Value Added Tax, known in Croatia as “PDV”, is a modern form of taxation. This is the tax that is charged to everyone, including businesses, on most transactions. The purpose of PDV is to tax consumption.
The most common rate of tax is 25%. However, there are two other tax brackets as well, which include 10% and 0%.
0% PDV and Tax Exemption
All types of bread and rolls are taxed at 0%. There is no tax burden for those products.
Furthermore, all types of milk and food that serve as a substitute for breast milk are non-taxable. The same goes for professional books, medicines and medical products that are surgically embedded in the human body. The taxation rate of 0% is significantly better than tax exemption. This is because manufacturers do not charge VAT on the delivery of their products, but they are entitled to deduct the tax prepayment.
Value Added Tax is exempt from being charged on around eighty categories of products, which are defined in the Tax Act on Addendum (Zakon o porezu na dodatak). Some of the most interesting businesses that are considered exempt are apartments for rent and arranging games of chance (casinos and bookmakers).
As mentioned above, professional books are not taxed, but newspapers and commercial magazines do not have such a privilege. They are taxed at a rate of 10%. This relatively mild rate is also applied to those who produce baby food, in accordance with special regulations. Everything else not explicitly listed is taxed at a rate of 25%.
Hotels, boarding houses, catering services and others providing accommodation or breakfast accommodation such as tourist agencies that charge commission for their services were previously in the 13% bracket, but have since been raised back to 25% as of 1 January 2017. This is the third change for that rate in five years.
How PDV is charged
On each receipt or invoice issued, the company must include the amount of tax. Be sure to pay attention to this detail when purchasing.
It is important to note that the PDV system is voluntary for businesses that have revenue under 300,000 kn per year. This means that if they do not want to pay PDV, they do not have to. That also means they cannot collect PDV and they cannot get reimbursed for the PDV that they pay on their goods.
If your business voluntarily enters into the PDV system, you’re obliged to stay in for at least 3 years. However, if your business entered the system because it’s revenue exceeded 300,000 kn in one year, you can request to leave whenever the yearly revenue drops below that threshold.
VAT for imports
Let’s say you’re moving from Austria to Croatia and are carrying a lot of things over the border. You don’t have to fear paying taxes. When relocating a person from abroad, you are entitled to tax exemption on personal items in accordance with customs regulations.
This does not apply to the import of any type of vehicle or any items that are not considered household items. Alcohol and alcoholic beverages, tobacco and tobacco products, commercial means of transportation, machines, tools and instruments for performing a particular professional activity are not considered household items.
If you only pass goods through Croatia, then you do not have to pay VAT as the rules of the final destination apply.
VAT in other countries
VAT is a system used by many of the world’s nations and has a different name in each country. In Albania it’s TVSH (Tatimi mbi Vleren e Shtuar), in Turkey it’s KDV (Katma deger vergisi), in Singapore it’s GST (Goods and Services Tax), and in neighboring BIH and Montenegro it’s also called VAT (Value Added Tax). In the United States, it is Sales Tax and varies by state and city.
The only country with a higher rate than Croatia is Iceland with a rate of 25.5%. Sweden, Hungary and Denmark also carry a VAT rate of 25% while Canada and Japan have only 5%. The European Union also prescribes VAT. The highest rate is set to 25%, which means that we are the most taxed country in the EU.