ey.com/globaltaxguides
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Principal Tax Contact and Business Tax Services Leader
Maša Šarić Lenardić
Business Tax Advisory
Marta Glasnović
Tax Policy and Controversy
Maša Šarić Lenardić
Global Compliance and Reporting
Sanja Stambolija Andrić
People Advisory Services
Marta Glasnović
Legal Services
Maša Šarić Lenardić
A. At a glance
+385 (1) 580-0935
Mobile: +385 (98) 980-6068
Email: masa.saric@hr.ey.com
+385 (1) 580-0923
Mobile: +385 (91) 301-5239
Email: marta.glasnovic@hr.ey.com
+385 (1) 580-0935
Mobile: +385 (98) 980-6068
Email: masa.saric@hr.ey.com
+385 (1) 580-0901
Mobile: +385 (91) 301-5275
Email: sanja.stambolija-andric@hr.ey.com
+385 (1) 580-0923
Mobile: +385 (91) 301-5239
Email: marta.glasnovic@hr.ey.com
+385 (1) 580-0935
Mobile: +385 (98) 980-6068
Email: masa.saric@hr.ey.com
Corporate Income Tax Rate (%) 10/18 (a)
Capital Gains Tax Rate (%) 10/18 (a) Branch Tax Rate (%) 10/18 (a) Withholding Tax (%)
10 Interest 15 Royalties from Patents, Know-how, etc. 15 Foreign Performance Fees (for Artists, Entertainers and Sportspersons) Paid Based on a Contract with a Foreign Person That Is Not a Natural Person 10 All Types of Payments Subject to Withholding Tax That Are Made to Residents of Non-cooperative Jurisdictions on the European Union (EU) List 25 (b) Branch Remittance Tax 0 Net Operating Losses (Years)
5 (a) See Section B.
(b) These are prohibited list jurisdictions with which Croatia does not have a double tax treaty in place. The prohibited list jurisdictions are currently American Samoa, Anguilla, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the United States Virgin Islands, and Vanuatu.
B. Taxes on corporate income and gains
Corporate income tax. Resident companies are subject to tax on their worldwide income. A company is resident in Croatia if its legal seat or its place of management and supervision is located in Croatia. Branches of foreign companies are subject to tax only on their profits derived from Croatia. Investment funds without legal personalities established and operating in accordance with the law for investment funds are not corporate income taxpayers.
Tax rates. The standard rate of corporate income tax is 18%. A lower corporate income tax rate of 10% applies to taxpayers that realized revenue of less than EUR1 million in the respective tax period.
Tax incentives. Tax exemptions and other tax reliefs are available in accordance with the Croatian Corporate Income Tax Act and special legislation regulating incentives. For example, the Investment Promotion Act provides incentives for investments in new business activities and new workplaces.
Capital gains and losses. Capital gains and losses from the sale of assets are considered regular taxable income and tax-deductible expenses, respectively. No separate capital gains tax applies; capital gains are subject to the regular corporate income tax rates of 18% or 10%. Specific rules apply to unrealized gains and losses on certain types of assets. Depending on the type of asset, such gains or losses may be not taxable or not tax deductible, and may be recognized for tax purposes in the period of the realization of the asset.
Administration. The regular tax year is the calendar year, but a company may apply for a different tax year.
Annual tax returns must be filed by the end of the fourth month following the tax year. However, in the case of the winding up of a company by applying shortened procedure, the tax period is aligned with such shortened procedure. The corporate income tax return submission deadline for bankruptcy is shortened to 30 days from the ending date of the tax year. The final corporate income tax return submission deadline for winding-up liquidation or other proceedings in accordance with special regulations is eight days from the date when the tax period ends.
Companies must make monthly advance payments of tax. In principle, each monthly advance payment is equal to 1/12 of the tax due for the preceding year. The balance of tax due must be paid by the end of the fourth month following the tax year. If the total of the advance payments exceeds the tax due for the year, the company may claim a refund.
Dividends. Dividends paid to foreign shareholders are taxable at a rate of 10%.
Foreign tax relief. A foreign tax credit is available to resident companies for foreign tax paid on income earned directly or through permanent establishments abroad. The amount of the credit is the
of the end of the tax year and if they are not collected by the 15th day before the filing of the tax return. However, if a taxpayer does not take measures for debt collection (for example, sue the debtor) before the receivables are barred by the statute of limitations, the receivables treated as deductible for tax purposes in prior years must be included in taxable income. In addition, value adjustments are deductible for tax purposes in the following circumstances:
• The receivables do not exceed EUR665 per debtor (corporate income taxpayers or sole proprietors subject to personal income tax).
• The receivables do not exceed EUR40 per unrelated individuals if the total receivables per individual do not exceed this amount on the last day of the tax period.
• The company is suing the debtor or a foreclosure is being conducted.
• The receivables are reported in a bankruptcy proceeding of the debtor.
• The debt has been settled in the pre-bankruptcy or bankruptcy proceedings of the debtor.
• The taxpayer proves that costs of initiating certain collection procedures exceed receivables or the taxpayer proves it used the duty of care to initiate collection of the debt (which ultimately could not be collected).
• The debt is written off based on special provisions related to the consumer’s bankruptcy.
The write-off of receivables confirmed in the settlement procedure (based on the Act on Compulsory Administration Procedure in Companies of Systemic Importance for the Republic of Croatia [Lex Agrokor]) should be treated as tax-deductible expense (applicable for 2018 and future corporate income tax returns).
Credit institutions may treat as tax deductible the write-off of receivables from unrelated individuals and legal entities that were previously impaired and recorded as a provision in accordance with the regulations of the Croatian National Bank. In that case, the credit institution should waive the right to collect the writtenoff amount of the receivable and should submit a written statement to the debtor and guarantor on the termination of their obligation in the amount of write-off. With respect to the debtor and guarantor, the amount of the written-off liability is not considered to be taxable income and has no impact on other prescribed thresholds. The credit institution should submit together with the corporate income tax return an overview of write-offs performed in line with these provisions, with an indication of the total amount of write-offs and a breakdown by individual placement (individual loan receivable) and loan borrower.
Tax depreciation. Depreciation is calculated by using the straightline method. The following are the maximum annual depreciation rates prescribed by the Corporate Income Tax Act.
(except personal cars), and machinery
The deduction for tax depreciation cannot exceed the expense for accounting depreciation. If maximum allowable tax depreciation exceeds accounting depreciation, the accounting depreciation prevails for tax purposes. If accounting depreciation exceeds maximum allowable tax depreciation, the excess may be deducted in future periods.
Depreciation expenses for personal cars and other vehicles used for personal transportation are deductible up to the amount calculated on the purchase cost of EUR54,000 per vehicle. The limitation does not apply to vehicles used exclusively for rental or transportation activities.
Depreciation of assets that are not used in the performance of ordinary business activities is not deductible for tax purposes.
If the accounting records of a taxpayer include vessels, airplanes, apartments or resort houses and if the taxpayer uses these assets in its regular business activities, the depreciation of such assets may be claimed as deductible expenses for tax purposes if the following conditions are met:
• The taxpayer is registered for the activity of renting such assets.
• The revenue realized from the use of the vessels and airplanes is at least 7% of the purchased value of the vessels or airplanes.
• The revenue from the use of apartments and resort houses is at least 5% of the purchase value of the apartments or resort houses.
Relief for losses. Tax losses may be carried forward for five years, but they may not be carried back.
The legal successor may lose the right to a loss carryforward after a legal change (business combination) and/or change in ownership of the company of more than 50% if one of the following circumstances exists:
• The taxpayer did not perform its business activity for the two tax periods before the occurrence of the legal change and/or change in ownership.
• Within two tax periods after the occurrence of the legal change and/or change in ownership, the business activity of the taxpayer substantially changes.
Groups of companies. Croatia does not allow consolidated returns or provide any other tax relief for groups of companies. Each company within a group is taxed separately.
D. Other significant taxes
The following table summarizes other significant taxes.
• The taxpayer alone or together with the related parties participates directly or indirectly with more than 50% of the voting rights, is the direct or indirect owner of more than 50% of the capital or realizes the right to receive more than 50% of the profit of the entity.
• The actual profit tax that the company or a permanent establishment paid abroad in another EU state is less than the difference between the income tax that would be charged to company or the permanent establishment in Croatia and the actual profit tax paid by the company or permanent establishment.
If the entity or the permanent establishment is considered a CFC, the Croatian taxpayer is required to include the following CFC income in its tax base:
• Interest or other financial asset income
• License fees or other income from intellectual property
• Dividends, shares in profits and revenues from the disposal of shares
• Financial leasing income
• Income from insurance, banking and other financial activities
• Income derived from goods and services purchased from related parties and sold to related parties, with little or no added economic value
Hybrid entities are entities that have a difference in legal definition and are not considered taxpayers in one tax jurisdiction, while the same entities are considered taxpayers in another tax jurisdiction. Payments between such entities may lead to recognition of double deduction or deduction without inclusion, leading to an erosion of the tax base. A hybrid mismatch arises between related parties, between the taxpayer and an affiliate, between the head office and a permanent establishment, between two or more permanent establishments of the same entity or under a structured arrangement.
Regarding exit taxation, the capital gain is taxed at the moment of the transfer of assets from headquarters to a permanent establishment or vice versa, transfer of residence or transfer of activities, whereby the legal taxation of those assets in Croatia ceases. However, the transfer of assets, including cash, between the parent company and the subsidiary is not taxed. Also, exit taxation does not apply if any of the following circumstances exist:
• The assets are temporarily transferred and are designated to be returned to the transferor’s Member State within 12 months.
• The transfer is carried out to meet prudential capital requirements for liquidity management purposes.
• The transfer of the asset is related to financing of securities or an asset is given as a guarantee.
F. Tax treaties
Croatia has entered into double tax treaties on avoidance of double taxation with many jurisdictions (see the withholding rate table below).
Croatia has signed a tax treaty with Egypt, but this treaty is not yet effective. Croatia is engaged in negotiations on treaties with Australia, the Hong Kong Special Administrative Region (SAR), Saudi Arabia and the United States.
Croatia has adopted the double tax treaties entered into by the former Yugoslavia with Finland, Norway and Sweden.
The withholding tax rates for payments by Croatian companies under Croatia’s double tax treaties and under the former Yugoslavia’s double tax treaties adopted by Croatia are listed in the table below.
Croatia became a member of the EU on 1 July 2013. As of that date, provisions of the Interest and Royalty Directive and ParentSubsidiary Directive adopted by Croatian corporate income tax legislation became applicable to payments to recipients within the EU.