Questions and Answers: The Buying Procedure
The Buying Procedure in Croatia:
To further help you understand the specifics of the real estate buying procedure in Croatia we have prepared this Questions and Answers section for you.
It is equally aimed for all types of potential buyers as it answers some of the most common questions found while buying Croatia property.
Whether you are interested to buy a holiday house in Croatia for your summer vacations, retire in Croatia or simply invest in a Croatian real estate for profit gaining, you will find these frequently asked questions useful.
Can I Have Building Surveys Carried Out?
Building surveys are not that common in Croatia and formal building surveyors as such don’t exist. Having said that, a qualified civil engineer can carry out a survey – as can an architect. The cost of a survey usually depends on the property’s size and location and is likely to cost from €500 upwards. If you wish to have a survey carried out, we would be happy to recommend an independent and qualified Croatian civil engineer, with experience of carrying out surveys in Croatia.
What Choice of Solicitors Do I Have?
Find a Croatian solicitor you are comfortable dealing with. All of the solicitors are listed by the Croatian Bar Association. It will then be up to you to contact solicitors from that list, make your choice and agree fees. However, LuxuryCroatia.net will gladly recommend solicitors experienced in real estate legal matters with whom our buyers have successfully completed their buying procedures.
What is a Pre-Contract?
A Pre-Contract is similar to the exchange of contracts stage (in the UK), but there are differences. The Pre-Contract is a legally binding document that defines the terms of the property purchase – in particular it effectively fixes the purchase price; it specifies the schedule of payments, including (usually) a 10% deposit payable to the vendor on signing the Pre-Contract; and it fixes the Final Contract settlement date as well as the penalties should either party withdraw from the transaction after signing the Pre-Contract. In Croatia these penalties usually specify that should the vendor withdraw from the transaction after signing the Pre-Contract, they are obliged to return double the deposit to the buyer. If the buyer withdraws from the transaction after signing the Pre-Contract, they will lose their deposit. In the Pre-Contract are also settled all tasks that needs to be resolved, done, finished before the final Contract signed. For example: buyer want to buy property through his Croatian company, which he needs to register after Pre-Contract signed and before main Contract, where in the main Contract this company will be listed as buyer.
Can I Skip the Pre-Contract and Go Directly to the Final Contract?
Yes, it is possible to skip the Pre-Contract and go directly to the Final Contract stage, which depends on the real estate status and things to be settled before concluding the main contract. If buying process is simple (no extra tasks to be executed before main Contract) and buyer prepared for the transaction of the funds, then there is no need to do Precontract. One of the reasons why Pre-contract is useful is to prevent the property to be sold to another buyer whilst the Final Contract is being drawn-up, Pre-contract is a good way for buyer and seller to oblige each other to buy/sell the property. The Croatian system therefore effectively stops possible gazumping once the Pre-Contract has been signed, by making the Pre-Contract legally binding. Also, as the Pre-Contract fixes the final purchase price, there is no room for a vendor to change the asking price at the last minute without having to think seriously about the financial penalties built into the Pre-Contract.
Who Drafts the Pre-Contact and the Final Contract?
Your solicitor will draft the contract after details of the purchase are agreed through the agency with seller. Drafting the contract can take day or two, and is finished when both parties agree on all details.
What is a Notary Public and What Do They Do?
The Notary Public is a qualified solicitor appointed by and working for the Croatian Government. Their role is to ensure that all the documents involved in the property transaction are valid, legal and binding. Specifically, it is a requirement within Croatian Property law that the Notary Public witnesses the signatures on the Final Contract – without this witnessing stage the Final Contract is not legally binding. Also, the Notary Public will certify that any documents that have been translated from a foreign language to Croatian have been prepared by a registered court translator or the solicitor personally – thereby guaranteeing that the translated documents are true and valid. Notary Public will also provide Escrow Services if required. Notary Public notarize signatures of the sellers on the contracts, and is not registering you as new owner in land registry court books.
How Does the Financial Part of the Property Buying Process Take Place?
Usually the funds are transferred to the vendor’s account after purchase Contract signed and notarized; the Final Contract is signed; and the Seller signs a confirmation that they have received the funds. This confirmation has to be also notarized (usually at the same time when main Contract, and Seller holds this confirmation in hand until he receives full amount of the price). Most people quite understandably are uncomfortable with the thought of sending money to someone in a foreign country with no apparent guarantees – in which case an Escrow Service can be used, or other ways of fund transfers which we can explain in due time by mail.
Are Escrow Services Available?
Yes, they are available and provided by solicitors and most Notary Publics and by banks. Fees vary – for instance a typical cost chargeable by a Notary Public is 4000 Croatian Kunas (approx EUR 550) to hold EUR 75,000 in Escrow for up to a year. It may be that an independent solicitor you appoint can provide this service for no additional cost, so it would be a good idea to ask any solicitor you are thinking of appointing whether they can offer Escrow Services or not, and whether they charge extra for the service, or you can use in some cases bank escrow account to execute transfer of the funds in the moment when you are registered as new owner of the property in the land registry books/court.
How Do I Open a Bank Account in Croatia?
Opening a bank account in Croatia is a fairly straight forward process but you will be required to do it in person and you will need your passport to prove your identity and OIB number that every person in Croatia must have (Personal identity tax number), which your solicitor will issue for you at local Tax Administration Office. We suggest that you open a foreign currency account to handle the transfer of payments for the property transaction as well as a local Kuna account which you will need for smaller expenses once the transaction has completed. Usually price is listed in EUR but inside Croatia kuna is official currency.
You Can Buy a Croatian Property Either Through a Croatian Company You Set Up, or as a Private Individual. Which Route Should You Take?
Each route has its advantages and disadvantages and there are differences in costs, the time it takes to register the property in your name and your future plans for the property.
Main advantages of buying as a private individual
Cheaper and more simple than buying through a company as there won’t be any company set-up costs or on-going company running costs involved. This way of buying is possible for EU citizens (except buying of agricultural land) and non EU citizens which can buy upon reciprocity rule, but have to get approval of the purchase from the Croatian Ministry of Justice (which can take several months).
If you keep the property for at least 3 years before selling, then when you sell you won’t be liable for any Croatian Capital Gains Tax.
Advantages of buying through a company
You don’t have to apply for Ministry of Justice permission to own the property (farmland and forest land) if you are non EU citizen. If you want to rent your property to tourists, to gain income, buy through a company is better way.
Its quicker to get registered title deeds in the Land Registry if you purchase through a company, however you will obviously have to factor in the time to form the company (two weeks time needed to form a company) and the associated costs involved in setting up a company (2800 EUR for founding capital which you can take out of the company after registration, and 500 EUR of the public notary fee for registration of the company, about 150 EUR per year for a company tax, about 150 eur per month for the bookkeeper).
If buying a new build from a developer then you can subsequently reclaim the PDV (Value Added Tax) of 25%.
If you are buying the property which is owned by the company, and you overtake also the company, this way there is no property transfer tax (at the moment)!
There are other advantages which you should discuss with your solicitor before making any decisions, or with the accountant (bookkeeper company) which we will gladly recommend.
Why Do I Need Ministry of Justice Approval to Own the Property if I’m Buying as a Private Individual?
Only approved nationalities are currently allowed to own property in Croatia and only certain types of property can be owned by a non-Croatian. The MoJ ensures that these criteria are fulfilled and that’s why you have to get their permission. Non-allowable purchases are those on forest land and farmland. Other properties that will be scrutinised are those which may be of historical and cultural importance.
How Long Do I Have to Wait for the MoJ Approval?
Approval period is from 15 days to 1 month, but could take few months sometimes. As soon as the land registry court receive application for your ownership registration, it will make note (“charge”) about it which will be visible on the ownership certificate (title deed).
At What Point Can I Register My Property Ownership in the Land Registry Books?
If you are buying as a private individual and EU citizen, you can expect to be registered as new owner in the land registry books within 15 days to 1-2 months, depending on the documents which registration court needs to register you as new owner. For those who are non-EU citizens, and need to wait for the Ministry of Justice approval, once Ministry of Justice (MoJ) permission has been granted, you can register your ownership with the Land Registry, which again can take 10 days or 1 month. If you are buying your property through the formation of a Croatian company, then the MoJ’s permission is not required and you can register ownership as soon as you form your company and the company purchase completes.
What Guarantee Do I Have that the Property Won’t be “Sold” Again or that the Final Contract Doesn’t become Invalidated While I’m Waiting for the MoJ Approval?
There are two steps your solicitor should take to ensure against this. Firstly, the Final Contract should be registered with the Land Registry as a “charge” against the property. This “charge” would then show up in any subsequent searches made on the property and would therefore deter any other buyer, as the property title would not be declared “clean”. Secondly, your solicitor should ensure that the vendor signs a “Clausula Intabulandi” (in Croatian: “Tabularna Izjava”). This is a document that states you, the buyer, have fulfilled all contractual obligations with regards to the property purchase and that you do not need any further permission or involvement from the vendor to register the property in your name with the Land Registry (once Ministry of Justice permission has been granted). The “Clausula Intabulandi” must be signed by the vendor and witnessed by a Notary Public.
When Can I Take Possession of My Property?
This is dependent on the terms written into the Final Contract. Usually the buyer can take possession of the property as soon as the sale has completed, ie, the Final Contract has been signed by the buyer and the seller; the full purchase price has been paid; and the “Clausula Intabulandi“ (see above) and Power of Attorney over the property have been signed. As long as these steps have been completed and you have a Power of Attorney signed, you can take possession even if you have to wait for Ministry of Justice approval before registering your ownership with the Land Registry.
How Do the Utility Bills Get Transferred to My Name?
Transfer of utility bills will be organised either by your solicitor or our agency after completion. In some cases, the utilities cannot be transferred to the buyer until buyer has been registered as the rightful owner with the Land Registry. This is only an issue if buying through the private route and waiting for Ministry of Justice (MoJ) approval. In most cases, transfer of the utility bills to the buyer’s name is possible with copy of the purchase contract. In some cases, utility companies ask the buyer to come personally to sign transfer of utilities to his name. There are a few ways of ensuring that utilities are not disconnected whilst waiting for MoJ approval. One method is to create an agreement with the vendor that allows utilities to remain in the vendor’s name, but payment of bills are debited directly from the buyer’s Croatian bank account. The other method is to arrange for all utility bills to be sent to our agency, which can then organise payment of the bills – for an additional fee.
Can I Start Restoration and Building Work on the Property While Still Waiting for the MoJ Permission?
Yes, the property can be restored and improved within the existing plot’s footprint. Note, however, that building permission will not be issued until your name has been registered in the Land Registry. Before starting any building work, you should carefully consider the fact that any improvements you make may increase the eventual Real Estate Transfer Tax (RETT) which is payable after the Ministry of Justice (MoJ) grants their approval. After you get MoJ approval, local government (council) officials will inspect your property and take a decision on whether the price you paid for it was a fair one for its condition at the time of the sale. They will then base the final RETT fee on this estimate. If have made alterations in the interim, they could value your property at a higher market price than that which you paid, in which case you could end up facing a higher RETT than you had anticipated. One tip to bear in mind therefore is to take plenty of photographs of your property immediately after the purchase and before any house improvements have been carried out. In this way, when you do pay the RETT you can demonstrate to the taxman that the price you paid was a fair price for the property in its original condition.