Entry of private hosts into the VAT system

If you have generated more than HRK 300,000.00 in rental income, first of all – congratulations, that means you have operated successfully!

However, exceeding that threshold, that is, HRK 300,000.00 or EUR 39,816.00, also brings with it the obligation for the host to enter the VAT system. Although at first glance it may seem that this amount is unattainable for small hosts, it is actually very easy to exceed it, especially if you have several accommodation units or if you work with booking portals such as Airbnb or Booking.com, where you are obliged to include the portal commission amount in the invoice you issue to the guest.

What is included in income?

Income includes all income generated from renting, that is, all issued invoices.

Special attention should be paid if you do business with foreign booking portals, such as Booking.com and Airbnb, because in that case you also need to include the amount of their commission in the invoice total.

For example, if Booking.com’s commission is 15% and you have made a reservation through them from which you will receive EUR 100, you should add the amount of EUR 15, that is, the 15% Booking.com commission, to the invoice you issue to the guest, because this is considered your business expense. The final invoice amount you give to the guest will therefore be EUR 115.

When all such invoices are added together, the threshold for entering the VAT system can be reached much faster.

What happens when you exceed HRK 300,000.00 or EUR 39,816.00 in rental income?

By force of law, you enter the VAT system. This means that you must contact the Tax Administration and submit the P-PDV form, that is, register in the VAT taxpayer register.

You become a VAT taxpayer from the first day of the following month after your income exceeds the prescribed threshold.

For example, if you exceed the threshold of HRK 300,000.00, or EUR 39,816.00, on 15 September, you become a VAT taxpayer from 1 October, and from that month you calculate VAT on your invoices.

It is important to emphasize that VAT on accommodation is not 25%, but 13%.

What changes after entering the VAT system?

From that moment, the obligation to keep business records also begins, so it is certainly recommended to hire an accountant so that you can be sure that you are operating properly and legally.

When you are in the VAT system, you must keep the Book of Receipts and Expenditures and submit the annual income tax return by the end of February of the following year.

It is also important to know that from that point on, you need to treat your receipts and costs as income and expenses, as trades and companies do.

All costs you incur, for example purchasing furniture for the accommodation, the cost of maintaining the yard, or the cost of cleaning the property, represent your expenses, so it is important to make sure that an invoice can be issued to you for all expenses.

At that point, it is advisable to cooperate with trades and companies that can issue you an invoice for services rendered, and not with natural persons who cannot do so.

Make sure that the invoice is addressed to the owner of the accommodation property listed in the official decision, and not to another family member.

Instead of annual flat-rate tax, income tax is paid based on actual income and expenses

Hosts who are not in the VAT system pay an annual flat-rate income tax that depends exclusively on the number of beds in the property and the amount determined per bed.

However, when you enter the VAT system, this also changes and you become obliged to pay income tax based on actual income and expenses.

You then pay tax on the difference between income and expenses.

For example, if you have generated EUR 10,000.00 in expenses, that is, your business costs, of which 25%, or EUR 2,500.00, refers to VAT, and your income, that is, the total of issued invoices, amounted to EUR 15,000.00, of which EUR 1,950.00 refers to VAT, that is, 13%, this means that through expenses you paid VAT in a higher amount than it would amount to after calculating income, so you are in a surplus, that is, an overpayment, for that difference.

In this specific example, you would be in a surplus of EUR 550.00, and that difference is carried over as an advance payment for the following month.

Can you exit the VAT system?

You can, if you generate income below HRK 300,000.00, that is, EUR 39,816.00, by 31 December of the current year.

On the other hand, hosts may also enter the VAT system voluntarily, regardless of whether they generate income below the threshold for VAT entry.

However, it should be known that in the case of voluntary entry into VAT, there is an obligation to remain in the VAT system for at least three years.

Additional questions and doubts – Tax Administration website

Since hosts have many questions and uncertainties about this topic, primarily related to cooperation with domestic and foreign travel agencies and VAT calculations for their commissions, an extensive list with specific questions and practical situations has been compiled on the Tax Administration website.

For all those who wish to get further informed, we recommend visiting those pages as well: https://www.porezna-uprava.hr/HR_publikacije/Lists/mislenje33/Display.aspx?id=19077