bruce
New Member
Posts: 4
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Post by bruce on May 3, 2007 11:49:52 GMT 1
I understand that Capital Gains Tax of 35% is payable if a property is sold within 3 years of purchase. Does anybody know if this is actually 3 years from becoming the registered owner or from the date when the transaction is finalised?
Thanks
Bruce
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Post by Peter Ellis on May 3, 2007 18:56:03 GMT 1
Hi Bruce
It should be from the date that your name goes in the Land Registry.
Cheers
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bruce
New Member
Posts: 4
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Post by bruce on May 4, 2007 10:22:54 GMT 1
Hi Pete,
I bought an apartment in Split 2 years ago but I'm still waiting for the registration to be completed. I assume from your answer that I will have to wait until the property is registered before the start of the 3 year period. I understand that it can take up to 3 years to complete registration - is that right?
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Post by Peter Ellis on May 5, 2007 14:29:06 GMT 1
The time to get the approval seems very variable. We've had some through, since the Justice Ministry took over, in as little as 10 months, yet others have taken 2 years. They are still sorting out the backlog since taking over from the Ministry of Foreign Affairs last September In circumstances where someone has wanted to sell before they have got the approval and the property is still in the Land Registry in the original vendor's name, we know of occasions where the original vendor has agreed to sign a contract with the new buyer and tear up the contract with the original buyer. This appears to be legal, but it is untested. Copies of the original contract will have been kicking around the system for a long while, so lots of evidence of it would exist and the government may take the view that they are still entitled to the 5% property transfer tax on the original sale, as well as the new one. If the intermediate buyer still has property elsewhere in Croatia there would be assets that they could distrain against, to force them to pay it. If they haven't, it would be difficult for the government to recover the tax from the original buyer if they are abroad. This might not stop them claiming two lots of 5% from the new buyer.
We used to avoid such problems by clausing contracts such that if the buyer wanted to sell before the names changed in the Land Registry, the vendor was obliged to sign a new contract, on the same terms, with a buyer nominated by the vendor, (which could be either a company set up by the buyer or someone completely new). As this was incorporated into the original notarised contract and the notary was happy with it, it seemed secure. However, original vendors are sometimes proving reluctant to do so, even though they signed a contract saying they would, citing tax reasons, so it cannot be relied upon and if they won't co-operate, whilst they could be taken to court to comply with their contractual responsibilities, it could take forever. "on the same terms" could also be interpreted as being at the original price, which then raises the spectre of a cash payment for the difference, as clearly the new vendor/original buyer is not going to sell at less than current market price. Since the government would naturally expect its share of the tax on the correct but undisclosed price, such an arrangement could be seen as tax evasion. There is also the issue of the new buyer incurring an apparent capital gain which they did not, in fact, make, on the difference between the contract price and the amount actually paid. On the other hand, if the new contract were to state the actual price that the original buyer is selling for, it could have tax implications for the original vendor. Whilst they could do a deal with the original buyer/actual vendor to indemnify them, as they are the one making the actual capital gain, this is potentially problematical when dealing with foreigners who could be long gone by the time the tax authorities get around to levying any tax. In one case that we have at the moment, we are simply waiting for the approval to come through, as this really is the only 100% safe route and it shouldn't take long now. It is an increasingly good reason for setting up a Croatian company with which to buy, as, by this route, Land Registry registration of Title is very quick and does not entail seeking approval from anyone.
Whilst the delays may be seen by the government, possibly, as preventing rampant speculation, there can be very human reasons for needing to sell. Buyers might be in financial difficulty, having borrowed to buy something and lost their job, or may be divorcing and needing to sell a property secured on equity in a family home that now has to be sold as part of the divorce settlement. I any case, if buyers buy using a Croatian company, there are far less delays and serious speculators would probably use this route anyway. Reciprocity should be just that. If Croatians can buy in another country with their title registered promptly, that country's nationals should be able to do the same here on the same basis. The delays in issuing the approvals create all sorts of complications which do not appear to have been forseen and which put otherwise honest people into situations that they should not have imposed upon them. They also clearly, because of some of the apparent solutions, potentially lose the government revenue. The whole issue could be resolved by sending all the Land Registries a list of who they could and couldn't accept registration from and on what terms, Australians for instance, having to also prove permanent residence. A lot of civil servants could then be redeployed into more practical positions, where there is a desperate need for more people. Planning applications, for example, in the Porec area, have virtually ground to a halt, because the few planning officials have their hands full with everything to do with a new sports facility that must open on time for us to host the world volleyball championship. It is a great honour for us, but it shouldn't impinge on the rights of people requiring access to normal planning facilities. Given that planning applications involve a fee, as in anywhere else, expansion of the planning department could be self financing.
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Post by Peter Ellis on May 7, 2007 11:52:26 GMT 1
As an update to the time for getting ministry approval, I heard this morning of one that went through in as little as a month!
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