Buying tips - important to know

Real Estate Transfer Tax in Croatia

Buyers of real estate in Croatia are subject to pay Real Estate Trasfer tax which is set at level of 3%. In case you purchase the apartment, the tax is applied to the cost of land corresponding to m2 of your apartment and it's share in the whole building. The real rate is normally 1% of the value of contract.

What is the basis for calculation of the tax in other cases?
Is that the value of sale and purchase contract?

No. Tax offices of Republic of Croatia have their own estimation of value properties in this or that area and they will base their tax caculation on that figure on their own. 

If they find that the value of the property is too low (some buyers and sellers agree to put the lowest price in official agreement to minimize taxes of both parties), they can declare agreement null and void. So we would advise to avoid such tax minimization scheme. Another tax minimization way has become popular recently: to input property as a share capital into the company and then to sell the shares in the company. It had a sense in case the value of property was well over 500 000 eur. Otherwise the costs of court certified estimation of property, costs of company incorporation and increase in share capital (as it first it is normally created with min share capital) are compatible with 3% tax. However, tax office can apply 3% tax to the value of shares in case the share capital and assets of the company are composed of the property for more than 50-60%. There are still mechanisms to do the transfer of property with min expenses, here you are welcome to apply to our professional support.

VAT – reclaim or not?

The Buyers of real estate in Croatia should know that if they buy a new property from a company-developer (an apartment or a house) which is within VAT zone (the developers normally are within VAT zone), then the cost of this new property includes 25% Value-Added Tax (VAT rate in Croatia in 2013 is 25%). It is actually a quarter of the purchasing price!
If you are planning to buy real estate in Croatia not for your own pleasure but for using it in commercial purposes – there is a way to reclaim VAT back.

If you register a Croatian legal entity, immediately enter VAT zone and buy a property in the name of that company – VAT will be reimbused to this company. However, the state will anticipate that the property is really used in commercial purposes (used as a business space or rented out). Otherwise in 2-3 years the company will be punished by demand of repay of VAT back to Republic of Croatia increased twofold.

To involve an advocate or not to support buying process in Croatia?

We would say YES in 90% of cases.
Only in 10% of cases the whole situation is 100% transparent and clear. If you buy new apartments in Croatia constructed within latest 1-3 years which have got Uporabna Dozvola (Usage permit), you can be more or less sure that there is no need in advocate. If you are considering purchase of self-standing house in Croatia, or a land plot, or some commercial property – advocate is strongly recommended. You will spend 0,5-1,25% + VAT for the services, but you will avoid surprises in future. We will recommend you best advocates in respective region in Croatia who are specializing in real estate issues.

Prices for real estate in Croatia – bargain or not?

Being professionals we will show you the best offers in the market, however, it is always recommended to bargain the selected property. The general rule is that the sellers tend to go down in price mainly in low season from October to May and they are less inclined to discuss the price of the property during high season of summer when they have many buyers. 

Great deal of properties are for sale as long as 5-6 years, in many cases the sellers already have debts to the bank and are willing to sell as fast as possible, even at lower price. Our specialists will point you out at those properties. But definitely you will also see the sellers who are prepared to wait for their buyer another 5-10 years rather than giving in a penny. Many local Croatian sellers do not understand that time is money itself and each year they could earn 5-8% and more if the funds are invested properly. So our strong recommendation is to try to bargain as you can save 10-15% or even more. 

Are the Letter of Credit or some other guarantees available in Croatia?

Yes, it is a common question when the Buyers want to have their ownership right get registered first and the Seller wants first to get the payment.
To escape any problems and misunderstandings we can suggest three most commonly used ways:

• Bank as a controlling body opens a special account of the deal which is receiving the money and releasing them to the seller when the buyer gets registered as a new owner of the property. The banks normally charge about 1% for this service.
• Similar service can be rendered by an advocate for 0,5-1% fee.
• An account with two signatures (of the seller and of the buyer) can be opened in Croatia. The buyer is transferring money to this account but the seller can collect it only after the buyer gets registered ownership and puts his signature. It is the cheapest option.