Apartment Classification: How can EU citizens legally rent their residential property in the Republic of Croatia?
Numerous EU nationals have recently become owners of houses or apartments in the Republic of Croatia. Considering the long summer season in Croatia, they may want to rent their property to third parties.
Can foreign natural persons, EU citizens and owners of houses or apartments legally rent their property situated in the Republic of Croatia?
Yes, it is possible if you duly comply with the rent regulation laws of the Republic of Croatia. The indispensable first step is apartment/house classification.
Apartment classification refers to the type of accommodation rental provided. It can be any of the following: room rental, apartment rental, studio apartment rental, holiday home rental and the number of stars you have received under the classification.
If you want to make sure that renting your property is fully legal, it is essential to have your apartment classified. The classification being an administrative procedure, it is governed by the provisions of the General Administrative Procedure Act, meaning that the Classification Request can be submitted by any natural person in person or by a duly authorised person. Lawyers can definitely offer their best advice as to the most suitable classification model for your property and the duration of the process and represent you in the classification of your property performed by a competent authority.
Besides the apartment classification procedure, all non-residents engaged in property rental activities in the Republic of Croatia must acquire a VAT number and be registered in the VAT Register.
LAST STEP: Apartment Classification Plaque
Bear in mind that you will also have to purchase a standard apartment classification plaque indicating the type of service you provide and the number of stars received under the Decision on Apartment Classification. The plaques must be ordered only from manufacturers licenced by the Ministry of Tourism.
According to provisions of the Added Value Tax Act (The Official Gazette number 73/13, 99/13, 148/13, 153/13, 143/14, 115/16 and 106/18; the Decree of the Constitutional Court of the Republic of Croatia 99/13 and 153/13), a non-resident who carries out the activity of property rental (apartment and similar) in the Republic of Croatia is normally obliged to obtain a VAT identification number and get registered into the VAT Register by submitting the following documentation:
- Declaration of the status of non-residents who rent real estate
- Application for registration for the VAT purposes (P-PDV form)
- Certificate of tax residency status issued by the competent tax authorities of the country of residence (in the English language or translated into the Croatian language and certified by a court interpreter).
We would like to draw particular attention to the provisions that govern the manner of taxing the income derived from renting of apartments, rooms and beds to travellers and tourists and organising campsites.
- Pursuant to Article 57 Paragraph 2 of the Income Tax Act (The Official Gazette of the Republic of Croatia no. 115/16), income tax for taxpayers who derive income from renting of apartments, rooms and beds to travellers and tourists and organising campsites is determined as flat rate income tax
- Pursuant to Article 82 Paragraph 3 of the Income Tax Act, property income for the non-resident taxpayer who in the accounting period derives total income exceeding the VAT registration threshold is taxed pursuant to Article 30-35 of the said Act, i.e. in the manner prescribed for independent activities (keeping business records)
In view of the above, following the end of the accounting period (fiscal year) in which you have realised income exceeding HRK300,000.00, you are obliged to determine the income in the manner prescribed for individual activities, keep business records and inform the tax authorities aimed at repealing the decision on determined flat tax.
Furthermore, we would like to draw your attention to the provisions of the Value Added Tax Act (the Official Gazette of the Republic of Croatia no. 73/13, 148/13, 143/14 and 115/16; the Decree of the Constitutional Court of the Republic of Croatia 99/13 and 153/13) and the Ordinance on Value Added Tax (The Official Gazette of the Republic of Croatia no. 79/13, 85/13- correction, 160/13, 35/14, 157/14, 130/15, 1/17, 41/17, 128/17) that regulate the obligation of entry into the VAT system and calculation of VAT on provided services:
- Pursuant to Article 75 Paragraph 2 of the Value Added Tax Act and Article 150 Paragraph 4 of the Ordinance on Value Added Tax, if taxable supply of goods or services is carried out by a non-resident, VAT is paid by the recipient of goods/service if the recipient is:
- A taxpayer (small taxpayer as well) regardless of whether s/he has a VAT identification number
- A legal entity who is not a taxpayer but has been assigned a VAT identification number
- A non-resident who has been assigned a Croatian VAT identification number
- A non-resident who cannot transfer tax liability pursuant to Article 75 Paragraph 2 of the Value Added Tax Act, i.e. who provides rental services to persons who are not VAT payers and/or have not been assigned a Croatian VAT identification number is obliged to get registered for VAT purposes (apply for registration).
In view of the above, if you provide rental services to persons who are not VAT payers and/or have not been assigned a Croatian VAT identification number, we advise you to submit a completed registration form (P-PDV). In case you are required to register for VAT purposes, rental income can still be taxed at a flat rate as long as the income derived in the accounting period does not exceed the amount provided for by law as previously stated.