Next year brings a series of new laws

With the beginning of 2013, the zero VAT rate is abolished in Croatia, and a minimum rate of 5 percent is introduced, which will be applied to bread, milk, books, medicines, orthopedic aids, and cinema tickets. A VAT rate of 10 percent will start to be applied in hospitality, and hospitality providers will become the first taxpayers subject to fiscalization at the beginning of the year.

Namely, as of January 1, 2013, a series of new laws will come into effect – amendments to the VAT Act, the Law on Fiscalization in Cash Transactions, amendments to the Income Tax Act, contributions, a new Law on Postal Services, etc., while the special tax on luxury products will go into ‘the past’.

The amendments to the VAT Act, which are aligned with EU directives, also mean the abandonment of the zero VAT rate, so Croatia will have three VAT rates from the beginning of next year – a general rate of 25 percent, and two reduced rates of 10 percent and 5 percent, which is the lowest VAT rate allowed by the EU.

This lowest rate will apply to products that previously had a zero rate, namely bread, milk, books and scientific journals, medicines, orthopedic aids, and cinema tickets.

The 5 percent VAT rate will also apply to vessels for sports and recreation that are placed in customs procedures for release into free circulation by May 31, 2013, and which were previously in temporary import procedures. The aim of this provision is, as explained by the Government, to keep these vessels in Croatia even after entering the EU, in order to maintain revenues from nautical tourism at the current level.

The Ministry of Finance estimates that the implementation of these legal provisions will increase state budget revenues by approximately 1.3 billion kuna annually.

Whether the introduction of the 5 percent VAT rate on products that previously had a zero VAT rate will also mean an increase in the prices of these products remains to be seen, as some retail chains announce that there should be no increase, while some producers, such as certain bakery companies, announce a rise in line with the VAT rate. If the 5 percent VAT is incorporated into current retail prices, calculations show that for a product that currently costs 6 kuna, this would mean an increase of 30 lipa, to 6.30 kuna, and for a product that currently costs 25 kuna, an increase of 1.25 kuna, to 26.25 kuna.

At the beginning of next year, several provisions of the amendments to the VAT Act adopted back in February will also come into effect.

Thus, starting in 2013, the VAT rate of 10 percent, which has been applied to accommodation services in commercial facilities since the beginning of 2006, will be extended to include food preparation services and catering services in hospitality facilities, as well as the preparation and serving of non-alcoholic beverages and drinks, wine, and beer in these facilities.

And hospitality providers will become the first taxpayers subject to fiscalization at the beginning of the year, as the Law on Fiscalization in Cash Transactions comes into effect, which should enable the Ministry of Finance to efficiently monitor cash transactions and combat the gray economy. The law will be implemented in three phases, with hospitality providers and medium-sized traders being the first to be covered.

This requires that hospitality facilities and medium-sized traders have an electronic cash register that is software-adapted for fiscalization procedures, as they must support digital signatures and enable internet connection with the Tax Administration.

Fiscalization stipulates that every receipt for any hospitality service must be sent to the Tax Administration for verification before issuance, and the Tax Administration will assign a unique receipt identifier – JIR, which, as stipulated, should be returned within a few seconds, and only after that can the hospitality provider issue the receipt.

The receipt must also contain data about the time of issuance (hour and minute), the operator’s designation (person) on the cash register, the method of payment designation (cash, card, check, transaction account, other), JIR, and the protective code of the fiscalization obligation issuer.

The JIR will enable the Tax Administration to control whether the declared tax ultimately ended up in the budget treasury, and citizens can check, via SMS, the web, or at the Tax Administration itself, whether their receipt has been verified by the Tax Administration.

After hospitality providers and medium-sized entrepreneurs, in the second phase, starting April 1, fiscalization will also cover traders and freelance professions, and in the third phase, starting July 1, all other fiscalization obligations.

The Ministry of Finance estimates that in the first year, fiscalization will bring about half a billion kuna in increased revenues to the state budget, and in the following years more than a billion kuna.

With the beginning of 2013, a provision of the amendments to the VAT Act comes into effect, which raises the threshold for registration in the VAT taxpayer registry to 230,000 kuna (from 85,000 kuna).

The beginning of 2013 also brings a series of novelties in other tax laws, as the amendments to the Income Tax Act come into effect, according to which farmers who achieve, in 2012, along with already prescribed conditions, an income greater than 35 percent of the amount prescribed for mandatory entry into the VAT system, i.e., 80,500 kuna, will be required to register in the income tax taxpayer registry. Also, craftsmen and farmers who achieve an income less than 65 percent of the amount prescribed for entry into the VAT system, which amounts to 149,500 kuna, will be able to pay income tax on a flat-rate basis.

The amendments to the Income Tax Act, adopted in mid-December, also foresee alignment with the new pension annuity program being introduced into the pension insurance system, thus equating the purchase of pension and pension annuity in tax terms.

These amendments also stipulate that the source of all assets of an individual acquired since January 1, 2005, will be examined in the process of investigating the source of wealth.

From the amendments to the Corporate Income Tax Act, starting in 2013, a provision comes into effect whereby all reinvested profits that are entered into the capital after the completion of the calculation and that increase is registered at the commercial court are exempt from corporate income tax.

From the beginning of next year, complete liberalization of the postal services market is also introduced, as a completely new Law on Postal Services comes into effect on January 1.

With the beginning of 2013, the taxation of luxury items – jewelry, watches, clothing and footwear made of fur and reptile leather, pyrotechnic products for fireworks, and weapons will cease. The Law on the cessation of the Law on the special tax on luxury products comes into effect. Excise duties on these products have brought only symbolic revenues to the state budget, and this tax, as explained by the Ministry of Finance, becomes pointless after entering the EU, as Croatian citizens can then purchase these products in neighboring countries, which would cause Croatia to lose VAT on this type of product.