction land or a new building, it is subject to VAT.
According to the provisions of the VAT Act, construction land is a land with an executive act approving construction which can be a building permit, location permit, etc.
If the company sells agricultural land, the sale is exempt from VAT.
Sale from resident company to individual
When a company sells agricultural land, the delivery is exempt from VAT.
Sale of construction land is taxable with VAT.
When a company sells a building with attached land to an individual, the taxation depends on whether the building has been used for more or less than two years.
If the building has not been inhabited or used for more than two years, then it is taxable with VAT.
If the building has been used for more than two years, sale is free of VAT.
If the seller of the building used input tax during the purchase, and sells it within a period of ten years, the input tax must be corrected. The input tax correction is made at once for the entire remaining period.
Sale from resident company to resident company
Sale of agricultural land is exempted from VAT. When a sale is made between two companies, which are both VAT obligated, they can choose to have VAT taxation. In this case, domestic reverse charge is applied.
If a company sells building land, such sale is always subject to VAT.
When a company sells a building to another company with building land attached to it which has not been inhabited or used for more than two years, it is subject to VAT.
If the building has been used for more than two years, sale is exempted from VAT. In this case seller and buyer can choose taxation with VAT if the seller and the buyer are in the VAT system.
Non-resident company
When a non-resident company is selling a building with attached land used for less than 2 years or a building land sale is taxable with 25% of VAT. To calculate Croatian VAT seller has to activate Croatian VAT number and submit Croatian VAT report.
If the buyer is another company - tax obligor in Croatia, the non-resident company doesn’t have to activate Croatian VAT number and the sale is done without VAT with the reverse charge principle of calculating VAT by the buyer.
If a non-resident company is selling building with attached land used for more than 2 years or agriculture land buyer will have to pay 3% of real estate transfer tax.