Croatian Real Estate Transfers:
A Tax-Focused Guide for Selling Croatian Property
In Croatia, the transfer of real estate ownership is consistently treated as a direct transaction from a tax perspective, without any distinction between direct or indirect sales. Understanding the tax implications hinges on several key factors: the tax status of both the seller and the buyer, the specific type of real estate being transferred, and the duration for which the seller has owned the property (specifically, whether it has been held for more or less than two years).
Tax Implications for Resident Individual Sellers:
When a Croatian resident individual (who is not registered for VAT) transfers real estate, the transaction may be subject to income tax. Income tax on the property transfer is levied if the transfer occurs within two years from the date the seller originally purchased the property. However, several exemptions apply, meaning income tax is not applicable in the following scenarios:
- If the real estate served as the primary residence for the seller or their dependent family members.
- If the property is transferred more than two years after the seller’s purchase date.
- If the transfer is made between spouses, first-degree relatives, or other immediate family members.
- If the transfer occurs between divorced spouses as part of the divorce settlement.
It’s important to note that income tax on the transfer does apply if an individual transfers more than three properties of the same type within a five-year period from their acquisition dates.
The taxable base for income tax is the difference between the market value of the transferred real estate and the original purchase price, adjusted upwards to account for the increase in the producer prices of industrial products during the ownership period. Legitimate costs directly related to the transfer can be deducted as allowable expenses. The current income tax rate on such transfers is 24%.
Tax Implications for Non-Resident Individual Sellers:
When a non-resident individual transfers real estate in Croatia, the same income tax rules and exemptions that apply to resident individuals are generally followed. However, it’s crucial to consider that the provisions of any applicable Double Taxation Avoidance Agreements (DTAAs) between Croatia and the seller’s country of residence may introduce different tax treatments. Therefore, non-resident sellers should always investigate the potential impact of any relevant DTAAs.
Tax Implications for Resident Company Sellers:
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Capital Gains: If a Croatian resident company transfers property and realizes a capital gain (where the agreed transfer price exceeds the property’s book value), this gain is subject to standard corporate income tax.
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VAT/Transfer Taxes: The transfer of construction land or a new building by a resident company is subject to Value Added Tax (VAT). According to Croatia’s VAT Act, construction land is defined as land with an effective act approving construction, such as a building permit or location permit. Conversely, the transfer of agricultural land by a resident company is exempt from VAT.
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Sale from Resident Company to Individual: When a resident company transfers agricultural land to an individual, the transaction remains exempt from VAT. However, the transfer of construction land to an individual is taxable with VAT. For the transfer of a building with attached land to an individual, the tax treatment depends on how long the building has been used. If the building has not been inhabited or used for more than two years, the transfer is subject to VAT. If the building has been used for more than two years, the transfer is VAT-exempt. If the selling company claimed input VAT on the building’s purchase and transfers it within ten years, a correction of the input VAT is required, calculated at once for the entire remaining period.
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Sale from Resident Company to Resident Company: The transfer of agricultural land between two VAT-registered Croatian companies is exempt from VAT. However, both companies can jointly opt for VAT taxation, in which case the domestic reverse charge mechanism applies, where the buyer accounts for the VAT. The transfer of building land between two companies is always subject to VAT. When a company transfers a building with attached land that has not been inhabited or used for more than two years to another company, the transaction is subject to VAT. If the building has been used for more than two years, the transfer is VAT-exempt. In this latter scenario, if both the seller and the buyer are within the VAT system, they can jointly elect for VAT taxation.
Tax Implications for Non-Resident Company Sellers:
When a non-resident company transfers a building with attached land that has been used for less than two years, or when transferring building land, the transaction is typically taxable with Croatian VAT at the standard rate (currently 25%). To account for this VAT, the non-resident company is generally required to obtain a Croatian VAT identification number and submit Croatian VAT reports. However, if the buyer is another company registered for VAT in Croatia, the non-resident seller does not need to register for Croatian VAT. In this case, the transfer is made without VAT under the reverse charge principle, where the Croatian buyer is responsible for calculating and remitting the VAT. If a non-resident company transfers a building with attached land that has been used for more than two years, or if they transfer agricultural land, the buyer will be liable to pay the Croatian Real Estate Transfer Tax, which is currently 3% of the property’s value.
