Flat tax on tourist beds in households and the effects of tax increases

"It is in the interest of local self-government units to encourage the legal rental of real estate to tourists, especially those that are outside the legal system, and they can only do this through incentive measures. Raising the tax burden is not an incentive measure." emphasizes Nedo Pinezić, and he also argued his theses. 

Nedo Pinezić: Flat tax on tourist beds in households and the effects of tax increases

1. The tourist bed tax consists of:

1. Tax on income from renting to tourists
2. Tourist taxes
3. Tourist membership fees

- The minimum amount of flat-rate income tax per bed can be 19,91 euros, and the maximum 199,08 euros.

- The minimum amount of the flat-rate tourist tax per bed can be 46,45 euros and the maximum 132,72 euros.

- Tourist membership fee per bed is 5,97 euros

When we talk about the tax on household accommodation services, we are talking about the sum of these three lump sum payments.

2. Difference in local benefits of residents, residents of a local self-government unit and non-residents when both have registered, categorized, household accommodation in the same local self-government unit

Residents pay income tax from employment (salaries) or self-employment to the budget of the local government in which they reside every month of the year in the amount of (average) 117 euros (1.404,00 euros per year) and a "bed tax" which until this year amounted to (average) 100,00 euros per bed.

Non-residents do NOT pay income tax from employment and self-employment to the local government unit in which they have registered, categorized accommodation, but to the local government unit in which they have their registered residence, i.e. where their life center is (tax definition regardless of whether it is in Croatia or abroad). They also pay (on average) 100,00 euros per bed to the local government budget, and to the tourist board system, where about 65% of both contributions remain at the local level.

3. What do non-residents who do not have categorized accommodation but are owners of so-called non-commercial tourist accommodation (holiday apartments) pay?

Owners of non-commercial tourist facilities pay a communal "weekend cottage tax" which can amount to a minimum of 0,6 euros and a maximum of 5 euros per square meter of living space, or usable space. On average, this is 100 square meters and the average amount determined by the local government will be somewhere around 3,5 euros per square meter. This is a total of around 350,00 euros per year.

In addition, the owners of such accommodation and their immediate family members pay a flat rate of 10 euros per person per year for the tourist tax. The average is 4 people, so it amounts to 40,00 euros per year. All visitors to such apartments who are not immediate family members and do not pay the flat rate tourist tax of 10,00 euros per night, must (should) pay a tourist tax of 1,5 euros per night.

4. The real estate tax paid by foreigners, citizens of some EU countries, also applies to property (real estate and movable property) they have in Croatia.

This tax is paid according to the place of residence, or life center, and it is for non-residents, foreigners in the city, municipality and country from which they come. Non-residents in Croatia only pay "weekend home tax". Croatian citizens do not (yet) pay property tax (real estate tax).

5. Owners of empty apartments

Owners of empty apartments (of which there are about 200.000 in Croatia) should pay tax on weekend homes and that's all.

6. The biggest contribution to the local economy and local taxes

The largest contribution to the local economy comes from the population of the local government unit, which, in addition to income from paid employment (salaries), also earns income from renting accommodation to tourists.

This income is spent for the needs of the household in the local self-government, and this creates a greater demand for products and services, thus creating a need for more employment. Due to the increased demand for products and services, every employed person again pays income tax, which is the most important budget income of the local government.

Also, tourists staying in household accommodation increase demand, thus stimulating additional employment and new income tax. An average domicile family pays 2.800 euros per year from their salary in income tax from employment and self-employment to the local government budget. If they rent two four-bed apartments to tourists, they pay an additional 800,00 euros per year.

They earn a gross of 9,600 euros from the achieved 60 days of occupancy. 50% of that amount is costs (taxes and other), and a significant part of waste costs is water consumption (local utility company), waste disposal (local utility company), cleaning, maintenance, linen washing (local cleaning services), mediation costs (local travel agencies)...

Tourists from these apartments, 8 x 60 days, spend 480 nights, and non-accommodation spending per night (person/day) averages 70 euros (food, drinks, excursions, attractions, shopping, souvenirs, etc.), which brings in an additional 33.600 euros in revenue for locally provided services.

Behind these services are people who receive a salary and pay income tax (on salary), which also goes to the local government budget. Children of local residents go to kindergarten and school in the same local government, which is why the necessary staff is employed…

7. Conclusion

Any additional tax pressure that would make renting accommodation to tourists by local residents unprofitable would lead to the following scenarios:

• Long-term rental of real estate to non-residents
• Long-term apartment rental to a commercial company
• Selling real estate to non-residents
• Preserving the value of money in an "empty" apartment...

The option of renting an apartment to Croatian tenants is the least likely due to the high risks of non-compliance with the contract, high costs, the possibility of losing the right to dispose of one's own property in the long term, etc. All this due to poor protection of the landlord's rights.

Social housing is normally under the authority of local self-government units in all developed countries. Vienna is the best example of such engagement.

It is in the interest of local self-government units to encourage the legal rental of real estate to tourists, especially those that are outside the legal system, and they can only do this through incentive measures. Raising the tax burden is not one of the incentive measures.

Author: Nedo Pinezić, nedopinezic.com