What are the usual steps to buy a real estate property in Croatia?
In order to purchase real estate it is necessary to enter into Purchase agreement in written form, taking into consideration that seller’s signature must be notarized. In case purchase price for the real estate is paid by a bank loan, it is necessary to notarize the entire purchase agreement, upon which the bank shall inscribe mortgage on the real estate. We recommend submitting the purchase agreement upon execution to the competent court in order to register ownership, after which the buyer becomes the owner of real estate.Motion for registration of ownership is submitted to the land registry department of a court competent for municipality in which real estate us located. Electronic filing of motion for registration of ownership is also enabled, regardless of location of real estate, which may be filed by any public notary in the Republic of Croatia and attorneys who requested enabling of such service.Public notary who notarized seller’s signature is under legal obligation to submit purchase agreement to Tax authorities who shall issue Resolution on payment of real estate tax, payable by the buyer.
What legal checks should be done before buying a property?
While purchasing real estate, it is necessary to check if ownership is registered at the land registry of a court competent for municipality in which real estate us located, as well as compliance of condition of real estate with description in the land registry.In case real estate is not registered at the land registry, it is necessary examine the possibility of registration. Also, all documents on building and land that are being purchased should be requested from the owner of real estate, including information on issuance of usage permit and energy certificate. It is also necessary to verify payment of utility costs for the real estate that is being purchased, identify possible debts and other encumbrances.
Buying through a company.
Law on Commercial Companies stipulates that shares in the company (d.o.o./Ltd.) may be paid by investment of objects and rights. Therefore, real estate may be invested as shares during incorporation of a company; however, real estate may also be subsequently invested as increase of share capital or investment into uninscribed capital of the company.
Non-resident citizens often buy real estatethrough a companywith registered seat in the Republic of Croatia, especially if their intention to use the real estate for commercial purposes (for instance, for tourist / commercial lease and similar). Taking into consideration that such commercial company is considered to be a Croatian resident, limitations in respect to purchase of land stipulated for non-resident physical persons do not apply. Purchase of agricultural land by foreign nationals is limited.
Money laundering in Croatia
Investment into real estate often attracts suspicious monetary transactions. Due to high risk of activities in this sector, attorneys are under obligation to implement measures aimed at prevention of money laundering and financing of terrorism, to perform risk assessments against money laundering and financing of terrorism, to implement in-depth analyses and in stipulated cases to inform competent authorities.
What are the purchase costs and taxes?
Usual costs paid by the buyer while purchasing a real estate in Croatia are:
- Estate agent costs 2-4% + vat,
- Land registry fee 250,00 HRK (approx. 34 €).Upon filing of motion for registration of ownership, filed upon expiry of 60 days from fulfillment of conditions for registration of such right in the land registry or registry of purchase agreement, land registry fee shall be charged in five times the amount stipulated for such motion,
- Lawyer‘s fees pursuant to provisions of Tariff on fees and remunerations of attorneys + vat,
- Real estate tax is payable at rate of 3%. Basis for taxation is market value of real estate at the moment of occurrence of tax liability. Market value of real estate is price of real estate achieved or achievable at the market at the moment of occurrence of tax liability. Object of taxation is transfer of ownership of real estate. Acquisition of real estate on which value added tax is charged is not considered transfer of ownership of real estate.
In case the transferor of the real estate is a taxpayer registered at the registry of taxpayers of VAT in the Republic of Croatia, the transferor is under obligation to charge VAT in case the following is being sold:
- Construction land,
- No plaster (unfinished) real estate,
- Building or a part of a building and land on which building is located, taking into consideration that real estate has not been in use or used for a period longer than 2 years,
- Reconstructed building or a part of reconstructed building and land on which building is located, taking into consideration thatreconstruction expenses during 2 years prior to transfer of ownership exceed 50% of purchase price of real estate.
In the aforementioned cases, when VAT is paid, the buyer does not pay real estate tax at rate of 3 %.
There is also a possibility to choose taxation (domestic transfer of tax liability), which may be applied in situation in which transferor and acquirer of real estate are taxpayers registered at the registry of taxpayers of VAT in the Republic of Croatia.
What documentation must the buyer have in place before buying a property?
For individuals:
- Identity card or passport,
- OIB number – Personal identification number (issued by tax office).
For companies:
- Identity card or passport of a responsible person,
- extract from court registry (for companies),
- OIB number – Personal identification number (issued by tax office)
What precautions have to be taken regarding off-plan purchases?
In case of purchase of real estate under construction, it is necessary to request the investor to provide valid and enforceable construction permit or other appropriate document for construction.It is certainly recommended to request issuance of warranty guaranteeing repayment of money paid as purchase price in case construction works do not commence or have not been performed in the stipulated time.We recommend to include as many details as possible in the purchase agreement, in respect to time limits, purchase price, dynamics of payment and other stipulations (for instance, penalty in case of delay in delivery of real estate and other), as well as in respect to materials and equipment that shall be built into apartment or common parts of the building, since this significantly prevents possible misunderstandings at the time of delivery of apartment.
Tips for clients looking to build their own property.
After passing of decision on construction, we recommend to consult an authorized architect who shall prepare construction drawings in accordance with local spatial regulations, after which necessary documentation must be collected in order to obtain construction permit. Taking into consideration that at the moment there is high demand for contractors in Croatia, we recommend to seek best contractor already during period of obtaining of construction permit. We recommend to enter into a written agreement on construction with the contractor. Upon completion of construction, it is necessary to register the constructed building in the cadastral office and land registry and to obtain usage permit.
Annual running costs.
Pursuant to the Law on Local Taxes, local self-government unitsmay impose taxes on vacation houses, taking into consideration that each building or a part of a building which are being used occasionally or seasonally are considered vacation houses.Therefore, possession of real estate in the Republic of Croatia is currently taxed only in case of occasionally used houses. Tax on vacation houses is payable by owners of such houses. Tax obligation is calculated pursuant to surface are of a vacation house, in amount between 5,00and 15,00 HRKper square meter (depending on location of real estate). Apart from this tax, communal charges and utility costs should also be considered as annual running costs.
Whatminimum legal checksshould be done when selling a property?
A person who is selling real estate should prepare extract from the land registry of a municipal court competent for municipality in which real estate is located, as well as documents proving legality of construction of a building and energy certificate.
Selling costs and taxes.
Costs and taxes that may occur during transfer of ownership of real estate:
- Expenses for issuance of energy certificate,
- Estate agent costs 2-4% + vat,
- Lawyer‘s fees pursuant to provisions of Tariff on fees and remunerations of attorneys + vat,
The seller may be liable for payment of income tax on the basis of transfer of ownership of real estate in case he/she sells three or more real estates within five years of acquisition of ownership or in case he/she sells or otherwise transfers ownership of real estate prior to expiry of two years from acquisition thereof (unless real estate was used as residence of such taxpayer or members of his/her immediate family).