Croatia to reform property tax to woo investors

ZAGREB Thu Nov 22, 2012 9:34am EST

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ZAGREB Nov 22 (Reuters) - Croatia will introduce a property tax next year to replace communal taxes, seeking to encourage investment and reduce scope for tax avoidance, Finance Minister Slavko Linic said on Thursday.

Croatia, due to join the EU next July, is in a fourth year of recession and the government has been seeking to tackle problems that foreign investors cite as deterrents, including too much bureaucracy and complicated tax rules.

The new tax will provide income for local authorities and will replace the current fee that citizens and firms have to pay for maintaining and developing local infrastructure.

"We expect to apply the new taxation law on property from April 1. The rate will be 1.5 percent on 70 percent of the estimated value of a real estate asset," Linic told reporters.

He said the new tax should not increase the overall tax burden, which investors complain is already very high, because it will be offset by a gradual decline in taxation on salaries.

"This will reduce the tax bite for investors, who saw the fee for local infrastructure as an additional burden. This should also motivate people to legalise their property or pay taxes when they rent it. The fines for trying to avoid rules will be heavy," Linic said.

People will pay tax on a much lower percentage of the property's value if they live in it or use as a second home. But any further properties they own and do not use for business will be fully taxed.

Similar principles will apply to property owned by businesses or the state.

"Those objects that are not used for commercial purposes will be fully taxed. We want to make full use of what citizens, businesses and the authorities own," Linic said.

The measure is also expected to revive the property market and to cut property prices and rents by encouraging owners to use their properties. (Reporting by Igor Ilic; editing by Zoran Radosavljevic/Ruth Pitchford)

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