In the process of harmonisation of the Croatian VAT system with the Sixth EU Directive certain changes will need to be introduced in the taxation of real estate. According to the provisions of the Sixth Directive, buildings and building land are subject to VAT when they are delivered by a VAT-registered entity. But deliveries of buildings after first occupation and deliveries of undeveloped land are exempt.
In the Croatian real estate taxation system, according to the VAT Act, newly built real estate (built after January 1, 1998) delivered by a VAT-registered entity is taxable. But the transfer of the building land on which this piece of real estate stands is not taxed with VAT; instead, it is taxed by the real estate transfer tax. “Old” real estate, i.e., anything developed up to December 31, 1997, and land, including building land and non-building land, are taxed only with the real estate transfer tax.
From this it follows that certain changes in the taxation of real estate will have to take place in Croatia. This above all refers to the need for the taxation of building land, including the land on which new buildings stand, with VAT.
The objective of the research was to determine the economic effects of the introduction of VAT on building land. The effects on the price of real estate, the effect on the costs of the taxpayer, and the effects on local and central government budgets were analysed.