June the 22nd, 2021 - VAT is soon set to be placed on even small packages being delivered to Croatia. All consignments imported into the EU from third countries will face the same.

As Poslovni Dnevnik writes, as of the 1st of July 2021, all consignments imported into the European Union (EU) from third countries and delivered on the basis of distance selling (e-commerce) will be subject to VAT on importation, in connection with which customs issued a comprehensive statement explaining in detail what is set to be paid for and charged when and how.

As of next Thursday, the VAT exemption on imports of goods of a non-commercial nature contained in small consignments, sent to the recipient as a letter or package whose total value does not exceed 22 euros or 160 kuna, will be abolished. This includes packages sent out for delivery before the 1st of July if customs don't manage to process them before the aforementioned date.

How will VAT be calculated and paid when importing items which don't carry a value exceeding 150 euros?

Given the extremely large number of such shipments and the need to simplify the collection procedure, in accordance with EU tax and customs rules, two methods of VAT collection have been prepared for packages being delivered to Croatia:

- Those with a special IOSS taxation procedure
- A special procedure for registration and the payment of VAT

Both methods can be applied to all commercial shipments, where commercial shipments are considered shipments purchased through distance selling if their actual (intrinsic) value does NOT exceed the amount of 150 euros (1,135.00 kuna).

These charging methods do NOT apply to alcoholic products, tobacco and tobacco products, or perfumes/eau de toilette.

What's a special taxation procedure - IOSS (Import One Stop Shop)?

The special IOSS taxation procedure can be applied by persons performing the service of the distance selling of goods (eg the seller, the selling platform or another person), which will be imported into the customs territory of the EU. In doing so, these persons may have their registered office in the EU or outside the EU.

When applying this special procedure, the tax liability arises at the time of delivery, where the goods are considered delivered at the time of the acceptance of payment. This means that persons (taxpayers) who apply for the IOSS procedure will receive the necessary IOSS VAT. number when selling their goods at a distance to the buyer in order to charge VAT at the rate applicable to the recipient's EU member state of residence/delivert.

In the above case, the price paid by the buyer from the EU to the seller (the item's selling price) will include the amount of VAT on import into the EU, which the seller charges from the buyer, and then, through the IOSS system, reports and pays for these deliveries in one place.

When registering, the competent tax authority will assign the seller (or their intermediary) a unique identification number - the so-called VAT IOSS number. This number is assigned and used exclusively for the purposes of this procedure.

What's the  special procedure for the registration and payment of VAT on import (Eng: Special arrangements)?

If the special IOSS taxation procedure isn't used, it's then possible to apply a special procedure for the declaration and payment of the VAT on import (known as special arrangements).

This special procedure allows consignments in postal or urgent (courier) traffic to be declared to customs by a person (agent) acting on behalf of the person for whom the goods in question are intended (ie the buyer), whereby VAT is declared and paid in a simplified manner. This method (unlike IOSS) can be applied only if the shipment or transport of that particular shipment ends up being delivered to Croatia (meaning that it can't be applied if it is a shipment whose destination is in another EU member state).

The person for whom the goods are intended (the buyer or recipient of those goods) is responsible for paying the VAT, while the person who declares the goods to customs in the country of import, collects the VAT from the person for whom the goods are intended and pays the VAT. The person who declares the goods to customs is a postal or express carrier (the so-called courier operator) who transports the consignment in question to the end customer - the consignee.

Therefore, the responsibility for paying VAT lies with the recipient of the shipment, who will pay the amount to the postal operator or express carrier (courier operator) at the time of delivery, and the postal operator or express carrier will pay the amount of VAT into the state budget. When applying this procedure of the declaration and payment of VAT on import, only the general VAT rate of 25 percent will be applied and it won't be possible to apply a lower VAT rate.

What can actually be expected when it comes to items being delivered to Croatia from outside the EU after July the 1st, 2021?

The introduction of this new method throughout the EU will result in a dramatic increase in the number of declarations/charges on item import. As such, a daily increase in the number of declarations of around 7,500-10,000 is expected in Croatia alone. These newly introduced administrative actions related to VAT collection and the consequent huge increase in the number of electronic declarations requires the additional commitment of significant human and other resources and will inevitably lead to a longer duration of the procedure of the declaration and collection of import duties.

In order to speed up and simplify all collection procedures for items being delivered to Croatia, the Customs Administration has, over the past two years, developed IT applications and systems for the electronic notification of shipments before their submission to the customs authorities as well as new electronic declarations (H6 and H7).

These systems are built on the functional requirements provided by the European Commission. Consequently, the Customs Administration has successfully tested new systems and applications with the competent EC authorities and other legal entities that actively participate in these procedures (as a declarant, namely Croatian Post/Hrvatska posta and express delivery companies including: DHL, IN TIME, RHEA).

Aware of the increase in workload expected from the 1st of next month. The Customs Administration has provided an additional number of officials who will deal with this type of work and adjusted their working hours in order to do their part of the work quickly and on time with as few delays and waits as possible. Given the new administrative obligations that need to be implemented and the large number of shipments arriving, it is evident that the entry of small shipments into the EU will be slowed down after the 1st of July 2021, which may cause dissatisfaction among buyers of these shipments. But this is expected within the entire EU, so unfortunately Croatia and items delivered to Croatia are no exception.

For more, follow our lifestyle section.

ZAGREB, November 30, 2020 - Croatia's hospitality sector has the highest VAT in Europe, and Croatia is one of the few countries that has not reduced its VAT during the corona crisis, so the hospitality sector has appealed to the prime minister to help reduce VAT, the head of the national association of bar and restaurant owners, Marin Medak, said on Monday.

"We talked about everything, but Finance Minister Zdravko Maric would not hear of reducing VAT. So we are appealing to the prime minister and government to help us because without it we have no reason to continue working in this crisis, even if we are allowed to reopen at the end of December or in January," Medak said after a meeting at the Ministry of Labour and Pension System between government representatives and representatives of the hospitality sector to discuss the government's latest measures in the new mild lockdown.

The government is set to present the latest measures on Monday. Minister Maric said that the measures related to keeping jobs, relaunching and accelerating the issuance of COVID loans through the SMEs agency Hamag-Bicro and exempting some costs of doing business in December.

Commenting on what the ministers presented and which measures were accepted as compensation for shutting down their businesses, Medak underlined that the measures came too late and that the national COVID response team had failed.

"Everything they are offering us now will not be sufficient, hence we appeal to the prime minister and government to clearly tell us if there is any hope for the future because we no longer have any and we have no idea what will happen in these circumstances. As far as we could see, the ministers themselves do not know what costs we have nor how much the proposed measures will cost the economy. If they were to reduce VAT, which is about HRK 300 million a year, and if that is a problem, then where is the HRK 1.3 billion for COVID loans going to come from, or the HRK 470 million for the monthly allowance of HRK 4,000  to keep jobs," said Medak.

He said that they did not want their workers to live off that, nor off the HRK 4,000 when until now they had paid VAT and all other allowances and fees. He added that now the entire hospitality sector had a lot of problems and many of them believed that it was better not to reopen in January after the measures were lifted because the fall in turnover would continue.

Disappointed with the meeting and the ministers' proposals, the head of the association of bar and restaurant owners from from Istria and Kvarner, Vedran Jakominic, said that they were more "shaken up than satisfied."

He described the proposed measures as a minimum and a mere PR campaign rather than an economic analysis and activity.

ZAGREB, April 10, 2019 - Social Democratic Party (SDP) leader Davor Bernardić on Wednesday said that his party would forward a bill of amendments to VAT to the parliament proposing the lowering of VAT for tourism and hospitality in order to improve the competitiveness of that sector that the government is constantly exposing to new and increased levies.

Bernardić told a press conference that SDP wanted the VAT rate to be lowered to 13% in hospitality and 10% for accommodation services just as in the countries in Europe where tourism is developed.

He does not expect the government to accept the proposal, and criticised the Andrej Plenković cabinet for having rejected all their proposals which he described as good ones.

However, the party leader promises that when SDP wins the next election and takes responsibility for Croatia, it will reduce VAT for hospitality and accommodation services.

He recalled that a lower VAT rate of 13%, which was applied in 2017, no longer applies to hospitality, underscoring that other EU countries have a lower VAT rate overall. Seventeen EU member states have recognised the importance of hospitality and apply a lower VAT in that sector and unlike Croatia, they promote the development of tourism.

The incumbent government has hit the tourism sector five times, Bernardić underscored. It abolished the lower VAT rate in hospitality and now we have the highest VAT in the sector of all Mediterranean countries, Bernardić said.

Croatia's standard VAT rate is 25%. In late 2018, Tourism Minister Gari Capelli announced that the government would reduce the VAT rate on hospitality services in 2020.

This government has relieved the economy based on fiscal possibilities. In 2020, it will reduce VAT on tourism and hospitality services, Cappelli said then in response to questions from SDP lawmakers during a parliamentary debate on three bills in the tourism sector.

More news on the taxes in Croatia can be found in the Business section.

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