TAX REGULATION

Netherlands – Croatia comparsion

On September 19, 2023, the Dutch Ministry of Finance announced the Tax Plan for 2024 (Belastingplan 2024).

The tax system reform outlined in this plan has made real estate investment in the Netherlands less attractive to investors due to increased tax burdens.

Real estate buyers, whether individuals or business entities, first pay a property transfer tax at one of the highest rates in Europe.

Sellers, on the other hand, pay income tax or corporate tax, and VAT if they are business entities.

The Netherlands also has an annual property tax. To make owning property financially worthwhile, real estate investors have previously engaged in renting out properties to cover these tax burdens.

However, the new tax plan, which also anticipates increased rates of tax on rental income, has made investing in real estate in the Netherlands much less attractive for both individuals and business entities.

The Dutch tax policy includes a point system for housing. If a property does not meet the criteria to receive a certain number of points, it cannot be part of the free market in terms of setting rental prices, and the highest permissible rent for such properties is strictly regulated.

The new tax reform has significantly raised the criteria for obtaining the necessary points for a property to be on the free market, and the maximum prescribed rent amounts for properties not on the free market do not allow investors to achieve satisfactory returns.

All this has led to significant disruptions in the rental market in the Netherlands, making investing in properties with the aim of recouping the investment through renting unprofitable.

Investors have started seeking opportunities to invest their money in real estate abroad, as real estate investment is still considered a much safer and more lucrative option than other forms of capital preservation (e.g., stocks, bonds, foreign currencies, gold).

Dutch real estate investors are increasingly recognizing Croatia as a more financially rewarding alternative for real estate investment.

The Republic of Croatia has a fixed property transfer tax rate of 3% for all real estate transactions.

In the Republic of Croatia, the seller does not pay income tax or corporate tax if they sell fewer than three properties within a five-year period.

The Republic of Croatia does not have a property tax. Instead, a monthly communal fee is paid, which does not represent a significant tax burden for property owners. Many Croatian citizens own properties despite having significantly lower incomes than people living and working in the Netherlands.

In terms of property ownership and profits derived from property ownership, the Republic of Croatia offers far more favorable investment conditions than the Netherlands and most other European countries.