Method of purchasing Croatian real estate

There are two methods of purchasing property in Croatia, a brief explanation of which follows. This information is intended as a guide only. For additional information FIRST will put you in contact with an experienced and reputable tax advisor and / or accountant depending on the complexity of your situation and / or purchcase.

Buying Property as a Private Individual

As of February 2009 citizens of European Union have the same  property purchase rights as Croatian citizens and can therefore buy property in Croatia as private individuals and without the need to gain permission from the Ministry of Foreign Affairs, as was previously necessary.

For individuals who are not members of the European Union but have nationality in a country with which Croatia has established reciprocity in property purchase (contact us for further information) they need an approval from Croatian Ministry of Justice. They must apply for approval once the final contracted price has been paid.

The approval can take from 6 months but during which time you will be allowed to enter into possession of the property. When the approval is granted, your contract can be deposited at the Court and processed enabling you to obtain the title deed.  At this point the relevant Tax Authority will invoice for the real estate purchase tax.

People buying property in Croatia as private individuals are not subject to capital gains tax on the sale proceed of their property so long as they sell it later than 3 years from the date of purchase.

Buying Property as a Croatian Company

A Foreign legal entity or natural person may establish a private limited company in Croatia, known as a doo i.e John Smith doo

Incorporating private limited company is a process that takes up to 14 days and involves your lawyer, notary public (fee of ca 700 EUR required) and the Commercial Court. Authorized capital (HRK 20,000) equal to ca. 2,700 EUR must be paid in cash onto the company bank account, and the receipt of deposit should be enclosed when registering a company.

An accountant needs to be engaged in running the company during and after the buying process. The cost of running a company in Croatia starts at €100 / month for a basic service up to €300 / month for a full service. The basic service is the most relevant for those clients who are buying a single property for rental. A full service is necessary for those with a diverse portfolio and who are generating sizeable income through the business.

When the company buys the property, the contract is deposited at the local Court and is processed in order to obtain title deed. As is the case in most countries, capital gains tax does not apply to a Croatian doo. Instead, company (profit) tax is payable and at a rate of 20% . If a client buys a company that owns a single piece of real estate the property is not subject to the Croatian real estate transfer tax (stamp duty).

Buying property in Croatia via company route is recommended if the property will be used in commercial purposes (renting) and if the vendor is a VAT registered developer (in case of which you could claim back VAT contained in the property price), or by a person with citizenship in a country that does not have recipricol ownership rights which includes most countries outside of the EU.

It is important the clients appreciate that owning a Croatian doo comes with additional costs and must be monitored properly. This is especially the case if the company is registered for VAT and VAT is being claimed by the company against the purchase of the property or for furnishings or other. Understandably if your company is claiming VAT, the Croatian Tax Authorities will expect to see the company is generating income of some kind.

If you require further information before making a decision regarding purchasing via the company route we will put you in contact with an established and competent tax advisor.