By Tuesday, submission of requests for exit from the VAT system

The request for exit from the VAT system must be submitted to the Tax Administration no later than Tuesday, January 15. It can be submitted by entrepreneurs who generate income of less than 230,000 kuna, and those who entered the system by law or those who entered the VAT system at their own request and have been in it for five or more years can exit.

Entrepreneurs who voluntarily exit the system can only do so at the end of the business year, and the rights and obligations of taxpayers last until December 31 of the same year. They are required to submit a notification to the Tax Administration by January 15 of the year in which they cease to be taxpayers, and the Tax Administration will issue a decision removing them from the VAT taxpayer register.

If an entrepreneur fails to notify the Tax Administration that they are exiting the VAT system, they are considered by law to have voluntarily decided to be a VAT taxpayer from the following year. The Tax Administration will issue a decision on voluntary registration in the VAT taxpayer register, which obliges them for the next five years.

Despite the increase in the threshold for mandatory entry into the VAT system from the previous 85,000 to 230,000 kuna of annual taxable turnover, some entrepreneurs will remain in the VAT system for various reasons, even though their turnover is below that limit. For example, entrepreneurs who voluntarily became VAT taxpayers in previous years cannot exit the system before the expiration of a five-year period. Some entrepreneurs will postpone their decision to exit the VAT system to avoid correcting the input tax used when acquiring fixed assets.

If the exit from the VAT system occurs in the same year in which they cease to keep business books, they must account for the obligation to pay VAT on all fixed assets and inventories on hand, which will demotivate them from exiting the circle of VAT taxpayers. Namely, upon exiting the VAT system, an individual taxpayer must calculate the VAT obligation on all unpaid invoices on the last day. Knowing the difficulties with collection, these tax rules will likely demotivate individuals engaged in self-employment from exiting the VAT system, consequently preventing them from switching to lump-sum taxation of income.

A lump-sum taxpayer pays contributions for mandatory insurance in a smaller amount than taxpayers who keep business books. For example, craftsmen who keep business books pay contributions based on 65 percent of the average salary, while lump-sum craftsmen pay contributions based on 40 percent of the average salary. The reduction in expenses for mandatory contributions is a reason that may influence the decision to switch to lump-sum taxation.

Requests by January 15 – What is the amount of the lump sum

The request for lump-sum taxation must be submitted to the Tax Administration by January 15, 2013. Depending on the income earned in 2012, the Tax Administration will issue a decision on the lump-sum income tax obligation for 2013 in the amount (increased by local surtax):

– if the income in 2012 was up to 85,000 kuna – 127.50 kuna per month
– if the income in 2012 was more than 85,000 up to 115,000 kuna – 172.50 kuna
– if the income in 2012 was more than 115,000 up to 149,500 kuna – 224.25 kuna.