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Taxation of real estate as of 1 January 2015

In accordance with EU VAT Directive rules, supply of buildings of parts thereof is under certain conditions subject to VAT. The same applies for supplies of construction properties.

Croatia was granted transitional period until 31 December 2014 to harmonize taxation of stated supplies. As a result, Croatian Ministry of Finance has announced amendments to VAT Act and Real Estate Transfer Tax Act that will enter into force on 1 January 2015.

VAT Act

Stipulations on taxation of buildings and construction property have been implemented into Croatian VAT Act since 1 July 2013, while 1 January 2015 is indicated as date when they will enter into force. Accordingly, the following supplies made by taxable person will be subject to VAT:

a) the supply of buildings or parts thereof and of land on which they stand, before the first occupation (or use) or where less than 2 years have passed from the date of the first occupation (or use) to the date of the next supply and

b) the supply of construction property.

Building in terms of VAT will be defined as any structure fixed to or in the ground.

The supply of buildings or part thereof and of land on which they stand will be exempt from VAT under the condition the supply is made after first occupation (or use) or where more than 2 years have passed from the date of the first occupation (or use) to the date of the next supply. The supply of land, except for construction property, will also be exempt. Still, taxable person can opt not to apply aforementioned exemptions (i.e. to charge the VAT on the transaction), provided that customer is taxable person who has full right of deduction. In that case, both supplier and customer have to notify competent local office of Tax Administration on exercising stated option.

Consequently, the legislator will no longer recognize terms “old” and “new” building; the taxation will be made based on occupation (or use) of real estate.

Guidelines on when will previously occupied reconstructed real estate be regarded as unoccupied (unused) and thus subject to VAT will also be provided through announced amendments of the VAT Act.

Real Estate Transfer Tax Act

Taking into consideration that legislator will no longer recognize terms “old” and “new” real estate, and those terms are used by current VAT Act and Real Estate Transfer Tax Act, the amendments to the latter were also announced. In that sense, the new definition of real estate transfer will be implemented stating that supply of real estate subject to VAT will not be regarded as real estate transfer and thus will not be taxable under real estate transfer tax.

By implementing those changes the legislator will establish a unique interpretation of taxable transaction and will prevent double taxation of real estate transactions.

The implementation of obligation of filing all contracts and other documents related to acquisition of property to Tax Administration was also announced as of 1 January 2015. Such obligation will have to be fulfilled even if the supply is not subject to real estate transfer tax with the aim of establishing a systematic control over taxation of real estate transactions.

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