The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Croatia: what restrictions there are and whether making a will is advisable.

INHERITANCE TAX

How high are inheritance taxes in Croatia?

Inheritance tax is levied at a flat rate of 5% in Croatia. The taxable inheritance is the market value of the estate less the debts and expenses related to the inherited assets.

Movable property received as gifts will be taxed only if its total value exceeds HKR50,000 (€6,628).

INHERITANCE LAW

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What inheritance laws apply in Croatia?

Croatian laws apply to the inheritance of foreigners

The principal laws applying to inheritance proceedings in Croatia are: the Inheritance Act, Law on Resolution of Conflict of Laws with the Provisions of Other Countries in Certain Matters (Act on Conflict of Laws Rules) and Ownership and Other Property Rights Act. Members of different nationalities or religions owning property in Croatia do not come under different inheritance laws. The applicable laws are not influenced by the nationality of the deceased’s spouse, or whether the deceased was resident in Croatia or abroad at the time of death.

Croatian courts have exclusive competency

Although inheritance proceedings for foreigners owning property in Croatia are held exclusively before Croatian courts, the substantive law of the country of the deceased’s nationality may be applied. Croatian courts may not recognize foreign courts’ decisions regarding the inheritance of real property in Croatia, but may recognize the distribution of the movable assets and/or money of the deceased.

The municipal court of the deceased’s place of residence is, in the first instance, competent to handle inheritance proceedings. If the deceased did not reside in Croatia, then the competent court is the municipal court in the location where the property was registered by the Land Registry. In the last two years, following new regulations to expedite the proceedings, municipal courts have been able to transfer inheritance files to Public Notaries, who act as courts’ commissioners.

Inheritance proceedings usually take between 1 to 6 months, depending on the cooperation of the heirs and the completeness of the documentation. If no disputes develop, then Public Notaries are able to complete the proceedings; however, if the determination of the heirs and/or the distribution of property is disputed, then Notaries will return inheritance files to the courts to decide the issue in dispute.

Inheritance proceedings usually include 1-3 hearings, in which heirs give statements, and documents are collated concerning the ownership of the property, and the heirs’ relationship with the deceased. Proceedings for foreign heirs may be delayed, since data from the Land Registry must be recovered, and original birth certificates must be presented, properly notarized, and legalized, usually by Apostille and translated into Croatian by a licensed court interpreter.

A reserved portion applies to two categories of “heirs by the law”

In the absence of a will the entire estate goes to “heirs by the law”, who are compulsory heirs classified into ranks determined by Croatian inheritance law. In the absence of “heirs by the law” the estate goes to the municipality where the real-estate is located.

There are two categories of ‘’heirs by the law’’ who may apply for reserved portions if excluded by will. The first category are the descendants (including adopted children) and spouse, who always inherit the reserved portion after applying at court. The second category includes the parents, adoptive parents, and other ancestors, who can only apply to inherit the reserved portion if they are permanently incapable of work, and/or do not have the means to support themselves.

The reserved portion for the first category is 1/2 of the proportion that each heir would legally receive if the deceased had no will. For example, if the deceased made no will, and left a spouse and two children, each heir would inherit equal proportions i.e. 1/3 of the legacy; however, if the deceased bequeathed an entire estate to only one child in a will, according to the reserved portion rule, the spouse and the other child would be entitled to 1/6 each (i.e. 1/2 of 1/3 =1/6) whilst the child who inherited by the will would receive the remaining 4/6 of the estate.

The reserved portion for the second category equals 1/3 of the legacy they would legally inherit if the deceased had no will. They are only called for legacy if there are no “heirs by the law” in previous ranks. The residual or separate portion of the estate may be gifted to any other person without restriction; however, if a compulsory heir has already inherited the same or more than he/she is entitled to under the reserved portion rule, then he/she may not apply for a separate portion.

The debts of the deceased must be recovered from the estate. Heirs are jointly liable for such debts up to the value they have inherited.

The will

A will is formally valid in Croatia if made in accordance with the laws of:

• The Republic of Croatia
• The country of the deceased’s citizenship, residence, or sojourn at the time he/she died or made the will
• The country where the real-estate is located

Croatian Inheritance law recognizes two types of will: the Private Will, written and signed by the testator in handwriting or before two witnesses; and the Public Will, presented before Municipal courts, Public Notaries, or Embassies.

Making a will in Croatia is a personal decision, which enables the testator to determine “heirs by the will” instead of “heirs by the law”. The execution of a will does not change the time of the inheritance proceedings, except for delays if a will is contested.

Property may be given during the lifetime of the owner

Property in Croatia may be given freely to anyone prior to the death of the owner, and such gifts are not restricted. After the death of the property owner, any gifts made to the “heirs by the law” at any time, or to other persons during the last year of the owner’s life, can be challenged by those who have a right to inherit a separate portion.

Ownership of property is determined by Title Deeds

Croatian law looks primarily at the Title Deeds registered with the Land Registry to determine the ownership of property. Anyone may challenge ownership of property by separate litigation, and inheritance proceedings will be interrupted until the final judgment on ownership is reached. Ownership of property between foreign spouses is regulated by the laws of the country of their citizenship. If the spouses are citizens of different countries, the law of their common or last common residence applies to their ownership of the property. If the applicable law can not be determined on this basis, then Croatian law applies.

Spouses in Croatian law are co-owners in equal shares of all property acquired during marriage, apart from that inherited or received as a gift, regardless of who has the Title. If the spouse is not registered as the co-owner of the property in the Land Registry and heirs are challenging a spouse’s co-ownership, then the spouse must initiate litigation proceedings and obtain legal judgment on ownership.

Children may inherit property

In cases when the property or part of it goes on death to a child or children not of legal age or to others not legally adult, a guardian is appointed. The guardian is usually a parent, except when a parent is also an heir, in which case a conflict of interest exists, and a Center for Social Welfare appoints a guardian, usually an attorney at law.

Reciprocal property-owning rights

The information above refers only to cases where reciprocity exists between citizens of Croatia and the country of the heirs’ citizenship. If an heir cannot, by law, own a property in Croatia, due to the lack of reciprocal property-owning rights, then he/she is compensated by the State for the value of the property. Regardless of the existence of reciprocal property-owning rights, certain categories of property (e.g. forests) may not, according to special laws, be owned by foreigners. The State compensates the value of such property to foreign inheritors.

Exemption from Inheritance Tax

The deceased’s spouse, direct blood relatives, and adopters/adoptees are exempted from paying inheritance Tax (i.e. 5% of the commercial value of inherited property) Brothers and sisters, their descendants, and sons/daughters-in-law are also exempted from inheritance tax if they lived in the same house as the deceased at the time of his/her death according to Hague Convention of 5 October 1961 on Abolishing the Requirement on Legalization of Foreign Public Documents.