1. INDIRECT TAXATION VALUE ADDED TAX

2. Origins VAT was invented in 1954 by Maurice Laure, a French economist, joint director of the French Tax Authority France originally introduced VAT in 1954 for large businesses, and then extended it to all business sectors

3. What is VAT? VAT is an indirect tax – it is a tax collected from someone other than the person who bears the cost of the tax

4. What is added value? Added value is the value of what the producer has added to the inputs before they are sold as new products and services

5. VAT in Croatia The VAT came into effect on 1 January 1998, replacing the retail sales tax Old rates: zero rate, 10% and 23% (originally 22%, increased in 2009)

6. Zero rate Exemptions at the zero rate apply only to medical, cultural and educational goods and services Daily necessities: Bread and milk, books, scientific journals, medical supplies

7. 10% rate Applied from 1 January 2006 Services of accommodation or accommodation with breakfast, full board or half board in all kinds of commercial hospitality facilities and agency commissions for such services

8. Amendments to VAT Law The Croatian Parliament has, on its session held on Friday 17 February 2012, enacted amendments to the tax legislation, amongst which were amendments to the Value Added Tax (VAT) Law.

9. New VAT standard rate Amendments to the VAT Law increased the standard VAT rate from 23% to 25% as of 1 March 2012.

10. The reduced VAT rate As of 1 March 2012 the reduced VAT rate of 10% will also apply to edible oils and fats, baby food, supply of water (except bottled or otherwise packaged drinking water) and refined (white) sugar and, as of 1 January 2013, to certain hospitality services.

11. 5% rate As of 1 January 2013 the zero rate of Value Added Tax (VAT) is to be annulled and a 5% rate is to be introduced on bread, milk, books, medicines, orthopedic aids and cinema tickets, a 10% rate will apply to hospitality services and this branch will be the first to be obliged to compulsory fiscal cash registers.

12. Application In determining which VAT rate to apply, tax payers should take special care of the following: when providing services through more than one VAT period the issue arises as to which VAT rate to apply: the rate that applies at the time of issuance of the invoice or the rates during the period the services were provided;

13. Reading exercise Read the text Croatian Government Severely Tightens Budget Belt (handout) and answer the following questions: Which countries have a higher VAT? Which prices have increased? What did the goverment predict with regard to a GDP growth rate? What did the government announce?

14. Vocabulary Austerity measures – mjere štednje Discontent - nezadovoljstvo Layoff – otpuštanje radnika Public enterprise – javno poduzeće To halt funding – obustaviti financiranje Freelance workers – radnici u slobodnim profesijama Surplus - višak

15. VAT - a multi-stage tax VAT is levied at each stage of the production and distribution process The input tax on purchases is deductible from the output tax

16. Taxable persons Natural and legal persons engaged in taxable activities Taxpayers whose supplies did not exceed HRK 85,000 in the preceding calendar year are exempt from VAT

17. Taxable transactions 1. The supply of goods and services for consideration within Croatia 2. The self-supply of goods and services (transfer of goods from a business for private needs and the use of one’s own enterprise for private needs) 3. The importation of goods

18. Taxable amount The sales price of goods and services supplied, including the costs of transportation, insurance and packaging

19. Exemptions Services of banks, savings and loan institutions, insurance companies, the renting of housing premises and medical care

20. Complete the following text: unions, services, authorities, entities, supplies, goods, activities Taxable persons are individuals and legal __________ engaged in taxable activities. Any importer or exporter of goods is also a taxable person, as well as an entrepreneur receiving _________ performed by a non-resident. Government bodies, central and local _____________ and self-governing bodies, political parties, trade ___________ and chambers of commerce are considered to be taxable persons if they perform business __________ and if the non-taxation of such activities would lead to unfair competition. Taxpayers whose ___________ did not exceed HRK 85,000 in the preceding calendar year are exempt from VAT.

21. Answer key Taxable persons are individuals and legal entities engaged in taxable activities. Any importer or exporter of goods is also a taxable person, as well as an entrepreneur receiving services performed by a non-resident. Government bodies, central and local authorities and self-governing bodies, political parties, trade unions and chambers of commerce are considered to be taxable persons if they perform business activities and if the non-taxation of such activities would lead to unfair competition. Taxpayers whose supplies did not exceed HRK 85,000 in the preceding calendar year are exempt from VAT.

22. Thank you for your attention!