Country Guide - VAT in Croatia

VAT in Croatia - Three Types of Rates

There are three types of VAT rates in Croatia:

1. Standard VAT rate,

2. Reduced VAT rates,

3. Zero VAT rate.

How Much is VAT in Croatia’s Regions?

Contrary to VAT laws of some other EU Member States, such as Greece or Portugal, Croatian VAT law does not include regions with a special VAT rate Croatia.

VAT Registration Threshold

The VAT legislation contains valuable information about the VAT threshold in Croatia and its applicable provisions. Furthermore, interpreting the appropriate guidelines and official opinions shared by the Tax Authority is also helpful. 

VAT Croatia registration threshold for domestic businesses is 40,000 EUR, and companies below this threshold do not need to register for VAT as they are considered small businesses. However, this threshold does not apply to foreign businesses, as Croatia has no VAT threshold for non-residents.

Also, the Croatian VAT legislature does not define any registration threshold for suppliers of Electronically Supplied Services established outside the border of the EU.

As an EU Member State, Croatia adopted an EU-wide VAT registration threshold of EUR 10,000 for intra-EU distance sales of goods and B2C supplies of services.

Types of Taxable Activities in Croatia

By Croatian VAT law, a taxable person is a legal person or individual who independently carries out business activity, whatever the purpose or results of such activity. 

Types of taxable activities that trigger the imposition of Croatia VAT: 

Supplying goods and providing services in Croatia for compensation, receiving reverse-charge services by a taxable person in Croatia, and exporting or importing goods are all taxable activities under the VAT regulations.

VAT Registration Process

Croatian VAT legislation defines the VAT registration process for resident and non-resident individuals and businesses engaged in taxable activities.

Croatia VAT Registration for Domestic Businesses

All domestic individuals and businesses engaged in taxable activities, except those exempted from such obligation, must register for VAT purposes once they exceed the VAT registration threshold.

Nevertheless, individuals and businesses below the VAT registration threshold, known as small taxable persons, may choose to register for VAT voluntarily. However, if they do so, they must remain in the VAT system for at least three years.

An exemption to this rule is when a small taxable person supplies new means of transport or receives supplies subject to reverse charge. In that case, they must register for VAT regardless of their annual turnover.

To complete the registration process, individuals and businesses must submit a registration form P-PDV, request the allocation of a VAT or personal identification number, and provide supporting documents.

Croatia VAT Registration for Foreign Businesses 

On the other hand, non-Croatian individuals or entities are not allowed to register for VAT voluntarily. They must register for VAT purposes if they participate in taxable transactions in Croatia before making their first supply in Croatia.

Some documents needed to register are a certificate of incorporation, which must be translated into Croatian by an authorized court interpreter for foreign businesses, or a passport for individuals.

Foreign non-EU businesses and individuals must appoint a Tax Representative who submits applications and supporting documents. If taxable persons from the EU want to complete the registration process, they do not need to appoint a tax representative. However, if it would be easier for them to complete this procedure with the assistance of such a representative, they may hire one.

VAT Returns in Croatia 

Domestic and foreign VAT-registered businesses subject to the national VAT Croatia rules should submit monthly or quarterly returns, depending on their turnover. A taxpayer whose value of delivered goods and services, including VAT in the previous calendar year, is less than EUR 110,000 may submit a quarterly VAT return. A monthly VAT return must be filed when the turnover exceeds this threshold.

The return must be submitted by the 20th of the month following the reporting period.

Penalties for Failure to File Tax Return

Penalties for non-compliance with the tax return filing obligations range between EUR 260 and EUR 66,360, depending on the severity of the offense, whether the offense was repeated, and other factors.

Croatian VAT law includes 33 offenses that fall under the scope of this penalty. Some refer to situations when the taxpayer does not disclose all required information in the VAT return, fails to submit or submit a late VAT return, uses VAT exemption when not applicable, or does not calculate VAT at the correct rate.

VAT Rules for Electronically Supplied Services 

The EU’s VAT Directive introduced and defined the concept of Electronically Supplied Services (ESS) as services provided automatically, without or little manual work, through the Internet or similar digital means, which Croatian adopted and implemented in its national legislation.

Taxability Rules for ESS:

The general place of supply rule applies to transactions regarding the supply of ESS between two businesses, that is, B2B supply.

When foreign persons from one EU Member State supply ESS to a consumer in another EU Member State, or B2C supply, the VAT rate of the country where the consumer resides is applied.

EU VAT reform conducted in 2021 introduced a EUR 10,000 threshold across the EU, which affects the place of supply rules for distance sales of goods and B2C ESS. Suppliers that do not exceed this threshold can apply VAT rules set in their countries or register for OSS and apply those rules. When the threshold is exceeded, the VAT rate that must be applied is set in the country where the consumer is located.

How much is VAT in Croatia on ESS?

The Croatia VAT rate for ESS is 25%.

E-Commerce Rules

After introducing the Mini One Stop Shop (MOSS) system in 2015, EU Member States noticed its advantages and the need for further changes and improvements. Thus, in 2021, a reformatory e-commerce package was introduced, harmonizing rules on the EU level.

To ensure fair competition between EU and non-EU businesses, a new threshold of EUR 150 for distance sales of low-value goods imported from third countries or third territories was introduced, and the previously established threshold of EUR 22 was abolished.

One of the most noticeable changes was that online marketplaces and platforms that facilitate the supply of goods that meet certain conditions are treated as deemed suppliers as if they received and supplied those goods.

A third scheme was introduced in the enlarged MOSS, now known as the One Stop Shop (OS) system, to further simplify VAT's declaration and payment process on low-value goods imported from non-EU countries. From 2021, the OSS counts three schemes:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

All VAT-registered businesses in Croatia are required to file EC Sales List and Intrastat declarations.

EC Sales List

Businesses and individuals registered for VAT purposes in Croatia file an EC Sales List (ECL) for the supply of goods and services to VAT-registered persons in another EU Member State. ECL is submitted electronically monthly until the 20th day of the month following the reporting period. 

When VAT-registered persons are not involved in these transactions, they do not have to file a nil declaration.

Intrastat 

Croatia implemented an EU-harmonized methodology and the recommendation of Eurostat, the EU statistical office, concerning Intrastat as a system for collecting statistical data on trade between EU Member States.

Intrastat is reported once the businesses exceed the threshold for dispatching goods to another EU country or the threshold for importing goods from another EU Member State. The thresholds are EUR 450,000 for dispatches from Croatia and EUR 300,000 for arrivals to Croatia.

Digital Reporting

Local Businesses

The Croatian government introduced mandatory e-invoicing for B2G transactions in 2018. In addition, in 2019, the Tax Authority expanded its electronic services for taxpayers by introducing a Book of received invoices (U-RA form) that must be submitted with VAT returns.

All VAT-registered businesses and individuals must file the U-RA form monthly or quarterly, depending on the filing frequency of the VAT return, only for domestic purchases regarding B2B and B2G transactions.

Non-Resident Businesses

Non-resident businesses registered for VAT Croatia face the same digital reporting requirements as local businesses, meaning they must submit the U-RA form monthly or quarterly with their VAT returns.