The Croatian government on Thursday adopted the Value Added Tax Bill which provides for a series of changes to the VAT system as of July 1 when Croatia is due to join the European Union.
Finance Minister Slavko Linic said that given the difficult situation in the media sector, VAT on the daily newspapers would be reduced from the present 10% to 5% as of July 1.
We are in intense talks with the Agriculture Ministry and the food sector on the possibility of cutting the VAT rate for some more food products from 25% to 10%, Linic said. Those are very tough talks because agreeing to all the demands for lower VAT would mean about 2.5 billion kuna less in the state budget this year, he added.
The bill abolishes exemption from VAT for free-lance artists whose annual income exceeds 230,000 kuna, for war veterans importing cars or equipment for business purposes, and for religious communities importing goods provided by foreign religious communities, legal entities or natural persons.
Under the bill, as of January 1, 2015 it will no longer be possible to sell real estate or land without paying VAT. On the other hand, purchases of fuel for ships sailing on the high seas are to be exempt from VAT.
As of July 1 VAT will no longer be charged on trade in goods and services between Croatia and EU countries, but it will continue to be charged on imports from and exports to countries outside the EU.
Linic said that exporters would remain exempt from paying VAT, and that it would be made possible for importers of goods and services from third countries not to pay VAT at import but when those goods or services are sold on the Croatian market.
Linic expressed concern that as of July 1 all foreign companies would also be allowed to claim a VAT refund for the sale of goods and services on the Croatian market, which he said would have a negative impact on VAT revenues.
The Finance Ministry estimates that because of that the state budget will lose at least HRK 500 million this year, and Linic said that the loss was calculated in the budget.
On the other hand, the new VAT system is expected to facilitate operations of Croatian companies exporting to EU countries and to ensure greater liquidity.
Prime Minister Zoran Milanovic recalled that as of the New Year Croatia had a lower VAT rate for tourism and the hospitality industry. He said that the reduction of VAT on the daily press was the last thing the government could do for the publishing industry, adding that publishers would have to find by themselves ways of becoming more competitive on the market.
