Croatian Citizen Buying Practice
A Croatian can purchase any property in Croatia and the process is similar to other EU states, you can enter into a pre-sales contract based on some terms being satisfied by paying a 5-10% deposit, which you lose if you do not proceed with the purchase, or the seller has to return two-fold if he decides not to sell.
If there are no terms and its an outright straightforward sale then a sales contract is drawn up. A sales contract may or may not have a title release clause depending on when and how the money will be paid.
If the money is not paid immediately and is to be paid by a certain time, then the title release clause is not included and is provided separately in a Tabular Statement once the seller receives the money.
For EU citizens the only difference is that they can purchase every form of real estate except agricultural farms and land until 2021. To submit a sales contract to the court it is also necessary to apply for a document from the building department of the county that the real estate being purchased is in a building zone (ie, not an agricultural property of any sort).
For Citizens of other other countries with whom Croatia has a reciprocity agreement the following practice applies.
The traditional practice for non EU individuals assumes that a pre-contract is drawn-up, the purchaser pays a 10% deposit, you need to wait the 6-12 month period for approval from the Ministry before taking possession. If the purchaser withdrew from the deal in the interim, the deposit would be forfeited – where the vendor withdrew, they were required to return the deposit and pay an additional 10% as a penalty.
However, in such a buoyant property market, with rapidly rising prices, there is distinct risk that the purchaser may be gazumped. The rising market price makes it worthwhile for the vendor to break the contract and return the deposit and penalty to the purchaser, and still be well ahead.
At Adria Mare we advise payment of the full upfront price allowing our clients to:
- Take occupation before the permission is granted.
- Earn rental income during the approval process.
- Begin internal refurbishment (within the same footprint)
- Have peace of mind in that the property is theirs and there is no risk of gazumping. (Please note that when buying property off-plan, the payments can be staged with traditionally a down payment of 35% of the contact value followed by up to five equal installments over the development period
Private Buyer Route
Adria Mare, with your input will negotiate with the property owner an acceptable price and verbally reserve the property.
We will draw up the contracts (a pre-contract where the full amount is not paid) between the vendor and our client.
We will assist you in setting up a local bank account (with internet banking).
The contract is then signed and exchanged in the presence of a notary public.
However, if the buyer is not present, the contract can be signed in their home country.
The documents are submitted to the local land registry department.
The application for permission to purchase is prepared by your lawyer and forwarded to the Ministry of Justice. This will include:
- Providing power of attorney to our lawyers to enable the permit application to proceed. the purchasers proof of citizenship and identity.
- The contract outlining the terms of sale. Land and Cadastral registry documents.
- A written request signed by the applicant.
- After gaining approval and within 30 days,our lawyer will register the sale with the local tax authority.
- On receipt of the tax calculation for the property from the tax office, the client has 15 days to pay the tax bill before penalties are accrued.
The process to complete the purchase with the vendor can take anywhere from 7 days to 1 month, depending on the location of the client for document execution purposes. In the background, the approval from the court can take between 1-3 months. Waiting time for the permit does not affect your client's ability to move in, begin internal refurbishments or letting out the property.
The Corporate Buyer Route
There can be advantages in purchasing property in Croatia via the ‘ Corporate Buyer Route '. These advantages need to be offset with the initial and ongoing costs in maintaining the new entity.
We work with a expert property lawyer in Croatia and who analyses our client's needs and expectations, on a case-by-case basis, and then advises on the most appropriate route to meet our client's objectives.
Our lawyer is experienced in establishing limited private entity's for individuals wishing to purchase property in Croatia via this route. Other than the requirement to apply for permission to own property and the ensuing waiting period, all other steps outlined above, still apply. We can immediately initiate proceedings to establish the limited liability company - this usually takes 1 week. Typically during this time our client is reviewing properties and by the time they are ready to proceed, the company has been formed. From this point, the completion and exchange of contracts can occur anywhere between 7 days to 1 month depending on the location of the client, for document execution purposes.
The advantages of the corporate buyer route are as follows:
- Approval by The Ministry of Justice is not required and you have full ownership of the property as soon as the final payment is made.
- If you plan to sell your property within the first three years, the profit realised (appreciation) from the sale is not subject to Capital Gains tax (35%). However, company (profit) tax is payable and is currently 20%. There are provisions in the Croatian tax law to account for amounts invested in the real estate, as well as depreciation of buildings. Our lawyer advises our clients on this issue, case by case.
- When selling the property purchased under the corporate buyers route, depending on the date the property was built, there are additional tax benefits to the seller.
- The sale of a Croatian company that owns real estate may be the most tax efficient exit strategy for a foreign investor.
How much does it cost?
Here are the costs associated with purchasing a property in Croatia.
- Buying a property incurs a 4% RETT* (Real Estate Transfer Tax) on the value of the contract
- Buying a new property built from a VAT registered developer or self-employed builder. 25% VAT calculated on the costs to buy thee land and build the property. (Usually absorbed by the vendor into the price).
Surveys and Clean Title
Surveys are not typically commissioned in Croatia however we would be pleased to arrange this services if you so require.
We believe that one of the most important aspects of your property purchase in Croatia is establishing that the property has ‘clean title' – In other words, the seller has legal authority to sell the property and there are no pending claims on the property before the courts.
Over the years, the property administration system has lacked an effective method of tracking ownership of land and/or buildings. The reasons being that in the past, properties were bought and sold without proper registration and documentation, occasionally to avoid taxes. In turn, during the communist regime, significant portions of land and property were confiscated from wealthy families and sometimes divided up into smaller lots and given to those in need. These original owners may now have a claim to ownership of the land. Many properties in rural areas were inherited by all siblings in equal shares however never registered as such. In this instance, no one sibling has legal authority to sell the property.
This requirement to have an updated and effective land and building registry system is also recognized by The Croatian Government and The European Commission. In June 2003, the World Bank under the European Commissions CARDS 2002 program for Croatia awarded a special grant. The grant will be used for activities aimed at building a land administration system and contributing to the development of an efficient real property market – a crucial prerequisite to economic growth and social equity.
All properties that we offer are screened for title prior to being offered to our clients to ensure that when you have decided on your property, the completion process is fast, safe and you get the keys sooner than you expected.
Croatia has signed double taxation treaties with most European countries including the UK and Ireland.
We advise our clients to seek independent taxation advice in their local country especially relating to the Corporate Buyers Route and the potential treatment of the property as a ‘benefit in kind' in future proposed legislation.
There are no restrictions on repatriating money from Croatia.