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Corporate income tax
The standard rate of tax on profits in Croatia is 20%. This rate applies to a Croatian incorporated company holding property in Croatia, or a non-Croatian resident company trading in Croatia through a branch or agency. The tax is reportable to the tax authorities on an accounting year basis. Non-residents are not subject to corporate income tax. Non-residents are not allowed to acquire more than one property in Croatia. Therefore, non-residents wishing to trade in Croatian property generally set up a Croatian subsidiary company for this purpose.
Capital gains
Capital gains made by a Croatian incorporated company holding property in Croatia, or a non-Croatian resident company trading in Croatia through a branch or agency on disposal of property are subject to corporate income tax at the standard rate. Non-residents are not subject to tax on capital gains.
Property transfer tax
The purchase of Croatian real estate built before 1998 is subject to property transfer tax at the standard rate of 5% on the market value of the property. Market value is defined as the total price of the property that is, or may be, achieved for that property at the time of completion. The Tax Authority of the Republic of Croatia is required to provide a valuation of the property which is used to determine the market price of the property.
Companies are exempt from property transfer tax when acquiring property as part of the company’s initial capital, when increasing the initial capital of the company by including the property in that capital, and when acquiring the property in the course of a merger, acquisition, or the acquisition of a division of a corporate entity.
Property acquired as damages awarded in litigation or as a compensation as awarded by the state authorities is exempt from property transfer tax.
VAT
VAT registration is compulsory if the total value of goods and services provided exceeds HRK 85,000 in one year. A company may register for VAT voluntarily where the value of goods and services does not exceed the HRK 85,000 limit. However it must remain VAT registered for the following five years. Standard rated supplies are subject to VAT at 22%.
VAT is applicable to the construction costs of all buildings. However, it is only applied to the costs of the building itself and does not apply to the cost of the related land.
The disposal of buildings (excluding the related land) whose construction was completed after 1 January 1998 is also subject to VAT in Croatia.
Rental payments on residential property are exempt from VAT, lease and rental payments on commercial property are not.
The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.
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