croatian tax system croatian taxes some of the major taxes: – –corporate income tax – –value...

CROATIAN TAX SYSTEM

Croatian taxes

•Some of the major taxes:– Corporate income tax– Value added tax– Personal income tax– Real estate transfer tax– Excise taxes– Etc.

CORPORATE INCOME TAX

Taxable person

•Company or another legal entity resident of Croatia

•Permanent establishment of a non-resident entrepreneur

• Individual entrepreneurs (if they choose to pay corporate income tax instead of personal income tax)

Tax rate

•20%

•May be lower in line with special regulations on tax incentives

Tax base

•Tax base – accounting profit adjusted in line with the tax legislation (increasing & decreasing items)

•Accounting profit – in line with IFRSs (large and listed companies) or CFRSs (medium and small companies)

Major increasing items

•Unrealized losses of equity securities if they were included in P&L

•Depreciation over the prescribed amounts

•70% of representation costs

•30% of cost related to use of personal vehicles

Major increasing items - cont.

•Private consumption of shareholders (incl. VAT)

•Hidden profit distributions

•Thin capitalization

•Transfer pricing

•Donations over certain limits

Major decreasing items

•Unrealized gains from financial assets

•Dividend income

•Depreciation not recognized in previous tax periods

Tax losses

•Carried forward for five years•May not be carried back• In the process of mergers, acquisition

or divisions tax losses may be transferred to legal successors

Tax period

•Generally calendar year

•Other than a calendar year – upon taxpayers request

•May not exceed 12 months

•Less then 12 months in certain situations– (start of business, merger, liquidation, etc.)

•Cannot be changed for five years

Tax administration

• Monthly tax prepayments – end of the month for the previous month – prior period tax liability/No. of months in the

prior period

• New companies - no tax prepayments in the first year

• Corporate income tax return – 4 months after expiry of period in which tax is assessed– payment of final tax liability (diff. between tax

liability and sum of monthly prepayments)

Tax incentives• Lower tax rate

– investment promotion incentives (down to 0%)– investment in undeveloped areas

• hill and mountain areas, city of Vukovar, war devastated areas

– investment in free trade zones

• Tax deductions for education and R&D – state aid regulations

• Companies registered for international shipping – no tax on profit

Withholding tax

• @ 15% (or lower in line with DTT) – more than 40 DTT-s

• Subject to WHT– interest (bank loans exempt)– royalties– market research, tax and business

consultancy, auditor’s services

• Dividends – not subject to WHT as of 2005

VALUE ADDED TAX

VAT in general

• Introduced on 1 January 1998

•Croatian VAT legislation is mostly based on the EU’s 6th VAT Directive

Taxable persons

• Entrepreneurs whose taxable turnover in previous year exceeds HRK 85.000 (app. 12.000 EUR)

– or voluntary VAT registration

• Domestic entrepreneur for certain services received from abroad

• Importers • Issuers of invoices• Exporters (only in certain cases)

VAT rate

•22% - standard

•10% - tourist accommodation services and related agency services, daily and periodic newspapers and magazines

•0% - certain food, books, medicines, etc.

Major VAT exemptions

•Services of banks, insurance companies

•Medical services

•Rental of residential premises

•Export, supplies to free trade zones, supplies to diplomatic missions

•Goods in transit through Croatia

•Temporary import of goods

Tax period

•Calendar year

•Accounting period– month– quarter (supplies < tHRK 300 p.a.)

Tax administration

•Monthly VAT returns - end of the month for the previous accounting period

•Annual VAT return – by end of April for the previous tax year

•VAT payments – end of current month for previous month

VAT paid by foreign companies

•No mechanism for recovering Croatian input VAT paid by foreign companies

•No possibility for registering only for VAT purposes

•Croatian branches of non-residents may/must register for VAT

PERSONAL INCOME TAX

Taxable persons

• Individuals (natural persons) incurring taxable income– residents – worldwide income– non-residents – Croatian sourced income

• Resident taxpayer – individual with permanent or temporary residence (183 days) in Croatia

• Residency for taxation purposes may be determined in line with applicable DTT

Tax rates

•On annual level – progressive tax rates– 15%, 25%, 35%, 45%

•During the year:– progressive or flat rate depending on

the type of income

Tax period

•Calendar year

•Except if:– resident becomes a non-resident during

year or vice versa– birth or death of the taxable person

Taxable income

• Employment income • Self-employment income • Income from “capital”• Property and property rights income• Income from life insurance savings • Other income

Income from disposal of shares and income from dividends - not taxable

Annual tax return

•End of February for previous year

•No filing requirement in certain cases (e.g. taxpayer receives salary only from one Croatian employer)

•Voluntarily filing (e.g. to declare additional personal allowance)

Employment income

• Taxable income (salary) reduced by mandatory social security contributions and personal allowances– Basic HRK 1.800 (app. EUR 250)/month– For dependent family members

• May be additionally increased up to HRK 12.000 (app. EUR 1.650):– Life insurance and private health insurance premiums– Medical cost incurred during the year– Accommodation expense (e.g. rent, loan interest), etc.

Employment income – cont.

15% Up to HRK 3.600 (app. EUR 500)

25% between HRK 3.600 (app. EUR 500) and HRK 9.000 (app. EUR 1.250) - next HRK 5.400 (app. EUR 750)

35% between HRK 9.000.00 (app. EUR 1.250) and HRK 25.200 (app. EUR 3.500) - next HRK 16.200 (app. EUR 2.250)

45% exceeding HRK 25.200 (app. EUR 3.500)

• Taxable at progressive tax rates• City tax (on tax liability) - if applicable (e.g. 18% for Zagreb)

Employment income – cont.

•Resident employers must file monthly tax returns (and withhold taxes) for employees

• Individuals receiving salary from abroad are personally liable to file monthly tax returns (and pay taxes)

Self-employment income

• Sole traders

• Independent professions

• Agriculture and forestry activities

• Difference between receipts and expenditures incurred during the tax period

• Monthly prepayments – per the tax resolution

Property and property rights income

• Includes:– Rental income (15%; effective 10,5%)– Income from disposal of property or

property rights (25%)– Income from property rights (25%)

•No personal allowances

Income from “capital”

• Includes:– Dividend income from profit realized in

2001-2004 (15%) – Interest except savings interest and

interest from securities (35%)– Private consumption (35%)

•No personal allowances

Income from life insurance savings

•Payments of insurance companies – up to the amount of previously paid

premiums for life insurance and voluntary retirement insurance which were deducted from the tax base in the previous periods

•withheld by the payer of the income •@ rate of 15%•No personal allowances

Other income

• Income that cannot be classified under previously mentioned categories

•@ rate of 25%

•No personal allowances

Non taxable income

•Capital gain from shares and other securities

• Interest from savings and securities

•Dividends (except 2001-2004)

•Pensions received from abroad