Everything You Need to Know About Contracts of Donation

Šime Unić
Contracts of Donation

Although the idea of a “contract of donation” or “gift contract” sounds somewhat paradoxical, bearing in mind the types and value of gifts that are usually granted through such agreements, it comes as no surprise that even gift-giving is regulated by law.

Even if the gifts are given among close family members, everyone has heard of some uncomfortable situation when family members engaged in litigation and when it was necessary to have a legal document that confirmed the legal validity of the gift-giving act.

This article will try to get you better acquainted with some vital pieces of information which you should know about contracts of donation in order to know how to act accordingly, whether you're the donor or donee, and so the agreement doesn’t end up being null.

What Is a Contract of Donation?

According to the Civil Obligations Act of the Republic of Croatia:

Contract of donation shall be created when the donor undertakes to transfer to the donee without expecting anything in return a thing or a right of ownership and the donee accepts it.

The donor in question is the person doing the donation, while the donee is the one receiving the gift/donation. An integral part of this kind of transaction is the goodwill of the donor who donates (gifts) something for free and without coercion. Likewise, the donee should accept the donation without any objections.

Gift contract

A special category of contracts of donations are conditional donation contracts in which the donor gives something to the donee but under a certain obligation. Generally, the donee has to fulfil an obligation that is of lesser value than that which is being donated (i.e. the subject of the donation contract).

The Difference Between a Will and a Donation Agreement

Although it isn’t uncommon for people to sign donation agreements towards the end of their lives, they cannot be confused with wills. Through a donation agreement, the donation (usually a piece of real estate) is, in these cases, usually left for after the donor’s death and is then not included in the probate hearing.

What Can Be Gifted In a Donation Agreement?

Usually, the subjects of contracts of donation are either movable goods (often vehicles) or immovable property (houses, apartments, and the like). However, according to the Civil Obligations Act of the Republic of Croatia, the release of debt and discharge of debt with a debtor's consent are also considered a donation.

In addition to this, “existing and future things, transferable ownership rights and existing and maximally one half of future property may be donated”.

Donating Movable Things

The main difference between donation movable things and immovable property is that, in the case of movable things, a written contract is not necessary if the donation is being carried out on the spot. In order to accept the donation/gift, the donee doesn’t actually have to do anything. They confirm the donor's decision by the mere act of remaining silent. This is called donation without actual delivery.

Donating Immovable Property

Unlike donating movable things, the donation of immovable property requires a written contract which has to be drawn up in the form of a notarial act or certified (solemnized) private document.

Ownership of a property is proved by a deed and by registering the property in the cadastre and land registers. In order to do all of this, you will need a notarial act which, in accordance with the Croatian Notaries Public Act, determines the legal validity of the contract.

Without a written agreement, the donation of a piece of immovable property is considered null and void in the legal sense, so you wouldn’t be able to register the property in the land registry. 

It's important to note that authentication of a document by a notary public is not the same as conducting a notarial act (although authentication is a part of this process and necessary). So, how does one go about writing up a contract of donation?

Donating immovable properties

Drawing Up a Contract of Donation

Although you could technically draw up the contract yourself or buy a copy in the local People's Newspaper store, the safest way to go about it is to hire a competent authority on the matter, namely a notary public or a lawyer to help you write the contract. This will ensure that the contract will be legally valid if you ever enter into quarrels or litigation.

According to the Civil Obligations Act, a contract of donation must take the form of a written notarial act or a certified (solemnized) private document, which implies the engagement of a notary public or other authorized functionaries that fulfil their obligations and acquaints all parties included with their rights and obligations.

Even if you were to put the contract together yourself, a notary public would have to confirm its validity.

Even though writing up a contract of donation with a lawyer is the most expensive option available among those possible (the prices range from 2,000.00 HRK upwards, in proportion to the value of the donation being made), this is also the safest option. A lawyer will be able to guarantee that the contract will be precise and legally valid, will help clearly describe the property in question, express the will of the donor and, finally, drastically lower the chances of litigation and misunderstandings occurring.

Taxation of Donations

Finally, the question on everyone's mind – are donations given through a contract of donation taxed? 

This depends on what is being gifted and to whom. In Croatia, donations from close family members are not subject to taxation.

All other donations are subject to a 4% tax, apart from those that are regulated by a different law.

Those exempt from paying taxes on gifted movable things include:

  • Spouses, direct ancestors and descendants or adoptive parents and adoptees who are in the relationship with the donor or the deceased person;
  • Natural and legal persons to whom the Republic of Croatia provides movable things free of charge for compensation or any other reason for the purpose of their participation in the Homeland War;
  • Natural and legal persons who accept donations for purposes governed by special regulations.

In the case of gifting immovable property, the following categories are exempt from paying taxes:

  • Spouses or extramarital partners, formal or informal life partners, descendants or ancestors who form a vertical line, and adoptees and adoptive parents who are in that relationship with the donor or the deceased;
  • Former spouses, former extramarital partners, and former formal and informal life partners in the process of arranging their property relations.

Taxations of donations

If you don’t fit into any of these categories and have received a movable or immovable asset in the form of a donation/gift, inheritance, or in any other way, you are obligated to pay taxes on it.

Now that you're acquainted with your rights and obligations in relation to donations and the process of conducting a contract of donation, we're sure that you won’t have to worry about experiencing and litigation or misunderstandings!

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