On this earth, nothing is certain except death and taxes, as Benjamin Franklin famously said. Many people still forget about that certainty, fail to check how much property tax actually is, and are surprised when the payment notice quickly arrives at their new address.
Property transfer tax is often overlooked in the financial plan, especially when buying a first home. In the first half of 2021 alone, there were at least 4,000 new homeowners in Croatia. The APN subsidy program received a record 4,739 applications.
Are you among those who will soon receive a property transfer tax notice from the Tax Administration?
How Much Is Property Tax in Croatia?
Property transfer tax amounts to 3% of the market value of the property at the time the tax obligation arises, unless the property is subject to VAT.
“The property transfer tax of 3% must be paid by the buyer,” explains Ivan Varat, real estate advisor at San Patrik Real Estate.
“After the Sale and Purchase Agreement is notarized, the public notary automatically sends the information to the Tax Administration, which then calculates the tax amount and sends the decision to the buyer’s address.”
You can roughly calculate the tax yourself. For example, if you purchased an apartment for EUR 100,000, equivalent to approximately HRK 700,000, the property transfer tax would be HRK 21,000, which is 3% of the purchase value.
The Tax Administration generally determines market value based on the purchase price stated in the contract, provided that price reflects actual market conditions. If there is doubt, the tax authority may estimate the value using comparable transactions in the area. Buyers can file an appeal if they disagree with the assessed value.
Who Must Pay Property Transfer Tax?
If you purchase, inherit, or otherwise acquire real estate, land, or a building and the transaction is not subject to VAT, you are liable for property transfer tax.
The system is designed so that you pay either property transfer tax or VAT, but not both.
Tax is also due in property exchanges. Each party pays tax on the property they acquire.
In the case of gifts or other transfers without compensation, the recipient pays the tax.
If property is acquired through a lifetime care agreement, the acquirer must pay property transfer tax, reduced by 5% for each year of care from the date of the agreement.
Paying Tax in Installments
Many young buyers forget about property tax when purchasing a home. Sometimes even agencies fail to emphasize this cost, assuming it is widely known.
Some buyers hope for tax exemptions after reading outdated information online or hearing about possible abolition of the tax. However, the tax still applies.
“Property transfer tax, along with potential agency fees and other costs, must be included in the total price of the property from the beginning,” advises credit specialist Vjeko Peretić of Pro grupa.
All related costs should be treated as part of the purchase price when structuring financing.
If you receive a tax notice with an amount you did not expect, there is one option available. The Tax Administration allows payment in up to 24 monthly installments, with interest currently at 5.75%.
When Is Property Transfer Tax Not Paid?
There are clearly defined cases where buyers are exempt from paying property transfer tax. The most common case is when purchasing a new development from a company that must charge VAT.
Tax is also not paid in certain inheritance and gift scenarios among close family members in a direct line.
Spouses, descendants, ancestors, and adopted family members are exempt in such cases. This includes grandparents and grandchildren, but the relationship must be clearly stated in the contract and verified by the Tax Administration.
Other exemptions include:
- people acquiring property through restitution or land consolidation
- refugees exchanging property
- protected tenants purchasing the property they occupy
- individuals acquiring property through privatization of social ownership
- family members acquiring property through lifetime care agreements
- division of jointly owned property among co-owners
First Property Tax Exemption
The exemption for first-time buyers was abolished on 1 January 2017 in order to ensure equal treatment of all buyers under EU directives.
Over time, the tax rate was reduced to the current 3%. Although there were discussions about abolishing it entirely, this has not happened. Instead, the government introduced housing loan subsidies as support for young buyers.
Buying Property Through a Company
Some properties are purchased through companies and entered as company assets. In such cases, property transfer tax is not paid. Property costs become business expenses, reducing taxable profit.
Another scenario involves individuals forming a company to indirectly own property. This is sometimes used by foreign buyers who cannot purchase directly in Croatia.
However, owning property through a company brings obligations. Even without active business operations, the company must file tax returns, submit financial reports, pay taxes, and maintain accounting services.
If the property later needs to be removed from the company, a formal capital reduction process through the Commercial Court is required, including a court appraisal of the property’s value, which creates additional costs.
Does the Seller Pay Tax?
The seller may have to pay income tax on property in two cases.
First, if the property is sold within two years of purchase at a higher price than originally paid. Tax is then paid on the profit at a rate of 24% plus local surtax.
Second, if more than three similar properties are sold within five years. This may be treated as taxable income.
Reporting the Transaction
Tax liability arises at the moment the contract is signed. Public notaries now submit contracts to the Tax Administration on behalf of the parties.
If a contract is not notarized, the transaction must still be reported to the Tax Administration within 30 days.
Appealing a Tax Decision
A tax decision can be appealed within 30 days of receipt. An appeal makes sense if the assessed value significantly differs from the real market value.
If the appeal is rejected, an administrative dispute can be initiated before the Administrative Court. To challenge the valuation, an official court expert must provide a professional appraisal.
There is a financial risk in such proceedings if the challenge is unsuccessful, so it is advisable to consult professionals before proceeding.
Author: Ivana Alfier, Stanarica.hr
