Real estate transfer tax is one of the key tax institutes applicable to the acquisition of ownership of real estate in the Republic of Croatia. Although in practice it is often associated exclusively with the purchase and sale of apartments, houses, or land, the current Real Estate Transfer Tax Act (Official Gazette Nos. 115/16, 106/18; hereinafter: the “Act”) regulates this concept much more broadly and subjects various forms of real estate acquisition to taxation. In order to properly understand the tax liability, it is necessary to determine what is considered a transfer of real estate, who is the taxpayer, when the tax liability arises, how the tax base is determined, and in which cases the Act prescribes an exemption from tax payment.
REVENUE FROM REAL ESTATE TRANSFER TAX
The Act provides that revenue from real estate transfer tax belongs to the local self-government unit in whose territory the real estate is located. This clearly establishes that it is a public revenue connected to the territorial location of the real estate within a particular local unit.
EQUAL STATUS OF DOMESTIC AND FOREIGN PERSONS
According to the Act, domestic and foreign natural or legal persons are treated equally with regard to the payment of real estate transfer tax, unless otherwise provided by an international treaty. This means that, as a rule, the same tax regime applies to both Croatian and foreign acquirers of real estate.
WHAT IS CONSIDERED A TRANSFER OF REAL ESTATE
The subject of taxation is the transfer of real estate. The Act defines a transfer of real estate as any acquisition of ownership of real estate in the Republic of Croatia. In this respect, the acquisition of real estate does not include only purchase and sale, but also exchange, inheritance, gift, contribution and withdrawal of real estate into and from a company, acquisition by adverse possession, acquisition of real estate in liquidation or bankruptcy proceedings, acquisition based on court or other authority decisions, acquisition by virtue of law, as well as other methods of acquiring real estate from other persons.
The Act also defines real estate as land and buildings. Land may be agricultural, construction, or other land, while buildings include residential, commercial, and all other buildings, as well as their parts. It is particularly important to emphasize that, by way of exception, the acquisition of real estate subject to value added tax is not considered a transfer of real estate within the meaning of the Act. Therefore, where a particular acquisition of real estate falls within the VAT regime, it is not subject to real estate transfer tax.
WHO IS THE TAXPAYER
The general rule is that the taxpayer for real estate transfer tax is the acquirer of the real estate. However, the Act further elaborates on certain specific situations:
In the case of an exchange of real estate, each party to the exchange is considered a taxpayer in respect of the value of the real estate it acquires. If an ideal co-ownership share in the real estate is acquired, each acquirer is treated as a separate taxpayer.
In inheritance cases, the taxpayer is the heir or legatee. The Act specifically provides that if an heir renounces the inheritance during probate proceedings or assigns it to another co-heir, no tax is payable on such renunciation or assignment of inheritance.
In the case of a gift or other acquisition of real estate without consideration, the taxpayer is the donee or another person who acquired the real estate free of charge.
If real estate is acquired on the basis of a lifelong maintenance agreement or a support-until-death agreement, the taxpayer is the maintenance provider. In the case of a lifelong maintenance agreement, the Act also prescribes a tax benefit: real estate transfer tax is reduced by 5% for each year of maintenance elapsed from the date of conclusion of the agreement until the death of the supported person, subject to the conditions prescribed by the Act regarding the form and certification of such agreement.
TAX BASE
The tax base is the market value of the real estate at the time the tax liability arises. The Act defines market value as the price of the real estate that is achieved or may be achieved on the market at the moment the tax liability arises.
The Tax Administration determines the tax base for real estate transfer tax as the market value of the real estate, as a rule based on the acquisition document, if the total amount of consideration is approximately equal to the prices achieved or that may be achieved on the market. The total amount of consideration includes everything that the acquirer or another person on behalf of the acquirer gives or pays for the acquisition of the real estate, including money, other real estate, things or rights transferred, assumed debts of the former owner, and other forms of consideration.
If the total amount of consideration is lower than market prices, the Tax Administration is authorized to determine the market value of the real estate by assessment. Such assessment is carried out by an official of the Tax Administration on the basis of comparative data on market value trends of similar real estate in approximately the same area and at approximately the same time.
If there is no comparative data for a particular real estate, and the case does not concern special proceedings prescribed by the Act, the assessment of the market value is carried out by an expert appointed by the head of the regional office of the Tax Administration. In such a case, the owner or possessor of the real estate is obliged to allow access to the land and buildings for the purpose of assessing the market value.
In the case of an exchange of real estate, the tax base is determined separately for each participant, according to the market value of the real estate acquired by each participant through the exchange.
TAX RATE
The Act clearly prescribes that real estate transfer tax is payable at a rate of 3%.
TAX EXEMPTIONS
The Act provides for several categories of exemption from the payment of real estate transfer tax.
General Exemptions
The tax is not payable by the Republic of Croatia, local and regional self-government units, state authorities, institutions whose sole founder is the Republic of Croatia or a local and regional self-government unit, foundations and endowments, all legal entities whose sole founder is the Republic of Croatia, the Red Cross, and non-profit legal entities registered for the provision of humanitarian aid in accordance with a special regulation.
Diplomatic or consular missions of a foreign state are also exempt, subject to reciprocity, as well as international organizations for which exemption from real estate transfer tax has been agreed by international treaty.
The tax is also not payable when persons acquire real estate in proceedings for the restitution of confiscated property and land consolidation, nor by displaced persons and refugees who acquire real estate by exchanging their properties abroad.
Furthermore, the Act prescribes an exemption for citizens purchasing a residential building or apartment, including the land, in respect of which they held a tenancy right or with the consent of the holder of the tenancy right under special regulations, as well as for protected tenants purchasing the residential building or apartment in which they reside on the basis of a lease agreement.
The exemption also applies to persons acquiring real estate in accordance with the regulations governing the transformation of socially owned property into other forms of ownership.
Of particular importance is the exemption for a spouse, descendants and ascendants in the direct line, as well as adoptees and adoptive parents, who acquire real estate from the recipient of maintenance under a lifelong maintenance agreement or a support-until-death agreement.
The tax is likewise not payable by persons who, through partition of co-ownership or division of joint ownership, acquire separate parts of such real estate, regardless of the ownership ratios before and after the partition or division.
Exemption Upon Contribution of Real Estate Into a Company
When real estate is contributed into the share capital of a company, no real estate transfer tax is payable. The same applies when real estate is acquired in merger and acquisition proceedings within the meaning of the law governing companies, as well as in the process of division of a company into several companies. However, if during a tax audit the Tax Administration determines that the legal transaction on this basis is fictitious, it will assess the corresponding real estate transfer tax.
Exemption in Inheritance, Gifts, and Other Gratuitous Acquisitions
In the case of inheritance, gifts, and other acquisitions of real estate without consideration, the tax is not payable by a spouse, descendants and ascendants in the direct line, as well as adoptees and adoptive parents who are in such relationship with the deceased or the donor. Also exempt are legal and natural persons to whom the Republic of Croatia or a local or regional self-government unit grants or transfers real estate free of charge as compensation or for other reasons connected with the Homeland War.
The tax is also not payable by former spouses when regulating their property relations.
ARISING OF THE TAX LIABILITY
As a general rule, the tax liability arises at the moment of conclusion of the contract or other legal transaction by which the real estate is acquired.
If the real estate is acquired on the basis of a court or other authority decision, the tax liability arises when that decision becomes final. The same applies where a final court decision establishes ownership of real estate by adverse possession.
If ownership is acquired by virtue of law, the tax liability arises upon the finality of the court decision approving registration.
For a foreign natural or legal person who requires the consent of the minister responsible for justice affairs in order to acquire real estate, the tax liability arises at the moment such consent is obtained.
In the case of a support-until-death agreement, the tax liability arises upon conclusion of the agreement, whereas in the case of a lifelong maintenance agreement, it arises upon the death of the maintenance recipient, with application of the previously mentioned relief.
REPORTING THE TRANSFER OF REAL ESTATE
The Act also regulates in detail the issue of reporting the transfer of real estate. Namely, after certifying signatures on documents concerning the sale or other disposal of real estate, or after drawing up a notarial deed, a notary public is obliged, no later than within 30 days, to submit one copy of the document, as well as any other document on the basis of which the transfer of real estate occurs, to the competent branch office of the Tax Administration according to the location of the real estate, electronically.
Courts and other public authorities are likewise obliged to submit their decisions by which ownership of real estate is acquired or changed in the land register or official records, within 15 days following the expiry of the month in which the decision became final.
The submission of such documents and decisions is deemed to constitute the reporting of the transfer of real estate.
Exceptionally, if the document on the acquisition of real estate has not been certified by a notary public and was not issued by a court or other public authority, the taxpayer must report the transfer of real estate independently to the competent branch office of the Tax Administration by submitting the report and the acquisition document within 30 days from the date of its creation.
A specific rule also applies where the supplier charges VAT on the supply of the real estate or where there is a transfer of tax liability: in that case, the supplier must report the supply of the real estate to the competent branch office of the Tax Administration within 30 days from the date of the supply.
REAL ESTATE TRANSFER RECORDS
The data stated in documents on the acquisition of real estate are entered into the Real Estate Transfer Records within 30 days from the date of receipt. The owner of these data is the Ministry of Finance, Tax Administration. Data from the records are issued upon request to state administration bodies, local and regional self-government units, courts, and other institutions where such an obligation arises from a special regulation. Such data may also be made available to local and regional self-government units for the purposes of carrying out their scope of work, and this does not constitute a breach of tax secrecy.
PROCEDURAL PROVISIONS AND TAX DECISION
If all facts relevant for determining the tax liability are stated in the acquisition document, the competent official may, by direct decision-making and without further verification, provisionally determine the tax liability. If the relevant facts are not evident from the document or cannot be established from the official records of the tax authority, the taxpayer is obliged, upon request of the official, to provide the necessary data, as well as any other data requested by the official.
Where, upon subsequent verification, the official determines that there are grounds for amending the provisionally determined tax liability, a tax decision shall be issued determining the difference in tax liability. Likewise, once all facts relevant to the determination of the tax liability have been established on the basis of the submitted data, a tax decision shall be issued. An appeal against such decisions does not stay their enforcement, and it may be lodged with the Ministry of Finance.
In cases where real estate transfer tax is not payable on the basis of statutory exemptions, the tax authority, as a rule, does not issue a decision, except where the exemption is granted subject to conditions prescribed by a special regulation and where, in the event such conditions are not fulfilled, the tax is collected subsequently.
PAYMENT OF TAX
The taxpayer must pay the assessed amount of tax within 15 days from the date of service of the decision determining the real estate transfer tax. The Act further provides that the seller of the real estate is jointly and severally liable for the collection of the tax from the buyer if the seller has contractually assumed the obligation to pay such tax.
REFUND OF TAX
A person who has paid tax, interest, or enforced collection costs which he or she was not obliged to pay is entitled to a refund of the amount paid, or overpaid. Such amounts shall be refunded, upon request of the person from whom they were collected, within 30 days from the date of submission of the request.
The Act also provides for the possibility of reopening the procedure and annulling the decision determining the tax if the contract on transfer of ownership is terminated by the will of the parties before the transfer is registered in the land register in favour of the new owner, or if a court decision results in rescission, annulment, or a declaration of nullity of the contract.