The Local Taxes Act (“Act“), as a part of the 2017 Croatian Tax Reform, entered into force on January 1, 2017. The main change includes the introduction of the new Real Estate Tax (not to be confused with the Real Estate Transfer Tax) and the abolishing of the Company Name Tax. Aside from the Real Estate Tax, no further taxes are introduced; rather, the taxes regulated by the Law Concerning the Financing of Units of Local Government and Regional Self-Government are being transferred and incorporated into this new Act in order to align them, in a more efficient and structural manner, with the goals of the Croatian tax system reform.

Provisions related to the Real Estate Tax should enter into force on January 1, 2018 with contemporary abolishment of the Holiday Homes Tax, with the purpose of avoiding double taxation of a same property with two types of property taxes. The introduction of Real Estate Tax also abolishes the public utility charges and the monument annuity, in line with the purpose of unifying all charges related to a property which are currently being charged through several different administrative procedures. However, the introduction of the Real Estate Tax has provoked severe criticism and negative reaction of citizens and numerous controversies in the media. Therefore, the Croatian Prime minister announced the postponement in the application of the tax, though without a concrete and official postponement.

Local administrations, in order to prepare the grounds for the application of the Real Estate Tax and to align with the obligation of maintenance of the registry on public utility charges, have initiated the collection of necessary data and sent out questionnaires to the citizens. The Prime Minister’s announcement of postponement, however, created a perception that such collection of data became unjustified. The Tax Administration therefore reacted and published an official statement explaining the obligation of local administrations to update their databases (and in certain cases, to establish, as some administrations did not have them at all) for the purpose of collection of public charges such as utility charges and holiday home taxes.

Furthermore, local administrations had the obligation to issue - by June 30, 2017 - decisions on, among other, rates of personal income tax surtax, consumption tax, holiday homes tax and tax on public area use, whereas by November 30, 2017 they must issue decisions for purposes of collection of Real Estate Tax in which they shall determine:

  • - city/municipality zones;
  • - point value (“B”);
  • - zone coefficient (“Kz”) for specific zones;
  • - purpose coefficient (“Kn”);
  • - payment deadlines;
  • - conditions for collection of determined tax obligation for socially endangered citizens;
  • - funds source for collection of determined tax obligation.

In accordance with the Local Taxes Act, provisions of decisions related to the holiday homes tax shall cease to be valid on January 1, 2018 when this tax will be abolished.

As far as the other changes are concerned, the collection of road motor vehicles tax is now being collected at the moment of the registration of the motor vehicle at testing centers, based on the decision of the regional administration and no longer based on the tax administration decision. A new category of vehicle for taxation purposes has been introduced - a quadricycle.

The Inheritance and Gifts Tax rate has been reduced from 5% to 4%. The tax was previously paid based on the application of a tax payer. In 2017, the obligation of reporting the inheritance and gifts tax by the tax payer has been abolished but only in cases when such a document has been verified by a notary or issued by a competent official body.

As of January 1, 2017, the Company Name Tax is no longer due, with purpose of releasing entrepreneurs from excessive tax burdens. All proceedings in the matter initiated before this date shall be completed according to the provisions of the Law Concerning the Financing of Units of Local Government and Regional Self-Government.