Guide 2 Buying Property in Croatia

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Here is an update about current laws and regulations regarding buying a property in Croatia. This feature is provided by Peter Ellis from Croatia Property Services


The right for foreigners to buy and own property in Croatia is based on reciprocity, in that Croatians must be allowed to own property in the country where the foreigner wishing to buy comes from. Since February 2009 European Union nationals have been able to buy residential property in Croatia without the need for the ministerial permission needed hitherto. Reciprocity arrangements vary a lot. Some American states allow foreigners to own property whilst others don't. It follows that citizens of those states that allow it can buy here and citizens of the ones that don't may find it expedient to get a new address.  Until the EU change, residents of some Austrian cities also had a problem, as not all permitted foreign ownership of residential property.

There are two ways to purchase property in Croatia. Either foreign buyers can buy in their own name, in which case they have to get permission from the Ministry of Justice to buy (unless they are EU citizens), which can take up to a year, or, they can set up a Croatian Company to buy the property, therefore avoiding the need to apply for permission from the Ministry of Justice.  Those wishing to purchase with the aid of a mortgage would also need to set up a company (loan value up to a max of 70%).

The fact that it can take up to 12 months to get approval from the Ministry of Justice does not actually mean you can't go ahead and purchase property in the meantime, as it's normal to buy property and apply afterwards. If permission is not granted, then the buyer may resell or transfer ownership of their property. Permission is normally a formality as long as the reciprocity agreement exists. Again, since February, 2009, European Union nationals now avoid this.

In order to get around the reciprocity agreement and/or gain from advantageous tax breaks when letting or selling it is possible to set up a Croatian company to purchase a property. The cost of setting up a company is around £500 and most estate agents (for a fee) will be able to do this for you. Although using a company to purchase a property in Croatia gets around the reciprocity agreement, it does bring about certain obligations such as filing annual accounts.

Once a suitable property has been found the buyer can choose to have a survey carried out, although this is not commonly done by Croatian buyers and may take some time to arrange as suitable surveyors are not so common and may be busy. Once the buyer has had an offer approved by the vendor a pre-contract is signed by both parties and a deposit of 10% of the asking price is paid by the buyer. This deposit is lost if the buyer for any reason pulls out. If the vendor pulls out, he is legally obliged to return double the deposit. Given that most buyers will be either obtaining finance or have their funds on some sort of term deposit and that there will be a predictable time lag while the funds are made available, this should be considered when agreeing a completion date for the final contract and which will be stated in the pre-contract

The final contract for sale is signed in front of a notary once all conditions for the sale have been satisfied including the final payment to the vendor.

When buying a property in Croatia there are certain fees to account for. These include Property Transfer Tax of 5% and legal fees of around 1.5% (inc. disbursements) of the purchase price. If the property is new and being sold by a vendor who is registered for VAT, the 5% is only assessed on the land value. Otherwise, and certainly for older properties, the 5% is on the value of the property. The wording is deliberate. If a vendor persuades you to sign a contract for less than the full value of the transaction, in order to save himself tax, your Property Transfer Tax assessment will be on the assessed value of the property, not some under valuation on the contract. Be aware also, that if you come to sell your property, any capital gain will be on the difference between the buying and sales contracts and you could find yourself taxed on a gain that you did not actually make. The state always wins !

If the property is not your sole residence and you sell it within 3 years of registering it then you're liable to 35% capital gains tax although after 3 years the tax liability is reduced to 0%. N.B. The clock runs from when your name goes in to the land registry. This is only possible after ministerial approval, if appropriate, so is not necessarily from when you bought the property.
Profits from renting out your property are taxed at 25%, except when rental property is owned by a company.  When buying a new build property (1998 construction onwards) VAT of 22% is levied on the property and will normally be included within the advertised price. A company can claim this VAT back, provided that the company is actively trading, whereas an individual cannot.  When purchasing through a company it is worth bearing in mind that corporate profit tax of 20% is payable on profits from asset disposals. To get around this consider selling the company with the property as a company asset, which avoids any tax liability. It will also be attractive to a buyer as stock transfers do not attract Property Transfer Tax, as they will be buying stock in the company rather than the property itself, on which they, as buyers, would otherwise have had to pay tax.

Costs of buying a property in Croatia

Real Estate Transfer Tax (Property Transfer Tax):
Real estate transfer tax of 5% of the market value is levied on the transfer of property ownership. The transfer tax does not apply to the acquisition of new buildings being sold for the first time by a company registered for VAT. Instead, the sale is subject to 22% VAT of the value of construction, i.e., the net construction value. The 5% is still levied on the land value though.

Legal Fee:
It is common practice to hire a lawyer to do all the necessary preparations. Lawyers typically charge around 1% to 1.5% of the purchase price, including disbursements (plus 22% VAT). The legal fees are normally paid by the buyer, with the one lawyer acting for both parties. It will be necessary to have a court appointed translator at the notary's office to translate into a language understood by the buyer if they are not, themselves, Croatian speakers.This is to ensure that the contract is fully understood.  Translators are easily available for most European languages but if, for example, an Iranian was buying, Iranian court appointed translators would probably not be available, but if it were agreed that the Iranian understood, say, English, an English court appointed translator would be legally acceptable.

Real Estate Agent's Fee:
The commission for real estate agents ranges up to 6% (plus 22% VAT) split between the buyer and seller. Buyers will normally pay between 2 and 3%. Agents in Croatia are not licensed, so buyers must be careful when dealing with them and seek out reputable agents that have experience dealing with the purchase of property by foreigners. Whilst it may seem unusual for a buyer to be also paying the estate agent, it does impose a duty of care upon the agent in ensuring that they respect the interests of both buyer and seller. Note that if you see a property with an agent and, for whatever reason, subsequently buy through another agent, you will remain liable to the agent who first showed you the property for their fees.

For more information about buying a property in Croatia or for very good real estate deals please contact Peter Ellis directly via email peter.ellis@croatiapropertyservices.com