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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Croatia: VAT essentials 

Essential information regarding VAT/GST as it applies in Croatia.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made in Croatia, where it is a taxable supply made by a taxable person in the course or furtherance of a business. A supply includes all forms of supply, and is not restricted to the provision of goods and services by way of sale but can equally apply to other forms of transaction.


Supply also includes any supply of goods and services without consideration.


What is the standard rate of VAT?


The standard rate of VAT is 25 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a list of zero rated deliveries, including:


  • exports of goods
  • all kinds of bread
  • all kinds of milk
  • books (either printed or published on any other media) of professional, scientific, artistic, cultural, and educational character
  • certain medicines
  • certain medical implants and orthopedic devices
  • scientific magazines
  • services of public movie projections.

From 1 January 2013, the zero rate will be replaced by a reduced rate of 5 percent (except for the export of goods).


Reduced 10 percent rate deliveries are the following:


  • tourist accommodation, full or half board services, and tourist agents commission with regards to those services
  • newspapers and magazines
  • edible oils and fats, baby food, supply of water (except bottled or otherwise packaged drinking water) and refined (white) sugar
  • services of preparation and serving of food, non-alcoholic drinks, wine and beer in registered hospitality facilities (as of 1 January 2013).

The list of exempt deliveries includes:


  • financial and insurance services
  • health and welfare services
  • education services
  • deliveries by charitable organizations
  • deliveries by museums, libraries, theatres, orchestras and other cultural services
  • betting and gambling
  • rent of residential property
  • postal services supplied by the Croatian National Post
  • public radio and television broadcasting
  • private use of personal motor vehicles, yachts, airplanes, and etc. when no input VAT was claimed.

Note: it is not possible to recover input VAT related to exempt deliveries.


What are the other local indirect taxes beside VAT?


  • Real Estate Transfer Tax
  • Excise duties
  • Tax on games of chance

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Registration

Who is required to register for Croatian VAT?


Croatian entities


If a Croatian entity makes taxable deliveries in the Republic of Croatia over the annual VAT registration threshold (HRK 230,000 (EUR 31,000)) it will be required to register and account for VAT. If a Croatian entity trades below the registration threshold it can still choose to register for VAT as a Voluntary Trader.


Non-Croatian entities


Non-Croatian entities are obliged to register for VAT purposes in Croatia if they make deliveries in Croatia which are not subject to the reverse charge mechanism in Croatia. There is no VAT registration threshold for Non-Croatian entities. Non-Croatian entities are obliged to appoint a fiscal representative if they are obliged to register for VAT purposes in Croatia. Branch offices of non-Croatian entities are required to register for Croatian VAT under the rules that apply to Croatian entities.


Are there penalties for not registering or late registration?


There are no specific penalties for failing to register for VAT or for late registration. However, late payment penalties, late filing penalties, and interest on any outstanding VAT may arise.


Is voluntary VAT registration possible for an overseas company?


No.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


No.


Does an overseas company need to appoint a fiscal representative?


Yes.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


Not applicable.

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Returns

How frequently are VAT returns submitted?


Most Croatian taxpayers are required to submit VAT returns on a monthly basis if the value of their deliveries (including VAT) in the calendar year exceeds HRK 800,000 (approximately EUR 107,000). Should the value of deliveries (including VAT) be less than HRK 800,000 VAT returns may be submitted quarterly.


Foreign entities are required to submit VAT returns on a monthly basis, regardless of the value of their deliveries.


An annual (final) VAT return should be submitted for a calendar year by the end of April of the following year.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The Croatian legislation does not specifically prescribe which exchange rate should be used for VAT reporting purposes. However, based on established practice the middle exchange rate published by the Croatian National Bank at the date the invoice is issued is applied.

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VAT recovery

Can a business recover VAT if it is not registered?


Non-registered foreign entities are allowed to recover Croatian VAT providing the condition of reciprocity is fulfilled.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Yes.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where a VAT payer has both taxable and exempt supplies, input VAT needs to be apportioned.
  • Non-business (including private) activities: where input VAT relates to both business and non-business activities, an apportionment is required.
  • Personal motor vehicles: no VAT can be recovered on the purchase or lease of a passenger car and all passenger car related expenses if not used for registered business activities (e.g. taxi services, rent or lease, etc.).
  • Yachts and airplanes: no VAT can be recovered on the purchase or lease of yachts and airplanes and all related expenses if not used for registered business activities (e.g. transportation of passengers, sale, rent or lease, etc.).
  • Business entertainment: no VAT can be recovered on business entertainment costs.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company exports goods to a customer (business or private) outside of the territory of Croatia then it does not need to charge VAT but should make sure that it keep proof of dispatch/delivery to support the zero rating applied.


Services


If a company supplies services to a customer (if a customer is a business and if that customer does not have a registered seat or fixed establishment in Croatia) outside Croatia, then the place of supply is outside Croatia and the Croatian supplier is not obliged to charge VAT on its service, provided the service falls within one of the following categories:


  • transfers and assignments of copyrights, patents, licenses, trademarks, and similar rights
  • advertising services
  • services of engineers, lawyers, accountants, translators, and similar consultancy services
  • data processing services
  • provision of information
  • restraining from pursuing or exercising, in whole or in part, a business activity
  • banking, financial and insurance transactions including reinsurance
  • the supply of staff
  • the hiring out of movable tangible property, with the exception of all forms of transport vehicles
  • allowing access and transportation or transfer through distribution systems for natural gas and electricity
  • telecommunication services
  • radio and television broadcasting services
  • electronically supplied services
  • intermediation services in relation to the above

If any of the above services are supplied to non Croatian individuals then VAT must be charged. Furthermore, Croatian VAT is not charged on the following types of services (if these services are performed outside the territory of Croatia).


  • cultural, artistic, sporting, scientific, educational, entertainment, or similar activities
  • ancillary transport activities such as loading, handling, and similar activities
  • valuations of movable tangible property
  • work on movable tangible property
  • transportation services performed outside the territory of Croatia
  • services performed in relation to certain real estate, including rent and lease.

How are goods dealt with on importation?


When goods are imported into Croatia, import VAT and customs duty may be due. Import VAT is assessed by the Croatian Customs Authorities at the point of importation.


How are services which are brought in from abroad treated for VAT purposes?


If businesses buy in certain services from outside Croatia, they will be required to apply reverse charge VAT. This is intended to take away any VAT advantage of buying services from outside Croatia. Under the reverse charge mechanism businesses are required to account and pay VAT on the value of services received and they recover this VAT as input tax in the period when VAT is paid. If the recipient is able to recover all of the VAT the reverse charge VAT mechanism has no cost effect and is a cash flow matter only. However, if it is fully or partially VAT exempt there is a VAT cost.


The reverse charge applies to a range of services, including:


  • transfers and assignments of copyrights, patents, licenses, trademarks, and similar rights
  • advertising services
  • services of engineers, lawyers, accountants, translators, and similar consultancy services
  • data processing services
  • provision of information
  • restraining from pursuing or exercising, in whole or in part, a business activity
  • banking, financial and insurance transactions including reinsurance
  • the supply of staff
  • the hiring out of movable tangible property, with the exception of all forms of transport vehicles
  • allowing access and transportation or transfer through distribution systems for natural gas and electricity
  • telecommunication services
  • radio and television broadcasting services
  • electronically supplied services
  • intermediation services in relation to the above

The following services are generally treated as supplied where physically performed and are subject to the reverse charge if performed in Croatia:


  • cultural, artistic, sporting, scientific, educational, entertainment, or similar activities
  • ancillary transport activities such as loading, handling and similar activities
  • valuations of movable tangible property
  • work on movable tangible property
  • transportation services performed within the territory of Croatia
  • services performed in relation to certain real estate, including rent and lease.

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Invoices

Is a business required to issue tax invoices?


If a business is registered for VAT purposes it is obliged to issue VAT invoices with elements as prescribed by the Croatian VAT legislation.


What do businesses have to show on a tax invoice?


A VAT invoice should contain the following data:


  • The name and address of the supplier
  • The VAT number (that is, Personal Identification Number (OIB) of the supplier)
  • The name and address of the recipient
  • The VAT number (that is, Personal Identification Number (OIB) of the recipient)
  • The sequential number of the invoice
  • The date and place the invoice was issued
  • The quantity and common trade name of the goods delivered or services rendered
  • The date of delivery of the goods or services rendered
  • The amount of the price of the goods delivered or the services rendered classified according to the applicable VAT rate
  • The amount of VAT classified according to the applicable VAT rate
  • Total amount payable
  • R1 or R2 note (referring to VAT payers that are assessing VAT on an accrual or a cash basis)

Cash invoices and cash register receipts do not have to contain all the above elements.


Can businesses issue invoices electronically?


Invoices can be issued in electronically if there is consent from the recipient and if the recipient and supplier have appropriate IT systems in place supporting the receipt and issuance of electronic invoices.


The recipient’s consent is not required in the case of an exempt supply.


Is it possible to operate self-billing?


Although self-billing system is generally envisaged by the VAT legislation, as the provisions are ambiguous and there is no detailed guidance on how to implement it in practice, entities in Croatia mainly do not operate by using the self-billing system.


Can a business issue VAT invoices denominated in a foreign currency?


The Croatian VAT legislation does not prescribe the currency to be used in invoices. Usually, invoices for deliveries between Croatian entrepreneurs or individuals are denominated in Croatian Kuna while invoices for the deliveries to non-Croatian entrepreneurs or individuals can be denominated in a foreign currency. However, Croatian Ministry of Finance issued an opinion (which is not binding) that if an invoice is issued in foreign currency it should also be denominated in Croatian Kuna.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business as a going concern and the purchaser acquiring the business would be able to recover VAT on the purchase of business, then no VAT is applicable on the sale of the business.

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Options to Tax

Are there any options to tax transactions?


Yes. There is an option to tax financial services but only in limited circumstances, that is, on interest charges on loans provided by a taxpayer for the purchase of goods or services supplied by the same taxpayer, but only if this occurs on an occasional basis.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Based on an opinion issued by the Croatian Ministry of Finance (which is not binding), transactions between a head office and a branch office are outside the scope of VAT. However, this opinion is not in line with a Croatian Administrative Court ruling based on which these transactions are taxable. Therefore, the VAT treatment of transactions between a head office and a branch office should be reviewed on a case by case basis.

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Bad Debt

Are businesses able to claim relief for bad debts?


Croatian VAT legislation does generally envisage bad debt relief; however, it does not clearly prescribe the procedure to be followed to claim bad debt relief. The Croatian VAT legislation prescribes a detailed procedure for the adjustment of VAT if the VAT base subsequently changes due to the provision of a discount.


In case of a subsequent discount a VAT registered entity may adjust or reduce the amount of VAT if the entity for whom the supply of goods or services was performed adjusts (reduces) the deduction of input VAT, and the recipient of the supply informs the supplier of the adjustment (reduction) of input VAT in writing.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There are no general anti-avoidance provisions under the Croatian VAT Law. However, the Croatian General Tax Law provides a general anti-avoidance provision which applies to all taxes including VAT. It relates to legal arrangements that do not reflect the economic substance of a transaction and therefore appear artificial.

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Penalty Regime

What is the penalty and interest regime like?


A taxpayer who does not comply with the Croatian VAT Law may be subject to a fine of up to HRK 500,000 (approximately EUR 67,000) depending on the type of offence. In addition, the responsible person of the entity may be penalized in the amount up to HRK 50,000 (approximately EUR 7,000).


There is also a penalty interest of 12 percent per year charged on the late payment of a VAT liability.

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Tax authorities

Tax audits


How often do tax audits take place?


The relevant legislation does not prescribe how often tax audits take place.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Currently tax audits are not done electronically, but we are aware that the Croatian tax authorities are currently developing software to perform e-audit.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


There is no regime for advance rulings system in Croatia.


It is possible for taxpayers to obtain official opinions of the Ministry of Finance on particular taxation issues. However, such official opinions are not binding. Formal advance ruling cannot be obtained by the Ministry of Finance.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Informal rulings are generally available publicly however the names of the parties concerned are not available.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


There are no major differences. Generally, Croatian VAT legislation is aligned with the EU VAT Directive 2006/112/EC, prior to the implementation of the VAT package as of 1 January 2010.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


The indirect tax incentives available in Croatia are:


  • reduced VAT rates;
  • temporary import regime.
 

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