Cafes and Bars Find a Loophole to Avoid Paying VAT

Total Croatia News

Finding loopholes in laws is one of favourite Croatian pastimes. Government has increased VAT rate for bars and restaurants, but some owners have found a way to avoid paying any tax.

Recently introduced increase in the value-added tax rate for restaurants, bars, cafes and similar establishments has caused numerous protests from the owners, as well as price increases for guests. However, some owners have found a way to avoid paying not just the increased VAT rate, but any VAT at all, reports Jutarnji List on March 6, 2017.

“The business is not part of the VAT system, and therefore the VAT has not been charged”, states an invoice issued by a pastry shop in the centre of Zagreb. However, it is obvious that the business in question has annual revenues above 230,000 kuna, which is the legal limit for entry into the VAT system.

How is that possible? Well, the company which operates the pastry shop was founded in 2016. In previous years, the pastry shop operated under a different company which, for example, in 2015 reported annual revenues over eight million kuna. So, this is not a business which has just been started and which should be in the position to use the exemption. It is rather an established business for which it can be assumed that it will again achieve annual revenues in excess of 230,000 kuna this year as well. However, owners have found a way to avoid paying the VAT rate, which was increased at the beginning of this year from 13 to 25 percent.

One owner who wished to remain anonymous said that in his street two other cafes have recently changed the companies through which they run their business and officially stated that they wish to remain outside of the VAT system. “That is unfair competition. I had to raise prices because of higher VAT, but my neighbours brag that their prices have remained the same. They have simply established new companies, which can remain out of the VAT system for one year”, said the owner. He noted that such “business model” had lately really taken hold. “They can establish a new company every year and never pay VAT, while operating at the same location and with same employees”, he said.

Tax advisor Snježana Galić said that the exemption from VAT in the first year of operations was meant to help new companies, and not old established business. “If their actions are not based on economic logic, but solely on the wish to avoid paying VAT, that would be contrary to the intention of the law”, she said. “Companies which have revenues over 230,000 kuna in their first year of operations automatically enter the VAT system, but only in the second year. Therefore, it is possible to establish a new company every year and avoid paying VAT, but I do not know how much cost effective it would be in the long run”, said Galić.

Owners of restaurants and bars protested strongly against to the increase of VAT from 13 to 25 percent. Most of them immediately increased prices. The price of coffee was increased by one kuna, as well as prices of tea, carbonated and non-carbonated soft drinks, as well as wine and beer.


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