Croatia: VAT regulations

VAT legislation in Croatia has recently undergone a number of significant changes. Some amendments have been introduced as antirecession measures while others are a part of the EU harmonization process.

As an antirecession measure, effective 1 August 2009 the standard VAT rate was raised from 22% to 23%. In order to harmonize Croatian VAT legislation with the EU VAT Directive additional amendments to the VAT Law were made, effective 1 January 2010, including:

-the institutional VAT exemption previously applicable to banks, insurance companies and other financial institutions was replaced with a financial service exemption;

- an obligation for foreign entrepreneurs to register for VAT when performing  VATable deliveries in Croatia was introduced

-  the right for non Croatian entities to claim VAT refunds on the basis of reciprocity was introduced;

- small value gift exemptions were introduced;

-  rules regarding the place of taxation of services were amended but the EU VAT package was not implemented (further changes are expected to be put before Parliament in mid 2010).

As the amendments to the VAT Law are quite extensive and introduced new taxation concepts, completely new VAT Regulations have been implemented which particularly prescribe services that are considered to be financial services; methods for input VAT recoverability; procedure for VAT refunds to foreign entities not performing VATable deliveries in Croatia; guidance regarding the application of VAT exemption for small value gifts etc.

However, the amendments to the VAT legislation proved to be insufficient to ensure a uniform application by taxpayers and left space for various interpretations of the introduced provisions. Therefore, the Croatian Tax Authorities announced that additional guidelines will be issued which should eliminate inconsistencies and provide guidance to taxpayers.

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