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A brief overview of the tax system of the Republic of Croatia

LEGAL PERSONS

Profit tax

A company and other legal entity resident in the Republic of Croatia that performs economic activity independently, permanently and for the purpose of making profit or income or other economically assessable benefits is liable to pay profit tax, and the taxpayer is the domestic business unit of a foreign entrepreneur (non-resident).

Profit is determined according to accounting regulations as the difference between income and expenses before the calculation of profit tax, increased and decreased according to the provisions of the Law on Profit Tax. The tax base of a resident taxpayer consists of the profit realized in the country and abroad, and the tax base of the non-resident consists only of the profit realized in the country. It also includes profits from liquidation or other proceedings by which the taxpayer terminates operations in accordance with special regulations, sales, changes in legal form and division of the taxpayer.

The profit tax rate is 10% if the income in the tax period is up to HRK 7.500.000,00, or 18% if the income in the tax period is equal to or greater than HRK 7.500.000,01.

Personal deduction (natural person)

The personal deduction of the taxpayer is a non-taxable part of the income, and the base of the personal deduction is HRK 4,000.00.

PERSONAL DEDUCTION OF A RESIDENT:

The taxpayer may increase his personal deduction by the deduction for dependent members of the immediate family and dependent children for natural persons whose taxable income, tax-free income and other income that are not considered income on an annual basis do not exceed HRK 15.000,00.

PERSONAL DEDUCTION OF A NON-RESIDENT:

In the tax period, non-residents may deduct a personal deduction in the amount of the basic personal deduction when calculating the advance income tax on non-independent work or in the annual tax calculation.

A resident of a Member State of the European Union or the European Economic Area, except the Republic of Croatia who earns income from non-independent word, self-employment in the Republic of Croatia, may use personal deduction in the annual income tax calculation based on the submitted annual tax return or in a special procedure for determining the annual income tax, for the entire tax period, provided that he proves with authentic documents that the said income earned in the Republic of Croatia makes at least 90% of his total (world) income earned in the tax period and that he is exempt from taxation in the Member State of residence.

Tax deductible expenses (applies to legal entities and natural persons craftsmen/self-employed)

Tax-deductible expenses are all those expenses that actually serve the performance of activities, ie a direct correlation can be proven between the realization of income and these expenses.

These costs may include: field allowance, fee for using a private car for official purposes, severance pay for retirement, gift to an employee in cash in the name of Christmas allowance or some other compensation, costs of using an official mobile phone, rewards for good work, a special bonus can be paid the employees following with a non-taxable payment of (Christmas, holiday pay, etc.) up to HRK 3,000.00, reward for work results (additional salary, supplement to the monthly salary, etc.) up to HRK 5,000.00, hot meal fee 5,000 .00 HRK – all on an annual level and fees for covering the costs of catering, tourist and other services intended for the rest of workers up to 2,500.00 HRK (cannot be paid but for this purpose is issued CRO Card).

These costs also include compensation for the costs of regular care for workers’ children up to the amount of actual expenses, supplementary insurance premiums of workers up to HRK 2,500.00 per year, compensation for transport to and from work and the use of private cars for business purposes, newborn benefits. This may include work clothes and footwear, so for example, the official clothes of lawyers, trainee lawyers and other employees in the law office also represent a recognized cost – if prescribed by the Ordinance.

Porez na dohodak od kapitala po osnovi primitaka od dividendi plaća se po odbitku po stopi od 10%.

Capital income and dividend tax – APPLIES TO NATURAL-PERSONS CITIZENS

Income from capital is considered to be income based on capital, capital gains, profit shares realized by allotment or option purchase of own shares, dividends and profit shares based on capital shares, which were realized in the tax period.

Capital income tax on dividend receipts is payable at the rate of 10%.

For taxable dividends, the payer is obliged to submit the JOPPD Form on the day of payment / next working day, and for non-taxable payments by the 15th of the following month, with the prescribed marks.

Transfer of business share in the company (LEGAL ENTITY AND NATURAL PERSONS)

The business share in the company can be transferred from one person to another, whether it is a legal entity or a natural person.

The transfer of a business share requires a contract concluded in the form of a notary deed or a private document certified (solemnized) by a notary public, regardless of whether it is a sale, donation or other legal transaction that results in the transfer of business share. In the case of inheritance, a final decision on inheritance is required for the transfer of the business share. It is important to point out that the transfer of business share in the company is not subject to taxation, but only if the agreed transfer is free of charge or if the transfer occurred after two years of acquisition or if there is no difference in price.

Prohibition of double taxation (Croatia and Germany) – for legal entities

For the purpose of protection against double taxation, the Republic of Croatia and the Federal Republic of Germany have concluded an Agreement between the Republic of Croatia and the Federal Republic of Germany on the avoidance of double taxation with respect to taxes on income and on capital.

Pursuant to the said agreement, the profits of a company of a Contracting State shall be taxable only in that State unless the company carries on business in the other Contracting State through a permanent establishment situated therein. If the company operates in this way, the profits of the company may be taxed in that other Contracting State but only so much of them as is attributable to that permanent establishment.

When it comes to dividends, dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is resident, in accordance with the laws of that State, but if the actual beneficiary of the dividends is a resident of the other Contracting State, the tax shall not exceed:

a) 5% of the gross number of dividends if the actual beneficiary is a company (but not a company of persons) that directly owns at least 10% of the capital of the company that pays dividends;
b) 15% of the gross number of dividends in all other cases.