Croatian Government Seeks Property Tax Change Ahead of EU Entry

Croatia will introduce from April a 1.5 percent property tax as the government adjusts its policies to attract investment ahead of European Union entry.

“The aim of the property tax is to gradually ease taxes on labor, so we can become more competitive and more attractive to investors,” Finance Minister Slavko Linic told reporters in Zagreb today.

Croatia, which is set to become the EU’s 28th member in July, needs to improve competition and boost investment to emerge from a renewed recession. The government expects the economy to contract 1.1 percent this year before returning to growth in 2013.

The tax, lower than Linic’s earlier proposal for a 2 percent levy, would be applied on 70 percent of a property’s estimated value, the minister said. Owners would be able to waive up to 95 percent of the tax on their primary residences, while properties such as a summer home could receive a waiver of as much as 85 percent.

Investment properties would receive a waiver of between 20 percent and 80 percent, depending on the purpose of the house, according to the proposal.

The tax would be collected by local authorities and replace a so-called communal contribution tax and the existing tax on summer homes. The same conditions would be applied to foreigners as to Croatian citizens, Linic said.

Other aims of the tax include pushing homeowners to report rental income, force people to update ownership documents and to legalize buildings that were constructed without permits, Linic said. Those caught avoiding the taxes would lose the right to a waiver as well as facing penalties, he added.

The proposal must still be approved by parliament.

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