As the tourism in Croatia has been rapidly expanding for the past few years, many second home owners in Croatia have used the opportunity to earn substantial income by renting their apartments and houses to the tourists.
Apart from EU, the rules below apply also to EEA (European Economic Area) countries and Switzerland. However, please keep in mind that EEA countries that do not belong to EU, as well as Switzerland, do not have the same legal treatment when buying the property in Croatia! If you are of non-EU nationality, contact us to find out how you can buy property in Croatia.
Private persons from European Union are our largest group of property buyers. Therefore, this article will explain what it takes for them to legally rent their property in Croatia.
- Make sure that the property has usage permit. Usage permit is the final proof of legality. Some properties (i.e. in construction) may not yet have it, but the lawyer will take that into consideration when drawing the (pre)contract and you will be given this document at the end of the buying process.
- Apply for categorization (in addition to application you will need to submit the usage permit and title deed or sale-purchase contract). Depending on the type (apartment, house, camp, hotel etc.) the property needs to comply with certain parameters in terms of the minimum size, inner structure, furnishing and equipment in order to get appropriate number of stars (ranging from 2 to 5, with five being the best).
- If you are planning to reside in Croatia, full-time or part-time, you should obtain appropriate residence permit. Being a resident qualifies you for a flat fee taxation (payable per number of beds and zone in which the property is located). This tax is more favorable compared to income tax payable on total net earnings. You must enter the VAT system only if your income exceeds 300.000 HRK in a fiscal year.
- If you are not planning to reside in Croatia, you will be taxed as per income tax law. In other words, you will be paying tax on total net earnings (income minus expenses). Tax rate is 24% for net income of up to 210.000 HRK and 36% for net income exceeding aforementioned amount in a fiscal year. In addition, you will need to get VAT number and apply VAT to all of your invoices from the start. Please keep in mind that some municipalities have surtax – a local tax applicable on the top of income tax.
It is also worthwhile to mention the following:
- Non residents can get favorable flat fee tax (normally applicable to residents) only under the condition that they rent only through domestic travel agency. Appointed travel agency must book and manage the property in its behalf and for the account of the property owner.
- If you receive an invoice from EU-member state for the booking fee with no VAT (reverse-charge option), you should calculate and pay the VAT to Croatia. This particularly refers to booking fees charged by booking.com and similar booking portals.
The process described above may look complicated, but is, in fact, very straightforward. It all comes out to income projection and choosing the option that suits you the most.
Please remember, steps listed above are applicable to EU citizens (private persons) and EEA citizens allowed to buy property in Croatia as private persons. Different rules, taxes and options apply to companies and residents of countries other than EU/EEA.
Should you have further questions on this matter, please appoint the meeting with Right Property Croatia or ask for the professional assistance with your bookkeeper.