EU Council Proposal to Extend Croatia’s VAT Deduction Restriction on Passenger Cars Used for Private Purposes

Proposal Overview: The European Commission proposes a Council Implementing Decision to amend Decision (EU) 2018/1994, allowing Croatia to continue restricting the right to deduct input VAT on passenger cars used for non-business purposes.
Croatia’s Request: On 3 April 2024, Croatia requested an extension of the derogation from Article 26(1)(a), Article 168, and Article 168a of the VAT Directive to maintain the 50% limit on VAT deduction for passenger cars not wholly used for business purposes.
Simplification and Prevention: The special measure simplifies VAT collection and prevents tax evasion by eliminating the need for businesses to keep detailed records of private use of passenger cars, reducing administrative burdens for both taxpayers and tax authorities.
Extension Period: The proposal extends the derogation until 31 December 2027, with Croatia required to submit a report reviewing the percentage limit by 31 March 2027 if further extension is needed.
Impact on Tax Revenue: The measure is expected to have a negligible effect on overall tax revenue and no adverse impact on the EU’s own resources from VAT.