News from the Republic of Croatia
Tax Authorities’ opinions
Regarding the recent adoptions of amendments to the VAT Act and Rulebook which prescribe provisions concerning the extension of the application of reduced VAT rates, the Tax Authority has recently issued several opinions in which it commented on the application of the new VAT reduced rates for the supply of natural gas and heating from heating stations along with supporting fees related to these supplies.
At first, the Tax Authority reminded that the reduced VAT rate of 13% is extended to the supply of natural gas and heating from heating stations, including fees related to these supplies. However, exceptionally, the supply of natural gas made in the period from 1 April 2022 to 31 March 2023 will be subject to a VAT reduced rate of 5%.
In the first opinion, the Tax Authority commented on the application of the reduced VAT rate for the natural gas transport and distribution services. Namely, the Tax Authority clarified that the reduced VAT rate is prescribed for the supply of natural gas, including fees related to that supply, provided by the natural gas supplier.
In this regard, the Tax Authority concludes that the taxpayer who supplies natural gas and charges fees for the services of transport and distribution of natural gas, calculates VAT at the reduced rate of 5% on this single supply.
However, if the taxpayer does not supply natural gas, but only gas transport and distribution services, then a VAT reduced rate is not applied, and these services are taxed at the standard VAT rate of 25%.
In the second opinion, the Tax Authority commented on the application of the reduced rate on liquefied petroleum gas and concluded that the application of the reduced VAT rate is prescribed only for the supply of natural gas falling within Customs Tariff Numbers 2711 11 00 and 2711 21 00. Accordingly, since liquefied petroleum gas is not natural gas, it is subject to VAT at a standard rate of 25%.
Notice on the implementation of tax audit activities in the hospitality industry
The Tax Authority recently issued a statement regarding the tax audit activities in the hospitality industry in which it clarified that it had conducted intensified fiscalization audits in the period from 1.7. to 31.8.2021. in the entire territory of the Republic of Croatia (especially on the Adriatic coast, islands, and Zagreb).
The tax audit activities were carried out in a planned manner, based on a previously conducted risk analysis. As the goal of tax audit activities, the Tax Authority states the detection of taxpayers who evidently and systematically violate tax regulations, as well as the protection of the regular taxpayers.
The Tax Authority carries out two types of audit activities, i.e.:
- tax audit of invoice issuance and reporting (i.e. fiscalization), where irregularities were found in 49% of cases and
- monitoring of the invoice reporting (i.e. recording of the sale transactions).
In the case of taxpayers who were under tax audit procedure it was determined that their turnover increased 18% compared to July 2019 and 36% for August 2021 compared to August 2019.
On the other side, other taxpayers who were not under tax audit procedure experienced decrease in turnover of 7% compared to July 2019 and an increase of only 5% for August 2021 compared to August 2019.
Thus, the Tax Authority continued to carry out regular tax audits activities with the taxpayers in hospitality industry by requesting additional documentation on the entry / exit of inventory, price lists, etc.
With this respect, the Tax Authority states that it was determined that some taxpayers recorded purchase invoices (i.e. used the right to deduct input VAT) while at the same time did not issue sale invoices for all services provided, which significantly affected operating margin and significantly reduced revenues / receipts, and thus decreased their VAT liability.
In the case of taxpayers who have been found to have inaccurate bookkeeping, statutory tax assessment procedures have been initiated.
In addition, the Tax Authority concluded that taxpayers can recognize newly assessed tax liability and apply for a tax settlement, in which case they will be exempt from paying part of the late payment interest interest or may challenge the newly assessed tax liabilities using regular legal remedies (objection or appeal).