Pursuant to the applicable Value Added Tax Act (Article 75, paragraph 3) and the Ordinance on Value Added Tax (Article 152 and Appendix II), the reverse charge (so-called self-calculation of VAT) applies to construction services when the following conditions are met:

1. Who are the participants?
• The service provider (contractor/subcontractor) and the recipient of the service (client/investor) must be taxpayers registered in the VAT register in the Republic of Croatia.
• If the recipient of the service is not in the VAT system (e.g. a small taxpayer or a final consumer), the reverse charge is not applied, but the service provider calculates and collects VAT in the usual way, if it is a VAT tax payer.

2. What services are covered?
The reverse charge applies to a wide range of construction services that are defined in detail by the VAT Ordinance and its Appendix II. This includes, but is not limited to:
• Construction, reconstruction, maintenance and removal of buildings or parts thereof.
• Preparatory work on the construction site.
• Installation work (water, electricity, gas, heating, air conditioning).
• Finishing construction work (plastering, painting, laying floors, façade work, ceramic, upholstery and parquet work).
• Engineering and supervision services related to construction works (e.g. design, surveying services, development of conceptual designs for construction or reconstruction).
• Provision of personnel if these personnel perform construction services.
• Cleaning and repair services for real estate if they are part of broader construction service or are performed by a subcontractor for the main contractor.
• Services involving the supply of movable goods and their installation into real estate in such a way that the movable goods acquire the characteristics of real estate.

Important Notes:
The reverse charge mechanism is not an option but an obligation when the stated conditions are met.
On the issued invoice, the service provider must not state VAT, but must state the note “Reverse Charge” referring to Article 75, paragraph 3 of the Tax Act. of the VAT Act.
The service recipient is obliged to calculate and pay the VAT and simultaneously has the right to deduct input VAT, making the liquidity impact neutral.
The reverse charge mechanism also applies to advance payments received for construction services.
The tax liability arises in the accounting period in which the services were performed, regardless of the certification of the construction situation, and the service recipient records it in their books (U-RA) and VAT form.

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