Tax Reform in Croatia 2025: What You Need to Know

The new tax reform, coming into effect in Croatia in 2025, brings significant changes to the taxation system, particularly concerning real estate. In the context of a growing real estate market, increased interest in luxury properties, and efforts toward a greener future, the reform is designed to promote sustainable development, reduce tax inequality, and increase budget revenues.

The key change is the introduction of a real estate tax, replacing the current vacation home tax.

Who Pays the Real Estate Tax?

From 2025, the real estate tax is paid by all property owners, including:

• Domestic and foreign individuals.
• Legal entities.

The tax is determined for properties owned as of March 31 of the current year.
The taxpayer is not required to submit a property declaration for properties already subject to municipal charges.

Data that taxpayers must submit to the relevant tax authority by March 31 of the year for which the real estate tax is assessed include:

• Changes in the calculated surface area of the property.
• Changes in the purpose of the property.
• Proof of renting the property based on a lease or rental agreement not reported to the Tax Administration for income tax purposes (e.g., when the landlord is a legal entity).
• Evidence affecting eligibility for exemptions from real estate tax that are unknown to the tax authority (details provided in points 4–8 below).

What Qualifies as Taxable Real Estate?

Taxable properties include residential real estate, such as:

• Houses and apartments intended for living.
• Residential parts of mixed-use buildings (e.g., residential-commercial buildings).
• Independent residential units.

Exceptions include properties exclusively used for housing agricultural machinery, production facilities, and similar purposes.

How Much Is the Real Estate Tax?

The tax rate ranges from €0.60 to €8.00 per square meter of usable area, paid annually.
The final rate is determined by local government units based on:

• The property’s location.
• The property’s usable area.
• The area’s attractiveness (e.g., urban or tourist zones).

For instance, properties in urban or attractive tourist areas may be taxed higher compared to those in less developed or rural zones.

Although some property owners will face higher tax burdens, the new system also includes exemptions to ease the burden for those using properties for personal or public purposes.

Exemptions from Real Estate Tax

The reform provides several exemptions to reduce the tax burden for property owners in specific situations. Exemptions apply to properties that:

• Serve as a permanent residence.
• Are rented for long-term residential purposes under a contract lasting at least 10 months.
• Are under renovation due to natural disasters (e.g., earthquakes, floods, etc.).
• Have public or institutional purposes.
• Belong to individuals with limited financial means (with proof of financial status).
• Are owned by municipalities, cities, or the state.
• Are certified as unsuitable for residential purposes (e.g., old properties without roofs, windows, or doors).
• Have been repossessed due to unpaid claims, provided no more than six months have passed since repossession.
• Are listed in business records as properties intended for sale.

These exemptions aim to encourage the use of properties for public, social, or personal purposes while providing support in special circumstances.

Income Tax on Real Estate Disposal

Real estate is taxable if sold within two years of purchase or if the taxpayer disposes of more than three properties or rights of the same type within five years.

Certain conditions exempt real estate disposal from taxation. For example, no tax is owed if the property is sold after two years of ownership, or if it was acquired through a gift, inheritance, or marital settlement.

It is important to note that exemptions do not apply if the property is sold in a modified state, such as inherited land on which a new property was built for sale.

The relevant date for taxation is not just the one specified in the purchase agreement but also when the property was made operational—especially in cases of construction, reconstruction, or changes to its form and purpose. This precision aims to reduce ambiguity in taxation for situations where there is a significant gap between acquisition and usability dates.

Conclusion

The tax reform taking effect in Croatia in 2025 introduces key changes aimed at creating a fairer and more efficient taxation system.

The introduction of new rules for real estate taxation, increasing tax-exempt thresholds, and digitizing processes should enhance transparency and simplify tax compliance.

These changes have the potential to improve citizens’ financial stability, stimulate economic growth, and elevate the quality of life, making the tax system more transparent and equitable for all.

Sources:

https://www.iusinfo.hr/zakonodavstvo/ZA2016B115A2524/clanak-27

https://vlada.gov.hr/UserDocsImages/Vijesti/2024/Rujan/23_rujna/Novi_krug_porezne_reforme.pdf

https://www.iusinfo.hr/zakonodavstvo/zakon-o-porezu-na-dohodak/8/clanak-57

https://www.iusinfo.hr/aktualno/u-sredistu/novosti-koje-donosi-porezna-reforma-u-2025-godini-s-posebnim-naglaskom-na-porez-na-nekretnine-63167