Amendments to the Value Added Tax Act as of 01 January 2018
The amendments to the Value Added Tax Act with respect to motor vehicles / machines include the following:
The tax deductible amount of expenses for cars and other personal vehicles (purchase, lease, including purchase of goods and services related to such products) is 50%
Recoverability of 50% of input VAT for personal vehicles with the value exceeding HRK 400,000 is not allowed.
This means that 50% tax deduction is permitted for all costs of car use (operational leasing, fuel, maintenance, service, tyres etc.)
After 01 January 2018 there are several possible situations when selling a car:
a) The sale of motor vehicles purchased after 01 January 2018 is subject to value added tax of 25%. When acquiring the right to input VAT deduction, in parallel one also assumes the obligation to charge VAT when selling the vehicle. The same shall apply to vehicles purchased prior to 01 January 2018 if the vehicles were purchased from a seller who is not registered for VAT. These are mostly used cars purchased from citizens or businesses who are not registered for VAT.
b) The sale of motor vehicles after 01 January 2018 is exempted from VAT if such vehicles were purchased between 01 March 2012 and 31 December 2017, when there was no legal option for input VAT deduction for the purchase of personal vehicles. The following must be indicated on the invoice: Exempted from VAT according to Article 27 of the Transitional and Final Provisions of the Value Added Tax Act.
c) The sale of motor vehicles is also exempted from VAT if the business is carrying out an activity that is exempted from VAT based on Article 39 paragraph 1 and Article 40 paragraph 1 of the Act, and if the business was not entitled to input VAT deduction when purchasing the vehicle. In such a case, the following note must be indicated on the invoice: Exempted from VAT according to Article 40 paragraph 2 of the Value Added Tax Act. In this situation, the vehicle is purchased for the purpose of carrying out certain activities which are exempted from VAT (for instance, medical services, insurance-related services, financial services, rental of apartments), when input VAT deduction was not allowed at the time the vehicle was purchased.
Import VAT for certain equipment and machinery with the value above HRK 1,000,000 will be calculated on the accrual basis, meaning that it is not payable but rather reverse charged and recovered within the same VAT return, according to the decision of the Customs Administration.