It is believed that investing in real estate is one of the best methods of safely investing capital. More and more Poles see great potential in real estate abroad, especially in places attractive to tourists. If you are planning to buy a property in Croatia, check whether you are entitled to housing relief and under what conditions it is granted.
What is housing relief?
The sale of real estate and property rights by a person who does not run a business generates income. According to Polish law, tax of 19% must be paid on the generated income. Such regulations apply to the sale of real estate within five years of its purchase or construction.
Is it possible to avoid paying income tax on this account? This is referred to as housing relief, which defines the conditions for abolishing the need to pay income tax or reducing its value. It turns out that by taking advantage of the housing tax relief, a taxpayer can avoid paying tax if he allocates the funds obtained from the sale of real estate to the so-called own housing purposes.
Housing relief and purchasing a flat abroad – who is entitled to it?
Income tax on the sale of real estate does not apply to persons who dispose of real estate and property rights after five years from their acquisition. However, housing relief provides more opportunities to avoid paying income tax on this account.
Interestingly, housing relief is available to people who used the income from the sale of real estate for other housing purposes, even if five years have not passed since purchasing the property. The 19% income tax does not apply if the income is used for your own housing purposes within three years from the date of sale of the property. However, does the housing relief also apply when the investor wants to achieve housing goals outside Poland, for example in sunny Croatia?
Will the purchase of real estate abroad exempt us from tax on the sale of real estate in Poland?
Tax on income from the sale of real estate does not apply to persons who use the obtained funds to purchase another real estate. The housing relief applies not only throughout Poland, but also in all countries belonging to the European Union, in another country belonging to the European Economic Area and the Swiss Confederation. This means that the purchase of real estate in Croatia may free the investor from the obligation to pay income tax on the sale of real estate and property rights in Poland.
Conditions for using the housing relief
Although the housing tax relief is a kind of “lifeline”, it does contain certain limitations. Before you decide to buy real estate abroad, check whether you will not pay 19% income tax, even if you use the funds from the paid sale of real estate to purchase another apartment or house.
In what cases does housing relief apply to purchasing a flat abroad? Here are the most important ones:
- Housing relief is not available for the purchase of land for the purpose of building a property. It is also not available when purchasing a share in land or acquiring the right of perpetual usufruct of land.
- People who decide to use the funds obtained from the sale of a property on another property if it is to be purchased for recreational purposes cannot benefit from the housing relief. Does this mean that housing relief cannot be used by people who want to buy a property on the Adriatic Sea in order to generate profits from renting it out? Absolutely not. You are not entitled to housing relief if such a property would be used only for recreation and season, but if it is also used to meet your own housing needs, you can definitely use it.
What are housing expenses?
The housing relief exempts you from paying income tax at the rate of 19% or reduces it, taking into account the expenses incurred in connection with the implementation of the so-called housing expenses. It is worth knowing what housing expenses meet the criteria that qualify you for relief. These include:
- expenses for the purchase of a residential building,
- expenses for purchasing a residential premises,
- expenses for the renovation of your own residential building that was purchased for your own residential purposes,
- expenses for equipping real estate that meets its own residential purposes. These include, for example, expenses for the purchase of a gas stove, oven, lighting or custom-made furniture.
Purchasing real estate in Croatia and the obligation to pay tax
Your biggest dream is to live in a charming house on the sunny coast of Croatia? Turn them quickly into an easy-to-achieve goal. If you decide to sell your own property in Poland and use the proceeds for your own housing needs on the Adriatic Sea, this is absolutely possible. Croatia is a member state of the European Union, therefore housing relief applies in this case.
Moreover, if you sell real estate purchased over five years ago, you do not have to worry about paying 19% income tax. In this situation, you are not obliged to pay it.
Why is it worth investing in real estate in Croatia?
Did you know that you can purchase real estate in Croatia on exactly the same terms that apply to native inhabitants of this Balkan country? As a citizen of a European Union Member State, you have the same rights, and the procedure for purchasing an apartment or house on the Adriatic Sea is not difficult in any way. The only barrier may be language and ignorance of Croatian law and related formalities. In this respect, comprehensive support is offered by Nestovia – a company that deals with professional real estate management on the Croatian market.
The issues of purchasing real estate in Croatia are regulated by the “Act on property rights and other property rights”. According to it, real estate tax is mandatory for the purchase of a flat or a single-family house, which is currently 3%. It is worth adding that Croatia is one of the few EU countries where there is no traditional property tax. That is why most investors call it a real “tax haven”.
FAQ
1. When do you have to pay tax for purchasing real estate abroad?
If five years have not passed since the purchase of the property and you want to sell an apartment or house, and the income you will receive will not be used for other, own housing purposes. If you are not eligible for housing relief, you will pay 19% income tax.
2. When is housing relief available for purchasing a flat abroad?
You will not pay income tax on the sale of real estate and property rights within five years of its acquisition if you allocate the income obtained to the so-called own housing purposes. You can achieve your own housing goals with housing relief in any European Union member state.
3. Do I have to pay tax in Poland when buying real estate in Croatia?
If you take advantage of the housing relief, you will not pay tax in Poland. The tax on the acquisition of real estate and property rights is mandatory in Croatia and amounts to 3%.