For last seventeen years, Croatian fiscal policy used two instruments for property taxation.
Newly built properties were taxed through VAT - '' Law on VAT'', and all other properties were under the jurisdiction of - '' Law on real estate trade tax'' .
Property trade tax fee is founded by 5% fee on tax base - Property's market value, and the rate payer is acquirer.
Exception is made for newly built properties, which are fiscally charged by the combination of two mentioned taxes; building part by VAT, and land by property trade tax.
New legislation strictly describes that a property can not be treated with a combination of two taxes, so it is necessary to describe all the rules and solutions.
The most significant changes can be observed through the following issues:
- Tax status of the property deliver
- Type of the property
- Tax status of property receiver
- Delivery of properties, or its parts ( including the land on it is located) , if the time period between its start of use and next delivery is less then two years, and also when it was delivered by subject which is obliged for VAT charge.
- Delivery of building plot, if deliver is obliged for VAT charge.
- Transactions of reconstructed buildings , if the cost of reconstruction is higher then 50% of property' s market value. Time period between property's market active and its reconstruction should be less then two years.
Transactions delivery when the property deliver is not company did not suffer any tax changes; it is still charged by property trade tax.
Significant news were made in a situation when both parties are under VAT charge, new legislative gives the property deliver option to choose between two taxing options.
This is helpful because the VAT is returnable in future ( 10 years period for properties), and the property trade tax can be observed as additional 5 % cost for company.
Republic of Croatia has been given transit time period, in which taxation of building plot is not obligated through VAT charge.
This year' s changes are reaction on new tax environment, and the idea is to make equal tax treatment for new buildings and those which are already used and reconstructed.
It should prevent situation in which large investments were made in building properties, and tax payer can deduct VAT , in order to sell same property and avoid VAT payment.
Reconstructed building is treated same as new, until its putting on the market, or time period from end of reconstruction is longer then two years.
It is hard to predict effects of this measures on national real estate market.
Although, changes in fiscal policy are always sensitive issue, if it creates simple and fair market environment, then it will surely be a positive factor for national economy.
This year will bring feedback of this measures, so let' s wait and see.