Flat tax on tourist beds in the household and the effects of the tax increase

"It is in the interest of local self-government units to encourage the legal rental of real estate to tourists, especially those outside the legal system, and they can only do so through incentive measures. Raising the tax burden does not belong to incentive measures." emphasizes Nedo Pinezić, and he also argued his theses. 

Nedo Pinezić: Flat tax on a tourist bed in a household and the effects of the tax increase

1. The tourist bed tax consists of:

1. Tax on income from renting to tourists
2. Tourist taxes
3. Tourist membership fees

- The minimum amount of flat income tax per bed can be 19,91 euros, and the maximum amount is 199,08 euros

- The minimum amount of the flat-rate tourist tax per bed can be 46,45 euros and the highest 132,72 euros

- The tourist membership fee per bed is 5,97 euros

When we talk about the tax on the service of accommodation in a household, then we are talking about the sum of these three lump-sum payments.

2. Difference in local benefits of residents, residents of a local self-government unit and non-residents when both have registered, categorized, household accommodation in the same local self-government unit

Residents pay tax on income from self-employment (salary) or self-employment to the budget of the LGU in which they reside every month of the year in the amount (average) of 117 euros (1.404,00 euros per year) and "bed tax" which until now amounted to (average) 100,00 euros per bed.

Non-residents do NOT pay tax on income from self-employment and self-employment to the local government unit where they have registered, categorized accommodation, but to the LGU where they have registered residence, i.e. where their center of life is (tax definition regardless of whether in Croatia or abroad). They also pay (on average) EUR 100,00 per bed to the budget of the local LGU, and to the system of the tourist board, where about 65% of the amount of both benefits remains at the local level.

3. What do non-residents who do not have categorized accommodation but are owners of so-called non-commercial tourist accommodation (vacation apartments) pay?

Owners of non-commercial tourist facilities pay a communal "cottage tax" which can amount to a minimum of 0,6 euros and a maximum of 5 euros per square meter of living space, i.e. useful space. On average, it is 100 square meters and the average amount that will be determined by the JLS will be somewhere around 3,5 euros per square meter. That is a total of about 350,00 euros per year.

In addition, the owners of such accommodation and members of the immediate family pay a flat rate of 10 euros per person per year for the tourist tax. The average is 4 people, so it is 40,00 euros per year. All visitors to such apartments who are not immediate family members and do not pay a flat-rate tourist tax in the amount of EUR 10,00 per night, should (should) pay a tourist tax in the amount of EUR 1,5 per night.

4. The real estate tax paid by foreigners, citizens from some EU countries also applies to property (real estate and movable property) they have in Croatia.

This tax is paid according to the place of residence, that is, the center of life, and it is for non-residents, foreigners in the city, municipality and country from which they come. Non-residents in Croatia pay only the "cottage tax". Croatian citizens do not (yet) pay property tax (real estate tax).

5. Owners of empty apartments

Owners of empty apartments (of which there are about 200.000 in Croatia) should pay tax on holiday homes and that's all.

6. The biggest contribution to the local economy and local taxes

The largest contribution to the local economy is made by the population of the local self-government unit, which, in addition to income from self-employment (wages), also earns income from renting accommodation to tourists.

This income is spent for the needs of the household in the local self-government and thus creates a greater demand for products and services, thus creating a need for more employment. Due to the increased demand for products and services, every employed person again pays income tax, which is the most important budget income of the local government.

Also, tourists staying in homestays increase demand, thus encouraging additional employment and a new income tax. An average domiciled family pays EUR 2.800 per year in the name of tax on income from independent work and self-employment to the LGU budget. If they rent two four-bed apartments to tourists, then they pay an additional 800,00 euros per year.

They earn a gross of 60 euros from the achieved 9,600 days of occupancy. 50% of that amount is costs (taxes and other), and a significant part of waste costs is water consumption (local communal company), waste disposal (local communal company), cleaning, maintenance, bed linen washing (local cleaning services), mediation costs (local Travel agencies)…

Tourists from these apartments, 8 x 60 days, spend 480 nights, and outside accommodation consumption per night (person/day) is an average of 70 euros (food, drinks, excursions, attractions, shopping, souvenirs...), which additionally brings in 33.600 euros of income. for locally provided services.

Behind these services are people who receive a salary and pay income tax (on salary), which also goes to the local government budget. The children of the local population go to kindergarten and school in the same JLS, which is why the necessary staff is employed...

7. In conclusion

Any additional tax pressure that would make renting accommodation to tourists by local residents unprofitable would lead to the following scenarios:

• Long-term rental of real estate to non-residents
• Long-term apartment rental to a trading company
• They sell real estate to non-residents
• Keeping the value of money in an "empty" apartment...

The option of renting an apartment to Croatian tenants is the least likely due to the high risks of non-compliance with the contract, the creation of high costs, the possibility of losing the right to dispose of one's own property in the long term, etc. All this is due to the poor protection of the landlord's rights.

Social housing is normally under the authority of local self-government units in all developed countries. Vienna is the best example of such engagement.

It is in the interest of local self-government units to encourage the legal rental of real estate to tourists, especially those outside the legal system, and they can only do so through incentive measures. Raising the tax burden does not belong to incentive measures.

Author: Nedo Pinezić, nedopinezic.com