In the meantime, the first generation of so-called "Gastarbeiters" that arrived in Germany during fifties and sixties, come to the years in which facing their own deaths begins to play a role. Of course, that raises the question what would happen with their inheritance The situation becomes complicated when that inheritance is located in two countries: the Federal Republic of Germany and their home country. Many Croatian citizens who live here in Germany are facing that situation.
With respect to the German inheritance Law there is a whole range of counselling possibilities. However, here we want to give you a brief overview of the essential aspects of the Croatian inheritance law. We are available for any further questions.
Which law is applicable for inheritance?
For questions of inheritance German private international law provides in principle that for inheritance is applicable law of the country to which the deceased belonged at the time of his death (Article 25 paragraph 1 of the Introductory Act of the Civic legal book - EGBGB). This means that Croatian inheritance law is applicable (Inheritance Act - ZN) to Croatian nationals living in Germany and not the German inheritance law, as provided by the Civil law book - BGB (see articles 19, 22 and following of the BGB). However, for their real property located in Germany (such as house, land, apartment) deceased could choose German law (Article 25 paragraph. 2 of the EGBGB), which was the case rarely used in practice. In the meantime, there has been a significant change at the European Union level, where by-law rules on inheritance were enacted, which provides that the current application of the law of the state to which deceased belonged is changing, and the application of the principle of lex nationalis is changing to the application of the principle of law of the place where the deceased had its regular residence. This change can become very much of relevance for cases where deceased was for example a Croatian citizen who spent his whole working life in Germany and died there. Under the new European inheritance legislation, in the absence of written will, from 17/08/2015 the law of the country of regular residence will apply and in the example above that would mean an application of the German inheritance law.
Under Croatian inheritance law there are heirs of the first, second, third and forth rank. These ranks determine which persons within the family are becoming heirs. Heirs of the first rank are the descendants of the deceased and his spouse. In absence of descendants, heirs of the second rank are parents of the deceased and his spouse. Starting point within first two ranks is that spouse inherits half of the inheritance. If deceased had no descendants and both of his parents have died before him, then a spouse inherits the entire estate (§ 11 of the ZN). Brothers and sisters of the deceased can inherit part of the inheritance in case that deceased had no spouse and if both parents died before him. Third and fourth inheritance ranks apply if deceased had no descendants, no spouse, no living parents and they have left no descendants.
Very interesting and important constellation arises if the decedent has lived in common law marriage. It often happens that deceased has for a long period of time lived with his unmarried partner without that coexistence being empowered with the legal form of marriage. Although the heirs of the first rank, especially children, often can not and do not want to believe that, the non-married partner of the deceased is legally treated as a heir, i.e. as a spouse. But it is not always easy to apply the inheritance rights on common-law partner because certain conditions must be met with regard to the existence of a common law marriage, i.e., there is the influence of Croatian family law. Firstly, condition must be met that cohabitation has actually existed and that it was characterized as permanent emotional and economic community of unmarried partners. Additionally to the common-law marriages Croatian family law must be applied, what is very difficult and almost impossible if the cohabitation has been lived outside of Croatia and unmarried partners do not both have Croatian citizenship. One procedure for determining the application of Croatian inheritance and family law to common-law marriages is a major time challenge and such a procedure can take several years. Therefore, it is certainly advisable for life partners living in common-law marriages to sign to an agreement under the Croatian law on regulation of property issues in the form of the common law marriage under Croatian law. By doing that all doubts can be removed from the application for common-law partners certainly much more favourable Croatian family and inheritance laws.
Equality of all physical persons at the moment of creation of the inheritance was one of significant changes of the Croatian inheritance law from 2003. Since then married and non-married partners are treated equally, as well as the descendants born as a result of these relationships. Above that, non-married partner has a right on part of inheritance created in common-law marriage and on which can be compared with marriage acquisitions. Legal inheritance ranks are only applied if deceased has left no will. As in a German inheritance law, will is special foundation for the division of the inheritance and is an expression of the last will of the deceased who is with it disposing its inheritance. There are several formal conditions that need to be met in order for will to be valid. Croatian inheritance law recognizes different forms of wills that may be classified mainly as public and private wills. Private will is created personally by deceased and without the presence of the state – public institutions. It can be made personally and in written or orally and in front of witnesses. Public will can be either a Court will, i.e. made in front of a judge or a Diplomatic will, done abroad in Croatian diplomatic or consular missions. Written will, however, is still by the Croatian inheritance law foundational form of the will and can be relatively easy made. As a central point deceased have to determine which person will inherit which part of the inheritance.
Where inheritance procedures are conducted in Croatia?
Unlike German inheritance law, inheritance hearings in the Republic of Croatia are held before the notary public. He is the one to invite heirs to inheritance hearing. If deceased has died in Croatia it is very important that heirs inform themselves before the competent municipal court about notary public that is responsible for the inheritance procedure. Notary public must invite all the persons that may be heirs. If he fails to invite all possible heirs, his inheritance decision can nevertheless become legally binding if the statutory appeal periods are not respected. The deadline for the appeal against the inheritance decision is eight days from a date of valid delivery of decision to all parties engaged at the proceedings. If notary public forgets one of the heirs, he may subsequently appeal against the inheritance decision.
What is inheritance tax rate in Germany?
As a rule with inheritance come an obligation of paying taxes to the state. Depending on the kinship towards the deceased and the value of the inheritance, tax varies between 7% and 50%. The spouse, children and grandchildren enjoy very high deductible rates. For spouse or life partner non-taxable rate is 500.000 €, for descendant (child) 400.000 €, for each child of the deceased child rate is 400.000 €, for child of the living child rate is 200.000 €, for parents, grandmother and grandfather is 100.000 €. For others from tax classes II and III non-taxable rate is significantly lower and amounts 20.000 €. Tax rate based on the value of the estate (after deduction of the so-called deductible rates) at the value of the inheritance of up to 75.000 € in tax class I (spouse, life partner, children, grandchildren, parents) is 7%, in tax class II (brothers and sisters, parents when donating) is 15%, in tax class III (for all others) is 30%. When the value of the inheritance is up to 300 000 € and for the same above-mentioned persons, in the tax class I tax rate is 11%, in tax class II tax rate is 20%, and in the tax class III tax rate remains unchanged up to the inheritance value of 6.000.000 €. When the value of the estate up to 600.000 € tax to be paid in the tax class I is 15%, in tax class II is 25%, up to 6,000,000€ 19%, in tax class III is 30%. Inheritance tax shall be paid to the tax authorities at the place of residence of the deceased where he has usually paid his taxes. Taxation of real estate is possible at the place where the property is located.
What is amount of tax on inheritance in Croatia?
In Croatia taxation of inheritance is regulated differently. Inherited and donated property which value is lower than 50.000 HRK (with the exception of used passenger cars, motorcycles, boats and aircrafts) is not taxed. Real estate transfer tax on inheritance, gifts or other acquisitions of real estate property without compensation is not to be paid by spouse, descendants and ancestors, adopted children and adoptive parents of the deceased or the donor. Exemption from payment of the transfer tax is realized through submission of the real estate tax application and the request for establishment of the right for the tax exemption. Real estate transfer tax has to be paid afterwards, if within ten years from the acquisition of the real estate that property become a subject of transfer, if the taxpayer move its residence outside of the areas of the special state concern and if the taxpayer with permanent residence does not actually reside in the area of special state concern. Tax liability on the basis of inheritance, donation and acquisition of property without compensation occurs at the moment when the judgment becomes legally binding, or decisions of state administrative bodies on the basis of which properties were acquired and the conclusion of the contract or other legal transaction on the basis of which the property was acquired. This applies to citizens and legal persons from EU Member States who acquire ownership of real estate in Croatia. Further detailed and comprehensive information is available on the website of the Croatian Tax Administration: www.porezna-uprava.hr
On inheritance and gifts tax has to be paid, including tax on cash, cash auction securities, and other movables, if their value is larger than 50 000 HRK. The tax rate on inheritances and gifts is 5%. It is left to the county jurisdictions to prescribe tax rates in their regions. However, in all counties the prescribed rate of tax on inheritances and gifts is 5%. In this respect, it is certainly prudent to carefully and accurately compare possible tax burdens when inheriting in the Republic of Croatia and the Federal Republic of Germany.
What measures should be taken in case of death?
When the deceased dies his relatives together with the heirs are required to take care of a few formalities and to solve them. These include acquisition of the death certificate and inheritance decision, if necessary. In Germany it is often not necessary in simple cases, while in the Republic of Croatia it is required as a rule. Relatives and heirs might have to decide about autopsy and/or body organs donation, in case the deceased was an owner of organ donation card. It is very important that funeral is organized the way deceased desired, and his wishes in the form of a written will or the oral tradition certainly have to be respected. The consequences of failure to comply with the wishes of deceased can be very uncomfortable because the other heirs who are able to prove the desire of the deceased may request the return of the decedent’s body to the desired funeral location, which can cause severe and arduous moments.
At the moment of death it is important to ensure the inheritance and create its list. If there is a will it is important to deposit it with the inheritance court or to make it available to the court. Contracts of deceased must be fulfilled and bills must be paid. If the inheritance is under large debts heirs need to accurately consider whether to accept or renounce the inheritance.