The Best Country
For Tax-Advantaged Residence & Real Estate Investment In Europe
By Christian
H. Kälin
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| What
country combines beautiful scenery, first-class amenities, low prices and
a convenient location within a two-hour flight from virtually any point
in Europe? Not to mention unique tax advantages for persons who receive
certain types of foreign income or a foreign pension?
The answer
is Croatia—a well-known European tourist destination 15 years ago, but
only now recovering from the widespread perception that it is not a “safe”
country to visit.
That perception
is false. When Croatia declared independence from Yugoslavia in 1991, a
four-year war with Serbia followed. Although most of Croatia remained untouched
by the war, the nation still suffers from a reputation as a (former) war
zone. This has distracted attention from Croatia’s clear seas, the more
than thousand islands, romantic fishing villages, beautiful beaches, vineyards,
Roman remains and medieval towns.
Croatia occupies
an area only slightly larger than Switzerland, but has a spectacular 6,000
km coastline (mainland coastline of 1,777 km and island coastlines of 4,058
km) on the Adriatic Sea with 1,185 islands, of which only 66 are inhabited.
This coast is considered to be the most beautiful in Europe with innumerable
bays, inlets, coves and beaches. Most islands receive more than 2,600 hours
of sunshine a year. Besides a beautiful coast and countryside, there is
also a rich culture to explore. On the Adriatic coast alone there are five
UNESCO World Heritage sites.
Croatia is
also at peace—and has been for nearly a decade. Since its successful bid
for independence, it has become a member of the United Nations, the World
Trade Organization, the NATO Partnership for Peace Program and is now negotiating
for membership in the European Union. It is expected that Croatia will
join the EU by 2010.
The Constitution
of Croatia establishes Croatia as a parliamentary democracy and guarantees
the right and inviolability of private property. Rights acquired through
capital investment are constitutionally guaranteed. Free transfer and repatriation
of profits and capital are guaranteed.
Croatia’s natural
beauty, rich culture and history, its low cost of living and its fiscal
advantages make it one of the most attractive locations for residence and
retirement in Europe.
Receive Dividends,
Interest and Capital Gains—All Tax-Free!
Croatian residents
are generally taxed on their worldwide income. However, there are important
exemptions, which make Croatia attractive for tax-advantaged residency.
With proper planning, dividends, interest payments, pensions received from
abroad, capital gains from trading securities and other financial assets
and capital gains from long-term holdings in real estate all can be received
tax-free. Croatia also offers important tax advantages to yacht owners. |
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Foreign nationals
who wish to stay longer than three months in Croatia must obtain a residence
permit. To obtain one it is sufficient to have a yacht moored in a Croatian
marina or to rent or own an apartment. An application for residence involves
submitting various government forms and identification documents, including
proof of sufficient funds, and requires a visit to Croatia followed by
six to eight weeks processing time. The residence permit is valid for maximum
of one year and can be easily renewed.
You become
resident for tax purposes in Croatia in one of two ways: physical presence
or available accommodation. You meet the physical presence test if you
stay for at least 183 days under circumstances that indicate your visit
is not temporary. The 183-day visit may overlap calendar years. You meet
the available accommodation test if you have accommodation in Croatia at
your exclusive and continuous disposal for at least 183 days under circumstances
that indicate you intend to keep and use it.
Your length
of stay is not important, nor does it matter if the accommodation is owned
or rented. Such “deemed residence” is very attractive for foreigners who
wish to maintain legal residence in Croatia without having to be physically
present for a minimum period.
20% Annual
Profits in Real Estate
Prices of Croatian
real estate have been increasing at an average rate of 20% per annum in
recent years. However, in top locations prices have risen much more quickly.
In the past 12 months, real estate prices in many parts of the Dalmatian
coast have doubled. There is a high demand for luxury real estate on the
Adriatic coast, yet there is only limited supply.
Foreign persons
can purchase real estate in Croatia providing that they get approval by
the Ministry of Foreign Affairs. Such approval may take up to six months.
However, the restrictions can legally be avoided if a Croatian company
buys the property, which can be entirely owned and controlled by a foreign
person. Using a company for this purpose also avoids capital gains tax
and the 5% transfer tax on the subsequent sale of the property.
In view of
future EU membership, Croatia is already adjusting its laws and regulations
to comply with EU standards. For example, the current restrictions on foreign
real estate ownership will be abolished in just two years from now, a fact
that will no doubt make Croatia even more attractive for foreigners in
the future.
(Christian
H. Kälin is a specialist in international tax and estate planning
and a partner at Henley & Partners in Zurich. He is also a founding
partner of Verica® Trust & Capital Management AG in Zug, Switzerland.
Verica® offers its clients the Verica® Dalmatian Real Estate Investment
Program (DREIP), which allows safe investment in prime real estate projects
on the Croatian coast. For more information, contact Kälin at christian.kalin@henleyglobal.com.
Links: www.henleyglobal.com/croatia;
www.vericatrust.com.)
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