Friday, 25 March 2022

Croatia Reduces Value Added Tax Rate on a Series of Products

ZAGREB, 25 March  (2022) - The Croatian parliament on Friday adopted the amendments to the Value Added Tax (VAT) Act unanimously with 123 votes in an effort to buffer the price hikes.

Under the amended law, the standard VAT rate of 25% is lowered to 13% on children's food, edible oils and fats, butter and margarine, live animals, fresh meat and small goods, live and fresh fish, crabs, vegetables, fruit, eggs, seedlings and seeds, fertiliser and pesticides, animal fodder and tickets for concerts, sports and cultural events.

The reduced 13% VAT is also imposed on natural gas, heating from heating stations, firewood, pellets, briquettes and cuttings as well as menstrual products.

VAT on natural gas will additionally be temporarily reduced to 5% for the period from 1 April to 31 March 2023.

The Sabor also adopted the Law on Settlements which improves and harmonises the way boundaries between settlements are determined and how the names of settlements, streets, squares and house numbers are to be marked.

The national legislature adopted a Law on State Measurements and the Cadastre which abolishes the majority of real costs for the use of data from excerpts, printouts, transcripts and certificates.

A bill on the consolidation of farmland will receive a second reading. The bill aims at implementing the consolidation of land by 2026 and HRK 313 million has been earmarked for this purpose.

 For more, check out our politics section.

Friday, 22 October 2021

Parliament Debates Proposal to Lower VAT on Feminine Hygiene Products

ZAGREB, 22 Oct 2021 - The Croatian parliament on Thursday discussed amendments to the VAT Act proposing a lowering of the VAT rate on feminine hygiene products from 25% to 5% to reduce gender inequality in the national tax system.

Anka Mrak Taritaš of the GLAS party, who put forward the amendments, said that during her life every woman in Croatia pays around HRK 8,000 in VAT on sanitary towels and tampons.

She recalled that many European countries had lower tax rates for those products and added that the European Parliament in 2019 adopted a resolution on gender equality and taxation policy in the EU calling on member-countries to exempt feminine hygiene products from VAT.

She noted, however, that her proposal would probably not be supported by the parliamentary majority as the government lacked empathy for women, calling on it to put forward its own amendments if it considered her proposal inadequate.

Zdravko Zrinušić, director of the Tax Authority, said the proposal could not be supported because a systematic solution was required to avoid undesirable effects. He recalled that VAT had already been lowered on food, medicines, energy and municipal services yet that did not result in lower prices.

Nikolina Baradić of the ruling HDZ party said that she could not support Mrak Taritaš's proposal because it was inadequate, adding that the government cared about the equality of women and fought against poverty and social exclusion.

Ana Pocrnić Radošević (HDZ) said that VAT reduction had not resulted in lower prices but in an increase in retail margins. The experience of some countries shows that VAT reduction was not the right way to solve the problem, she said.

Sabina Glasovac (SDP) said that women pay HRK 130 million annually into the state budget just because they are women as they cannot function without feminine hygiene products.

That is not a luxury and should not be taxed with the highest rate, while VAT on cinema tickets and newspapers, which is not something one could not live without, is 5%, Glasovac said, noting that VAT on feminine hygiene products would probably be lowered when that was requested by the EU.

Katarina Nemet of the Istrian Democratic Party (IDS) supported the amendments, noting that Croatia should follow the example of countries where feminine hygiene products were free, for example in schools.

Marijana Puljak (Centar/GLAS) called on the government to support Mrak Taritaš's proposal as did Nikola Grmoja (Bridge).

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Sunday, 5 September 2021

Economy Minister Rules Out Lower VAT on Food This Year

ZAGREB, 5 Sept, 2021 - Economy Minister Tomislav Ćorić said on Sunday that the Value Added Tax (VAT) on food would not be lowered this year, considering the fact that the economy has just started to stablise since the 2020 crisis caused by the COVID-19 pandemic.

"The reduction of the VAT rate cannot be implemented this year. We have just started to stabilise since the crisis in 2020. Such moves should be considered within medium-term perspectives, that is in one or two years," the minister said in his address to the press while attending his ministry's green campaign "#ZaZeleniSvakiDan" in downtown Zagreb.

The minister expects the stabilisation of the prices on the global market in the coming months and the effects of that trend on the Croatian market after that.

"The stabilisation of chains of distribution is a prerequisite for the stabilisation of price of food and also of construction material," he added.

The minister is hopeful that 2022 would usher in stabilisation, supported by some measures from the field of the monetary policy.

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Tuesday, 22 June 2021

VAT on Small Packages Delivered to Croatia Coming Soon

June the 22nd, 2021 - VAT is soon set to be placed on even small packages being delivered to Croatia. All consignments imported into the EU from third countries will face the same.

As Poslovni Dnevnik writes, as of the 1st of July 2021, all consignments imported into the European Union (EU) from third countries and delivered on the basis of distance selling (e-commerce) will be subject to VAT on importation, in connection with which customs issued a comprehensive statement explaining in detail what is set to be paid for and charged when and how.

As of next Thursday, the VAT exemption on imports of goods of a non-commercial nature contained in small consignments, sent to the recipient as a letter or package whose total value does not exceed 22 euros or 160 kuna, will be abolished. This includes packages sent out for delivery before the 1st of July if customs don't manage to process them before the aforementioned date.

How will VAT be calculated and paid when importing items which don't carry a value exceeding 150 euros?

Given the extremely large number of such shipments and the need to simplify the collection procedure, in accordance with EU tax and customs rules, two methods of VAT collection have been prepared for packages being delivered to Croatia:

- Those with a special IOSS taxation procedure
- A special procedure for registration and the payment of VAT

Both methods can be applied to all commercial shipments, where commercial shipments are considered shipments purchased through distance selling if their actual (intrinsic) value does NOT exceed the amount of 150 euros (1,135.00 kuna).

These charging methods do NOT apply to alcoholic products, tobacco and tobacco products, or perfumes/eau de toilette.

What's a special taxation procedure - IOSS (Import One Stop Shop)?

The special IOSS taxation procedure can be applied by persons performing the service of the distance selling of goods (eg the seller, the selling platform or another person), which will be imported into the customs territory of the EU. In doing so, these persons may have their registered office in the EU or outside the EU.

When applying this special procedure, the tax liability arises at the time of delivery, where the goods are considered delivered at the time of the acceptance of payment. This means that persons (taxpayers) who apply for the IOSS procedure will receive the necessary IOSS VAT. number when selling their goods at a distance to the buyer in order to charge VAT at the rate applicable to the recipient's EU member state of residence/delivert.

In the above case, the price paid by the buyer from the EU to the seller (the item's selling price) will include the amount of VAT on import into the EU, which the seller charges from the buyer, and then, through the IOSS system, reports and pays for these deliveries in one place.

When registering, the competent tax authority will assign the seller (or their intermediary) a unique identification number - the so-called VAT IOSS number. This number is assigned and used exclusively for the purposes of this procedure.

What's the  special procedure for the registration and payment of VAT on import (Eng: Special arrangements)?

If the special IOSS taxation procedure isn't used, it's then possible to apply a special procedure for the declaration and payment of the VAT on import (known as special arrangements).

This special procedure allows consignments in postal or urgent (courier) traffic to be declared to customs by a person (agent) acting on behalf of the person for whom the goods in question are intended (ie the buyer), whereby VAT is declared and paid in a simplified manner. This method (unlike IOSS) can be applied only if the shipment or transport of that particular shipment ends up being delivered to Croatia (meaning that it can't be applied if it is a shipment whose destination is in another EU member state).

The person for whom the goods are intended (the buyer or recipient of those goods) is responsible for paying the VAT, while the person who declares the goods to customs in the country of import, collects the VAT from the person for whom the goods are intended and pays the VAT. The person who declares the goods to customs is a postal or express carrier (the so-called courier operator) who transports the consignment in question to the end customer - the consignee.

Therefore, the responsibility for paying VAT lies with the recipient of the shipment, who will pay the amount to the postal operator or express carrier (courier operator) at the time of delivery, and the postal operator or express carrier will pay the amount of VAT into the state budget. When applying this procedure of the declaration and payment of VAT on import, only the general VAT rate of 25 percent will be applied and it won't be possible to apply a lower VAT rate.

What can actually be expected when it comes to items being delivered to Croatia from outside the EU after July the 1st, 2021?

The introduction of this new method throughout the EU will result in a dramatic increase in the number of declarations/charges on item import. As such, a daily increase in the number of declarations of around 7,500-10,000 is expected in Croatia alone. These newly introduced administrative actions related to VAT collection and the consequent huge increase in the number of electronic declarations requires the additional commitment of significant human and other resources and will inevitably lead to a longer duration of the procedure of the declaration and collection of import duties.

In order to speed up and simplify all collection procedures for items being delivered to Croatia, the Customs Administration has, over the past two years, developed IT applications and systems for the electronic notification of shipments before their submission to the customs authorities as well as new electronic declarations (H6 and H7).

These systems are built on the functional requirements provided by the European Commission. Consequently, the Customs Administration has successfully tested new systems and applications with the competent EC authorities and other legal entities that actively participate in these procedures (as a declarant, namely Croatian Post/Hrvatska posta and express delivery companies including: DHL, IN TIME, RHEA).

Aware of the increase in workload expected from the 1st of next month. The Customs Administration has provided an additional number of officials who will deal with this type of work and adjusted their working hours in order to do their part of the work quickly and on time with as few delays and waits as possible. Given the new administrative obligations that need to be implemented and the large number of shipments arriving, it is evident that the entry of small shipments into the EU will be slowed down after the 1st of July 2021, which may cause dissatisfaction among buyers of these shipments. But this is expected within the entire EU, so unfortunately Croatia and items delivered to Croatia are no exception.

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Friday, 18 June 2021

All Parcels from Outside EU To Be Taxable as of 1 July

ZAGREB, 18 June 2021 - As of 1 July tax reliefs are to be abolished in all EU member states for imported parcels with a value of more than HRK 160 (€22) while all parcels delivered from third countries will be taxable, and deliveries are expected to be slowed down, a press conference heard on Friday.

As of 1 July all parcels, regardless of their value, that come from third countries and are purchased online will be subject to VAT upon import, the Customs Administration and Croatian Post told the press conference.

The director of the Customs Administration, Mario Demirović, said that this is one of the most significant regulatory changes in Croatian Post's and the Custom Administration's business with regard to taxes on postal packages and VAT.

"We are absolutely prepared as far as the Customs Administration is concerned," said Demirović.

He underscored that all new costs have to be clearly marked for the end user and they have to be transparent and unambiguous. The Customs Administration will exclusively and only charge VAT, he added.

The head of Croatian Post's public relations office, Krešimir Domjančić, underscored that as of 1 July Croatian Post will introduce a fee to inspect the contents of packages coming from third countries.

Packages with a value of up to €150 will be charged HRK 18.50 while packages valued between €150 to 1,000 will be charged HRK 37. At the same time Croatian Post has abolished some other fees, so that as of 1 July fees for the majority of packages which are valued between €22 and 1,000 will be lower.

For more on business in Croatia, follow TCN's dedicated business section.

Monday, 30 November 2020

Hospitality Sector Appeals for Lower VAT

ZAGREB, November 30, 2020 - Croatia's hospitality sector has the highest VAT in Europe, and Croatia is one of the few countries that has not reduced its VAT during the corona crisis, so the hospitality sector has appealed to the prime minister to help reduce VAT, the head of the national association of bar and restaurant owners, Marin Medak, said on Monday.

"We talked about everything, but Finance Minister Zdravko Maric would not hear of reducing VAT. So we are appealing to the prime minister and government to help us because without it we have no reason to continue working in this crisis, even if we are allowed to reopen at the end of December or in January," Medak said after a meeting at the Ministry of Labour and Pension System between government representatives and representatives of the hospitality sector to discuss the government's latest measures in the new mild lockdown.

The government is set to present the latest measures on Monday. Minister Maric said that the measures related to keeping jobs, relaunching and accelerating the issuance of COVID loans through the SMEs agency Hamag-Bicro and exempting some costs of doing business in December.

Commenting on what the ministers presented and which measures were accepted as compensation for shutting down their businesses, Medak underlined that the measures came too late and that the national COVID response team had failed.

"Everything they are offering us now will not be sufficient, hence we appeal to the prime minister and government to clearly tell us if there is any hope for the future because we no longer have any and we have no idea what will happen in these circumstances. As far as we could see, the ministers themselves do not know what costs we have nor how much the proposed measures will cost the economy. If they were to reduce VAT, which is about HRK 300 million a year, and if that is a problem, then where is the HRK 1.3 billion for COVID loans going to come from, or the HRK 470 million for the monthly allowance of HRK 4,000  to keep jobs," said Medak.

He said that they did not want their workers to live off that, nor off the HRK 4,000 when until now they had paid VAT and all other allowances and fees. He added that now the entire hospitality sector had a lot of problems and many of them believed that it was better not to reopen in January after the measures were lifted because the fall in turnover would continue.

Disappointed with the meeting and the ministers' proposals, the head of the association of bar and restaurant owners from from Istria and Kvarner, Vedran Jakominic, said that they were more "shaken up than satisfied."

He described the proposed measures as a minimum and a mere PR campaign rather than an economic analysis and activity.

Friday, 11 September 2020

Croatia Among Most Efficient EU Countries in VAT Collection

ZAGREB, Sept 10, 2020  - Differences between expected VAT revenues and revenues actually collected in EU member states are still high despite a slight improvement, and Croatia is among the most efficient countries in VAT collection, the European Commission said on Thursday.

The Commission released data for 2018 showing that the member states lost an estimated €140 billion in expected Value-Added Tax (VAT) revenues. 

There were great differences among the member states. The highest national VAT gap was recorded by Romania, with 33.8% of VAT revenues going missing in 2018, followed by Greece (30.1%) and Lithuania (25.9%). The smallest gaps were in Sweden (0.7%), Croatia (3.5%), and Finland (3.6%). In absolute terms, the highest VAT gaps were recorded in Italy (€35.4 billion), the United Kingdom (€23.5 billion), and Germany (€22 billion).

In 2018, Croatia collected €252 million less VAT revenue than expected.

"Although the overall VAT Gap, which is the difference between expected VAT revenues in EU member states and those actually collected, is still extremely high, it has slightly improved in recent years. However, figures for 2020 forecast a reversal of this trend, with a potential loss of €164 billion in 2020 due to the impact of the coronavirus pandemic on the economy," the Commission said.

"The considerable 2018 VAT Gap, coupled with forecasts for 2020 -- which will be impacted by the coronavirus pandemic -- highlights once again the need for a comprehensive reform of EU VAT rules to put an end to VAT fraud, and for increased cooperation between the Member States to promote VAT collection while protecting legitimate businesses," it added.

"Today's figures show that efforts to shut down opportunities for VAT fraud and evasion have been making gradual progress -- but also that much more work is needed. The coronavirus pandemic has drastically altered the EU's economic outlook and is set to deal a serious blow to VAT revenues too. At this time more than ever, EU countries simply cannot afford such losses. That's why we need to do more to step up the fight against VAT fraud with renewed determination, while also simplifying procedures and improving cross-border cooperation," said Paolo Gentiloni, Commissioner for Economy.

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Tuesday, 28 July 2020

Association Requests Lower VAT for Hairdressers and Fitness Studios

ZAGREB, July 28, 2020 - The Voice of Entrepreneurs association (UGP) on Tuesday called for lowering of the standard 25% Value Added Tax rate to 13% on services provided by hairdressers and fitness studios, explaining that this would be benefit the state budget in the long run and would also create more jobs.

The association presented the findings of an analysis showing that a lower VAT on those services would have multiple positive effects on employment and doing business.

The UGP said that hairdressing is one of the few occupations that have survived changes introduced by the Internet.

The association says that hair salons are mostly small businesses that have managed to remain on the market, but there are fewer and fewer of them and therefore it is necessary to address the issues bothering them in a serious manner.

The lower VAT, the less grey economy

The UGP said that a lower VAT for hairdressers and fitness studios would help reduce the grey economy.

By reducing the VAT rate, the authorities would encourage doing business legally, and consequently, there would be more revenues in the state budget, it added.

Thursday, 16 July 2020

Maric: VAT in Tourism Isn't 25% but Generally 13%

ZAGREB, July 16, 2020 - Finance Minister Zdravko Maric said on Thursday that it is not true that VAT in tourism and hospitality is 25%, since it is generally 13%.

Asked whether a VAT reduction was on the cards as called for by some of the entrepreneurs Minister Maric first said that VAT is a neutral item for payers but that he presumes they are referring to the hospitality sector.

He went on to say that that was one of the topics discussed over the past few days with representatives of that sector.

"The only segment in tourism that has a VAT of 25% is delivering beverages to hospitality facilities. Everything else is practically at 13%: from accommodation to delivering and serving food hence if we look at it overall, VAT in tourism is 13%," said Maric.

He announced that the new government would continue with tax cuts at the "same pace" as until now. He recalled that the incumbent government began cutting taxes practically at the start of its term in power.

Thursday, 18 April 2019

''Business Model of Croatian Tourism is Unsustainable''

As Lea Balenovic/Iva Grubisa/Novac writes on the 17th of April, 2019, Croatian tourism's current business model is unsustainable and has some serious challenges, according to Emanuel Tutek, a partner at the Horwath HTL consulting house, who stated this at the very beginning of a conference on the challenges of the Croatian tourism sector at Edward Bernays High School, the co-organiser of which was Jutarnji list.

Since 19 percent of Croatian GDP comes either directly or indirectly from tourism, the unsustainability of the system is a more serious issue, he added.

''First of all, our tourism is an extremely seasonal sector and as much as 86 percent of all tourism activities in Croatia take place during the summer months. It's also problematic that 96 per cent of these activities are realised on the coast and in Zagreb. In translation, this means that we have plenty of room for progress and the development of our tourist offer across the rest of Croatia, as well as the extension of the season. We are well below the European average. For example, if we compare just the peak of the tourist season, ie July and August, there is 10 to 20 times more of a burden on the area and the residents in Croatia than there is in other European countries. Just remember how some of the destinations and beaches look in July or August,'' warned Tutek.

He also added that Croatia has plenty of room for progress and development in the quality of the accommodation it provides. The Croatian hotels that, as Tutek says, are the pearl of Croatia's hospitality, are very much losing the battle with the hotel industry in the rest of Europe, and the alarm that should be enough to wake the country up is also the fact that the revenue made from tourists' overnight stays in Croatia is less every year.

In addition to this, Croatian tourism is feeling the country's ongoing demographic crisis bite hard, and has a human resource problem as a consequence. This is, as was explained by Tutek, actually a global problem. However, since the international labour market is far more competitive than the Croatian one is, foreign countries are filling their gaps with Croatian workers. Croatia is, unfortunately, at an unimpressive 100 of 138 countries in the world according to the labour market competitiveness index. An even more concerning piece of information shared by the Horwath HTL consultant was that Croatia is the last and second to last in the world on the ladder of attracting and retaining workers.

''We have no solution. The answers to this can't just be some lump sums and other initiatives, we need something more fundamental,'' he warned. One of the negative factors in each case is the uncompetitive average salary. In nearby Austria, for example, in the hotel sector, wages are about 122 percent higher. Still, the hotel industry here in Croatia has experienced a great discrepancy in numbers, and they have therefore begun to increase employee salaries for the last two summer seasons, which has been a fruitful decision. With the rise in salaries and expenses, revenue also grew.

In addition to the inadequate management of human resources, huge problems are also created by the Croatian tax policy. Property tax, Tutek said, practically doesn't exist in Croatia. ''We're the champions of how good private landlords have it. Croatia is a tax oasis,'' he claims.

''We want to be competitive, but there are a number of things that we're not even close to, not even in the wider environment. VAT reduction is certainly important, and there is also the question of consistent policies. It is important for us to have a perception of what will happen in the future at some point, but if the policies constantly change then we can't have a stable business,'' said Sanjin Šolić of the Lošinj hotel group Jadranka.

Davor Lukšić, President of the Lukšić Croatia Group, agreed with him, pointing out that Croatia's 25 percent VAT rate is very high, and even with a rate of 13 percent there would still be room for progress. "We have to remain competitive, especially now when other destinations in the Mediterranean are making a come back," Lukšić added.

But if one was to as Croatian Tourism Minister Gari Cappelli, the problem of the high VAT rate is one of the easiest problems to solve in the Croatian tourism industry. The minister claims that the Croatian Government could lower the VAT rate with one decree, bringing it down to 10 or 13 percent, and such a decision is in the government's plans for the beginning of next year.

''We have a problem with having five-star hotels in two star destinations. First of all, we have to start improving the quality of the destination and spend the whole year measuring what's happening and only after a few years will we see whether both residents and tourists are happy, as well as service providers and the environment. If everyone is more or less happy, then it makes sense to invest in a four or five-star hotel,'' stated Minister Cappelli, adding that in Croatia, it often happens that investments are made in luxurious hotels first, but not in the development of the destination in which it is located.

"Well, we have cases where five-star hotels don't have sewage systems but septic tanks," he said. The minister also referred to the initial lecture by Emanuel Tutek about the key challenges facing Croatian tourism. He agreed that there was always room for progress, but he also pointed out that he was tracking the figures daily and that he couldn't bring himself to agree with all the alarming warnings about the unsustainability of Croatian tourism.

''We're a strange people, two years ago there were no tourists and they wanted to get rid of me, now there are a lot of tourists, and they want to get rid of me again, the projections of what's to come in two years keep coming in, and they're already that I'm shaking in my chair,'' said Cappelli, adding that Croatia is spending what it earns and has therefore finally got an investment rating.

''Now the pressure on public finances is being relieved and the taxes on the economy can be reduced slowly,'' he said.

If the Croatian tourism association is asked for their opinion on the matter, this is last chance saloon for this tax relief to actually become a reality. Namely, it is anticipated that hotels could reduce the volume of their investments by as much as thirty percent over the next three to four years. ''We want to warn the government that it must not let that happen. We have to invest, but we expect that the government to create measures to encourage that and not just put us off,'' said Jadranka's Sanjin Šolić.

Dubrovnik has experienced not only growth in terms of tourism but also the improvement of infrastructure in recent years, Lukšić believes. However, despite the wild popularity of this particular southern Croatian city, it has multiple problems during the winter season.

''In the last two years, we have extended the [tourist] season and the so called ''congress season'' has helped a lot. But we all have to sit around the table and design a strategy for the winter season, which is actually the only problem,'' Lukšić said, arousing a grin from Šolić, who, having being on an island, has much bigger problems.

''It's easy for Dubrovnik. Imagine how it is for us to extend the season! You need to get to the island, the bridge is a problem, the bura is a problem, everything is a problem. We're less competitive than our colleagues on the mainland whichever way you turn. The Chinese, the Koreans, whoever comes to Croatia, lands in Zagreb, goes to Plitvice, Split and Dubrovnik, nobody comes to us,'' complained Sanjin Šolić.

That is why his team sat down together at the table and decided to turn to health tourism for which Lošinj has natural resources, a strategy and a future, said Šolić. Another solution for the development of island tourism is golf. Therefore, a location permit is currently being sought for the construction of a golf course with eighteen holes, with which will be a hotel and villa that will have a total of 800 beds.

''These are the two routes we have on Lošinj. People don't play golf in July and August because its too hot. During November, December, January, February and March, the weather is wonderful and we'll fill our capacities that way,'' he noted.

Emanuel Tutek welcomed this discrepancy in Croatia's tourism development strategies at various locations.

''Not all destinations are suffering the same issues. In Dubrovnik, there is a problem with excessive demand, and the quality of the offer needs to be worked on to reduce the number of tourists. In Istria, the offer should be increased. This has, for example, been done in Maistra. Nobody thought it would pay off to build a five-star hotel in Rovinj, but after the construction of the hotel, the rest of the sector was accompanied by the arrival of tourists and the development of the destination.

However, in addition to the respective issues destinations face in Croatia, the eternal problem facing the entire Croatian tourism sector is labour and wages.

''Salaries are a problem, they're still a base for attracting workers,'' said Tutek, agreeing with the CEO of Jadranka, but as he said, it's difficult to increase salaries because there isn't enough revenue.

"When the minister sorts us out with less taxes, I'll give the rest of it in salaries," he stated.

Make sure to follow our dedicated lifestyle and business pages for much more.


Click here for the original article by Lea Balenovic and Iva Grubisa for Novac/Jutarnji