Buying a Property in Croatia
Updated January 2012
Croatia has much to offer the property purchaser, including an enormous variety of landscapes, a wide choice of cities, towns and villages, a great climate and wonderful beaches.
Its popularity really took off in 2001, and it promptly became one of the countries that were part of the ‘emerging market’ phenomenon. It opened up to foreign investors, who quickly took advantage of the inexpensive properties that were to be found throughout the country.
Anyone who wants ease of access from the rest of Europe, the clear waters of the Adriatic and an ever-improving infrastructure has got to consider Croatia. Croatia officially became an EU candidate country in 2004 and opened formal accession talks the following year, with full membership of the European fold following on 1st July 2013. This is a result of the impressive progress made by the country as an independent state, and will help promote the long-term prosperity of the country.
As of February 2009, the property market in Croatia became more open to foreigners, as are now able to buy on the same terms as local Croats. This burning of red tape in the buying process will not only speed up the property buying procedure, it should encourage more buyers to purchase in Croatia with confidence.
Popular property locations – an overview
In the last few years, Croatia has emerged from the troubles of the early 1990s, when war tore through the Balkans. The infrastructure has been transformed, good roads now link north and south, airports have been built, and the country has been put on a sound footing, to attract more and more visitors interested in buying property.
The country is divided into numerous different regions, however most property buyers tend to want to buy in the coastal areas of Istria, Kvarner and Dalmatia. This is a land of medieval towns safe within high walls, breathtaking scenery, and an extraordinary mix of cultures and history.
Croatia’s mainland coastline is around 1,770km long and in addition has around 1,200 islands lying off it, which is one of the major attractions for tourist to visit. The Adriatic coast tends towards beaches that are rocky or pebbly rather than sandy.
Potential homeowners are given a real à la carte in the variety of landscapes to choose from. Spending holidays in different regions is helpful in making a final decision and if you are able, try to visit at different times of the year so that you are aware of what the winter climate and atmosphere are like.
Property in Istria
The Istrian Peninsula is the most northerly part of Croatia, and borders Slovenia. This part of the country has proved very popular with visitors, thanks to its beautiful countryside, richly forested interior and attractive coastline. The old town of Umag is set on its own riviera, which stretches for about 20km. This is an especially pleasant part of the coastline.
Possibly the last area to come to the attention of the overseas property industry, Istria has seen a sharp growth in property buyers from the UK in the past couple of years. As buyers are keen to find the best deals and discover untouched areas of the country, they have spread north from the bigger cites to discover the resorts and the old Venitian-style towns further up the coast. Low-cost airlines now have established routes into Croatia, with Pula in Istria as the main destination airport in the region.
Porec, probably the most popular resort in Istria, dates back some 2,000 years and is well worth a visit, while the town of Rovinj, which was originally on an island, is home to many restaurants and cafés and is also a thriving fishing port.
Property in Kvarner
Further down the coast from Istria comes the 'middle' section of Croatia, the Kvarner region.
Opatija and Crikvenica have a great deal of charm. Opatija, especially, is home to some lovely buildings dating back to the Austro-Hungarian Empire, when it was a fashionable seaside resort. Crikvenica is known for its long beach and mild climate, which is reputed to be beneficial for those with respiratory problems.
One of the most important – and busiest – Croatian ports, Rijeka, is located here. This is very much a starting point for anyone wanting to travel by ferry further down the coast or out to the islands. Also to be found in this part of the country are the islands of Krk, Pag, Rab and Cres, which are proving ever more popular with tourists looking for a break off the beaten track.
Property in Dubrovnik & Dalmatia
This part of Croatia has vineyards, olive groves, a number of national parks, and tranquil seaside towns, such as Cavtat. Small seaside resorts like Molunat attract visitors who enjoy the wonderful scenery and a quiet lifestyle. There are plenty of restaurants in Cavtat, and from here it’s possible to catch a ferry to Dubrovnik, a UNESCO World Heritage City.
The restoration of Dubrovnik was been successfully achieved in a remarkably short space of time, following the damage the city suffered during the long siege of the early 1990s. It now welcomes visitors from around the world and is very popular with the rich and famous and their yachts. Dubrovnik airport is modern and efficient, and it has become the arrivals point for many international visitors.
Split is the main city in this part of Croatia, and with its position at the heart of the country, has played a pivotal role in the history and identity of Croatia. Vis, Hvar and Korcula – some of the biggest and most visited of the Dalmatian islands – are located off the coast of Dalmatia.
The southernmost tip of Dalmatia is where Croatia narrows down to the border with Montenegro. Many visitors to the neighbouring country fly into Dubrovnik and drive south to the border.
Buying a property
Property buying in Croatia is governed by the principle of reciprocity. This means that until Croatia joins the EU as expected, the right of an individual to buy property there is on the condition that Croatian nationals are permitted to buy property in the origin country of the purchaser. For UK citizens, this presents no real problem, but if you are from a different country, it is worth bearing in mind.
However, as of February 2009, foreign nationals are able to buy in Croatia with the same rights and opportunities as local Croats. Given that to be awarded permission to buy previously it was often necessary to form a private company, this change will free up the buying process and attract many buyers who would otherwise have been reticent to buy in the country. This change in buying rules is necessary as one of the tenets of Croatia joining the EU, which is expected to happen in 2011.
As in all property transactions, the purchaser should always use the services of an independent lawyer who acts solely for them. It is also essential that the lawyer should speak both Croat and English fluently.
It is important for the lawyer to check that the property’s title is clean. Because Croatian families traditionally handed properties down from father to son for several generations, in some cases the paperwork is either incorrect or non-existent.
Getting a survey done is somewhat unusual in Croatia, but it can be arranged through surveyors located in the bigger towns. This service, with a proper translation, should cost in the region of €500 should you require it.
There are two main routes for the purchase of property in Croatia – as a private individual or through a company structure that you set up yourself. There are advantages and disadvantages to both methods, and the best solution will be different for each specific case. An experienced and professional estate agent will advise you of the best solution for each individual circumstance.
In the case of a foreign national buying as a private individual, permission to purchase must be sought from the Ministry of Foreign Affairs. This permission can take a good deal of time to obtain, typically 12 – 18 months, and you will need a good lawyer to guide you through the process and make sure you supply all of the documentation in the correct format at the right time.
If a foreign national has registered a company in Croatia and is buying through that company, permission is not necessary. There can be advantages to buying through a company, chief among which is the amount of time you can save in the buying process not having to seek government permission. There are also other benefits of buying this way, with tax gains both at the time of buying and when you come to sell in the future, but this needs to be tempered by the corporate taxes that require paying both at the outset, and throughout the life of the company. You will also need to keep proper records of the company activities and submit accounts like any other commercial entity.
The stages of the purchase include:
• The reservation contract
• The preliminary contract. This will include the payment of a deposit, usually of between 5 and 10 per cent of the purchase price. It is usual for the contract to include a clause stating that should the vendor withdraw the property from sale, he must pay an equivalent sum to the purchaser
• The certifying of the contract by a notary
• The submission of the documents to the Land Registry for the recording of the legal title
• The payment of Real Estate Transfer Tax and/or VAT, (known as PDV in Croatia) as applicable. This must take place within two weeks of the final approval for purchase being granted to an individual to make sure that additional penalty charges are not incurred.
Buying Property in Croatia: Costs & Fees
• Estate agents charge between 2.5 and 3 per cent of the property’s sale price
• Lawyers will charge around 1.5 per cent. This will usually include the Land Registry search and the preparation of the purchase contract
• Permission from the Ministry of Justice for a foreign national to acquire property costs around 70 kuna (approximately £6.50)
• The notary’s fee and that of the translator (officially required) total approximately 500 kuna (around £50)
• The fee charged by the Land Registrar is about 400 kuna (approximately £38). Check with your lawyer whether this has been included in his or her fee
• Property transfer tax is currently set at 5 per cent. This is paid by the buyer. Once the transaction has been completed, the change of ownership should be registered within 30 days. The tax can be paid by money transfer, and is then changed into kuna
VAT (PDV in Croatia) is currently 22 per cent and payable only on the value of a newly constructed building or a resale for which the VAT was already paid, if disposed of by a business VAT payer. It is also charged on the services provided by both estate agents and legal advisers.
It is essential that you research fully into the costs and fees charged by professionals that you hire to carry out essential parts of the property buying process on your behalf. Some elements within the property industries in countries which are emerging onto the international property scene try to take advantage of unwary buyers by overcharging for their services. Make sure you have a good spread of quotes and take as much advice as you can to get the best deals.
Real Estate Mortgages
The finance industry in Croatia was subject to quite a large amount of change in recent years. However, there are now mortgage products available which are fit to meet the needs of the overseas buyer. Strict rules are in place for the set up of mortgages in Croatia, but with the purchase of property by foreigners becoming more popular, there are bound to be more products in the pipeline soon.
Finance for property in Croatia can be gained for up to 70 per cent of the property value, meaning that buyers will need to find the other 30 per cent for the deposit and to cover the balance. Interest rates start at around seven per cent, and finance is available in Euros. Buyers will be required to have bank accounts in Croatia set up to receive the funds, and in order to qualify for a loan most lenders will require that your total liabilities total no more than 35 per cent of your net income.
Of course, for UK buyers who already have a mortgage, it is perfectly possible to add to it. This will be linked to UK rates, which differ from overseas ones, but could lead to a stronger bargaining position in the buying process as a cash buyer.
Taxation for Residents and non-residents in Croatia
Personal taxation: non-residents
Generally, non-residents are subject to tax on income sourced in Croatia. The current rate is 20 per cent.
Non-residents also have to pay a tax of 10 kuna (around £0.90) per square metre of their property annually.
Personal taxation: residents
Anyone spending more than 183 days per year in Croatia and/or having a property there (whether rented or owned) available for his exclusive and continuous use is considered by the authorities to be a resident for tax purposes.
Residents of Croatia pay tax on worldwide income. Rental income is normally taxed at 15 per cent. It is worthwhile looking at the exemptions that exist, as there are definite advantages in terms of ‘deemed residence’. This means that it is possible for foreigners to keep legal residence in Croatia without having to be there for any minimum length of time.
There is no wealth tax or inheritance tax in Croatia. The country has entered into double taxation treaties with 35 countries (such an agreement exists with the UK), and pensions received from abroad are exempt from Croatian tax.
Capital Gains Tax is payable by private citizens on selling their property if it is sold within the first three years of ownership, and is charged at 35 per cent of the gain. After three years, the tax is not charged, and it does not apply to private companies selling property at any time. However, company profit tax is payable at a rate of 20 per cent at all times.
Passports, visas and residency
As part of Croatia's preparation to become a full member of the EU, visa and passport requirements for UK or other EU citizens have fallen very much in line with the rest of the Europe. This means EU citizens arriving into Croatia need only a passport or national identity card.
Foreign nationals can stay in Croatia for a maximum of 90 days without having a residence permit. Those wanting to stay longer can apply for a temporary residence permit, which will be granted without difficulty to anyone owning a property.
Temporary residence permits are issued for twelve months and can be renewed, though a foreign national is now only permitted to be in Croatia for six months out of 12. The first permit must be applied for from outside Croatia, and can be obtained from a Croatian consulate in the country in which the applicant is currently resident.
To obtain a temporary residence permit, the applicant will have to supply two photographs, a photocopy of a valid passport, proof of sufficient funds, plus his or her birth certificate as well as a marriage certificate if you are married. also required are proof of medical insurance and a criminal records check no more than six months old. The permit is kept with the passport, which must have at least three months left on it at the end of the permit’s validity.
Extensions to the permit can be obtained from a local police station in Croatia, but must be applied for at least 30 days before the current permit expires. After five years of residence in Croatia, you will be eligible to apply for full residency should you wish.
Further details are available from the Croatian Embassy website.
The Croatian economy
Croatia's economy has undergone a profound transformation since the country gained independence in the early 1990s. Today, it is a functioning market economy with stable macroeconomic indicators, but structural reforms are yet to be completed. The microeconomic environment and, in particular, the competitiveness of the local economy need to be enhanced rapidly.
In 2005, the economy enjoyed relatively fast growth, low inflation and a stable exchange rate. However, the fiscal deficit remains above EU levels – it is expected to be around 4.2 per cent of GDP. The current account deficit is high and the state still plays a significant role in the local economy. Unemployment is very high as the economy adapts to the new systems and demands placed upon it..
This is the anomaly of buying in Croatia – while the property market is thriving and there is more inward investment in the country than ever before, there are still issues to be tackled by the government to improve the lives and prospects of ordinary Croatians. Strides forward in GDP growth and infrastructure are helping develop the country, and the future looks positive.
Croatia has really arrived in the family of countries that are attracting those seeking a home in the sun. Prices are still reasonable, there’s a great deal to do, the people are fun, and the country is attractive.
Do remember, though, that buyers of a home abroad should always, without exception, take independent legal advice. The legal adviser should be fluent in both the purchaser’s language and that of the country in which the property is located. Under no circumstances should he or she be connected with the estate agent, the developer (if the property is located on a new development), the notary or anyone else. The only person he or she should be working for is the purchaser.
Those who are accustomed to taking two holidays a year may well find that buying a home in Croatia will change all that, and that they’ll be heading to their new home rather more often.
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