Finance Minister Marko Primorac presented a concept for a new tax reform on Thursday, which envisages the introduction of a property tax to replace the tax on holiday homes and a fairer tax treatment of long-term and short-term rentals.

At a press conference, Minister Primorac said that the government wanted to improve the fairness of the tax system and gradually shift the tax burden from labour to property.

Some of the taxes introduced at the beginning of this year serve this purpose, he added.

It is necessary to transform the taxation of holiday homes and the new tax reform package provides for this transformation through the introduction of real estate taxation, he said, adding that the types of real estate eligible for taxation would be specified.

Full draft of the new taxes to be presented on Monday

The minister announced a more detailed presentation of the new tax reform on Monday, saying that it would include lower and upper tax brackets for property taxation and the obligation for local authorities to introduce these taxes.

The property taxes to be introduced will not be paid on homes in which the taxpayer in question lives or on those that are rented out on a long-term basis, the minister said.

Vacant properties and properties rented out on a short-term basis will be subject to taxation, he said, adding that the taxes currently paid on short-term rentals for tourist accommodation are absurdly low.

Imbalance in tax liability

Primorac pointed out that income from property rentals is currently taxed much more favourably than the tax liability for income from other sources, such as income from employment.

Therefore, many investors and entrepreneurs are encouraged to invest surplus capital in real estate and rentierism rather than in research and development or the acquisition of new technologies, he said.

Tax deductions and tax benefits for Croatian emigrants returning to their home country

The minister said that the new reform includes an increase in the non-taxable portion of income to €600 per month and an increase in the threshold for a company’s VAT liability from an annual turnover of €40,000 to €50,000.

Croatians returning to their home country from abroad will probably be exempt from income tax for a certain period of time.