The General Tax law covers broad issues relating to taxation procedures, notably completion, payment, reimbursement, postponement, forced payment, evidencing and dispute resolution and also defines the main taxation principles, such as the equal attention principle, the principle of no retroactive application of tax regulation, the principle of established fact declaration, tax secrecy, the bona fide principle and the economic substance principle.
Taxable persons liable to pay corporate income tax are companies or other legal persons or citizens residents in Croatia, who are permanently and independently engaged in economic activity for the purpose of making a profit, an income or other economic benefits. The tax period is the calendar year, except at the request of the taxpayer where the chosen tax period may not exceed 12 months. The chosen period cannot be changed for five years.
The taxable base is the corporate income (profit), determined as the difference between income and expenditure before the profit tax assessment, increased and reduced in accordance with the provisions of the Profit Tax Law. The tax base of a resident taxpayer is the profit earned in Croatia and abroad. The tax base for non-residents is the profit earned in
Croatia assessed in accordance with the provisions of the Profit Tax Law.
The tax rate on corporate income is 18%.
Tax losses can be carried over into the next year for up to five years.
The tax rate on profits resulting from new investments may be reduced (between 0-10%), depending on the amount of investment and on the number of new employees.
Starting from 1 January 2017, the new Profit Tax Law includes a small companies’ rate that can be applied by companies which annual income does not exceed HRK 3,000,000.00. Such companies are subject to corporation tax at the rate of 12% (tax rate on corporate income).
There are no group taxation provisions in Croatia.
Withholding tax (WHT) of 12% is payable on dividends resulting from profit. The WHT rate may be decreased or eliminated under one of Croatia’s tax treaties.
Dividends paid to EU resident companies or qualifying Swiss companies are exempt from Croatian WHT, provided certain conditions are met.
Dividends payable to Croatian resident companies are not treated as taxable income to Croatian resident companies for Croatian tax purposes. The same principle applies to dividends payable to Croatian resident companies by EU resident companies provided certain conditions are met.
There are no additional exemptions for profit from shares and investments in foreign corporations apart from the tax exemption for received dividends described under heading ‘Group taxation in Croatia’.
The profits are subject to corporation tax described under heading ‘Corporation tax’ and Small companies rate’.
Every person who acquires an income is a taxpayer. There are differences between residents and non-residents. According to Croatian laws, a resident is a citizen with a legal residence or a customary habitat in the Republic of Croatia. A non-resident is a person who has neither a legal residence nor a customary habitat in Croatia, but earns a taxable income in Croatia. A legal residence, according to tax laws, is the ownership or use (note: a lease contract applies) of a housing unit for at least 183 days continuously – actual occupation of the unit is not necessary. A customary habitat is implied when circumstances lead to the conclusion that the tax payer’s residence is not temporary. In the sphere of tax laws, this is concluded after a continuous residence of at least 183 days (short interruptions of residence, not longer than one year, are not regarded).
Income tax is paid on the following types of income:
The income tax base for a resident is the total amount of income from employment, income from self-employment, income from property and property rights, income from capital, income from insurance and other income, acquired by the resident
in Croatia and abroad (the world income principle) reduced by the resident’s personal allowances. The income tax base for a non-resident is the total amount of income from employment, income from self-employment, income from property and property rights, income from capital, income from insurance and other income, acquired by a non-resident in Croatia (the domestic income principle) reduced by the non-resident’s personal allowances.
All tax payers are entitled to a personal allowance in the amount of HRK 3,800 per month, while taxpayers who support a spouse, children and other family members, can, in addition to the basic personal allowance, also deduct from their taxable income the personal allowances for supported family members.
Income tax rates:
|Income Tax Rate||Monthly Taxable Base||Annual Taxable Base|
|24%||Up to HRK 17,500||Up to HRK 210,000|
|36%||Over the total amount of HRK 17,500||Over the total amount of HRK 210,000|
Capital gains are subject to tax at different rates ranging from 12% to 36% depending on the type of gain as follows:
Interest income is taxable at 12% (excluding: late payment interest; interest realised on the basis of court assessments and assessments issued by bodies of local and regional government; interest realised on the basis of positive balance on giro, current and foreign currency account realised from banks, savings institutions and other financial institutions up to the level of interest such payers pay for a vista deposits assuming such interest is lower than the lowest level of interest paid for fixed-term deposits and assuming it is not higher than 0.5% per year; interest from bonds; receipts realised on the basis of yield from life insurance with savings element and yield from voluntary pension insurance).
The taxable base depends on the type of income and no personal allowance is allowed when calculating tax. When calculating tax obligation capital losses can be deducted from gains realised only in the same tax period. Calculated tax liability is further increased for surtax.
When it comes to capital gains income, obligation of keeping records, determining income from capital gains, tax calculation, tax prepayments, and reporting obligations lie with the financial assets holder.
The reduced VAT rate of 13% shall be paid on tourist accommodation services and related agency fees, newspapers and magazines issued on a daily and periodical basis, oils and fats for human consumption, baby food, supply of water, with the exception of water marketed in bottles or any other packaging, white sugar and services of preparing and serving of food, non-alcoholic drinks and beverages, wine and beer in registered hospitality facilities.
The reduced VAT rate of 5% shall be paid on all kinds of bread and milk, educational literature, certain medical supplies and scientific magazines and film projection services.
The following shall be exempt from value added tax payment: hospital and health care services, financial services, insurance transactions, educational services, universal postal services, public radio and television broadcasting etc.
Starting from 1st January 2015 instead of offering only accruals accounting for VAT, Croatia offers also cash-based accounting. Companies with an annual turnover below HRK 3 million can request to be a part of this new regime and pay or charge VAT when there is a bank settlement of an outstanding invoice.
VAT returns, “EC sales lists” and “EC purchases lists” are due for filling by the 20th day of the current month for the prior VAT period. Payments of VAT liabilities must be made by the end of the month.
Some of the common local taxes include:
Taxpayer: Those liable to pay income tax who have a domicile or a common residence in the area of the commune/ municipality that has prescribed the obligation to pay the tax.
Tax base: The amount of income tax. Cities, depending on their size of population, can prescribe surtax on personal income. Accordingly, the following major cities have local taxes (Zagreb 18%, Split 10%, Rijeka 15%, Osijek 13%).
Double taxation treaties were signed by Croatia with 61 country in order to protect the foreign company’s incomes and attract with this more investments. Some of the states that has signed double tax treaties with Croatia are: Albania, Armenia, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iran, Ireland, Israel, Italia, Jordan, Korea, Kuwait, Latvia, Lithuania, Macedonia, Malaysia, Malta, Mauritius, Moldova, Montenegro, Netherlands, Norway, Poland, Qatar, Romania, Russia, San Marino, SAR, Serbia, Slovakia, Sweden, Swiss, Syria, Turkey, Ukraine and United Kingdom.
A Double Taxation Prevention Treaty, in principle, enables offsetting tax paid in one of 2 countries against the tax payable in the other, in this way preventing double taxation. Another important factor is the grant of an exemption or tax at a reduced rate on certain receipts such as interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.
When certain income is taxable under the Croatia Income Tax Ordinance but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Taxation Treaty.
Transfer pricing provisions in Croatia were introduced through the Corporate Income Tax (CIT) Act on 1 January 2005, but only in recent years the Croatian tax authorities have recognised the importance of transfer pricing. The result is an educated transfer pricing team of the tax authorities with access to the Amadeus database, as well as an increased number of audits related specifically to transfer pricing. Current Croatian legislation does not proscribe additional tax and penalties in relation to transfer pricing. The general penalties contained in the law apply to these cases as well. However, if the prices between related entities are different from those between non-related resident and non-resident entities, any excess amounts will not be recognised for taxation purposes.
Special taxes (excises) in Croatia are imposed on coffee, mineral oils, alcohol, beer, non-alcoholic beverages, tobacco products, cars and other motor vehicles and luxury products. Persons required to pay excise duty are producers and importers.
There are other, less relevant taxes for companies. These include a tax on road motor vehicles, a tax on holiday houses and a tax on coin-operated machines for games and amusements.