PROCEDURE OF BUYING PROPERTY IN CROATIA
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 EUR 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?
There are two choices – find a Croatian solicitor you are comfortable dealing with or alternatively use an in-house solicitor associate to our agency. There are advantages and disadvantages to both options:
Own solicitor advantages:
- No potential conflict of interest
- Can easily be given power of attorney should the situation require
Own solicitor disadvantages:
- Can be much more expensive than in-house solicitor (up to 2% of purchase price)
- Choosing the “wrong” solicitor, i.e. someone without good experience of property sales to non-Croatians
Agent's in-house solicitor advantages:
- Generally cheaper than independent solicitor (1% of purchase price)
- Proven experience in property sales, particularly to non-Croatians
Agent's in-house solicitor disadvantages:
- Ultimate loyalty is to the agent and for the sale transaction to go through
Our recommendation is that you choose your own solicitor to avoid any potential conflicts of interest, despite this being a more expensive route to take. This route also allows you assign a power of attorney to your solicitor should you need to do so during any stage of the buying process.
HOW DO I FIND A REPUTABLE SOLICITOR TO LOOK AFTER MY INTERESTS?
If you wish, we’re happy to compile a list of English speaking Croatian solicitors based locally to the property you are thinking of buying. All of the solicitors we source are listed by the Croatian Bar Society. It will then be up to you to contact solicitors from that list, make your choice and agree fees.
WHAT IS 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.
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, but we would not recommend it. Skipping the Pre-Contract may result in lower legal fees and personal expenses, but the major disadvantage is that the property could be sold to another buyer whilst the Final Contract is being drawn-up – and in the meantime, you the buyer will have incurred a number of costs. 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-CONTRACT AND FINAL CONTRACT?
Your own solicitor will draft the contracts. If you use an independent solicitor then the charges for contract preparation will normally be included in their overall fees. If you choose not to use your own solicitor and let the agency solicitor draft the contracts then you may have to pay an additional agency fee for this service.
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 - thereby guaranteeing that the translated documents are true and valid. Notary Publics will also usually provide Escrow Services if required.
HOW DOES THE FINANCIAL PART OF THE PROPERTY BUYING PROCESS TAKE PLACE?
Usually the funds are transferred to the vendor’s account; the Final Contract is signed; and the vendor signs a confirmation that they have received the funds. 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.
ARE ESCROW SERVICES AVAILABLE?
Yes, they are available and provided by some solicitors and most Notary Publics. 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 solictor 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.
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 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 expnses once the transaction has completed.
I'VE HEARD I CAN BUY A PROPERTY EITHER THROUGH A CROATIAN COMPANY I SET-UP OR AS A PRIVATE INDIVIDUAL. WHICH ROUTE SHOULD I 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 than buying through a company as there won't be any company set-up costs or on-going company running costs involved
- 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 want to rent your property out you have to buy through a company
- 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 and the associated costs involved in setting up a company
- If buying a new build from a developer then you can subsequently reclaim the PDV (Value Added Tax) of 22%
There are other advantages which you should discuss with your solicitor before making any decisions.
WHY DO I NEED MINISTRY OF JUSTICE (MoJ) 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 MINISTRY OF JUSTICE'S APPROVAL?
Approval period is 10 – 15 days.
AT WHAT POINT CAN I REGISTER MY PROPERTY OWNERSHIP IN THE LAND REGISTRY BOOKS?
If you are buying as a private individual, once Ministry of Justice (MoJ) permission has been granted, you can register your ownership with the Land Registry. 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 IS THERE THAT THE PROPERTY WON'T BE "SOLD" AGAIN OR THAT THE FINAL CONTRACT BECOMES INVALIDATED WHILST I'M WAITING FOR MINISTRY OF JUSTICE 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 vendor; 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 Powerof 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 UTILITY BILLS GET TRANSFERRED TO MY NAME?
Transfer of utility bills will be organised either by your solicitor or our local agent after completion. However, the utilities cannot be transferred to the buyer until they have 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. 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 the buyer’s solicitor, who can then organise payment of the bills - usually for an additonal fee.
CAN I START RESTORATION AND BUILDING WORK ON THE PROPERTY WHILST STILL WAITING FOR PERMISSION FROM THE MINISTRY OF JUSTICE?
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 registred 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 improvemens 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.