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ALTERATIONS IN TAX LAWS

In February 2012, the Government of the Republic of Croatia adopted the whole package of tax law alterations that significantly change the taxpayer’s position. With the Value Added Tax (VAT) Act being changed and the current 23% tax rate increased on 25%, certain amendments to the Profit Tax Act, Income Tax Act and Contributions Act were also adopted.

New, higher standard VAT tax rate of 25% entered into force on 1st March 2012 as well as a lower VAT tax rate of 10% set for edible oils and fats, children’s food, water and white sugar. From 1st January 2013 this lower VAT tax rate shall apply to certain catering services as well, while the limit for exemption from the VAT system shall increase to 230.000,00 Kuna.

Besides, from 1st March 2012 the right to tax prepayment return for supply is revoked, as well as the right to rent personal vehicles, boats and other means of personal transportation (with certain exceptions) and the right to compensate the representation costs.

The amendments of the Income Tax Act refer to the higher basic monthly personal deduction of 2.200,00 Kuna in relation to prior 1.800,00 Kuna, and also to income tax rate changes and tax grade changes.

New income tax with a 12% tax rate represents a significant alteration. This tax applies on income from dividends and profit shares paid after 1st March 2012. However, in order to protect small shareholders, a non-taxable amount of dividend and profit shares has been set to 12.000,00 Kuna per year. Futhermore, basic monthly personal deduction for pensions has been increased, the retirement supplement is now taxable as well as the pensions received abroad.

According to the amendments of the Profit Tax Act that entered into force on 1st March 2012, there is a new withholding tax on dividends and profit shares that are paid to foreign legal entities, with a tax rate of 12%. Entrepreneurs have the possibility to lower their tax base for the amount of the profit by which the subscribed capital of the company has been increased.

Regarding the amendments of the Contributions Act, most significant change refers to the lowered contribution rate from 15% to 13% for health insurance.