New Accounting Law, VAT Law and Real Estate Transfer Tax Law announced

With the aim of harmonization with the Directive 2013/34/EU, Ministry of Finance has published draft of the new Accounting Law in May 2014. The draft Accounting Law introduces changes in the conditions for classification of entrepreneurs to small, medium-sized and large. New category of micro-entrepreneurs is being proposed and the scope of large entrepreneurs is being extended. New Law will require amendments of the Croatian Financial Reporting Standards, adopting new Bylaw on the Structure and Content of the Annual Financial Statements and other bylaws. The Act should come into force on 1 January 2016.

The draft Amendments to the VAT Law and the Real Estate Transfer Tax (“RETT”) Law are published at web page of the Ministry of Finance together with the call for participation in the public discussions (26/6/2014 – 25/7/2014).

Draft Amendments of the VAT Law (which will partly enter into force upon publication and partly on 1/1/2015) relate to the following:

• elimination of filling an annual VAT return and the change of the tax period from one calendar year to a period of one (exceptionally three) months;
• taxation of supply of reconstructed buildings that were subject to major reconstruction (reconstruction fees were more than 50% of the building’s market value or its’ parts in a year in which the reconstruction commenced);
• an obligation of correction of input VAT deduction for other goods (stock, raw material) which taxpayer acquired for its business activity, irrespective of whether he switches from regular tax procedure to special procedure or vice versa;
• the place of supply of telecomunication services, radio, television and electronic services (MOSS) performed to non-taxable persons;
• direct VAT exemption for lease and hire services and supplies of vehicles and real estate (for supplies of goods and services under diplomatic or consular arrangements and under international agreements);
• transition provisions relating to charging and deducting VAT for taxpayers that charge VAT according to the received (collected) fees until 31/12/2014.

Amendments to the RETT Law (which would enter into force on 1/1/2015) relate to the following:

• tax exemption for supply of real estate subject to VAT, with the aim of prevention of double taxation;
• tax base in case of a taxpayer not reporting the tax obligation / not submitting to the Tax Authority the requested data;
• subsequent collection of RETT in case of application of the tax exemption for the purchase of the first real estate for residential purposes;
• Tax Authority's data base, recording average real estate prices based on real estate purchase prices.

We note that data from real estate transfer evidence would still not be available to all interested parties, but only to the administration bodies.