Private ownership - EU membership

[markhams]

We are in the process of trying to decide whether to buy as a company or as private individuals (we understand the rental issues re private individuals).

Due to the timescales of approx 2years for final approval as a private individual if this coincides with Croatia joining the EU would we automatically have the same rights as a Croatian Citizen, ie be able to rent out legally without the hassle of creating a Croatian Company?

[mambo]

Setting up that Croatian Company is not exactly the hassle that you think it is. If you go to a good lawyer they can do it in about a month, not so bad.

I simply don't see it happening that, upon entry in the EU, all the rules will be changed. The reason behind these new rules won't change and that will also be the reason why the rules won't change.

If you buy a house that needs to be restored it can even be a good idea to register for PDV (as a company I mean) because that way you will be able to recoup your pdv (22 %). Once you start renting out you will need to pay pdv, but that won't be as much as you have to pay during restoring the house.

[markhams]

Mambo many thanks for your reply.

Are the reasons behind the new rules simply to obtain more revenue or to discourage foreign ownership?

Again with PDV is this on income earned or estimated and is it in set bands?

We've read the books spoke to many people but are finding it quite difficult to find anyone who knows the answers - if you know of a good lawyer we can speak to that would be great.

[mambo]

I think it has to do more with generating some income for the state. Just imagine that Brittain, Italy or Holland is invaded by extremely rich Americans/Japanese and Germans, who simply buy each and every available house. Then they start renting out those houses to tourists and take the profit out of the country.

I think any country would not accept that foreigners use the 'resources' (sun, beach, sea etc) for their own profit and don't pay the country for that use.

The PDV is your VAT in England and here in Croatia PDV is charged on everything. The rate is 22 %, so if you rent out an apartment for, let's say 100 euro and you don't charge the PDV to the tourists then it means that your price is including pdv, i.o.w. that 100 euro is 122% of your fee. You will have to give that part (roughly 18 euro) to the goverment and you can keep the 82 euro.

Private people cannot charge pdv, but they can also not deduct the pdv, i.o.w. they will have to pay pdv on everything. If they need a new bed they will pay the price incl pdv.


As a company you have the choice to register for pdv, which means that you won't have to pay pdv over the things that you buy as a company (not completely, there are some exceptions), but it also means that on rent or income of the company you will have to pay pdv to the goverment. That 22 % is of course charged to the customer, but it will mean a 22 % increase of the price.

There is an alternative though and that is not to register for pdv (as a company). It means that you cannot deduct the pdv on anything you buy, but you also don't have to pay it to the goverment. Your gross selling price becomes your net selling price.

The limit was 85,000 Kuna for a year, once your turn over tops that you will automatically enter the pdv system.
But, if you buy a house, don't have to do anything (no works whatsoever), thereby not deducting a lot of pdv then it is not wise to register for pdv. You have nothing to deduct and yet you have to pay pdv on everything that is coming in.


Anyway, this is in a nutshell the system with the pdv, it can work with you or against you, but in all it doesn't differ that much from other countries. In Italy it is called IVA, in Holland it is called BTW, in England it is called VAT, in Germany Mehrwertsteuer etc. So it is not something special that only exists in Croatia.

How does it work when you are renting out apartments ?

Real easy, because it is mandatory to register your guests with the local police (can be done via the internet). That way they know exactly how many guests you had. Since you also have to register the prices of your rooms and write bills for the tourists it is very simple to figure out how much money you generated.
Anything you do black is of course your business, but if they catch you they hand you a nice fine.

Problem with foreigners buying apartments and renting them out to friends, family etc is that they don't register with the local police, no income is reported, they simply take the money out of the country and hope they won't get caught.

[odo]

...or may be they are just gobsmacked by the levels of bureaucracy in Croatia and can't be bothered. Also lots of the best parts of London are owned by foreigners, so what? True of Italy too. Foreigners bring money, lots of it, they are not the bogeymen. Look at Monaco!

[mambo]

First of all, Croatia is not against foreign ownership.

They simply say that if you make money with your investment you should pay tax on it and that sounds quite normal to me. Same goes for the tourists that come here, they have to pay tourist tax like in any other country. When you rent out 'black' you don't pay the tourist tax and thereby the country/goverment does not receive the money which is theirs.
Tourist tax and tax on making a profit on your investment exists in any country, so nothing new. You make it sound as no foreigner is allowed to buy anything anymore.

Second.

Foreigners do bring some money, but the difference between London, Monaco etc is that the people actually live there, work there, spend money there.
Here tourists buy a house, come here 2 weeks a year and for the rest you won't see them. I.o.w. they will also not spend any money during the time they are not here.
You cannot compare the economy of Britain, Monaco, Italy or Germany with the economy of Croatia.

The economy of Croatia is largely dependent on tourists, so exporting all the money the tourists bring in has quite an effect on the economy. If you would come in Istria at this moment you would realize quickly that they need the money they make in the summer.
I agree that they could develop the winter tourism as well, but in Istria the climate is such that you will not find a lot of tourists, it is simply too wet and too cold.

Third
The percentage of foreign owned houses in London, Italy is slightly different than what it is here. In some villages on the coast 30 to 40 % (or maybe even higher) is foreign owned and instead of bringing in money, the take the money out of the country (in fact the money does not even enter the country, because the owner receives the money in his home country).

Lastly,

Yes there is bureaucracy, but that is not the reason for these new laws. They simply want to stop foreigners doing business in their country without any license whatsoever.

If I would start a business in England, Holland, Germany etc without a license or without abiding the laws I would be in problems as well, so be honest if you can and accept that it is no longer free money in Croatia.
And I fully agree that the times of mega profits on ruins, apartments comes to an end. It was completely rediculous and it is killing the local economy.

[odo]

"You cannot compare the economy of Britain, Monaco, Italy or Germany with the economy of Croatia".

Yes you can, of course you can, how else will there ever be any progress.

Anyway its unlikely that Croatia will join the eu until 2009 so that's quite a long way ahead. Also there's no guarantee that just because Croatia joins the eu that eu citizens will have the same rights as Croatians. They could always change the laws again. Who knows? The point for the Markhams, is that they need to get in the "know", otherwise they'll be in for a rough time. Same as buying in any country I suppose.

[Nicola]

Mambo - you sound like you have more of a grasp on the renting situation than many others. Are you based in Istria or just own property there?
Can you give me a definitive answer on the procedures required to license and rent a property where income will be less than K85000 pa, property bought under private route (Permission still not obtained)
I have asked so many questions trying to do this legally but with as little bureacracy as possible. I have read those posts 'warning' of overlooking the license procedures but have not been able to get a clear answer from those 'advisors' as to what I should do. Am I best to convert my purchase to a Company to facilitate renting? How do I do this and what are the requirements? - I read somewhere I have to employ at least 1 local Croatian if I do this.
My preference would be to continue with the private purchase route, pay tourist tax (as I do already) and rent only to people I know and not through a local agent in Croatia. Any advice?

[mambo]

I live in Porec and we have a Croatian d.o.o. here, therefore I know a bit about the ins and outs about businesses.

I do understand however that you already own the property at this moment and that complicates matters, since you would have to change ownership into a Croatian company.

Furthermore, I don't know what your plans are with the property, but if it is only to rent out during the summer and you remaining in your home country then I fear that it will not be worth to change to a d.o.o.
Renting out to tourists requires somebody to be here and take care of the house, which will also cost money.

I don't know what they told you when you bought the property, but an apartment brings (on average) about 1500 to 2000 euro a year. If you are lucky it is going to be 3000 euro, but anyone who is telling you that you can easily do 6000 is either full time employed with renting out or has started a travel agency himself.
Here in Istria people are lucky if they can rent it out an average of 60 days a year. Let's say 50 euro/day, makes 3000 a year.
Take away the cost of someone taking care of the house, maintenance, property tax, electricity, water etc and not a lot will be left.

Now, as a company, if you would have to employ somebody (which is required if you want to deduct any cost, a d.o.o. without employees can officially not request for return of pdv since officially you don't operate) it would rougly cost you 2600 Kuna for a month of which 1850 Kuna is net for the employee, the rest goes into taxes. You could of course cut a deal with a bookkeeper, make him the employee (you will need a bookkeeper btw, you will not be able to understand and abide by all these laws if you try it yourself). If you need one I can recommend you one, he speaks German and he can even help you register a company.
You can of course become an employee yourself, but this requires permits and you will be required to start paying taxes here as well. The salary is a lot higher and therefore you will also pay more taxes, don't know if that is what you are looking for.


So, in order to figure out if it would be profitable for you to change ownership in this stage you will have to do some calculating. How much revenue do you expect, do you expect high expenses on the property this year and you have to offset this to the cost of operating a d.o.o.

[nikh]

Hi! Nicola
I just got sent out a very good guide. It is the same as the research we have done on the rental and says it in a nutshell. All the info is direct from the law and the new licensing regulations , but you will have to check out your local municipality for their interpretations . pm me and Ill send it on to you