Abolition of the Reciprocity Condition for VAT Refunds to Non-EU Taxable Persons in Croatia

As of January 1, 2025, amendments to the Croatian VAT Act have introduced significant changes, including the abolition of the reciprocity condition for VAT refunds to taxable persons established in third countries (non-EU jurisdictions).

This amendment ensures that all non-EU taxable persons meeting the standard VAT refund conditions can claim a refund of Croatian VAT, regardless of whether Croatian businesses have reciprocal VAT refund rights in their country.

Previous Reciprocity Condition and Its Limitations

Under the previous VAT rules, taxable persons without a fixed establishment, residence, or habitual place of business in the EU could apply for a VAT refund in Croatia for:

• VAT incurred on the supply of goods and services in Croatia.
• VAT paid on imported goods into Croatia.

However, one of the key eligibility requirements was reciprocity, meaning that a Croatian taxable person had to be entitled to claim a VAT refund in the applicant’s country of establishment. If such reciprocity was not established, the refund was denied.

This condition limited the ability of certain non-EU businesses to recover VAT incurred in Croatia and created administrative obstacles for foreign taxable persons.

Key Changes Introduced by the VAT Act Amendments

With the abolition of the reciprocity condition, the following changes take effect from January 1, 2025:

• All non-EU taxable persons meeting general VAT refund conditions will be eligible to claim a refund of Croatian VAT, regardless of whether a reciprocal arrangement exists between Croatia and their country of establishment.
• Croatian tax authorities no longer need to verify reciprocity with third countries, simplifying the?administrative process?for VAT refund applications.
• This amendment aligns Croatia’s VAT system with EU practices and ensures a neutral VAT treatment for all taxable persons.

Transition Rule for 2024 VAT Refund Applications

Since the new rule applies only from January 1, 2025, VAT refund applications for 2024 expenses will still be subject to the reciprocity condition.

This means that taxable persons from third countries must prove reciprocity for any VAT refund claims submitted for the 2024 tax period.

From 2025 onward, no such reciprocity proof will be required, and all non-EU taxable persons will be treated under the same refund conditions.

The abolition of the reciprocity condition for VAT refunds in Croatia, effective January 1, 2025, simplifies the refund process for non-EU taxable persons. Going forward, VAT refunds will be granted based solely on standard eligibility criteria, without the need for reciprocal agreements between Croatia and third countries.

However, taxable persons applying for a VAT refund for 2024 expenses must still meet the reciprocity condition, as the new rules apply only to VAT incurred from 2025 onward.

This change aligns Croatia’s VAT system with EU practices and reduces administrative barriers for foreign businesses.

If your company is eligible for a VAT refund from Croatia and requires expert assistance with the application process, feel free to contact us for professional support and guidance.