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Return on Investment: Taxation in Croatia

Depreciation

Consider though you can add the depreciation of the price of your villa as a cost to reduce your tax bill. Depreciation is an income tax deduction that allows you to recover the cost of assets that you purchase and use in your business, such as your villa. In Croatia property is depreciated over 20 years, this means you can deduct 5% off the price of your villa, that’s €18,000.

So, now deducting the full management guarantee and the depreciation from your income, you have a profit before tax of €6,000. This would reduce your corporate tax in Croatia to €720, giving you a net profit after tax of €5,280 that you can withdraw as a dividend. This might actually seem disadvantageous, but remember, this is just an accounting calculation. In your bank account, you’ll have a total of €23,280 after tax, as we add back the depreciation of €18,000.

If you require your rental income to help you pay off your bank loan, you may want to opt for the higher dividend and not count for depreciation. However, if you loan your company the €360,000 via an interest-free loan, you could benefit from both the reduced corporate tax and repaying yourself the full €23,280 as an interest-free loan repayment. This is sufficient to cover your bank repayment, and you won’t have to pay any dividend tax on that.

(NB: Candy Brick does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction)

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