As regards real estate owned by natural persons, Croatian law differentiates between Croatian nationals, Croatian residents, EU nationals and nationals of third (non-EU) countries.Generally speaking, all EU nationals can buy land and buildings, except for agricultural land, whereas third-country nationals can buy real estate in Croatia only if there is reciprocity, i.e. if Croatian nationals can buy real estate in their country.The Croatian Ministry of Justice issues a certificate about whether there is reciprocity or not.
The procedure of acquiring property for third-country nationals normally lasts from 3 to 9 months and normally has a positive outcome if there is reciprocity. It turned out that Croatia does not have the real basis of reciprocity, which is why all requests so far have had a positive outcome. Yet, one always needs to be careful!
To determine the status of the land, you have to acquire the certificate of allocation of land issued by the competent administrative entity headquartered in the town where the real estate is situated.
The decision on which property is the most cost-effective depends on the allocation of land in Croatia and the owner's status.
To illustrate this point:
- If the property will be used for a private purpose (family and friends in the owner's presence), the best option is to buy the property in your own name, i.e. the owner is a natural person.
- If the property will be used partially for a private purpose and partially for rental purposes, the best option is to buy the property and have it classified in your own name, i.e. the owner is a natural person Croatian resident or EU national.
- If the property will be used for rental purposes and the owner is a Croatian resident or EU national, the best option is to buy the property in your own name, i.e. the owner is a natural person.
- If the property will be used for rental purposes and the owner is a third-country national (non-EU), the best option is to set up a company − a simple limited liability company (j.d.o.o.) or a limited liability company (d.o.o.) before the actual purchase, and then the legal entity becomes the owner of the property.
- If the property will be used for rental purposes and subsequently sold the best option is to set up a company − a simple limited liability company (j.d.o.o.) or a limited liability company (d.o.o.) regardless of whether the owner is a Croatian resident, EU national or a third-country national.
All of the above also applies to land purchase and construction.
The above mentioned “rental” implies renting the property to tourists and travellers, i.e. facility classification.
In case of intending to buy a property and set up a company, you must remember that the owner or director of the company owning the property cannot use the property free of charge i.e. cheaper than market prices. In other words, if the director or owner wants to use the property owned by a company, they have to pay the market price for it just like any other guest. This is a mistake typically made by foreigners in Croatia who are later obliged to pay various penalties and tax arrears.
As regards taxing room and bed rental to tourists, it depends on ownership:
- Croatian residents who perform the activity of tourist room and bed rental pay flat rate income tax, approximately HRK 300.00 per bed per year, and the same amount of flat rate residence tax (limited to a maximum of 20 beds and HRK 300,000 total income, around EUR 40,000).
- EU nationals who perform the activity of tourist room and bed rental can pay flat rate income tax, approximately HRK 300.00 per bed and the same amount of flat rate residence tax, but they are automatically registered for VAT and therefore have to set up accounting (limited to a maximum of 20 beds and EUR 40,000 total income). It costs from EUR 70.00 to EUR 200.00 per month and depends on the number of beds and the location of property. Seeing that the current VAT rate for this type of service in Croatia amounts to 13.00 %, VAT is not a heavy burden, with another advantage of the possibility of input VAT deductions from invoices issued.
- Third-country (non-EU) nationals must set up a craft business and pay taxes and contributions, which is a considerable burden. They also have to hire accounting services of EUR 100-300 per month depending on the size of business operations and the part of Croatia. It is therefore recommended to set up a company even before the purchase and conduct business operations through the company. Companies do not pay contributions and enjoy more favourable tax treatment.
- Companies pay income tax at the rate of 12.00% up to the total income of EUR 40,000, and the owners pay an additional 12.00% income tax from equity when they want to transfer the company profit to the private bank account. Companies can be VAT taxable (VAT on tourism in Croatia amounts to 13%), although they do not have to register for VAT up to the total income of EUR 40,000. The price of accounting depends on the size of the company, the quantity of documents and services used, and it amounts to EUR 100-500 per month.
Natural persons resident in Croatia and EU nationals enjoy very favourable property rent taxation, which is more complicated for third-country nationals. It is therefore obvious that the purpose of the real estate must be clearly defined following the above examples.The information presented herein is for informative purposes only. Although we do update it regularly, we are not liable for any damages incurred as a result of its use.
If you need any further information, please do not hesitate to call 385 (0)52 507 137 Monday – Friday 9am – 2pm (firstname.lastname@example.org).
For CONIS d.o.o.