Real Estate Tax: Is it worth investing in rental property after January 2025?

Investing in real estate in Croatia, especially those intended for tourist rental, brings with it numerous opportunities. However, every coin has two sides, so with this article we would like to draw your attention to the other side – additional financial obligations on your part. One of the key such obligations, which came into force on January 1, 2025, is the annual Real Estate Tax. Understanding this tax, the conditions for its payment and possible exemptions is key to assessing the real profitability of a rental property, which we have already discussed in a previous blog .

When is Real Estate Tax paid and at what rate?

Real estate tax is paid annually on every real estate located in the territory of the Republic of Croatia. The payers are the owners of the property, regardless of whether they are natural or legal persons. It is important to note that the amount of the tax is determined by each local government unit (city or municipality) in whose territory the property is located. This means that there is no single rate for the whole of Croatia.

The Local Tax Act stipulates a range from €0.60/m² to €8.00/m² of usable area of ​​the property. Within this range, cities and municipalities make their own decisions, taking into account several basic factors:

• zoning
• the purpose of the property and
• the age and condition of the property.

In other words, if you own a property in more attractive areas, such as the coast or the city center, you will most likely pay taxes at a higher rate. The tax rate also varies depending on the purpose of the space, whether you use the property for rent, whether it is vacant or whether it is used for business purposes.

As we mentioned, the differences can be significant from place to place. While some tourist towns on the coast apply a maximum rate of €8/m², such as Umag and Vis, larger cities such as Zagreb and Rijeka have set a rate of €5/m². On the other hand, many smaller, predominantly rural areas and cities that these municipalities are associated with, such as Koprivnica, Čakovec or Varaždin, have a minimum rate of €0.60/m². Such areas usually did not have a holiday home tax before January 2025 or opted for the lowest possible rate to ease the burden on owners.

From the above examples, it is easy to conclude how important it is to check how the Real Estate Tax is paid by city, especially if you plan to invest in rental property. For this purpose, each city or municipality has made an official decision according to which the Tax Administration determines the final amount of the tax and sends annual debt decisions. Since there is no single calculator for Real Estate Tax for the whole of Croatia, precisely because of these differences in rates by city, property owners can expect the first payment slips for 2025 in the second half of the year.

Real Estate Tax: Is it worth investing in rental property after January 2025?

The question of how to avoid the Real Estate Tax has been frequently mentioned in the media lately. So, there are certain categories of real estate and owners that are exempt from the annual payment of this tax. Here are who they are.

• Owners of permanent residential real estate: The key exemption applies to real estate that is used as the permanent residence of the owner and his family members. To obtain this exemption, the owner must have a registered residence in that real estate. So, if this is your first real estate or any other real estate you live in, you are probably exempt from this tax.
• Real estate in long-term lease: Real estate that is rented based on a lease agreement for permanent residence (long-term lease), provided that this is reported to the Tax Administration and that the real estate is used for residence for at least 10 months in the tax period, is also exempt. This is a measure by which the state encourages long-term rentals.
• Real estate that cannot be used: Real estate that cannot be used temporarily or permanently due to natural disasters, damage or lack of infrastructure is exempt.
• Real estate in public or institutional use: Real estate used for public purposes, religious buildings, educational institutions, health care institutions, etc.
• Real estate owned by local governments: Real estate owned by the city or municipality itself in their area.
• Real estate under construction: Buildings under construction until the occupancy permit is obtained are also exempt.

If you currently need to register a real estate or want to obtain an exemption from paying real estate tax, download the Real Estate Tax form from the Tax Administration website. It is important to report all relevant information on time in order to avoid unnecessary costs.

Is the new real estate tax a key factor in the unprofitability of investing in rental real estate?

In our previous blog , we emphasized the importance of calculating all costs when investing in rental real estate - from agency fees and legal services, to renovation costs, to ongoing maintenance costs. With the introduction of the annual Real Estate Tax, this item becomes an even more significant factor in assessing the return on investment (ROI).

If your rental property does not meet the conditions for exemption (e.g. it is not rented out long-term, but is used for short-term tourist rental or is empty), you must also factor in this annual levy. The amount of a few euros per square meter may not seem like a lot, but on a larger area it can amount to several thousand euros per year, which directly affects your net profit.

Based on all of the above, we can conclude the following. Real estate tax in Croatia is an important item in the budget of every property owner. Understanding when it is paid, at what rates and under what conditions the exemption can be achieved is key to successful property management. Therefore, we strongly advise you to thoroughly research the specific Real Estate Tax rates in the selected location before making any investment, especially in tourist properties. And then include this cost in your calculation of the return on investment. Only in this way can you get a realistic picture of the real profitability of your investment. If you would like to consult with us before making a final decision, please feel free to contact us.