Starting next year, Croatian citizens and companies will face a new real estate tax. Below, we explain in detail who will be liable for this tax, which properties are subject to it, who will be exempt, and other tax changes that will impact citizens and the economy.
Real Estate: Key Provisions
The new real estate tax, set to be implemented in 2025, primarily targets residential buildings. Local governments will determine the tax amount, which ranges from 0.6 to 8 euros per square meter, based on the property’s location and zoning. Each year, the tax will depend on the property’s condition as of March 31.
The tax mainly targets properties used for housing, while it exempts properties used for agriculture or other non-residential purposes. The tax also does not apply to properties that are not in use or are unsuitable for living.
Who is Exempt from Paying the Real Estate Tax?
Fundamental changes and exemptions
According to current regulations, certain property owners will be exempt from paying real estate tax. The exemptions apply to:
- Properties intended for sale: Taxpayers who record properties as assets intended for sale and have owned them for less than six months enjoy an exemption from paying tax on these properties.
- Exchanged properties: If a legal entity acquires a property to replace unpaid claims, it will not incur tax for the first six months after acquisition.
- Properties for public use: Buildings that serve public purposes, such as homes for older people, student centres, and children’s homes, will not face taxation.
- State and local government-owned properties: Properties owned by municipalities, cities, and the state are exempt from property tax.
- Properties for long-term rental: Owners renting a property long-term under a contract of at least ten months per year will not pay tax. In contrast, vacant properties or those rented short-term (e.g., for tourism) will be taxed based on the tourism development index.
- Social status: Cities and municipalities can exempt socially disadvantaged citizens from paying taxes based on conditions set by the local government’s representative body.
- Permanent residence: Owners or related individuals can exempt properties used as their permanent residence, provided they use them for at least ten months per year.
- Properties unsuitable for living: Properties rendered unsuitable for living due to natural disasters, such as earthquakes or floods, will not be taxed.
- Compromised residential use: Properties that exhibit compromised residential use, such as old buildings lacking roofs, windows, or doors or those with structural damage, will not incur tax.
Tax Changes for Companies
Companies, including banks, will also be liable for the real estate tax, with certain exceptions. Buildings used for public purposes and those owned by the state will be exempt. If a legal entity acquires a property in exchange for unpaid claims, it will not pay any tax for the first six months; however, the real estate tax will apply afterwards.
Tax on Short-Term Rentals – Lump-Sum Taxation
The tax amount for tourist rentals will depend on the location’s tourism development index. In the most developed destinations, the short-term rental tax will range from 150 to 300 euros per bed, while in less developed areas, the amount will vary between 20 and 150 euros per bed.
Until now, authorities calculated lump-sum taxes for short-term tourist rentals at much lower rates based on location and property classification, ranging from 19.9 to 199 euros per bed. This change represents a significant increase under the new tax reform.
Other Tax Changes
Alongside the real estate tax, the Ministry of Finance has announced changes in income taxation. One significant change is the increase in the basic personal allowance from 560 to 600 euros for dependent family members and disabilities. Additionally, the government will reduce tax rates. Starting January 1, 2025, municipalities can set lower tax rates between 15 and 20% and higher rates between 25 and 30%. The ranges for cities and large towns will be slightly broader.
Another significant change relates to the VAT threshold, which will increase from 40,000 to 50,000 euros, exempting 7,500 taxpayers from the VAT system.
Conclusion
The new changes to the tax system bring significant adjustments for both individuals and businesses. The tax burden on labour is gradually shifting to real estate to create a fairer system. Given the complexity of these changes, property owners, particularly those with properties in tourist areas or long-term rentals, should carefully monitor the regulations and conditions to ensure proper application and potential tax exemptions.
For more detailed information on how the new tax changes will affect your business, consult the experts at Confida Croatia for personalized financial advice.
