Croatia | Changes to VAT Legislation from 1st January 2019

The Croatian Parliament has recently enacted legislative changes to Croatian VAT law with an emphasis on aligning the national rules with those of the European Union.

The previously reported EU-wide changes to cross-border supplies of electronic services; and, the treatment of vouchers, effective from 1st January 2019, have been transposed into Croatian law.  In addition, the following amendments also generally take effect as of 1st January 2019 (unless otherwise stated):

  • The requirement for established taxpayers to register for VAT purposes previously only involved a “look back” test.  Now, established taxpayers that make supplies with a value exceeding the HRK 300,000 threshold during the current calendar year will have to register as well;
  • Taxpayers entered in the VAT register must submit a VAT ledger of incoming invoices electronically, along with their VAT return, on a monthly basis by the 20th day of the subsequent month. The form and content of the ledgers will be prescribed by law.
  • Under the new rules, non-established providers of business-to-business (B2B) supplies that are in possession of a valid Croatian VAT registration number will generally have to account for the Croatian VAT on those supplies themselves. Prior to 1st January 2019, such supplies were subject to the reverse charge mechanism, which meant the Croatian customer accounted for the VAT;
  • The right to recover input VAT is extended to non-EU companies which make taxable supplies of goods and services in Croatia subject to the reverse charge mechanism. Previously, the VAT refund process only applied to business which made supplies of services subject to the reverse charge (as well as specific zero-rated transportation services and connected services);
  • Equalising the VAT rates on printed and digital publications, meaning that such supplies including books, newspapers and magazines (subject to certain specified conditions and requirements), will all benefit from the same reduced rates of VAT;
  • The scope of the 13% reduced VAT rate is extended to:
    • Supplies of certain animals, meats and meat products, fish and seafood, vegetable, fresh eggs and babies’ nappies; and
    • Services and related copyrights of writers, composers and artists who are members of the relevant collective rights associations performing this activity under special copyright and related rights and with the prior approval of the central state authority for intellectual property;
  • The scope of the 5% reduced VAT rate is extended to all medicines and medical products; and
  • As of 1st January 2020, the Croatian standard rate of VAT will be reduced to 24% from 25%.

Next Steps

Importantly, certain foreign businesses may have more opportunity to reclaim the input tax they incur in Croatia. If you are affected by any of the above developments, please do not hesitate to get in touch.