How are foreign citizens who buy real estate in Croatia taxed

Šime Unić
How are foreign citizens who buy real estate in Croatia taxed

Foreign citizens, just like many Croatian citizens, are aware that investing in real estate is one of the best ways to save, so the demand for real estate has been increasing in recent years. The increased interest of foreigners in real estate in Croatia is very likely one of the reasons for the rise in prices - namely, a fifth of turnover is made by foreign buyers - but real estate in Croatia is still significantly more affordable than in other European Union countries. At the same time, it is important to know that paying taxes in the process of buying and selling real estate is an item that should be paid attention to, as well as the issue of paying real estate taxes.

In the Republic of Croatia, the person liable to pay real estate sales tax is the buyer. Real estate is taxed at a rate of three percent, and the tax base for tax payment is the agreed sales price. Many invest in real estate instead of savings, stocks, funds and more. In Croatia, no tax is paid on real estate that the owner owns, so it is a good opportunity for investment, a good form of investing money that will not be eaten up by inflation, especially considering the fact that inflation currently shows no tendency to decrease.

Buying real estate in Croatia

If you are a foreign citizen who has been considering the advantages of buying real estate in Croatia for some time, you have probably already studied real estate ads, thought about and researched destinations, studied prices, looked at numerous internet articles about Croatia, got information from acquaintances and friends... Since every major purchase, including the purchase of real estate in Croatia, must be well thought out, you have almost certainly already come across information on how citizens of the European Union and legal entities from member states of the European Union acquire the right to own real estate under the same conditions as citizens of the Republic of Croatia, so so they can buy real estate in Croatia without restrictions. Foreign nationals are persons who do not have Croatian citizenship, but persons from the member states of the European Union and other foreign persons should be distinguished.

It is easiest for citizens of the European Union to buy real estate in Croatia, because the procedure is the same as for citizens of Croatia, and the approval of the Ministry of Justice is not required to acquire ownership rights. However, there are some limitations - exceptions are highlighted. For example, EU citizens cannot buy and register in their name agricultural land, property located in protected nature areas and property in national parks. The acquisition of real estate in exempted areas is determined by a special law, with a note that citizens and legal entities from the European Union cannot acquire agricultural land until June 30, 2023.

Citizens or legal entities from outside the member states of the European Union can buy real estate according to the principle of reciprocity, that is, there must be reciprocity in the acquisition of ownership rights to real estate between the country of that citizen and the Republic of Croatia. If this condition is met, it is still necessary to request approval from the Ministry of Justice of the Republic of Croatia for registration of ownership. Further, the procedure does not differ from that for citizens of Croatia. Information on reciprocity in the acquisition of real estate ownership rights between the Republic of Croatia and countries outside the European Union, the Republic of Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation can be found on mpu.gov.hr.

Purchase contract and the importance of compliance with legal provisions

Before the purchase process, it is necessary to obtain and check the necessary documentation for the selected real estate. Several weeks may pass before the contract is signed, precisely because of the collection of documentation. When it comes to new construction, the most important document is the building permit. The confirmation of ownership of the real estate and all land registry data can be found on the website of the Ministry of Justice of the Republic of Croatia in the electronic land registry.

After signing the sales contract, all legal provisions must be observed. It is particularly important to point out that the tax liability should be reported to the Tax Administration within 30 days from the date of conclusion of the sales contract, and the tax must be paid within 15 days from the date of receipt of the notification. Most often, the tax liability is reported by a notary public or the court and other public law bodies, but if the acquisition document is not officially confirmed, the taxpayer is obliged to report the real estate transaction to the Tax Administration office.

Real estate transfer tax law: everything you need to know

Foreign citizens who buy real estate in Croatia are taxed according to the Real Estate Tax Act (Official Gazette 115/16, 106/18). It is important to emphasize that domestic and foreign natural or legal persons are equal in relation to the payment of real estate sales tax, unless otherwise stipulated by an international agreement. According to the aforementioned law, the acquisition of real estate is considered to be the sale, exchange, inheritance, donation, entry and exclusion of real estate from a trading company, acquisition by succession, acquisition of real estate in liquidation or bankruptcy proceedings, acquisition based on decisions of a court or other body, acquisition based on law and others ways of acquiring real estate from other persons.

The subject of taxation is the transfer of real estate, and except for paragraph 1 of this article, the acquisition of real estate on which value added tax is paid is not considered a transfer of real estate in the sense of this Act.

The taxpayer is the acquirer of the real estate, and the basis of real estate tax is the market value of the real estate at the time of the tax liability. It is determined by the Tax Administration from the acquisition document if the total amount of compensation given or paid by the acquirer is approximately equal to the prices that are achieved or can be achieved on the market.

The assessment of the market value of the real estate from paragraph 4 of this article is determined by an official of the Tax Administration on the basis of comparative data on the movement of market values of similar real estate from approximately the same area at approximately the same time, and if it is a real estate for which there is no comparative data, the assessment of the market value of the real estate is carried out with the expertise of an expert. Real estate sales tax is paid at a rate of three percent. Tax exemption is possible when real estate is included in the capital of the company.

The tax liability arises at the moment of concluding a contract or other legal transaction by which real estate is acquired. For a foreign natural or legal person who needs the consent of the minister responsible for judicial affairs to acquire real estate in the Republic of Croatia, the tax liability arises at the moment of obtaining this consent.

Determining real estate sales tax - here's what the process looks like

After certifying the signatures on the documents, the notary is obliged to submit one copy of the document, as well as any other document on the basis of real estate transactions, along with information on the OIB of the participant, to the office of the Tax Administration within 30 days at the latest, and the courts and other public law bodies are obliged to submit their decisions to the Tax Administration office in the area where the real estate is located, together with information on the personal identification number of the participants in the procedure by which ownership of real estate is acquired or changed in the land registers, i.e. in official records, within 15 days after the end of the month in which the decision became final. If the document on the acquisition of real estate was not certified by a notary public, i.e. it was not issued by a court or other public law body, the taxpayer is obliged to report the real estate transaction to the Tax Administration office in the area where the real estate is located by delivering the Real Estate Transaction Report and the document on the acquisition of real estate within 30 days from the day of its creation. The taxpayer must then pay the determined amount of tax within 15 days from the day of receipt of the decision on determining the tax on real estate transactions.

It is also important to point out that, regardless of the differences that apply to foreign persons during the acquisition of real estate with regard to EU membership or special assumptions (reciprocity and given consent), when determining the tax on the sale of real estate, foreign natural or legal persons are equal when it comes to the payment of real estate sales tax, unless otherwise stipulated by an international agreement.

And what if you want to rent a property?

When an EU citizen buys real estate and intends to use it for personal needs, then it is best to buy it in a personal name, as a natural person. In case you intend to rent it, completely or periodically, the taxation is very favorable when it comes to natural persons who are residents of the Republic of Croatia and citizens of the EU.

The taxation of renting real estate to physical persons resident in the Republic of Croatia and citizens of the EU is very favorable, while it is more complicated for citizens of third countries. They can also buy the real estate that will serve their personal needs as a natural person, but if the real estate will be used for rent, it is best to establish a trading company before the purchase, so the owner of the real estate will become a legal entity.

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