Croatia Plans New Tax on Second Homes in 2017

Croatian Prime Minister Tihomir Oreskovic has announced a new property tax for 2017, which will slap bills on people with more than one home, or who do not use their real estate.

“When one taxes a single property, it’s a social category, but when a second, third or fifth property are taxed, then it is an economic category,” Oreskovic said on Monday.

The government wants to get cash from people with more than one item of real estate in which they do not live or rent out for private enterprise. Many people in Croatia have holiday homes, mostly on the coast.

The former centre-left government announced the tax for 2016, but then decided to leave it.

Josip Tica, an economic expert, told BIRN that he could not analyse the proposal properly until the details became clearer. Based on how it looked now, “it can do both good and bad”, he said.

“What he [Oreskovic] has announced is unconstitutional, however – taxing unused real estate,” he said.

“There used to be a law that taxed unused real estate and agricultural land and it was annulled by the constitutional court,” he concluded.

The constitutional court in 2007 annulled articles of the Law on Financing Units of Local and Regional Government, which specified that local governments can tax unused real estate, agricultural and building sites.

“These taxes are contrary to the constitutional principles of justice and equality of the tax system because they are not paid by all property owners,” the court decision read.

But another economic expert, Damir Novotny, said the court ruling was not an obstacle to such a tax being introduced.

“We’re talking about a type of tax that is standard in the EU and is recommended by the EU. If there are any legal obstacles to such a law, they should be removed,” he said.

While negotiating Croatia’s excessive budget deficit in May 2015, the European Commission advised Croatia to introduce such a tax.

Novotny further explained that almost all EU countries have similar property taxes.

He concluded that it should be introduced for basic fiscal reasons, for “filling the budgets of local governments” and for economic reasons, by motivating people to use their real estate, by renting or starting personal enterprises.

The IMF also supported introducing a real estate tax in Croatia back in November 2013.

In the EU, only Croatia, Malta and Luxembourg have no real estate taxes, while only Croatia has no taxes that serve as a substitute for a real estate tax.

Problems with introducing the tax could come from within the government, however.

This is because the two biggest parties in government – the Bridge of the Independent Lists, MOST and the Croatian Democratic Union, HDZ – both opposed new property taxes in the election campaign and in the talks on forming the government that followed.

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