Regardless of whether you have already bought a property or are still looking for the right one, you should be aware that you are obliged to pay real estate tax when you buy a property - regardless of whether it is your first property or your tenth. Since, as a rule, it is a relatively large amount of money, you should be well informed about whether you are obliged to pay it, in what exact amount and by what time. That's why we've prepared a short guide on paying real estate taxes to make sure you've met your tax obligations.
What is the amount of real estate sales tax?
When buying real estate in Croatia, the buyer is obliged to pay tax: real estate transfer tax at a rate of 3% or value added tax at a rate of 25%. Of course, the buyer is not the one who decides which tax to pay, and below it is explained what depends on which tax you will pay as a buyer.
Who is liable to pay real estate sales tax?
Every person who acquires real estate, which includes buyers as well as gift recipients, i.e. all participants in real estate exchange, is obliged to pay real estate transfer tax, which is paid based on the decision of the Tax Administration within 15 days from the date of receipt of the decision. A tax ruling is issued on the basis of a document on the acquisition of real estate submitted to the Tax Administration by a notary public, a court or another public law body. In the event that none of the above has certified the document on the acquisition of the real estate, then the real estate acquirer is obliged to personally report the transfer of the real estate to the competent Tax Administration within 30 days.
You can pay the real estate sales tax all at once within 15 days of receiving the decision of the Tax Administration, but if you want, you can pay it in 24 installments, but with late payment interest, which is currently 5.75%.
Although real estate tax is not borne by the seller, but by the buyer, the seller may become liable for property income tax based on the alienation of real estate if he sold, gifted, exchanged or otherwise transferred the acquired or donated real estate to another person within two years of its acquisition.
How is the tax base determined?
Real estate sales tax is paid at a rate of 3% on the tax base, which represents the market value of the real estate at the time of tax liability. The tax administration determines the tax base by direct resolution, if the document on the acquisition of real estate (e.g. purchase agreement) contains all the essential facts for determining the tax liability. Based on this, the Tax Administration issues a temporary tax ruling. In the event that a subsequent check establishes that there is a basis for changing the tax liability, then a tax relief is issued to determine the difference.
As a rule, the basis is determined on the basis of the purchase contract, but if the purchase price does not correspond to the prices that are normally achieved or can be achieved on the market, i.e. it is lower than the stated one, then the Tax Administration determines the market value of the property by assessment.
In the event that you are in a real estate exchange situation, the tax base is determined for each participant in the exchange based on the market value that each participant acquires through the exchange.
Who is exempt from real estate tax?
Since real estate does not have to be acquired exclusively by purchase, in the case of gifting, inheritance or other types of acquisition without compensation, in that situation the spouse or common-law partner, formal or informal life partner and descendants and ancestors in the vertical line and adopted children and adoptive parents who are in relationship with the donor or died, they are exempt from paying real estate transfer tax. The same applies in the case of lifetime or life support contracts.
When property relations are regulated, then former spouses and common-law partners and former formal and informal life partners are exempted from the obligation to pay real estate transfer tax, and the same is true in the situation when persons acquire real estate in the process of returning confiscated property and consolidation of real estate, and when exiles and refugees acquire real estate by exchanging real estate abroad.
Real estate sales tax is also exempted from persons who acquire separate parts of real estate through the distribution of ownership or the division of joint ownership, as well as protected tenants who purchase a building or apartment on the basis of a lease agreement. In the case of buying a building or apartment (including land) on which they had the right of occupancy or the consent of the holder of the right of occupancy, the buyers are also exempt from real estate sales tax. Finally, those who acquire real estate according to the regulations related to the conversion of social property into other forms of ownership are also exempted.
It is important to note that buyers of the first property are no longer exempt from real estate sales tax.
Who pays value added tax (VAT)?
In case of acquisition of real estate from a taxpayer who is entered in the register of VAT taxpayers, and delivers a building or part of it that has never been inhabited, i.e., the land on which it is located, a building or part of it where from the date of first occupancy, i.e., of use, until the date of the next delivery, no more than two years have passed or construction land, then the acquirer is obliged to pay value added tax, not real estate sales tax. The tax base for the payment of VAT is the compensation made up of everything that the supplier has received or should receive from the customer.
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