Purchase of Real Estate in Croatia Through a Company

The model of purchasing real estate via a company is becoming an increasingly common practice in Croatia, particularly among foreigners, investors, and existing businesses.

This approach allows for simpler property management, especially when purchasing multiple properties, such as apartments for rent or properties intended for other business purposes. Through this model, companies can generate income while optimizing their tax liabilities and operations. This method also provides greater flexibility, as the company can more easily manage the properties and use them in line with its business goals.

Establishing a Private Company (Limited Liability Company – d.o.o.) in Croatia

The process of establishing a company in Croatia typically takes about 14 working days and requires several key documents to complete the procedure successfully.
A company, such as a limited liability company (d.o.o.), is most commonly established when the company’s expected income exceeds €40,000, as Croatian legislation then requires the company to enter the VAT system. This approach is often chosen by investors in the real estate development sector, aiming to sell newly constructed apartments and achieve significant revenue.

Additionally, selling newly built apartments through a company is an exceptionally attractive option as it allows the future buyer to avoid paying real estate transfer tax, making this option even more appealing to buyers.

Purchasing Real Estate Through a Company

Purchasing real estate through a company involves a legal entity becoming the owner of the property instead of an individual. This method can be very beneficial for various reasons, such as tax benefits, asset protection, or business ambitions.
One of the main advantages of purchasing real estate through a company is the possibility of VAT recovery. If a company purchases an apartment in a new building registered in the VAT system, it is entitled to a 25% VAT refund paid at the time of purchase. This refund can represent a significant financial saving.

Additionally, the company can record the purchased property as depreciation in its accounting books, reducing its tax base and thus lowering overall tax liabilities. This allows the company to optimize its tax expenses. Moreover, companies often have access to more favorable financing conditions for purchasing real estate through loans, further reducing costs and facilitating investments.

Step-by-Step Company Establishment Procedure

We have compiled several steps to outline what the company establishment process in Croatia includes.

1. Choosing a company name
2. Notarizing documents with a public notary:
   • Application for registration in the court register
   • Founding act – company agreement (signed by all founders) or a statement of establishment (if the company is founded by one person)
   • Statement of acceptance of appointment by members authorized to represent the company
   • Decision on the appointment of management board members
   • Signature of the director or management board members
   • Signatures of supervisory board members (if the company has a supervisory board)
   • Decision on appointing a procurator and their signature (if the company has a procurator)
   • Decision on determining the company’s address
3. Submitting documentation and paying fees
4. Receiving documentation and opening a bank account

Costs and Taxes Related to Business Operations

When purchasing real estate through a company, tax relief can be achieved depending on the type of business, through tax deductions for depreciation and VAT recovery. This tax relief can be utilized by a company registered in the VAT system if the property is used for business purposes (e.g., if a commercial space is purchased).

Additionally, purchasing real estate through a company can provide added asset protection in case of financial or business difficulties.

When the seller is an individual (not a taxpayer), the purchasing company pays a one-time real estate transfer tax of 3% on the market value of the property.

If the company purchases property from a legal entity that is a taxpayer, VAT of 25% is calculated and paid on the purchase price of the property.

Additional Advice for Foreigners and Investors

We recommend always consulting with your lawyer and accountant before purchasing real estate, as they are best informed about legal provisions, which can change. It is always advisable to verify the accuracy and relevance of information before making a final decision.

Sources

Step-by-step company establishment procedure:

https://www.iusinfo.hr/aktualno/u-sredistu/pregled-koraka-za-osnivanje-drustva-s-ogranicenom-odgovornoscu-d-o-o-43774