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Croatia update

Currently enjoying a highly controlled real estate development policy, many believe there’s a real prospect of Croatian property prices matching those of some of the more established Mediterranean destinations in the medium to longer term, not least due to its largely unspoilt and breathtaking coastline.

Renewed activity?

However, undersupply of property in the last few years has been one of the main factors controlling the relatively low level of activity compared with other emerging markets. That said, the launch of some new developments last summer on theIslands and Adriatic coast may well have played their part in invigorating the market.

Old gems

At the same time, there will always be those who are interested by older properties. As always, care should be taken. I recently acted for a couple who were buying a very well appointed resale property on the Croatian coastline. Our legal checks revealed that the seller had obtained permission to build a two bedroom bungalow back in the 1980’s. Good news you might think - until you realise that what our clients are actually buying is a five bedroom property spread over three levels!

‘But everyone does this in Croatia’ is the common response. This is typical of the title problems affecting re-sale properties in Croatia. Often the problems can be solved but shouldn’t be taken on without specialist advice from independent lawyers and architects.

How about forming a company?

Whether old or new, one key decision to make is whether you will opt to own the property in your personal names or form a Croatian company to act as your ownership ‘vehicle’. When considering this yourself, you should be aware, in general terms, of a number of pros and cons of setting up a company. On the plus side, you avoid the need to apply for official government clearance (Suglasnost) from the Croatian Ministry of Foreign Affairs before you can have the property title transferred into your name(s). This may take anywhere between a few months to two or three years.

As a non-resident, you are not permitted to own more than one property in Croatia . For this reason, a non-resident wishing to own more than one property and/or trade in property will typically form a Croatian Company. A major advantage making it a popular choice is that, under the current Croatian tax regime, the 22% PDV (equivalent of VAT) payable to the developer when purchasing a new property can be reclaimed from the Croatian tax authorities. Do bear in mind, though, that there has been a trend across more developed countries in Europe (where company ownership was adopted by purchasers in a similar way 10-20 years ago) for the authorities to levy heavy taxes designed to penalise those who bought in the name of a company. Whilst there isn’t any current enforcement action being taken, that may change in the medium to longer term.

So, if you’re thinking about hunting for your own Adriatic jewel - whether it old or new, it’s important to make contact with reputable developers and agents and seek independent legal and financial advice.

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