Croatia’s new VAT Act, which becomes effective on 1 January 2010, introduces significant changes in order to further harmonize Croatian VAT legislation with EU rules. According to the amended rules, foreign enterprises performing taxable supplies in Croatia will have to register for VAT purposes and appoint a tax representative authorized to carry out tasks related to the calculation of tax and payment on behalf of a non-resident. The tax representative will have to be a Croatian taxpayer and will need to guarantee the payment of tax.
The new VAT Act grants the possibility of VAT refunds to foreign enterprises that do not have a registered presence or other business unit in Croatia and that do not carry out any supplies of goods and services in Croatia in the relevant tax period. The refund will be available only under the condition of reciprocity.
With regard to the services provided by domestic companies, according to the existing VAT Act the place of supply is deemed the place where the recipient is residing. This rule, applied also to cases when the service is provided to a non-resident person who is not an enterprise, has been cancelled.
The following services will be considered to be supplied at the place where the head office of the recipient is located: the provision of access to and transport or transmission through distribution systems for natural gas and electricity and other directly related services, telecommunications services, radio and television broadcasting services and electronically provided services.
Another important change in the new VAT Act is the cancellation of the VAT exemption for banks, savings and credit organizations and insurance/reinsurance companies. An exemption will be available only for specific financial and insurance transactions. As a result, the specified financial and insurance services will be exempt from VAT regardless of the legal status of the provider. On the other hand, financial institutions will be able to use the VAT refund to the extent related to taxable supplies.