Accountancy in Croatia

>> Taxation in Croatia

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.

Corporation tax

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.

Small companies rate

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).

Group taxation in Croatia

There are no group taxation provisions in Croatia.

Dividend payments

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.

Affiliation privilege

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’.

Branch profit tax

The profits are subject to corporation tax described under heading ‘Corporation tax’ and Small companies rate’.

Personal income tax

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:

  • Income from employment,
  • Income from self-employment,
  • Income from property and property rights,
  • Income from capital,
  • Income from insurance and other incomes.

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 tax

Capital gains are subject to tax at different rates ranging from 12% to 36% depending on the type of gain as follows:

  • Gains derived from the sale of financial assets (shares etc.) are taxable at 12% but this only applies to gains from the sale of shares acquired after 1 January 2016. Also, gains from the sale of shares that are owned for more than two years are exempt from the tax.
  • Dividend and share of profit income is taxable at 12% (paid out of profits realised in the period from 1 January 2001 through 31 December 2004 and as of 1 March 2012 onwards).

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).

  • Gains from the sale of property are taxable at 24% but only if the property was owned for less than two years.
  • Income realised by members of a Management Board from grant of own shares or stock options based on purchase of own shares at a favourable price under certain circumstances is taxable at 24%.
  • Income from withdrawals of assets and use of services is taxable at 36%.

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.

Real estate transfer tax

  • Taxable persons are person or entity acquiring the real estate.
  • For buildings constructed before the VAT law became effective (that is before 1 January 1998) transfers are subject to irrecoverable transfer tax at the rate of 4%. For newly constructed buildings (that is on or after 1 January 1998) transfers are subject to VAT at the rate of 25%. The subsequent transfer of newly constructed buildings is subject to VAT at the rate of 25% or transfer tax at the rate of 4%, depending on whether the seller was able to deduct VAT as a tax prepayment when the building was initially transferred to the seller.
  • Irrecoverable transfer tax at the rate of 4% applies to the transfer of land.
  • Tax reliefs refer on the contribution to a company in the form of real estate and tax reliefs on transfer between immediate relatives (spouses, siblings and children) regarded as inheritance or gift which are not subject to taxation.

Value-added tax

  • Value-added tax (VAT) is due on delivery of all kinds of goods and services rendered inside the country, on compensation or
  • own consumption and on delivery of goods and services rendered without compensation and with a personal discount.
  • To apply for VAT registration, businesses must send an application for registration for value added tax purposes to the Croatian VAT authorities.
  • The obligatory VAT registration threshold in Croatia for resident companies is HRK 230,000. Once this threshold is crossed within the fiscal year, the company is obliged to submit an application for registration by 15 January on the following year. An enterprise may, if it wishes, voluntarily apply on the basis of the expected turnover.
  • Businesses that are established outside of Croatia are obliged to register for VAT if they perform taxable activities in Croatia. In the case of distance sales to private individuals from Croatia, the company needs to register once the threshold of HRK 270,000.
  • The standard VAT rate is 25% (it applies to most products and services) and there are reduced VAT rates of 13% and 5% as of 1 January 2014.

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.

Local taxes

Some of the common local taxes include:

Surtax on income tax

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%).

Tax treaties

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 Rules

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)

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.

Other Taxes

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.

Latest version updated 5th April 2019

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