Last modified: 13/04/2024 06:43

Corporate taxation

PROFIT TAX

10% if revenues up to EUR 1,000,000.00 were realized in the tax period, or

18% if the income generated in the tax period is equal to or greater than EUR 1,000,000.01

EXTRA PROFIT TAX

Companies that in 2022 generated revenues of more than HRK 300 million, and whose profit is 20% higher than the four-year average (2021, 2020, 2019 and 2018), will in 2022 pay on that above-average profit additional profit tax at the rate of 33%.

Thus, large businesses will pay profit tax at the rate of 18%, and on the realized “extra profit” they will pay an additional tax at the rate of 33%

Residence: According to the provisions of the Income Tax Act, residents are legal and private persons whose registered office is registered in a court or other register or register in the Republic of Croatia or whose place of actual management and business supervision is located in the Republic of Croatia. Residents are also the unicorporated businesses of private persons with residence or habitual residence in the Republic of Croatia whose activity is entered in the court or other register.

Basis: The tax base of a resident taxpayer is made up of domestic and foreign profits. The tax base of a non-resident consists only of the profit realized in the country, and it is determined according to the provisions of the Law on Profit Tax.

Taxable income: The tax base of a resident taxpayer is made up of domestic and foreign profits. The tax base of a non-resident consists only of the profit realized in Croatia, and it is determined according to the provisions of the Law on Profit Tax

Significant local taxes on income: No

Alternative minimum tax: Not after 2017. Look at the box “tax based incentives”

Taxation of dividends: Dividend and profit shares payments made to resident companies are not taxable. Dividends and profit shares paid to non-resident companies are taxed at the withholding tax (WHT) rate of 10%

Capital gains: Capital gains or losses are covered by the CIT regime. They are either an increasing or decreasing item to the CIT base.

Losses: If a negative base is determined in the process of determining the tax base, the taxpayer is entitled to a tax loss, and the tax loss is carried forward and compensated by reducing the tax base for the next five years. When the tax base is reduced due to losses from previous tax periods, the tax base is reduced first for losses of an earlier date.

Foreign tax relief: The tax that the resident paid abroad based on foreign income will be included in the domestic income tax for each individual foreign income separately, unless otherwise regulated by the Income Tax Act.

Tax paid abroad can only be accounted for only on the basis of a certificate from a foreign tax authority or a person authorized for that purpose about the tax paid abroad.

Exceptionally, the tax paid by a resident abroad based on foreign income will not be included in domestic income tax if it was not paid abroad in accordance with the provisions of an international treaty, if an international treaty is in force.

Participation exemption: No

Holding-company regime: No holding regime

Tax-based incentives: Tax reliefs for small, medium and large businesses in a period of 10 years from the beginning of the investment can be realized under the following conditions: Investment from EUR 150,000 to EUR 1,000,000 (for ICT and software development of EUR 50,000) and employment of at least 5 employees (10 for ICT and software development), the profit tax is reduced by 50%. Investment from EUR 1,000,000 to EUR 3,000,000 and employment of at least 10 employees, the profit tax is reduced by 75%. Investment of more than EUR 3,000,000 and employment of at least 15 employees, the profit tax is reduced by 100%.

Group relief/fiscal unity: No group relief.

Small company/alternative tax regimes: For investments by micro-businesses of at least EUR 50,000.00 per support beneficiary, the profit tax rate is reduced by 50% of the prescribed profit tax rate for a period of up to five years from the year of the start of the investment, with the condition of opening at least three new jobs related to the investment project, within a period of three years from the start of the investment.

Corporate taxation: compliance

Tax year: 12 months (calendar year) except in the year of establishment – the Tax Administration may, at the request of the taxpayer, approve that the tax period and the calendar year differ, and the tax period may not exceed a period of 12 months. The taxpayer cannot change the selected tax period for three years.

Consolidated returns: No

Filing and payment: The income tax application for 2023 is submitted no later than April 30, except for taxpayers for whom the Tax Administration issued a decision that the tax period is not a calendar year.

Penalties: According to the law on profit tax: 260-26,540 EUR- for not submitting on time 390-39,810 EUR – if it is not submitted again on time

Rulings: As of 1 January 2023, Croatia modified its legislation in accordance with Council Directive 2021/514 regarding administrative cooperation in the field of taxation in relation to reporting of digital platforms (DAC7). As of 1 January 2023, platforms operators have the obligation to report the sale of goods, rental of any mode of transport, provision of personal services, and rental of immovable property to the tax administration.

In December 2022, the United States and Croatia signed a DTT. The new tax treaty will enter into force after both countries have notified each other that they have completed their requisite domestic procedures. Croatia also signed DTTs with Cyprus and Egypt, and both these agreements have been ratified by Croatia (and published in the Official Gazette); however, they will come into force as soon as Cyprus and Egypt, respectively, ratify them as well. The DTT with Andora has recently been ratified by both countries.

As of 1 January 2023, the euro (EUR) replaced the kuna (HRK) as official currency in Croatia. The substitution has been carried out in line with the provisions of the Act on the introduction of the euro as the official currency in the Republic of Croatia. The fixed HRK conversion rate, determined by the Council of the European Union, is EUR 1 = HRK 7.53450.

Croatia has introduced Pillar Two rules into Croatian legislation. According to the Act on minimum Global Corporate Income Tax, the Croatian Pillar Two rules are in line with the Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union. The Act has been published in the Official Gazette, comes into force as of 31 December 2023, and applies to the fiscal years commencing after 31 December 2023.

Taxation of individuals

Income tax rate:

1. 15-23.60% up to EUR 50,400 per year – up to EUR 4,200 per month
2. 25-35.40% above EUR 50,400 per year – above EUR 4,200 per month

Residence: Taxpayers are deemed resident taxpayers where they: have real estate in their ownership or at their disposal for an uninterrupted period of at least 183 days in one or two calendar years in Croatia (stay in the real estate is not a determining factor), or

are physically present in Croatia for at least 183 days in one or two calendar years. Short interruptions of stay, up to one year, are not decisive.

Individuals who do not have real estate in their ownership or at their disposal nor are physically present for at least 183 days in one or two calendar years in Croatia are regarded as non-resident taxpayers.

If a taxpayer has real estate in one’s ownership or at one’s disposal in Croatia and abroad, one is considered a resident taxpayer in the country in which one’s family resides; or if one has no family or place of one’s residence cannot be determined, one is deemed a resident taxpayer in the country from which one usually goes to work to or in which one is predominantly physically present. In case the other country does not consider such an individual as its resident taxpayer, one is deemed a Croatian resident taxpayer.

Where appropriate, provisions of the applicable Double Tax Treaty (DTT) are consulted for determining one’s tax residence status for DTT purposes.

Basis: A resident’s income tax base is the total amount of income from non-self-employment, income from self-employment, income from property and property rights, income from capital and other income, which the resident earns domestically and abroad (principle of worldwide income), less personal deduction for residents.​ The non-resident’s income tax base is the total amount of income from self-employment, income from self-employment, income from property and property rights, income from capital, insurance income and other income, which the non-resident earns in the country (domestic income principle), less personal deduction for non-residents.​​

Taxable income: Explained in the previous bracket

Capital gains: Taxpayer – holder of financial assets is obliged to calculate, suspend and pay tax on income from capital based on capital gains, except for capital gains based on the alienation of shares in the capital of a trading company that are not transferable on the capital market in accordance with a special regulation, by the last day of the month February of the current year for all capital gains realized in the previous year, reduced by realized capital losses at a rate of 12%.

Deductions and allowances: The Croatian Income Tax Act prescribes personal deductions (i.e. non-taxable parts of income), special reliefs, exemptions and incentives.

Personal deduction: EUR 560

Dependent family member: EUR 280

Dependent children: First child: EUR 280; second child: EUR 392; third child: EUR 560; etc.

Monthly amounts for disability allowance of a taxpayer/dependent family member/dependent child: EUR 168 Monthly amounts for a taxpayer/dependent family member/dependent child if such an individual has 100% disability on one basis and/or is entitled to someone else’s help and care due to disability: EUR 560 Taxpayers up to the age of 25 do not pay 100% of their annual tax liability arising in connection with the share of income from employment in the 20% tax bracket.

Taxpayers between the ages of 26 and 30 do not pay 50% of their annual tax liability arising from the share of income from employment in the 20% tax bracket. In the Republic of Croatia, war veterans, citizens of the city of Vukovar, self-employed persons with research and development activities, self-employed persons with disabled employees, etc. have a privileged tax status.

Foreign tax relief: The following countries have a Double Tax Treaties in force with Croatia:

Albania, Andorra, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China, Cyprus, Czech, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Island, Israel, Italy, Japan, Jordan, Kazahkstan, Korea, Kosovo, Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Morocco, Moldova, Montenegro, Netherlands, Norway, Oman, Poland, Portugal, Qatar, Romania, Russia, San Marino, SAR, Serbia, Slovakia, Slovenia, Spain, Sweden, Swiss, Syria, Turkey, Turkmenistan, United Arab, Emirates, Ukraine, United Kingdom and Vietnam

As of Croatia’s accession to the European Union (EU) on 1 July 2013, Croatia coordinates its social security system with the social security systems of all EU member states. As of 12 April 2014, this also includes Iceland, Liechtenstein, and Norway. As of 1 January 2017, this also includes Switzerland. Croatia coordinates its social security system with the United Kingdom (UK). For this purpose, as of 1 January 2021, Croatia applies the rules from the Protocol on Social Security Coordination, which forms part of the EU-UK Trade and Cooperation Agreement. Concerning non-EU member states, Croatia has bilateral social security agreements with the following countries: Australia Bosnia and Herzegovina Canada Korean Republic North Macedonia Montenegro Quebec Serbia (agreement concluded with former Federal Republic of Yugoslavia is in force until separate agreement is concluded with Serbia) Turkey

Taxation of individuals: compliance

Tax year: 12 months (calendar year) unless there is an extraordinary circumstance

Filing and payment: The majority of citizens who only receive income from non-self-employment (salary, fees) do not need to submit a declaration independently, but the tax calculation is done automatically by the Tax Administration through the employer, who calculates and pays income tax for their employees on a monthly basis. For citizens who have to submit an income tax return on their own, the annual tax return must be submitted by the end of February of the current year for the previous year, no later than February 29, 2024, for the year 2023. Payment deadline: within fifteen (15) days from the date of delivery of the decision on the determined tax for the year 2023.

Penalties: Penalties are prescribed in Articles 91 and 92 of the Income Tax Act, and they vary from EUR 260 to EUR 6,630

Rulings: As of 1 January 2024, city surtax is abolished. PIT rates of 20% and 30% are abolished. Municipalities and cities can decide on new PIT rates in a manner that the previous lower rate of income tax (currently 20%) will range from 15% to 23.6%, and the higher rate (currently 30%) will range from 25% to 35.4%.

Withholding taxes

1. dividends and profit shares at a rate of 10%
2. fees for copyright and other intellectual property rights at a rate of 15%
3. interest, except interest on commodity loans, interest on loans from foreign banks or other financial institutions, interest paid to foreign holders of government or corporate bonds, and interest paid for financial lease of goods at a rate of 15%
4. fees for market research, tax and business consulting and auditing services, whereby business consulting services are considered any form of business advice or consultation at a rate of – as of October 2023 this witholding tax is cancelled
5. fees for the performances of foreign performers (artists, entertainers and athletes) when the fee is paid according to a contract with a foreign person who is not a private person at a rate of 10%;
6. all services and all types of compensation that are otherwise subject to withholding tax, when they are paid to persons who have their headquarters or place of actual management, i.e. business supervision, in countries that are on the EU list of non-cooperative jurisdictions for tax purposes, and with which the Republic of Croatia does not apply the Agreement on avoiding double taxation at the rate of 25%

Branch remittance tax: No special tax regime (same as for Croatian companies carrying business in Croatia)

Anti-avoidance legislation

Transfer pricing: There is no formal Transfer Pricing legislation or documentation requirements but related party transactions have to be carried out at arm’s length terms. Generally, Croatia follows OECD principles including CbC reporting requirements, which is also defined in article 13 of the Law on Profit Tax.

Interest restriction: Interest on loans from a shareholder or a member of a company holding at least 25% of shares or voting power of the taxpayer will not be recognised for tax purposes in relation to the amount of the loan that exceeds four times the amount of the shareholder’s share in the capital or their voting power. Interest on loans obtained from financial institutions is exempt from this provision. Loans from a shareholder or a member of a company are considered to be: -Third-party loans if guaranteed by a shareholder -Loans from related parties

Controlled foreign companies: The CFC rule is applied in Croatia since 1 January 2019. A CFC is any subject located in another country whose income is not subject to taxation in that county: -if the taxpayer alone, or together with related parties, participates directly or indirectly with more than 50% of the voting rights or is the direct or indirect owner of more than 50% of the capital or is entitled to more than 50% of the realised profit of specific entity, and -the actual tax paid in another member state is lower than the difference between the CIT that would be charged to the entity or PE according to the CIT Act and the actual CIT paid by the entity or PE.

Hybrid mismatches: When preparing the CIT report, the taxpayer must take into account whether there are hybrid non-compliances and reverse hybrid non-compliances, which are prescribed by the Law and Ordinance on Income Tax. If there is a hybrid mismatch, the gain in the CIT Application Form needs to be increased.

Disclosure requirements: Taxpayers (members of multinational enterprises whose global consolidated turnover exceeded EUR 750 million in previous year) are required to submit to the tax administration the following reports and information:

CbC report Notification, or

CbC report.

Local companies/branches that are not ultimate parents are obligated to notify the tax administration:

Whether they are a surrogate parent company that will file a CbC report instead of the ultimate parent company, or they are a constituent entity of the group.

This is done through CbC report Notification, which also includes information on the taxpayer responsible for submission of the CbC report (either the ultimate parent or surrogate parent), its identity, and its tax residence. CbC report Notification is submitted electronically to the tax administration together with the annual CIT return, and the deadline to file CbC report Notification is the same as for a CIT return (April 30th of the next year). After first submission of the CbC report Notification, annual re-submission is not required. Instead, CbC report Notification is submitted only in case of change of any information submitted in the CbC report Notification that was previously submitted.

Exit taxes: If the taxpayer moves the headquarters of his business from Croatia to another member state or a third country, this may result in the payment of tax on the difference between the market and book value of the property (value for taxation purposes), as regulated by the Law on Profit Tax. (the taxpayer must include the difference between the market and book value of the transferred property in the tax base). – applicable with CIT return form

General anti-avoidance rule: The Law on Profit Tax is aligned with the EU Council Directive on the introduction of rules against tax avoidance practices that directly affect the functioning of the internal market: provisions on output taxation and the resolution of hybrid mismatches.

Value-added tax/Goods and services tax

Type of tax: The Croatian VAT system is in line with the provisions of the EU VAT Directive. VAT is payable on sales of goods and supply of services, import of goods, and intra-Community acquisition of goods. Croatia has not introduced any VAT grouping rules. Croatia introduced Central Electronic System of Payment (CESOP) reporting rules as of 1 January 2024.

Standard rate: 25%

Reduced rates: 13% i 5%

Registration: A domestic taxpayer is required to enter into the VAT system when the value of supplies in the previous or current calendar year exceeded EUR 40,000. Voluntary registration is also possible.

Filing and payment: The VAT report must be submitted by the 20th day of the month for the previous month, and the VAT thus calculated must be paid by the last day of the month.

Social security contributions

Employee’s social security contributions are pension contributions levied at the rate of 20% (15% first pillar payments, 5% second pillar payments). The base for their payment is as follows:

• For total monthly gross salary of up to (and including) EUR 700: The base is calculated as the total monthly gross salary reduced for EUR 300.
• For total monthly gross salary ranging between EUR 700.01 up to EUR 1,300: The base is calculated as the total monthly gross salary reduced for 0.5 x (EUR 1,300 – total monthly gross salary).
• For total monthly gross salary exceeding EUR 1,300, the base is the total amount of gross salary, which is further capped at the following values for 2024:
  • EUR 9,360 monthly cap (applicable for both first and second pillar payments in case of salary).
  • EUR 112,320 annual cap (applicable for first pillar payments irrespective of whether the payment is salary or another type of remuneration).

Additionally, employers make social contributions for the following social security benefits:

• Health insurance: 16.5%

The basis for payment of employer’s social security contributions is gross salary, which is not capped.

Apart from some exceptions, employers employing 20 and more employees are required to employ a prescribed number of disabled individuals. The number amounts to 3% of the total number of employees.

Employers that do not comply with prescribed requirements are required to pay a monthly fee amounting to 20% of minimal gross salary (minimal gross salary for 2024 amounts to EUR 840) for each disabled individual that employer was required to employ.

Self-employed

The self-employed pay contributions at the same rates as employees or their employers.

Other taxes

Capital duty: No

Immovable property taxes: There are no property taxes in Croatia.

Transfer tax: The acquisition of real estate is subject to taxation. ‘Real estate’ generally includes agricultural, construction, and other land, as well as residential, commercial, and other buildings. Transactions include the sale, exchange, and any other means of acquiring real estate for consideration. The acquisition of real estate on which the VAT is paid is not subject to the RETT. The RETT is charged at 3% of the market value of the real estate on the contract date and is paid by the acquirer.

Stamp duty: There are no stamp taxation provisions in Croatia.

Net wealth/worth tax: There are no net wealth/worth taxes in Croatia.

Inheritance/gift taxes: Inheritance and gift tax is payable on cash, monetary claims, and securities, as well as movable property if individual market value of movable property exceeds EUR 6,700 on the day of determining the tax liability. A taxpayer is a legal entity or natural person who inherits or receives a gift in Croatia. Tax is determined by the tax administration at the rate of 4%. Certain exemptions exist.

Other: Individuals may also become subject to the following: Special taxes on motor vehicles. Special tax on coffee and non-alcoholic beverages. Tax on road motor vehicles. Tax on vessels. Tax on coin operated machines for games for amusement. Tax on holiday houses. Tax on the use of public land. Tax in line with the Games of Chance Act.

Tax treaties

The list of countries with which Croatia has a DTT in force can be found in the section Foreign tax relief – Taxation of individuals.