For most goods and services in an economy, we see a common tax everywhere. Croatian VAT (Value-Added Tax) has no exception.
It is an important tool that governments use to ensure the proper functioning of the country. It helps in keeping detailed records and countering tax evasion.
To get an idea, let us go through a quick rundown: Let's say you buy an item like a fancy watch from a Croatian shop. Assuming the watch costs 100 Croatian Kuna (13.7 Euros), the shopkeeper is bound to pay an input tax depending on the VAT rate.
The added tax is passed on to the customer to keep the business profitable. So, considering the example of the watch, if a standard rate of 25% is applied, the fancy watch will end up costing 125 Croatian Kuna (16.6 Euros).
You must keep in mind that the laws regulating VAT in Croatia have different categories for goods and services, which may differ from those in other countries. Although Croatia adheres to the European Union VAT compliance rules, it has the authority to set the Croatian VAT rate as it sees fit. Therefore, we can see specific goods and services on which reduced or even zero VAT applies in Croatia.
“Porezna Uprava,” or in English “Tax Administration,” is the main source of all information on VAT in Croatia. It mainly carries out tax rules and manages the payment of mandatory contributions. The tax system is designed to be fair and treat everyone equally. Everyone should help cover public costs based on what they can afford.
Additionally, the Zagreb Office is another limb of the Croatian Ministry of Finance. It addresses businesses that are based outside Croatia. It makes sure that companies follow tax rules and collect contributions.
It also handles inquiries and provides support in case of any disputes or problems related to tax payments. Businesses are asked to stay in regular contact with the office. This helps to ensure they are up-to-date with their tax obligations.
The Tax Administration from Croatia’s Ministry of Finance gives guidelines and sets VAT in Croatia. You may visit here to find more information about your goods or services of interest.
To run a business smoothly, we must avoid any legal issues such as tax evasion. One must register for VAT in Croatia if they wish to avoid any fines, even if it is due to a lack of knowledge. Thus, it would be wise to check which threshold category your company falls into.
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For “Residents” of Croatia, the current mandatory threshold is €40,000. Surprisingly, in the case of “foreigners” or “non-residents”, there is no threshold. They must pay VAT in Croatia regardless of annual turnover. So, if you plan to run a business in Croatia, this is a crucial point to keep in mind.
In comparison, it differs if you deal in digital services or goods in countries within the European Union (EU). Your business would be subject to a mandatory threshold of €10,000. This applies to all digital businesses anywhere in the world. As with most countries, a business may choose to pay VAT in Croatia without surpassing the threshold.
When a business in one EU country buys from a business in another EU country, we call this an “intra-Community acquisition.” To illustrate, if a clothing store in Croatia buys stock from a manufacturer in Germany, that’s an intra-Community acquisition.
Usually, you would have to pay VAT when buying from that manufacturer, but in the case of intra-Community acquisitions, the VAT rate is 0%. It is subject to a zero VAT rate. This means the clothing store in Croatia can avoid paying extra taxes when buying from a German (fellow EU country) manufacturer.
To benefit from this, both businesses must have a special VAT number and be registered in the VAT Information Exchange System (VIES). One may benefit from this if the goods are bought and sold only for business purposes. This is an incentive for businesses in different EU countries to trade with one another rather than outside the EU.
We call this the “reverse charge mechanism.” It allows companies within the EU to trade with each other without having to pay VAT upfront, hence promoting trade within the EU.
"Let's go over some basics to get your very own Croatian VAT registration number. The procedure for VAT registration is different for Croatian businesses than for those operating overseas. You can find all the prerequisites to apply for VAT in Croatia online. They are conveniently available on the website of the Croatian Tax Administration."
Firstly, VAT-registered businesses are more prestigious as they reflect a sign of trust. They are transparent in their taxes and do not engage in shady practices such as tax evasion.
Secondly, the input VAT paid on goods and services can be reclaimed as they keep a detailed account of transactions. Additionally, any penalties and fines associated can be avoided, especially those incurred by not registering upon surpassing the appropriate threshold.
The time frame for registration is around 8 days. One must also write a letter of motivation or reason for VAT registration in Croatia. Local Croatian businesses can directly register with the Croatian Tax Administration.
Companies operating outside the EU must have a 'fiscal agent', meaning that a pre-established company in Croatia acts as an agent to pay VAT indirectly. Companies previously registered in an EU country can present a recent VAT certificate (maximum 3 months old).
Now that your registration is complete. The unique ID assigned to businesses or individuals (VAT number in Croatia) is called the OIB (Osobni Identifikacijski Broj). Starting with the country code, the OIB is prefixed as 'HR'. Then there are eleven digits following it. A typical Croatian VAT number looks like HR12345678900. The OIB is used in all tax and customs documents. Therefore, it is crucial for all businesses that are VAT-registered in Croatia to have one.
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To reclaim the VAT paid on goods and services as a Croatian business, you are required to fill out a VAT invoice. This is a detailed record with all VAT-included and VAT-exempt transactions, along with other information. You may see the complete list of particulars that are required here.
There are two choices: Quarterly and Monthly VAT returns. Normally, you must file by the 20th day of the month (after the end of the reported tax period). There is no annual VAT return option in Croatia as of yet.
There are also some guidelines for a traveler or an exporter without permanent or habitual residence in the European Union. When they purchase goods in Croatia, they have the right to a refund if they meet the guidelines of the Croatian Customs Administration. The total VAT-included price of goods on a single invoice must be over 100 euros.
Conclusion
To wrap it up, here is the main takeaway: VAT is a valuable tool for revenue collection and keeping detailed tax records by governments worldwide. The same applies to Croatia. There are two major benefits if one understands VAT in Croatia and applies it to their business: prestige and profit. For success in the Croatian market, you must have a proper understanding of the laws governing VAT.
Once again, knowledge of thresholds for your particular situation can help avoid any penalties. These include fines from tax authorities threatening maximum profitability. To add further, there is a great incentive to trade within the EU.
Businesses in the EU should take full advantage of the VAT Information Exchange System (VIES). This empowers cross-border trade within the Union. Essentially, consulting an expert tax advisor can help a business navigate and thrive in the Croatian tax system, steering toward success.
Rían Doyle
I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.
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