New VAT Act will affect non-residents and financial services sector

Croatia’s new VAT Act, which becomes effective on 1 January 2010, introduces significant changes to further harmonize Croatian VAT legislation with EU rules in anticipation of Croatia’s accession to the EU. The new rules contain provisions that will affect non-residents making supplies in Croatia as well as non-residents making acquisitions in Croatia. 

According to the amended rules, foreign enterprises performing taxable supplies in Croatia will be required to register for VAT purposes and appoint a tax representative authorized to carry out functions related to the calculation of tax and payment on behalf of a non-resident. The tax representative will have to be a Croatian taxpayer and will need to guarantee the payment of tax. 

The new VAT Act provides for the availability of VAT refunds to foreign enterprises that do not have a registered presence or other business unit in Croatia and that do not carry out any supplies of goods and services in Croatia in the relevant tax period. The refund will be available only under the condition of reciprocity, i.e. that Croatian taxpayers are entitled to a VAT refund to the same extent in the country where the applicant is resident. 

Regarding the place of supply, the existing VAT Act prescribes that domestic enterprises performing services where place of supply is deemed to be the place where the recipient is resident also applies when the services are provided to a non-resident person that is not an enterprise (i.e. the place of supply is the place where the individual has his/her habitual abode). This has been revoked by the new VAT Act. Further, the following services will be deemed to be supplied at the place where the head office of the recipient is located: the provision of access to and transport or transmission through distribution systems for natural gas and electricity and other directly related services, telecommunications services, radio and television broadcasting services and electronically provided services. 

Other notable changes in the new VAT Act include the following:

• The VAT exemption for banks, savings and credit organizations and insurance/reinsurance companies will be abolished; an exemption will be available only in respect of specific financial and insurance transactions. As a result, the specified financial and insurance services will be exempt from VAT regardless of the legal status of the provider. On the other hand, financial institutions will be able to use the VAT refund to the extent related to taxable supplies. 
• Taxation of margins realized by dealers on deliveries of used goods, works of art and collectible or antique items by dealers under the condition that those goods are provided by a person who is not a taxpayer, by taxpayers with exempt deliveries or by persons which are taxed on realized margins.

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