For decades now Croatia has been one of the more popular tourist destinations on the Mediterranean coast. Additionally, it has been showing a strong developmental tendency, making it for an intriguing investment prospect for entrepreneurs from all over Europe as well as the United States. Properties in the region of Istria (Pula, Medulin, Rovinj, Poreč) have distinguished themselves as an extremely appealing target for international buyers, regardless of whether the purchase is intended for private or business purposes.
However, before concluding any kind of deal abroad, it is of utmost importance for any potential investor to gather as much information as possible about the applicable regulations, as well provide him or herself with competent legal counsel.
Since February of 2009, EU nationals have been granted equal rights as Croatian nationals when it comes to the purchase of real estate. This means that in order to purchase real estate on Croatian territory, an EU citizen does not need to acquire a special permit from the Ministry of Justice of the Republic of Croatia (as was the case prior to 2009). As an exception to this rule, the purchase of agricultural land and properties in protected areas is still disavowed (purchase is still possible after establishing an Ltd. Company).
In order to avoid any potential negative experiences, there is a myriad of legal considerations one has to account for in order to make a sound and informed decision.
1. Establishing contact with a realtor
The first information about a certain property is usually acquired online or through a real estate agency. Given the fact that a realtor acquires profit exclusively via commission, it is of the utmost importance to emphasize that his only interest is to go through with the sale on any cost. It is due to that exact reason we had often times encountered situations in our practice, where extremely important information about the property had been concealed. This puts potential buyers at an extreme disadvantage in relation to the seller, as well as the realtor. Therefore, having a competent English speaking lawyer at your side has proven to be a crucial factor when dealing with the seller, realtor, as well as in the general process of gathering pertinent information about the object of purchase.
Prior to signing any kind of document, it is highly recommended that you consult yourself with an attorney. A signature on document of any kind (record of house viewing for example.) could mean that you have therewith obligated yourself to paying commission in case the purchase is finalized. This can be avoided. Our goal as your lawyers will not be to finalize the purchase under any cost, given the fact that our compensation does not primarily depend upon the finalization of the purchase. Our primary and only goal is to look after your best interest.
2. Gathering information about the property
Before finalizing the purchase it is essential to gather every piece of pertinent information about the real estate through qualified experts in their respective fields. The overall findings will be detailed in a Due Diligence Report which will contain the following information:
- Land registry status;
- Property rights (ownership, servitudes, liens, etc.);
- Possession status;
- Legality of a certain building;
- Overall square space of the building;
- Overall size of the land parcel as well as any other information that will be dependant upon a certain situation.
The next big step is the inspection of the building`s infrastructure. It is particularly important to inspect wether the estate has an approach road, as well as a permanent access to water and electricity. This could seem as a non-issue, but we have encountered many situations in the past where fully built estates (contrary to advertised) lacked the permanent energy connections.
3. Drafting and concluding a Purchase Contract / Precontract
After all the relevant details regarding the price, payment dynamics, possession transfer, tabular notice of conveyance as well as other terms have been agreed upon, the contractual parties proceed to finalize the Purchase Precontract / Contract. The type of Contract will depend upon the agreed terms and circumstances of a certain deal, making it uniquely modified for every given set of facts.
The Precontract / Contract can be signed by a natural or legal entity (company). A precontract can be signed privately with no notarization, whereas a Purchase Contract needs to be publicly notarized, as it is a legal precondition for successful property ownership registration.
4. Executing the registration of ownership in the Land Register
An authorised attorney or realtor is mandated to apply for the registration of ownership at the Land Register of the Municipal Court.
5. Applicable Taxes
In Croatia there are several sorts of taxes one has to account for when it comes to dealing with real estate transactions. The Property Transfer Tax is always charged, and it is usually paid by the buyer. It is calculated by the Croatian Ministry of Finance, at a fixed rate of 4% (since the 1st of January 2017) of the agreed upon purchase price. Aside from the property transfer tax, Value Added Tax (VAT) can in some situations come into consideration, but can also be avoided by taking appropriate legal measures (purchasing through an Ltd. Company).