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Entering Into and Exiting the VAT System


There are two ways of entering into the Value Added Tax system: voluntary and ˝by force of law˝.

At the beginning, we need to clarify WHO is obligated to register to the VAT system.

All natural and legal persons who permanently perform an activity with the purpose of achieving income, under the condition the activities they perform are – subject to paying VAT (for example, housing rental services, health services, education services, services of non-profit organizations and similar services are exempt from paying VAT, and their exact list is prescribed by Article 11 and 11.a of the Law on Value Added Tax) and who have achieved annual turnover higher than 85,000.00 kn through performing taxable deliveries. We're talking about trade companies, tradesmen, craftsmen and free occupations, citizens and international entrepreneurs.

A voluntary entry into the VAT system is possible at the beginning of performing one's activities (and by all means before issuing the first invoice, i.e. before the first delivery), or from 1st January of the calendar year in which the tax payer has decided to enter into the VAT system, regardless of the fact they didn't achieve taxable turnover higher than 85,000.00 kn in the previous calendar year. In this case (intention of entering into the system the following year) it is necessary to notify tax authorities until the end of the current year. Once tax authorities receive a voluntary registration, they issue a resolution to the payer, which obligates them to remain in the VAT system for the next five (5) calendar years.

A mandatory entry into the VAT system or entry ˝by force of law˝ applies to taxpayers who achieved income from taxable services higher than 85,000.00 kn during the previous calendar year. These taxpayers are obligated to submit their registration to the competent tax authorities' office, no later than 15th January of the current year.

According to the realized turnover amount, VAT payers are divided into monthly and quarterly payers. Monthly taxpayers are those who achieved turnover over 300,000.00 kn in the previous calendar year, and quarterly taxpayers are those who achieved turnover under this amount in the previous year. It is to be emphasized that, if explicitly requested, and if they submit a request to tax authorities until 15th January, ˝quarterly taxpayers˝ can become ˝monthly taxpayers˝.

Regarding the entry into the VAT system by force of law, it's important to emphasize that those payers aren't bound by a deadline to ˝stay˝ in the system. They can freely exit it in the year which follows the year in which they didn't achieve turnover higher than 85,000.00 kn. Example: an entrepreneur achieves 100,000.00 kn in year 1, from taxable services. He is liable to enter into the VAT system from 1st January of year 2. However, if his achieved turnover in year 2 is 70,000.00 kn, he can decide to exit the VAT system from 1st January of year 3 (again, with a notice to tax authorities no later than 15th January). And so from one year to another.

However, if turnover falls under the prescribed level and the entrepreneur doesn't submit a statement they want to exit the VAT system, tax authorities will treat this as a ˝voluntary stay˝  and will issue a resolution to the payer which will bind him for the following five calendar years.

A new category of taxpayers from 1st January 2010 are international entrepreneurs, i.e. entrepreneurs who don't have a seat or a business unit in the Republic of Croatia, and who perform taxable deliveries here. Such taxpayers are obligated to ˝find˝ and name a domestic tax representative. International entrepreneurs who perform taxable deliveries to domestic legal persons are exempt from this liability, since domestic entrepreneurs - recipients of services are liable to calculate and pay VAT on such deliveries.

It is possible to exit the VAT system, as a consequence of a mandatory entry ˝by force of law˝, in a way described above, or after liquidation of the company, i.e. a permanent termination of performing activities. In the second case, a payer whose activity has been liquidated, is obligated to submit a final VAT calculation – PDV-k form to tax authorities within 3 months. This calculation needs to include the period from 1st January to the day of deletion of activity from the competent registry.  

Published 10/10/2011
 


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