Real estate tax details presented: Short-term rental tax increases

The real estate tax will be introduced from January 01, 2025 - 0,6 to 8 euros per m2.

The Minister of Finance, Marko Primorac, held a presentation today in the National University Library as part of the session of the Economic and Social Council on the new round of tax reform, in which the details of the real estate tax and the increase in the tax on short-term rent were presented.

Six tax laws will be amended - the Law on Local Taxes, the Law on Income Tax, the Law on Contributions, the General Tax Law, the Law on Tax Administration and the Law on VAT. 

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This is the joint income of the State of the Republic of Croatia and cities/municipalities. With the fact that the income from the real estate tax will be divided in the ratio: 80% by the local self-government unit, and 20% according to the state budget. 

"The amount of real estate taxes will depend on the characteristics of self-government units, but the state will announce a range of amounts from 0,6 to 8 euros per m2." pointed out Primorac. 

If the city/municipality does not make a decision on the amount of real estate tax, it will apply the amount of tax on vacation homes per m2.

By zoning, it will be possible to burden more valuable real estate, which will also be decided by the cities and municipalities themselves. Buildings in the city center or on the first line from the sea will be able to be taxed more than real estate located outside the city center. What is the decision of the city/municipality again, whether zoning will work and under what conditions. 

In order to be exempt from tax, the property must be in a long-term lease for ten months

Index of tourism development as a key factor in defining the flat tax for short-term rental

Equalizing the tax burden of long-term and short-term, i.e., tourist rentals, is the goal of the new proposal for flat income tax, noted Minister Primorac, who emphasized that the average tax burden for long-term rentals was 8,4%, while for short-term or tourist rentals, this tax amounted to about 2%.

The amount of the flat tax will be determined according to the level of the tourism development index of the municipality or city determined by the regulation on tourism. Also, as with the issue of real estate tax, municipalities and cities will make a decision on the amount of the flat tax.

Now, according to the proposal, the tax burden on long-term and tourist rentals is being equalized, as shown in Figure 2. 

Tourist Development Index (ITR) as a key factor in defining the flat tax. The amount of income tax will amount to 12% on 70% of the realized contributions, depending on the Tourist Development Index. On the other hand, the range of flat income tax per bed will also be according to the ITR classification (Figure 1). 

For short-term rental properties in the most developed tourist destinations, a flat rate of at least 150 euros per bed would be paid, and a maximum of 300 euros, while for ITR4 the payment would be in the range of 20 to 100 euros per bed. 

Also, regarding real estate taxes, long-term rentals will not have real estate taxes, while real estate taxes will apply to short-term rentals. 

You can view the entire presentation in the attachment.