Corporate income taxation in the Republic of Croatia
The Republic of Croatia applies one of the lowest corporate income tax rates in the territory of the EU Member States.
Thus, in the Republic of Croatia under the amended Law on Corporate Income Tax, which is effective from January 2020, an entrepreneur who generates income up to 7.5 million HRK (1 million EUR), pays tax at a rate of 12%, while entrepreneurs with an income greater than 1 million EUR pay tax at the rate of 18%. For example, the income of entrepreneurs in Austria will be taxed at the rate of 25%, in Germany at 30-33% and in Italy at 24%.
The tax return is filed by the end of April for the previous year, and at the same time the obligation to pay the annual tax liability is due. The tax year is generally the same as the calendar year, unless otherwise approved by the Tax department at the request of the entrepreneur.
An entrepreneur can use numerous tax reliefs in the tax calculation that reduce the basis for calculating corporate income tax. These include, for example, education and professional training costs for employees (which further reduce the tax basis by 70% and 80% of the amount spent on the professional education of the workers) as well as research and development costs for research-development projects.
The tax basis is also reduced for the days of donations for humanitarian, health and sports etc. causes in the amount of 2% of the last year’s income.
A tax loss may be carried forward for five years from its occurrence, and in a given year, an entrepreneur who generates income, will not be taxed at the amount of the tax loss carried forward.
The corporate income tax rate is further reduced for entrepreneurs established in the „assisted areas“ area, in accordance with a special Regulation laying down the conditions for reduction, and an entrepreneur will be fully tax exempted if the enterprise is established in the City of Vukovar, employing more than five employees in an indefinite period of time, with more than 50% of employees residing in the assisted area of local self-government units classified in group I by level of development, that is, in the area of the City of Vukovar.
An entrepreneur who plans to invest in the production and manufacturing sector as well as labor intensive sector, can ,according to a special regulation, apply a reduced corporate income tax rate (6%) in a certain period of time (5 to 10 years) in accordance with the decision of the Ministry of Economy.
On the other hand, the tax basis is increased by tax-unrecognized expenses: for the sum of 50% of representation expenses, 50% of expenses arising from the use of personal motor vehicles (except insurance and leasing interest rates), depreciation and other expenses for personal vehicles in value more than 400,000 HRK, depreciation calculated at rates higher than regulated by law etc.
Every entrepreneur who makes a profit from the business activities in the business year is obligated to pay a corporation income tax advance on a monthly basis during the following year, thus defining the cash flow for settlement of the annual tax liability for the whole year.
It can be said that the Republic of Croatia has a very attractive and motivating corporate income tax rate, especially for micro, small and medium-sized enterprises with a turnover of up to 1 million EUR. Such entrepreneurs account for 99% of the structure of Croatian entrepreneurs and represent the generator of development of the Croatian economy.