Croatia

Why Croatia?

Croatia has much to offer the property purchaser, including an enormous variety of landscapes, a wide choice of cities, towns and villages, a great climate and wonderful beaches. It opened up to foreign investors, who quickly took advantage of the inexpensive properties that were to be found throughout the country.

Croatia officially became an EU candidate country in 2004 and opened formal accession talks the following year, with a view to full membership of the European fold sometime in 2011. This is a result of the impressive progress made by the country as an independent state, and will help promote the long-term prosperity of the country.

As of February 2009, the property market in Croatia became more open to foreigners, as are now able to buy on the same terms as local Croats. This burning of red tape in the buying process will not only speed up the property buying procedure, it should encourage more buyers to purchase in Croatia with confidence.

Popular property locations – an overview

The infrastructure has been transformed, good roads now link north and south, airports have been built, and the country has been put on a sound footing, to attract more and more visitors interested in buying property.

The country is divided into numerous different regions, however most property buyers tend to want to buy in the coastal areas of Istria, Kvarner and Dalmatia. Croatia’s mainland coastline is around 1,770km long and in addition has around 1,200 islands lying off it, which is one of the major attractions for tourist to visit.

Property in Istria

The Istrian Peninsula is the most northerly part of Croatia, and borders Slovenia. This part of the country has proved very popular with visitors, thanks to its beautiful countryside, richly forested interior and attractive coastline. Possibly the last area to come to the attention of the overseas property industry, Istria has seen a sharp growth in property buyers from the UK in the past couple of years. As buyers are keen to find the best deals and discover untouched areas of the country, they have spread north from the bigger cites to discover the resorts and the old Venitian-style towns further up the coast. Low-cost airlines are beginning to fly into Croatia, with Pula in Istria as the main destination airport in the region.

Property in Kvarner

Further down the coast from Istria comes the middle section of Croatia, the Kvarner region.

Opatija and Crikvenica have a great deal of charm left over from former times.

Property in Dubrovnik & Dalmatia

This part of Croatia has vineyards, olive groves, a number of national parks, and tranquil seaside towns, such as Cavtat. Small seaside resorts like Molunat attract visitors who enjoy the wonderful scenery and a quiet lifestyle. Split is the main city in this part of Croatia, and with its position at the heart of the country, has played a pivotal role in the history and identity of Croatia. The southernmost tip of Dalmatia is where Croatia narrows down to the border with Montenegro. Many visitors to the neighbouring country fly into Dubrovnik and drive south to the border.

Buying a property

Property buying in Croatia is governed by the principle of reciprocity. This means that until Croatia joins the EU as expected, the right of an individual to buy property there is on the condition that Croatian nationals are permitted to buy property in the origin country of the purchaser. Given that to be awarded permission to buy previously it was often necessary to form a private company, this change will free up the buying process and attract many buyers who would otherwise have been reticent to buy in the country. This change in buying rules is necessary as one of the tenets of Croatia joining the EU, which is expected to happen in 2011.

It is important for the lawyer to check that the property’s title is clean. Getting a survey done is somewhat unusual in Croatia, but it can be arranged through surveyors located in the bigger towns. There are two main routes for the purchase of property in Croatia – as a private individual or through a company structure that you set up yourself. In the case of a foreign national buying as a private individual, permission to purchase must be sought from the Ministry of Foreign Affairs. If a foreign national has registered a company in Croatia and is buying through that company, permission is not necessary. There can be advantages to buying through a company, chief among which is the amount of time you can save in the buying process not having to seek government permission. The stages of the purchase include:

• The reservation contract

• The preliminary contract. Buying Property in Croatia: Costs & Fees

• Estate agents charge between 2.5 and 3 per cent of the property’s sale price

• Lawyers will charge around 1.5 per cent. Check with your lawyer whether this has been included in his or her fee

• Property transfer tax is currently set at 5 per cent. This is paid by the buyer. The tax can be paid by money transfer, and is then changed into kuna

VAT (PDV in Croatia) is currently 22 per cent and payable only on the value of a newly constructed building or a resale for which the VAT was already paid, if disposed of by a business VAT payer. It is also charged on the services provided by both estate agents and legal advisers.

It is essential that you research fully into the costs and fees charged by professionals that you hire to carry out essential parts of the property buying process on your behalf. Some elements within the property industries in countries which are emerging onto the international property scene try to take advantage of unwary buyers by overcharging for their services.

Real Estate Mortgages

Strict rules are in place for the set up of mortgages in Croatia, but with the purchase of property by foreigners becoming more popular, there are bound to be more products in the pipeline soon.

Finance for property in Croatia can be gained for up to 60 per cent of the property value, meaning that buyers will need to find the other 40 per cent for the deposit and to cover the balance. Buyers will be required to have bank accounts in Croatia set up to receive the funds.

Taxation for Residents and non-residents in Croatia

Personal taxation: non-residents

Generally, non-residents are subject to tax on income sourced in Croatia. The current rate is 20 per cent.

Non-residents also have to pay a tax of 10 kuna (around £0.90) per square metre of their property annually.

Residents of Croatia pay tax on worldwide income. Rental income is normally taxed at 15 per cent. There is no wealth tax or inheritance tax in Croatia. The country has entered into double taxation treaties with 35 countries (such an agreement exists with the UK), and pensions received from abroad are exempt from Croatian tax.

Capital Gains Tax is payable by private citizens on selling their property if it is sold within the first three years of ownership, and is charged at 35 per cent of the gain. After three years, the tax is not charged, and it does not apply to private companies selling property at any time. However, company profit tax is payable at a rate of 20 per cent at all times.

Passports, visas and residency

All visitors to Croatia require a passport valid for the period of their stay. Foreign nationals can stay in Croatia for a maximum of 90 days without having a residence permit. Those wanting to stay longer can apply for a temporary residence permit, which will be granted without difficulty to anyone owning a property.

Temporary permits are issued for six months and can be renewed, though a foreign national is now only permitted to be in Croatia for six months out of 12.

The Croatian economy

Croatia’s economy has undergone a profound transformation since the country gained independence in the early 1990s. In 2005, the economy enjoyed relatively fast growth, low inflation and a stable exchange rate. The current account deficit is high and the state still plays a significant role in the local economy. Strides forward in GDP growth and infrastructure are helping develop the country, and the future looks positive.

Croatia has really arrived in the family of countries that are attracting those seeking a home in the sun. Do remember, though, that buyers of a home abroad should always, without exception, take independent legal advice. The legal adviser should be fluent in both the purchaser’s language and that of the country in which the property is located.