In the 1980s, Croatia had a thriving tourism industry, attracting millions of people to it’s stunning countryside each year. However civil war wiped most of this tourism out and it is only now that the tourism industry is really getting back on it’s feet.

This emerging tourism industry makes Croatia ripe for foreign property investors with a rental market that is also growing substantially. The reasons for this growth are self-evident – miles of spectacular scenery, low living costs, good accessibility, excellent property development plans, EU accession forecast, and property at knock-down prices. The country also boasts good tax benefits for many overseas investors – income is tax-free on overseas pensions, as are things such as capital gains from trading securities and other financial assets.

One thing to watch for is that estate agents are, as yet, unregulated, therefore you must choose your land agent carefully in order to make sure you get a good deal. Many international agents operate in Croatia so you may find it worth your while to see if any estate agents or law firms deal with Croatian properties on a regular basis as this may be the easiest route in to the country.

Most property investment opportunities are in the capital city of Zagreb – a city which houses nearly a quarter of the country’s population, although there are good investments further out if you take the time to research carefully. There are plenty of new developments planned for the future including five new golf course developments in Istria, so there should be plenty of choice. In Zagreb, expect to pay around 100,000 Euros for a luxury two-bedroomed apartment with car parking space and access to a communal swimming pool.

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Private Purchases
All private purchases must be approved by the Croatian Ministry of Foreign Affairs. This process can take up to 18 months to complete, on top of the normal house-buying process time. This way is a good way though as it means that if the property is sold after three years of ownership, no gains value tax is charged. However this route does mean that you can not claim VAT back on purchase costs.

Private Taxes
- There is a 5% real estate tax on the full value of the property for anything built before December 2007. For anything build after 31st December 2007, the taxes are calculated as follows:
If the seller is not VAT registered then the buyer pays 5% real estate transfer tax on the whole purchase price (in which case the VAT does not apply).
If the seller is VAT registered the buyer pays 5% real estate transfer tax on the land value of the real estate, and 22% VAT on construction value of the real estate (which is included in the purchase price);
- If you are going to rent out the property, you must notify the Croatian Tax Service. Tax will be applied at 25% to all profits.
- If you sell the property, you must pay tax of 35% of the difference between the selling price and the purchase price (assuming you make a profit) if the property is sold within three years of purchase. If the property is sold after three years, no capital gains tax is payable.
- Legal fees on the property will be around 1.5% of the purchase price.

Company Purchases
A company purchase will allo for fast deed transter, VAT reclaim and the option of reselling the entire company with the house as an asset with 0% profit tax at any time. However, as with any company, finances must be kept up to date and it can require a lot more work. Also, any utilities will be charged at commercial rates rather than domestic, and this means they will be higher. However, the rental of the property is easier, especially for foreign owners.

To setup your own company and purchase a house will take around about 2 months. Once you have setup your company, you must keep up to date with your books, regardless of whether any money is going through them or not.

Company taxes
- There is a 5% real estate tax on the full value of the property for anything built before December 2007. For anything build after 31st December 2007, the taxes are calculated as follows:
If the seller is not VAT registered then the buyer pays 5% real estate transfer tax on the whole purchase price (in which case the VAT does not apply).
If the seller is VAT registered the buyer pays 5% real estate transfer tax on the land value of the real estate, and 22% VAT on construction value of the real estate (which is included in the purchase price). Through the company purchase you are entitled to the VAT return.

- VAT will be returned to use about 1 1/2 months after the end of the month in which the payment was made.
- For new constructions, there is a 5% tax on land value and a 22% tax on constructed value.
- There is a tax of 5% (known as the Real Estate Transfer Tax or purchasing tax) that must be paid 60 days after the contract has been signed.
- Corporation tax of 20% must be paid on all profits from your assets. An additional 15% taxis levied if the money goes out of the country.
- If you sell the property on it’s own, you will need to pay more tax. If you sell the company with the property as an asset, you will not need to pay any more tax.

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Because of the increasing tourist appeal and the beautiful weather, Croatia is drawing interest from many overseas property buyers. In the tourist hotspot of Dubrovnik, property prices are very high – studio flats regularly sell for more than £100,000 however there are plenty of up and coming areas which are seeing a surge in tourism that are ripe for investment.

One of the most attractive places for investors right now is Brac Island where small developments are currently being built. Varying in size, the average price is around £47,000 and as the tourism kicks off, investors should see a good return on investment. The capital city of Zagreb is also still a good place to buy. It has a mix of modern and old, large and small, and only 75 miles away from the Adriatic Coast makes it a prime location for both business and tourists alike.

If you speak little or no Croatian, it is wise to buy a property in one of the larger cities or in one of the tourist hot spots. This is because in the more rural areas, most people will not speak English and house prices are also unlikely to rise. However, these areas have already seen a large increase in property prices recently and although there is still room for growth, you may want to take a larger risk with a smaller town as in the long run you may end up with a better ROI.

If you do buy a house in Croatia, it is also important to make sure you have all the correct paperwork. Since the Balkan War, many Croatians have left for other lands and can be difficult to track down but it is essential to have the correct paperwork before you finalise the sale.

Although Croatian property is fairly expensive in comparison to other European countries, the beauty, the weather, the culture and the cheap flights over are an immense attraction to tourists meaning that property investment is still a good proposition and Croatia is definitely a place to consider when looking to buy abroad.

If you like to see a list of properties for sale throughout Croatia, please click here

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