CROATIA Law and Practice Contributed by: Marko Paulinović and Dino Vukoša, Buterin & Partneri
to 3% of the market value of the real estate at the time of transfer. The taxpayer is the buyer, although the parties may contractually agree that the seller will assume the obligation to pay the tax; however, this is not customary in practice. Real estate transfer tax is payable whenever the transaction is not subject to VAT. The standard VAT rate is 25%. Real estate transfer tax is not payable in certain cases, including transfers of ownership between family mem - bers and the contribution of real estate to a company (eg, contributions to share capital, mergers and acqui - sitions). In addition to taxes, there are also notarial certification costs for the sale and purchase agreement, and court fees for the registration of ownership in the land regis - ter; however, these amounts are generally negligible. In a share deal, tax liability may arise on the part of the seller, depending on whether the seller is an indi - vidual or a legal entity and on the holding period of the shares. 2.11 Legal Restrictions on Foreign Investors In Croatia, legal restrictions exist regarding the acqui - sition of ownership of real estate by foreign investors. Under the Ownership and Other Proprietary Rights Act, foreign natural persons and legal entities from outside the EU/EEA may acquire ownership of real estate only with the prior consent of the Ministry of Justice and Public Administration and subject to the condition of reciprocity. Without such consent, the transaction does not produce legal effects. Citizens and legal entities from EU/EEA member states may acquire real estate under the same condi - tions as Croatian nationals. A stricter regime applies to agricultural land, where foreign persons may acquire ownership only where this is permitted by an international treaty and a spe - cific statute. Citizens and legal entities from EU/Euro - pean Economic Area (EEA) member states are exempt from this restriction. Additionally, last year Croatia adopted the Foreign Direct Investment Screening Act, which may apply in
cases where real estate is acquired through a share deal. The screening mechanism applies to foreign investors from outside the EU acquiring a controlling shareholding of 10% or more in a company in the Republic of Croatia and requires prior approval from the competent state authority. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Acquisitions of commercial real estate in Croatia (eg, office buildings, hotels or logistics centres) are most commonly financed through bank loans. As security, banks typically require the purchased real estate to be mortgaged. Banks usually do not finance the entire purchase price but only a portion of the property value (generally 70–80%), with the remaining portion to be provided by the buyer. For larger acquisitions or development projects, pro - ject financing or structured financing may be used. Financing can also be raised through investment funds or other investment structures supervised by the Croatian Financial Services Supervisory Agency ( Hrvatska agencija za nadzor financijskih usluga – HANFA). 3.2 Typical Security Created by Commercial Investors In Croatia, a commercial loan for the acquisition or development of real estate is most commonly secured by a mortgage over the real estate itself. A mortgage constitutes a property right enabling the creditor to satisfy its claim from the value of the property if the debtor fails to fulfil its obligations. A mortgage is cre - ated by registration in the land register and gives the creditor priority in enforcement. Other security instruments used in financing may include pledges over receivables, bank accounts or shares/participations in companies. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders As a general rule, there are no specific restrictions on granting security over real estate in favour of foreign
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