Croatia Tax Agency Clarifies VAT Treatment of Improvements to Leased Business Premises

The Croatian Tax Administration March 11 clarified the VAT treatment of investments in leased property. A taxpayer sought clarification on whether it had correctly deducted input VAT when making investments in leased premises that reverted to the landlord without any compensation when the lease terminated. The purpose of the investments was to ensure the conditions for performing the company’s activities during the lease period. The Tax Administration clarified that, based on the EU Court of Justice’s interpretation of Council Directive 2006/112/EC: 1) VAT applies only where there is a direct link between a transaction and consideration, requiring a reciprocal benefit; ...