Decision (EU) 2018/1994 authorising Croatia to introduce a special measure derogating from Article 26(1)(a) and Article 168 of Directive 2006/112/EC on the common system of value added tax

Summary:

On 6 November 2018 the European Commission presented a proposal for a Council Implementing Decision authorising Croatia to introduce a special measure derogating from point (a) of Article 26(1) and Article 168 of the VAT Directive. The Council of the European Union adopted the Decision on 11 December.

Further information:

Article 168 of the VAT Directive provides that a taxable person is entitled to deduct VAT charged on purchases made for the purpose of taxed transactions. Article 26(1)(a) of the same Directive requires the use of goods forming part of the assets of a business for private purposes to be a supply of services for consideration if the VAT on the goods was eligible for deduction. This system allows for the recovery of initially deducted VAT in relation to the private use.

Currently taxable persons in Croatia cannot deduct input VAT relating to personal cars unless the personal cars are used for drivers training, vehicles testing, repair service, economic activity of transporting passengers and goods, transport of deceased, rent and purchase for the purpose of resale.

Croatia intends to modify its legislation and allow the deduction of input VAT relating to passenger cars not wholly used for business purposes. At the same time Croatia submits that it is complicated to determine the extent to which cars are used for private and for professional purposes. Croatia therefore considers that it would be appropriate to apply a fixed percentage of 50% for the VAT deduction.

The Commission proposes that the derogation should apply from 1 January 2019 and should be limited in time to 31 December 2021, so that it can be assessed whether the 50% restriction is a correct reflection of the overall apportionment between business and private use.

Official

EUR-Lex: COM(2018)726: Proposal for a Council Implementing Decision authorising Croatia to introduce a special measure derogating from Article 26(1)(a) and Article 168 of Council Directive 2006/112/EC https://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2018:726:FIN

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