Value Added Tax (VAT) is the main type of indirect taxation in Croatia and in other European Union (EU) countries.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, ie the sale.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
A transaction is within the scope of Croatian VAT if the following conditions are met:
There are three rates of VAT that are applied to goods and services in Croatia; the standard rate of 25% andthe reduced rates of 5% and 13%.. In addition, some goods and services are VAT exempt.
Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.
Most goods imported into Croatia from outside the EU are subject to VAT. The tax will have to be paid or accounted for by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).
It is also important to note the interaction between VAT and customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid or accounted for by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market.
A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in Croatia exceeds the annual registration limit of HRK 300,000, or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded.
For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities is very different.
A penalty may be imposed by the tax authority if a business fails to register at the correct time.
The normal VAT registration limit does not apply to businesses who are not established in Croatia.
Also, entities performing certain business activities will have to register for VAT irrespective of the level of turnover.
Non established business seated in the EU and selling B2C goods and services can apply for the OSS scheme in Croatia (as of July 1st 2021). This means that they will no longer have to register in Croatia for the purpose of VAT after a certain threshold is reached but instead they will be able to register in their own country of origin but for the VAT in Croatia. But along with the introduction of the OSS, the EU is also removing the distance selling VAT thresholds regime. This means that businesses will have to charge the VAT rate of the customer’s EU country of residence from their first sale, rather than once a certain threshold has been reached.
Customers reside, or elect to register under the EU VAT MOSS simplification scheme in a single Member State (where they are established). Businesses with multiple establishments in the EU can choose which Member State to operate MOSS (the Member State of Identification). However, the MOSS cannot be used to report local sales to customers in a Member State in which suppliers of electronically supplied services have a fixed establishment. Non-EU suppliers without an establishment in a Member State are free to select a Member State of their choosing to operate MOSS and become their Member State of Identification. This has been implemented in the Croatian VAT legislation.
Non-established entities seated in the EU can appoint a fiscal representative in Croatia, but are not obliged.
Non-established entities seated outside of the EU have to appoint a fiscal representative in order to register.
VAT returns normally cover an accounting period of one month, ending on the last day of a calendar month.
All VAT returns have to be submitted within 20 days of the end of the relevant accounting period (ie by the 20th of the month or the previous month), whereas any tax liability is due by the end of the month for the previous month. All returns and payments have to be submitted electronically. Since usually there is a few days delay from the day the payment is made abroad until it is visible on the Croatian Tax Authorities account, it is advisable that the VAT payments are made a few days prior to the end of the month, thus avoiding any potential penalty interest.
A penalty interest is charged automatically in the Croatian Tax Authorities’ system if tax is not paid by the due date.
The legislation also prescribes penalties for late submission/ payment of tax, however, this is not the case in general practice.
Businesses that are registered for VAT in Croatia, and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit EC Sales Lists (ZP form). The ZP must show details of the recipients of the goods and services and is submitted on a monthly basis.
Generally, ZP’s are only submitted for months in which there were supplies made to other EU countries, ie nil supplies do not have to be reported.
EC Purchase Lists (PDV-S form) is submitted for EC acquisitions from other EU countries. PDV-S form has to be submitted on a monthly basis except when there were no acquisitions during the month in which case a nil return does not have to be submitted.
In case the taxable persons, registered for VAT purpose in Croatia, performs supply of goods to the other taxable persons in Croatia, than a so called INO-PPO form also needs to be filed. The reverse charge mechanism should than be applied and the outgoing invoices should be issued using the foreign (EU) VAT number and stating the following sentence: Reverse charge according to Article 75.2 of a Croatian Value-Added Act. The same as in case of EC Sales and Purchase Lists, in case there weren’t any such transactions performed in the respective month, than it should not be submitted.
In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both. These declarations have to be submitted on a monthly basis.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes.
Criminal proceedings may be brought in the case of more serious matters.
Yes, it may be possible to reclaim the VAT incurred in certain circumstances.
Two schemes exist, one or businesses established in the EU and another for businesses established elsewhere.
The EU cross border refund scheme is available in all EU member States, and enables a business established in an EU country to recover VAT incurred in another member State. To be eligible to make a claim, the claimant must be a taxable person established in an EU member State other than the one from which the claim is to be sought. In addition, the claimant:
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority from whom the repayment is being sought.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.
Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into Croatia or purchases of goods and services used in Croatia.
The scheme is available to any person carrying on a business established in a third country, ie outside the EU, provided that in the period of the claim:
The deadline for the submission of VAT refund request for businesses from third countries is 30 June in the year following the year to which the VAT refund request relates.
The deadline for the submission of VAT refund request for businesses from other EU countries is 30 September in the year following the year to which the VAT refund request relates. In this case the VAT refund request is submitted electronically via the VAT refund portal.
A VAT invoice must show:
For each different type of item listed on the invoice, the following must be shown:
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
Where a business makes retail sales and makes a sale of goods or services for HRK 700 or less including VAT, a simplified VAT invoice can be issued.
VAT invoices can be issued, received and stored in electronic format and there is no need to tell the tax authority. Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
There aren’t any such requirements at the moment; however, Croatia is discussing on adopting such procedures in the future.
For further information on indirect tax in Croatia please contact:
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Danijel Galek |
