Apartment Rental Tax

This text is aimed primarily at landlords, so that they can be fully informed about the additional costs, which in this case consist of a special property tax. In this article, find out how rent is determined under the Apartment Lease Act and how much rental tax applies under the Income Tax Act.

Obligation to Conclude a Lease Agreement

Under the Apartment Lease Act, an apartment is a set of rooms intended for residential use, together with the essential ancillary rooms, forming a single enclosed building unit with a separate entrance. The law stipulates that an apartment lease agreement must be concluded in writing, whereby the landlord undertakes to hand over the apartment to the tenant for residential use in return for an agreed rent. The agreement governs the rights and obligations of the landlord and tenant and contains provisions on the amount of rent and the method of payment. As the amount of rent is decisive for calculating the apartment rental tax, it is necessary to explain how rent is regulated under the Apartment Lease Act.

How the Rent Amount Is Determined

Under the Apartment Lease Act, the rent paid by a tenant for the use of an apartment may be either protected or freely agreed. Protected rent is determined on the basis of conditions and criteria set by the Government of the Republic of Croatia; for example, it is paid by occupants who use an apartment under regulations on the rights of Croatian war veterans. Freely agreed rent, on the other hand, is paid by occupants for whom the law does not prescribe protected rent. Freely agreed rent under an apartment lease agreement concluded for an indefinite period cannot be changed before one year has elapsed. After that period, the landlord and tenant may propose in writing a change to the amount of rent.

Apartment Rental Tax

The Apartment Lease Act only stipulates the parties' obligation to conclude a lease agreement, which does not have to be notarised, but it does not regulate the amount of rental tax. The amount of tax payable on apartment rental is governed by the provisions of the Income Tax Act. Under that Act, a landlord who earns income from property by renting out their real estate must, within eight days, report the rental to the Tax Administration office responsible for their place of residence or habitual abode, for entry in the register of income tax payers and so that the rental tax can be assessed. Apartment rental tax is paid under the decision of the Tax Administration, by the last day of the month for the current month.

Apartment Rental Tax and Determining the Tax Amount

The competent Tax Administration office calculates the amount of apartment rental tax, as income tax on property, on the basis of the rent stated in the lease agreement. To the agreed rent, the Tax Administration first applies the rule from the Income Tax Act that, for income from property derived from renting real estate, expenses are recognised at 30% of the rent received, and a tax rate of 12% is applied. In other words, apartment rental tax is paid on the amount of rent reduced by 30% for expenses, at a rate of 12%. Surtax is then calculated on this amount of tax at the rate of the city or municipality in which the landlord is registered as resident.

In practice, it would look like this:

Apartment Rental Tax: An Example

In the lease agreement, the landlord and tenant agreed a rent of 1.000,00 kuna. The Tax Administration then reduces this amount by 30% in tax-recognised expenses, i.e. by 300,00 kn. Subtracting 300,00 kn from 1.000,00 kuna gives 700,00 kn, which is the tax base. A tax rate of 12% is applied to this 700,00 kn, so the total apartment rental tax amounts to 84,00 kn. Surtax is then applied to this amount. For example, if the landlord is resident in Zagreb, they pay surtax at 18%, even if they rent out an apartment in another place where there is no surtax. The surtax amounts to 15,12 kuna (18% of 84,00 kuna).