The VAT System in 2023

Value-added tax (VAT) is calculated and paid according to the Value-Added Tax Act provisions. A circumstance that every taxpayer must consider is the threshold for entry and exit from the VAT systemCONFIDA Croatia below presents a short overview of the VAT system in 2023.

What is the threshold for entering the VAT system?

The threshold for entry into the VAT system in the Republic of Croatia is prescribed in Article 90, paragraph 1 of the VAT Act, that is, the definition of a small taxpayer who is not in the VAT system is prescribed.

A small taxpayer is a legal entity with a registered office, a permanent business unit, or a natural person with a residence or habitual residence in the Croatian territory whose value of goods delivered, or services performed in the previous or current calendar year did not exceed 39,816.84 euros. Small taxpayers are exempt from paying VAT on the supply of goods or services and do not have the right to declare VAT on issued invoices or the right to deduct input tax. On the issued invoices, such taxpayers put a note: VAT is not calculated based on Art. 90. paragraph 2 of the VAT Act. 

According to the above, when the value of goods and services in 2023 passes the threshold of 39,816.84 euros, taxpayers must enter into the VAT system by force of law. Registration into the register of the VAT payers must be done on the first day of the month following the month in which the deliveries of goods and services above the threshold were made by submitting a Request for registration for VAT purposes.

Can a taxpayer voluntarily enter the VAT system?

A taxpayer can voluntarily enter the VAT system at his own request. A taxpayer who makes such a decision can enter the VAT system without crossing the threshold of 39,816.84 euros. If the taxpayer makes such a decision, it obligates him, for the next three years to the regular VAT taxation procedure. 

What should be considered when exiting the VAT system?

A taxpayer can exit the VAT system if the value of goods delivered, or services rendered in the previous year is below the threshold of 39,816.84 euros without VAT. The taxpayer should also exit the VAT system during liquidation, given that he ceases to be a VAT payer with his last business activities. When exiting the VAT system, the taxpayer should consider the possible obligation to correct the input tax for acquired long-term assets.

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