The prescribed conditions for exiting the Value Added Tax (VAT) system from January 2022, compared to the previous year, have not changed. That means that the value of taxable supplies of goods and services performed in the previous or current calendar year must still be below the prescribed threshold of HRK 300,000. The entrepreneur can deregister from the VAT system only at the end of the year, and during the year by the cessation of the activities. Below is a reminder of the basic rules and deadlines for deregistration from the VAT system.
Deregistration from the VAT system by reducing the value of deliveries below the prescribed threshold
Deregistration from the VAT system by reducing the value of deliveries below the prescribed threshold of HRK 300,000 can be done at the end of each calendar year only. For example, if the taxpayer realizes the value of delivered goods/services up to HRK 300,000.00 (excluding VAT) during the current year, and wants to deregister from the VAT system, he can do so at the end of the current year only.
It should be noted that only the value of regular deliveries is considered for the calculation of the prescribed threshold:
- value of supplies of goods and services that are taxable with the VAT rate of 5%, 13%, and 25%,
- value of deliveries exempted from the VAT from Art. 45, 46, 47, 48, and 49 of the VAT Act,
- value of real estate deliveries and transactions exempt from the VAT from Art. 40, paragraph 1, point a) – d) of the VAT Act.
Deliveries that are not included in the calculation of the prescribed threshold are:
- deliveries exempted from VAT from Art. 39 and 40 of the VAT Act,
- deliveries of the taxpayer’s long-term tangible and intangible economic assets.
Before deciding, taxpayers should make sure they are satisfying conditions for deregistration from the VAT system. If they made deliveries of goods and services of less than HRK 300,000 and did not enroll into the VAT system voluntarily, but entered by force of law, they are obliged to submit a written request to the Tax Administration regarding deregistration from the VAT system on January 1, next calendar year. Therefore, the deadline for submitting a written request to the competent branch office of the Tax Administration is January 15, next calendar year.
As the form of a written request for VAT deregistration is not prescribed, the taxpayer is obliged to compile it independently. The form may be a statement stating the fact that the value of supplies of goods and services realized in the previous year is less than the prescribed threshold, i.e., less than HRK 300,000, and that on 1 January, next calendar year the company wants to deregister from the VAT system, under Art. 90 para. 1 of the VAT Act.
Deregistration from the VAT system for taxpayers who have voluntarily enrolled in the VAT system
The process is a little different for taxpayers who voluntarily enrolled in the VAT system and received a decision from the Tax Administration on the mandatory stay in the VAT system for the next three calendar years. Namely, only after the expiration of the specified period are they no longer obliged to be in the VAT system and can deregister by submitting the same request, under the condition that the value of their deliveries made in the previous calendar year is less than HRK 300,000. If the value of deliveries made in the previous calendar year is higher than the prescribed threshold, it is not possible to deregister from the VAT system.
Deregistration from the VAT system by closing business activities
A procedure based on which a taxpayer leaves the VAT system by ceasing to perform an economic activity is called liquidation. Suspension of activity is not considered if the entrepreneur intends to continue with activities within a certain period. The entrepreneur can deregister from the VAT system by ceasing to perform his activity only by permanently ceasing to perform his activity, i.e., by deleting the company name from the register with the competent authority. Therefore, the temporary suspension of economic activity is not relevant for deregistration from the VAT system.
Before liquidation, a taxpayer is required to charge VAT on all supplies up to and including the day of deregistration. This includes all goods that were left, and which are considered exempt for non-business purposes, i.e., for which the taxpayer could have used the deduction of input tax.
Upon liquidation, taxpayers should make adjustments and amendments to VAT reports in the last tax period in which they operated, and if the liquidation was carried out on 31 December of the current year, then it should be carried out in the VAT form for December of the current year, under Art. 85 para. 7 of the VAT Act and Art. 173, paragraph 7 of the Ordinance on VAT.
However, if the company is liquidated during the year, the last tax period for which the VAT form is to be submitted is for the month in which the company was liquidated.
It should be noted that in the case of permanent liquidation, no pre-tax adjustment is made for acquired fixed assets, as this procedure would result in double taxation. Also, the correction of input tax is carried out when the conditions applicable to the performance of activities change. Since the activity is no longer performed, VAT should be calculated on the remaining short-term and long-term assets. Under Art. 7 para. 8 of the VAT Act, it is referred to as delivery of goods for a fee which is subject to VAT.
Delivery of goods for a fee is considered if the taxpayer or his successor retains the goods after liquidation, and in the acquisition of these goods, VAT was fully or partially deducted. The taxable event and the obligation to calculate VAT arise when the taxpayer ceases to perform the economic activity. The tax base, following Art. 33, paragraph 4 of the VAT Act, is the purchase price of these or similar goods, and if that price is unknown, the amount of all costs of goods are exempted. All other deliveries made in the liquidation procedure are also taxable.
Obligations of personal income and corporate income taxpayers while deregistering from the VAT system
When leaving the VAT system, if all conditions are met, taxpayers are obliged to:
- declare a liability on all outgoing invoices, regardless of whether they have been collected,
- declare input tax on all incoming invoices, regardless of whether they have been paid,
- make a correction of input tax for fixed assets for which input tax was used,
- correct the input tax for inventories for which input tax was used,
- adjust and amend VAT returns submitted for the last tax period of the calendar year.
While deregistering from the VAT system, when all the conditions are met, the personal income taxpayers are obliged to meet the conditions from the Ordinance on flat-rate taxation of self-employment:
- correct the input tax for fixed assets and inventories for which the input tax was used,
- adjust and amend VAT returns in the last tax period.
It should be noted that personal income taxpayer who switches to flat-rate income taxation while deregistering from the VAT system should make a VAT adjustment on economic goods. This refers to equipment purchased with a deduction of input tax for five years, real estate for ten years, and stocks of raw materials, merchandise, and finished products.
Therefore, the taxpayer is not obliged to calculate VAT on the remaining short-term and long-term assets at market value because the taxpayer is still considered to be self-employed.
If you need help with deregistration or registration into the VAT system, our experts are at your disposal. You can contact them via the contact form, or phone number +385 1 4606 900.
