Cash accounting scheme introduced in Croatia

The cash accounting scheme was introduced in Croatia to help out with Covid-19 difficulties.

3 February, 2021


Cash accounting scheme in Croatia

Due to Covid-19, Croatia has implemented some changes regarding VAT reporting options for businesses. The threshold for application to this scheme has changed from 7.5 million HRK to 15 million HRK, making it more accessible for Croatian VAT payers.

What is cash accounting?

Cash accounting allows businesses who fall under this regime to change the way they report and pay VAT on their invoices. Normally, for invoices issued in a given month, VAT is paid and reported to the tax authorities for the reporting period in which the invoice falls under. For example, for businesses who have a monthly reporting frequency, an issue invoiced in October would be reported in November with the VAT already paid and accounted for.

However, with the cash accounting scheme companies do not have to pay VAT until the customer pays the invoice. For example, let’s imagine under the same example above that an invoice was issued in October, and that the client did not pay the invoice until December. The VAT due on this invoice would not be paid by the business until December, and this would be reported in the January VAT return to the tax authorities.

Other countries that have introduced this scheme include Spain and Finland.

Benefits of the cash accounting scheme

Small businesses who meet the conditions for this scheme can see some benefits in their cash flows. For example, under normal VAT reporting, VAT is paid and reported by the business regardless of if the invoice is paid already by the customer. Late payment of invoices on the customer’s side can have negative effects on businesses’ cash flows, as the business is paying the amount before it is received. Cash accounting will offset this, as under this regime the business will only pay the VAT when the invoice is paid by the customer.

 

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