As an EU (European Union) member country, Croatia must follow the EU’s general rules and guidelines on the collection of value-added tax (VAT). All EU countries operate with the union’s VAT framework, and companies and individuals doing business in EU countries are required to understand their obligations and collect the required tax at each stage of a product’s lifecycle.
EU countries also have leeway to set their own tax rates and establish some of their own rules for VAT within the confines of the broader EU program. So if your business has a local presence in Croatia or if you are selling to customers in Croatia, you must understand and comply with these rules. This guide will explain how.
How VAT works in Croatia
In Croatia, VAT is called Porez na dodanu vrijednost (PDV). Companies (both domestic and foreign) that sell to Croatian customers may be obligated to register for VAT and collect taxes.
Croatian VAT rates
Croatia has multiple tax rates:
25% standard VAT rate: This rate applies to all taxable goods and services that are not taxed at a reduced rate or the 0% rate, and that are not exempt.
13% reduced VAT rate: This rate applies to:
- Some food.
- Some water supplies, except bottled water.
- Newspapers that are not published daily and that have less than 50% advertising content.
- Magazines with less than 50% advertising content that aren’t scientific publications.
- Concert tickets.
- Hotel services except alcohol.
- Cafe and restaurant services.
- Some agricultural inputs.
- Some cremation and undertaker services and supplies.
- Car seats.
- Electricity supply.
- Services of some writers and composers.
- Some domestic waste collection.
5% reduced VAT rate: This rate applies to:
- Some foods like bread, milk, and formula.
- Approved medications prescribed by doctors.
- Certain kinds of medical equipment.
- Printed and electronic books.
- Daily newspapers that have less than 50% advertising content.
- Cinema tickets.
- Scientific periodicals.
0% rate: Zero-rated items include some international and intra-community passenger transport.
Exemptions: Exemptions include some educational supplies and certain gambling activities, including e-gambling.
It is important that you tax products and services that you sell at the correct rate.
Registering for VAT
When your company is located in Croatia or sells to Croatian customers, you may be obligated to register for VAT. The specifics of when this obligation applies to you will depend on whether you have a physical presence in Croatia or are a non-resident business.
Resident vs. nonresident businesses: who needs to register
If your business is based in Croatia, you are required to register for VAT once you have an annual turnover of more than €60,000.
There is no minimum threshold for non-resident businesses. If you sell to customers in Croatia, you must register. Possible exceptions include:
- If your transactions are under the reverse-charge scheme.
- If the One-Stop Shop is used for sales to consumers.
- A deemed marketplace collects VAT.
(Certain reverse charge services may not trigger a VAT registration if the Croatian recipient is responsible for accounting for VAT — more on the reverse charge scheme later in this article.)
Under EU distance selling rules, if your EU cross-border sales exceed €10,000 per year, you must register for VAT in Croatia (or register for the One-Stop Shop). Participating in programs like Fulfilled by Amazon (FBA) that involve storage or delivery in Croatia will typically require VAT registration.
How to register
You can submit a request for registration to the Croatian Tax Administration in order to register for VAT.
You must mail your application to the appropriate regional office at least eight days before starting trade. You will be assigned a unique Croatian VAT number within eight days of submitting your registration.
Working with a tax representative in EU countries
If you are not operating your business within an EU country, you must have a fiscal representative when you register for VAT in Croatia.
A fiscal representative is a local representative willing to share responsibility for VAT with your company. Businesses in EU countries are not subject to this requirement.
When to charge tax
Not every transaction is subject to VAT in Croatia, and the rules for what is taxable can vary from one EU country to another. As a result, if you are selling into Croatia, you need to know the country-specific guidelines that determine when you must charge tax.
As a general rule, you’ll need to charge tax on sales in Croatia if:
- You are required to do so because you meet registration thresholds or are part of a special EU program requiring you to collect and remit VAT whenever you sell in EU countries.
- The transaction is a taxable one involving products or services that are taxable and not zero-rated or exempt.
- A deemed seller or marketplace facilitator is not charging VAT on your behalf.
Reverse charges
The EU’s reverse charge mechanism aims to simplify cross-border B2B (business-to-business) sales.
Under the reverse charge mechanism, suppliers can shift VAT obligations to buyers that are registered businesses in Croatia instead of collecting VAT themselves. The seller will leave the VAT off the invoice andinclude a reference number for the transaction. The buyer then calculates the VAT due and reports it on their own returns, while at the same time claiming any deductions available to them.
Since foreign sellers can take advantage of this option to allow Croatian business buyers to take responsibility for VAT collection and reporting, they can sometimes avoid having to register or file returns.
B2B vs. B2C
There are important differences in how VAT is handled with B2B vs. B2C transactions, especially for non-Croatian sellers.
For example, the reverse charge mechanism may apply to B2B transactions, while schemes like One-Stop Shop can simplify the process of VAT collection on B2C transactions.
Marketplace facilitators
While you generally must collect VAT on most transactions, that is not necessarily the case when you sell through certain third-party marketplaces that are considered deemed sellers. Examples include Amazon and eBay.
Deemed sellers are treated as the seller of goods for purposes of collecting VAT, even though they are not actually selling the items but, rather, are facilitating a third-party sale.
A marketplace is a deemed seller only in specific scenarios defined by EU VAT law, mainly:
- Distance sales of goods imported into the EU are equal to or less than €150.
- Sales by non-EU sellers to EU consumers via the marketplace.
Companies that feature their own brand more prominently than the seller's brand may also be deemed sellers. You can find out from the marketplaces you are working with whether they fall into this category and thus have the obligation to collect VAT on your behalf on sales to customers in Croatia.
VAT deductions
Input VAT can be deducted when filing VAT returns in Croatia. This can reduce the amount of VAT your company must pay.
To be eligible to claim a deduction, you must have a VAT-compliant invoice that meets the requirements in Croatia, and you must ensure the deducted VAT was directly related to taxable activities undertaken by your company.
Statute of limitations
The statute of limitations is six years for Croatian VAT obligations. The clock starts running at the end of the tax year in which the tax liability was incurred.
Staying compliant
You need to understand your obligations in order to stay compliant with VAT regulations. This means understanding details like what needs to be included in your invoices, what forms you must file and keep, and what the filing deadlines are.
Invoicing requirements
Croatia has certain requirements for invoices in VAT transactions. Invoices must include certain key information, including:
- A unique sequential invoice number.
- The date the invoice was issued.
- The supplier’s VAT number.
- The customer and suppliers’ full addresses.
- A complete description of goods and services, including quantities and unit prices.
- The date the products or services were supplied if it is different from the invoice date.
- The net taxable value of the supply.
- The VAT rate that was applied to the transaction.
- The amount of VAT charged, broken down by rate.
- The invoice’s gross total amount.
Filing VAT returns
Most companies are required to file monthly VAT returns in Croatia, although companies that have no intra-community acquisitions and that have an annual turnover under €105,000 can file quarterly returns. Returns must be filed electronically using the e-Porezna portal.
If your company’s sales threshold for arrivals exceeds €400,000, or for dispatches exceeds €200,000, you must submit Intrastat returns.
Filing deadlines
The filing deadline for monthly returns is the 20th day of the month after the reporting period, and VAT payments are due on the last day of the month of that same reporting period.
Record-keeping requirements
Account records must be maintained and held for at least 10 years.
Risks of noncompliance
Companies that do business in Croatia must comply with all VAT requirements.
Failing to fulfill your obligations to submit VAT reports and to pay required VAT could lead to fees, fines, penalties, and interest charges.
Not complying with tax regulations can also impact your company’s reputation, as well as your ability to find investors or buyers for your business in the future. You don’t want the threat of serious consequences for tax noncompliance to impact ongoing future operations, so make sure you understand and fulfill all of your obligations.
Tips on how to stay compliant with Croatian VAT regulations
To stay compliant with Croatian VAT regulations, you need to make sure you understand the rules, including when you must register and what’s taxable.
It’s also helpful to take advantage of opportunities to simplify the process of fulfilling tax obligations.
This can include taking advantage of EU schemes like the One-Stop Shop and Import One-Stop Shop, as well as making use of software solutions that make sales tax compliance simpler than you imagined it could be.
One-Stop Shop and Import One-Stop Shop
Complying with VAT laws in Croatia is just the start of your obligations if you sell across different EU member countries. The One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) programs were created by the EU to make selling to multiple members simpler.
If you are an EU-based business that sells across different countries in the EU, you may be eligible for OSS, while IOSS is an option for EU and non-EU countries for imports valued at €150 or under.
Under OSS and IOSS, you can register in one member country. When you sell to consumers in Croatia or other locations in the EU, you collect VAT at the time of the transaction based on the VAT rules in the buyer’s home country. You then submit one form through OSS or IOSS and remit all the VAT payments collected. The funds will be appropriately distributed.
Software solutions
Understanding and following sales tax rules in Croatia and other countries you do business in can be time-consuming, and trying to manage this process without assistance creates a significant risk that something will fall through the cracks.
Fortunately, you do not have to manage your VAT obligations on your own. Numeral automates the process and takes care of everything you need to remain in full compliance in Croatia and other areas where you do business.
Numeral can:
- Track when you’re required to register.
- Submit registrations for you, including registering for OSS and IOSS.
- Determine what items are taxable, and tax those items at the correct rate.
- Submit all required forms and VAT payments on time.
- Manage correspondence from taxing authorities.
With Numeral’s help, you won’t have to think about sales tax for more than a few minutes each month, and you’ll have full confidence you’re following the rules, not just in Croatia, but everywhere your company sells its products or services.
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Final thoughts
Croatia's tax rules are complex, and even with programs aimed at simplifying your compliance obligations, there’s still a lot to manage.
Don’t risk unintentional rule violations. Instead, get help from Numeral. Reach out today to learn about the services we can offer and how we can support your business in following tax rules as you focus on the tasks that drive your company’s success.
