Rental income

Income from property is income earned on the basis of renting real estate and movable property. The tax base (rent) is reduced by 30% of the recognized maintenance expenses, and tax is paid on the difference at the rate of 12%.

Until now, the practice has been as follows: when real estate and/or movable property was given for use by another natural or legal person, regardless of whether a lease agreement was concluded for the said performance, the Tax Administration still determined the tax liability according to the average market value of the lease according to the location of the property.

The new proposal for legal amendments establishes exceptions according to which taxable rent/lease will not be determined, i.e. a tax exemption is introduced in the case when real estate and movable property are rented without generating income, which will be in cases where it is handed over for use to the following users:

• to your spouse
• A blood relative in a straight line
• in the lateral line to the second degree
• by in-law to the same degree, regardless of whether the marriage has ended or not
• adoptive parent, adoptee, guardian, person under guardianship
• the person who lives with him in the same household.

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Flat-rate rental of apartments, rooms and beds to travellers and tourists and organisation of campsites

According to the current Income Tax Act in Croatia, taxpayers who rent apartments, rooms and beds to travelers and tourists and organize campsites are allowed to tax their income as a lump sum under the following conditions:

1. They are not VAT payers according to the Value Added Tax Act.
2. Payment of lump sum tax in accordance with the decision of the competent authority (according to the number of beds, accommodation units or other parameters).

INCOME FROM RENTING FOR TOURIST PURPOSES is paid by a taxpayer – a citizen, a renter who has been approved to provide household services on the basis of the decision of the competent office in accordance with the Hospitality Industry Act (Official Gazette, No. 85/15 – 126/21 and amendments adopted on 13.12.2024)

Catering services in the household – from 1.1.2025 – a new institute has been introduced: host

Who can rent apartments, rooms, apartments, accommodation units in the campsite and in Robinson Crusoe style accommodation facilities, or provide household accommodation services:

• a natural person who is a citizen of the Republic of Croatia
• A natural person who is a citizen of an EU Member State (and other EEA countries)

Determination of the annual lump sum tax

The proposed amendments to the Income Tax Act introduce novelties in flat-rate taxation for persons who receive income from renting real estate in tourism, focusing on the tourism development index of local self-government units. The key elements of the proposal are:

1. Classification according to the tourism development index

Local self-government units (LGUs) are ranked in 4 categories (I, II, III, IV) based on indicators such as:

• Number of tourist arrivals and overnight stays
• Number of accommodation capacities
• Other relevant factors for tourism development

According to the current regulations, the amount of the lump sum tax could not be less than €19.91, or up to a maximum of €199.08, while in the event that the representative body did not make a decision on the amount of the lump sum tax in time, it was determined in the amount of €99.54.

2. New table for lump sum tax according to categories of local self-government units

The amounts of the lump sum tax per bed or accommodation unit vary depending on the category of local self-government units, and are determined in the following amounts:

3. The lump sum tax shall be determined as the product of the number of beds (including main and auxiliary beds) or accommodation units and the amount of the lump sum tax according to the category of local self-government units.
4. Obligations of local self-government units for the adjustment of decisions

• Representative bodies of local self-government units must harmonize decisions on the amount of lump sum tax with the new prescribed ranges by category by the end of February 2025 at the latest.
• If they do not adjust the decisions, a new legal minimum for a certain category applies.

Income tax from the alienation of real estate

Tax on income from the alienation of real estate in the Republic of Croatia is applied in specific circumstances, depending on the situation, the time period of acquisition and sale, and the type of property to be alienated. Here are the key points:

What does the alienation of real estate entail?

Alienation includes the sale, exchange, gift or other form of transfer of ownership of real estate.

The proposed amendments to the Income Tax Act introduce novelties regarding the taxation of income from the alienation of real estate. Here are the key elements of the changes:

1. Value of receipt and eligible costs

When determining the positive difference/tax base (realized receipt minus the purchase value):

• The purchase value is increased by the increase in producer prices of industrial products.
• Investment and disposal costs are recognised, but only if the taxpayer can prove these costs with credible documents (e.g. invoices, contracts related to sales costs, etc.).

2. Taxable cases

• If the property is alienated within less than two years from the date of acquisition.
• If a taxpayer alienates more than three immovable property or property rights of the same type over a period of five years.

3. When is the tax not binding?

• If the property is alienated after two years from the date of acquisition.
• If the immovable property is acquired by gift or inheritance, alienation in direct connection with the divorce.

These exceptions will not apply to real estate that the taxpayer alienates in a modified state. For example, he inherits a plot of land on which he builds a house, which he then sells – because of the evident intention to generate income.

4. A key day for taxation

According to the proposed changes, not only the day from the purchase contract is important, but also:

• The day of making the property available for use, especially in cases of construction, reconstruction, or change of the shape and purpose of the property.

This has been clarified in order to reduce the ambiguity related to taxation when the difference between the days of acquisition and training is relevant.

An example from practice

An example of taxation may include:

• A taxpayer buys land and builds a house on it.
• For tax taxation, it is not the day of land purchase that is decisive, but the day when the house becomes usable.

If he sells the house within two years of that date, the difference between the market value and any eligible investments is subject to taxation.

The amount of income tax from the alienation of real estate – no changes.

• It is paid according to the decision of the Tax Administration – within 15 days of receipt of the decision
• Income tax: 24%.

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