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TAXATION OF DIVIDENDS AND COMPANY SHARES

According to the Amendment of the Income Tax Act, all the payments of dividends and company shares after 1 March 2012 have become taxable.

Namely, revenues from dividends and company shares over 12.000,00 kuna annually are considered capital income, therefore are the subject of taxation at a rate of 12%. Hence, there is also a non-taxable part of dividend, which amounts 12.000,00 kuna annually.

All the revenues paid after 1 March 2012 is subject to tax, and indeed those from the profit made after 31 December 2000.

The advance payment of tax on the grounds of said revenues is calculated and paid by the company, simultaneously with the payment of dividend or company share. So the advance payment is paid deductible, at the rate of 12%, without recognition of personal allowance and non-taxable amount up to 12.000,00 kuna. A tax payer will later use his right to non-taxable amount, upon annual financial statement based on the filed annual tax return.

If the company decides to pay the dividend in kind instead in money, the tax shall be calculated on the market value of the revenue in kind. One should bear in mind that the dividend payment, which would consist of providing services is not allowed.

There are two exemptions from taxation of capital income provided. The first one are revenues realised within the ESOP (Employee Stock Ownership Plan), that is, on the grounds of employee shareholding, whereby the inclusion of employee ownership in the public company is encouraged. The condition is that a person to whom the dividend is paid, is in the labour relation with the dividend payer.

Second exception when the capital income is not assessed is in case when dividends and company shares are used for the increase of legal capital. However, if the legal capital is later reduced by the payments to company members, the income shall be assessed from said payments, which is subject to taxation.

If the tax payer realises dividends and company shares directly from abroad, he has to calculate the advance payment of tax himself and pay it within eight days since the realisation of the revenue. If the revenue is realised in foreign currency, the advance payment is calculated in kuna counter- value according to the middle course of the Croatian National Bank on the day of revenue payout. The alleged is applied unless otherwise is regulated by the Double Taxation Convention.