Croatia joins the EU – VAT amnesty scheme

Croatia’s accession to the EU has been a long time coming – tonight they will become the 28th member country of the European after an application process which has taken 10 years.  In 1991, the country declared independence from socialist Yugoslavia but the Serbian dominated Yugoslav army seized back a third of the country which resulted in a four year war.  Without wishing to get into the politics of the situation, some of the scars of this time remain on the countryside – and we had first hand experience of some of the shocking impacts when we traveled inland and got lost, ending up in the middle of a bombed out village which had been deserted and never reclaimed, years on.

The accession of Croatia to the EU has been a hard process – with relics of the war coming to the surface and the requirement to hand over some of their Generals to the war crimes court in The Hague.  The country’s ability to comply with the human rights requirements, as well as the economic and cultural ones, has taken a long time to achieve.  Tensions continue to run high with neighbouring Slovenia in the North (who joined the EU some years ago) and Serbia and Bosnia in the South with memories of the war still very much alive in the minds of the current adult generation.

In January 2012, 66% of the Croatian electorate voted to join the EU and the final issues were resolved to allow an accession date of 1st July 2013.  The Croatians we met and got to know were all positive about the opportunities the EU would bring for them and their businesses – they feel it is a step forward for peace and prosperity for their country.  None of them planned to migrate to other countries in the EU once they gained the right to do so – but certainly in the boating industry, the ability to trade freely and remove the barriers for import and export would improve their lives and their businesses at home.

For us personally, the timing was perfect as it gave us the opportunity to have an EU VAT paid new boat at very low cost.  Traditionally, Croatia was full of VAT unpaid EU boats – as it was an export country and EU citizens were under no obligation to pay VAT.  With Croatia joining the EU, all of these boats would be illegal – so VAT had to be paid on them in order to continue cruising in the country.  The marine sector is of massive importance to Croatia – with more than 2,500 miles of coastline including the 1,246 separate islands it is a perfect cruising ground.  The risk for this industry after EU accession was that EU owners of these yachts would relocate to nearby Montenegro or Albania – or to slightly further afield Turkey – where the unpaid VAT status of their yachts could be maintained.

The VAT liability is somewhere in the region of 20% – so for a small yacht owner with a boat valued at £100,000 they would suddenly have to cough up another £20,000 to pay the VAT bill.  These numbers become crazy when you talk about mega-yachts – many of which are permanently based in Croatia.  A £5 million yacht owner (fairly modest mega-yacht 🙂 ) would suddenly have to find another million in his back pocket!

To avoid the loss of this very important leisure industry,  Croatia launched an “amnesty” scheme similar to one operated by Malta several years earlier when they joined.  The idea is based on the fact that anything which is VAT paid in the country at the time of the accession automatically retains it’s VAT paid status afterwards – and becomes EU VAT paid by default.  This was achieved by setting out a process for importation of yachts to Croatia BEFORE the 1st July and payment of local Croatian VAT – and a special rate of  5% was agreed for the amnesty period, thereby reducing the liability to a quarter.

There were a lot of rules attached to the amnesty – the boat had to already be registered in another country (it could not be a new boat just purchased … hence we registered ours on the UK SSR as soon as we bought it) – you had to pay a fiscal agent in Croatia to take care of the administration for you, there were legal documents to be paid for, port authorities to be compensated … overall there was a few percentage points added on to the final bill, but still massively less than it would normally have cost.  In the last month before 1st July, the rules were relaxed in an attempt to clear the bureaucracy and register as many boats as possible through the process – but of course, we had jumped on the bandwagon early on so had followed everything to the letter.  We had to register at the tax authorities in Croatia and also open a Croatian bank account – and re-register the boat onto the Croatian ships register.  After 1st July, we could re-register the boat again under UK flag or any other flag we wished, and we would retain the EU VAT paid status.

There were different rules for boats under 12m and for boats over 12m – hence when Ed was still in Slovenia, he stripped Liberation down to the bar minimum to ensure she was within the 11.99m length of the hull – as the authorities had the right to come and physically measure if they wished.  The smaller boats could be dealt with at the local town port authority – whereas the larger boats had to be registered on the national register, increasing the administrative overhead and cost.

Additional savings we achieved because of the rule that the boat had to already be registered – it was in effect a used boat.  In Croatia, there is a standard boat valuation list and every make and model is listed with the year of manufacture and an approved value – as everyone knows, boats (like cars) devalue the most in the first year.  Liberation was manufactured at the end of 2012, although we didn’t take delivery until 2013 – so we benefited from a value for calculation of VAT of a year old boat.  Of course, the “special edition” Avantgarde was also not listed in their specifications – so we we classed as a standard one year old model.  The valuation we were given was around half of the price we had actually paid – so we ended up with a VAT bill which was a fraction of what we would have paid in the UK.

On the eve of the accession, we were sitting on-board in ACI Marina Umag on our mooring, proudly flying the Croatian flag from the flag pole, with a view across the harbour to the town where the celebrations would take place – it’s clear to see that this is a milestone for them.  Shortly before midnight, the local racing yacht team slid their boat out of the marina in darkness … we had no idea what they were planning but they gently drifted around the harbour until midnight came.

On the strike of midnight, the town exploded in a blaze of fireworks – the party started in the main square as the clock struck midnight and the race yacht let off it’s flares into the sky ….. welcome to the EU!

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