Real Estate Tax and Local Taxes Act

first_imgOn December 02, 2016, the Croatian Parliament passed the Law on Local Taxes. The law was signed by Božo Petrov, the then President of the Croatian Parliament. On December 06, 2016, the President of the Republic of Croatia, Kolinda Grabar Kitarović, on the basis of Article 89 of the Constitution of the Republic of Croatia, passed a Decision on the promulgation of the Law on Local Taxes.How many users of local taxes and the state budget do we have?In the Republic of Croatia, we have 555 units of local self-government, 429 municipalities and 126 cities, and 21 units of regional self-government (counties). Before 1992, there were only 102 municipalities. According to the Institute of Public Finance, in 2009 there were 66.000 employees in local self-government units and their utility companies. According to the data of the Ministry of Administration from June 2017, in the state and public sector in Croatia there were 232 civil servants and employees who receive their salaries from the state budget. When these two data are added up, we come to the figure of 240 employees who are “paid from taxes”. Of course, this figure is not final because we still need to add various agencies, state companies and the like, which occasionally use either state budget funds or state guarantees that are ultimately converted into state budget funds, or “taxpayers’ money”.Many cities and municipalities do not have the capacity to develop without state aidAccording to data from 2009, as many as 50% of cities were not able to finance the work of primary schools, kindergartens, health centers, public fire brigades, not to mention theaters and other needs in culture and sports. Back in 2003, the Croatian Legal Center, with the help of the United States, prepared a comprehensive study “Decentralization of Public Administration”. The study concluded that as many as 35% of cities and municipalities are unable to function without state aid. Also most counties are insolvent.Instead of public sector reform – new taxesDespite the fact that all studies have shown that such a cumbersome public sector is unsustainable, inefficient, too much of a burden for the economy and citizens, to this day it has not been reduced, in fact. Each new set of government additionally “hooks” its party army at all levels. Today we can say that about 10% of the total population receives a salary from the budget. The state government persistently maintains the existing situation by not only initiating new debts, but also introducing new taxes or raising rates for existing ones. That is the essence of any tax reform. Let’s just remember the impact on tourism and raising the VAT rate on food and beverages from 10 to 13 to 25%. Taxes of regional and local self-government units also serve to maintain the existing situation. Counties “live” on inheritance and gift taxes, road motor vehicle taxes, boat taxes and amusement machine taxes. Local self-government units use the following taxes: surtax on income tax, consumption tax, tax on holiday homes, tax on the use of public areas, and the introduction of a real estate tax is envisaged.Real estate taxAccording to the Local Taxes Act, the decision on the introduction of the Real Estate Tax (Article 42, paragraph 5) was to be made by local self-government units by 30 November 2017. By the decision of the Government of the Republic of Croatia, this obligation was postponed. This tax is designed to “decentralize” the taxation of real estate of citizens in the place where these properties exist. In addition to paying taxes on holiday homes, sole proprietors should also pay taxes on residential, commercial, garage and other ancillary premises and other non-purpose premises, construction land used for business purposes and undeveloped construction land if it is located within a construction area, swimming pools, saunas, sports fields and the like. For all of the above, local self-government units should establish a register and determine coefficients.A property that pays an additional tax will pay an even higher property taxTax on holiday homes is paid from 5 to 15 kuna per square meter. In addition, calculations on the total net area and the actual land area would be applied to real estate by multiplying the following factors: point values ​​+ zone coefficient + purpose coefficient + condition coefficient + age coefficient. The law says that for housing that is not used for permanent housing, which would be “weekend” facilities that are already taxed with a special tax on cottages), and housing that is used by citizens to rent apartments, rooms and beds to travelers and tourists based on the approval of the competent the coefficient of use is increased by the corrective coefficient of purpose determined by the representative body of the local self-government unit by its decision, provided that it is not less than 1 nor more than 6. Also for business premises used for production activities as well as for hotels, apartment complexes and camps this coefficient may not be less than 1 nor greater than 5.The coefficient of use is additionally increased if the activity is performed in an immovable cultural property or in the area of ​​a cultural-historical entity, so that it cannot be less than 1 or more than 12. Therefore, any real estate that is in a function from which a tax obligation arises. income, will be further burdened by a higher real estate tax rate. Likewise, real estate that is in the function through which it pays taxes and through which it has been invested in adaptation and is located in protected old city cores, for example, will be additionally burdened with an even higher real estate tax rate.Additional facilities for tourists subject to real estate taxThe state first encouraged investment in additional facilities, even grants for swimming pools were distributed, now a tax is being introduced on swimming pools, children’s playgrounds, garages for guest cars, badminton playgrounds, yoga for bottles and the like. All this has already been taxed in the process of branching, procurement of equipment, and not a small, albeit one-time tax. When acquiring real estate, taxes are also paid as for a holiday home. All of this would require a new property tax to be paid annually. The utility fee for construction, plus the utility fee per year that was paid despite the fact that each connection to the utility infrastructure is paid extra then the construction of that infrastructure from place x to the house threshold is not counted.Neither expensive telephone connections nor the high price of utilities, which also has a tax component, are taken into account. When we add the income tax from salary but also from activities, then the tax on road motor vehicles, tax on vessels, tax on inheritances and gifts, then the famous VAT at the rate of 25% for each purchase of products and services… it really turns out to be punishable every investment, every activity that by the logic of things should be stimulated.Photo: Dubrovnik Tourist BoardCroatian creditors are worried about the refundCroatia is an over-indebted country, and the IMF and other creditors fear that Croatia will find itself in a situation where it will not be able to repay loans. The EU is also worried about securing funding for its budget in the long run. As central governments do not streamline public spending, take action to increase the share of productive and reduce unproductive jobs, creditors are proposing new sources of tax funding. It is also a good justification for all previous governments to take actions that strengthen the “tax” (fiscalization, changing corporate tax rates, VAT on tourism, excise duties, etc.). None of these measures was accompanied by “belt-tightening” in their own ranks. That is why the danger of introducing a real estate tax is constantly hanging over our heads.Enforcement, poverty and leaving CroatiaAccording to Eurostat data from 2017, as many as 28,5% of Croatian citizens live at risk of poverty and social exclusion, and according to living standards indicators, Croatian citizens are at the bottom of all EU members. According to these data, as many as one million and 180 thousand Croatian citizens are existentially endangered. Eurostat criteria are based on a monthly single income of HRK 2.145,00 and for a family of two HRK 3.537,00 and for a family with two adults and children under 14 years of age HRK 4.457,00. According to these criteria, as many as 19,5% of households in Croatia earn income below these limits. According to FINA data, at the end of 2017, there were 319 citizens in a financial blockade. According to the CBS, the average net salary in public administration was HRK 800. The difference is obvious. With the proposal of the Real Estate Act, for each real estate for which the owner does not submit the required data, the local self-government units will prescribe the highest tax rates. The law also stipulates that all members of the household jointly guarantee the tax collection to the taxpayer.The taxpayer becomes the real estate subject to the enforcement procedure and the enforcement is carried out by the Tax Administration. One of the poorest citizens in the European Union, who is already under the burden of blockades and heavy tax burdens, could be further at risk of losing personal property if they are unable to pay property taxes. Many will sell their real estate at non-market prices under such a threat, so this situation will bring big profits to real estate speculators. The more resourceful will not do business legally nor will they legalize all buildings. Nevertheless, the scenario of implementing such a Real Estate Tax Act envisages the sale of property and increased emigration from Croatia.Who cares?Published by: Nedo PinezićRelated news: ANALYSIS OF THE IMPACT OF THE VAT RATE ON THE COMPETITIVENESS OF ORGANIZED ACCOMMODATION AND HOSPITALITY IN CROATIAlast_img