Amendments to the Value Added Tax (VAT) Law
The Law on Amendments to the Value Added Tax Law (National Gazette 87/09) becomes effective as of January 1 2010. The provisions are designed to harmonise the Croatian tax system with Directive 2006/112/EZ and to facilitate the accession process.
The most important changes include:
- Companies and institutions providing financial services (banks, insurance companies and other financial institution) shall be VAT exempt functionally, not institutionally and will no longer be completely exempt.
- They will be able to register for VAT, charges VAT and will also be entitled to claim an input VAT refund.
- Foreign businesses delivering goods or services in Croatia are required to register and to appoint a tax representative that will guarantee the proper determination and payment of VAT. The Minister of Finance is to prescribe implementing regulations.
- Business assets can be used for private or non-business purposes, if they are an input.
- VAT that could have been reclaimed, as well as the provision of services for private or non-business purposes, shall be considered a taxable delivery.
- Services taxable according to the registered seat of the services recipient shall now include telecommunications, radio and TV emissions, including electronically performed services.
The Amendments also include minor changes:
- Establishing the limit for non-taxable gifts at K80 ($16.4).
- Discounting the entitlement to reclaim 70% of input VAT charged for goods delivered or services rendered for representation or gifts to business partners.
- Stopping entrepreneurs from being entitled to reclaim 30% of input VAT charged for the delivery, lease or importation of cars or personal transportation. Additionally, no input VAT to be recognised for the purchase of cars or other means of personal transportation for amounts that exceed K400,000 per item.
New Payment Transactions Act
The Payment Transactions Act (Official Gazette No 133/09), was published in November 2009, and generally becomes effective in January 2011, except for certain relating to the provision of payment services and engaging in euro transactions in Croatia by EU institutions which become effective only upon Croatia's accession. The Act harmonises the Croatian payment system with the EU Payment Services Directive (2007/64/EZ).
Among the significant changes introduced by the Act:
- Much broader definition of payment transaction services to include automatic debiting services, card payment transactions, cash depositing and withdrawals, payment transactions secured by client credit lines, issuance or acceptance of payment instruments, money remittance services and payment services through a telecoms network;
- Qualifying entities in addition to banks as payment transaction services providers for example, credit card payment services, bill paying services, and money remittance services, as well as electronic money institutions;
- Unification of domestic and cross-border payment systems;
- Protection consumers through obligations regulation of fees, client transaction authorization requirements, review procedures by the Croatian National Bank, and dispute conciliation by the Croatian Chamber of Commerce;
- Licensing and supervision of all payment transaction service institutions is by the Croatian National Bank;
- Provision of payment transaction services in EU now permitted by Croatian service providers directly or through their branch office or agent; and
- Provision of payment transaction services in Croatia by EU service providers permitted, directly or through their branch office or agent.
Ronald Given, Aleksandra Raach and Mario Markovic