OPTIMISATION OF TAX POSITION OF LEGAL PERSONS
Croatia has a wide range of incentives within the proxit tax in order to attract foreign investments and encouraged the production in it’s own economy
The profit tax is paid at a rate of 20%. The are also various ways by which the tax base can be reduced as well as certain exemptions from profit tax.
The amortisation is one of the interesting instruments of the optimisation of tax position. Tax regulation determines the highest rate of amortisation, which is annually recognised as an expense which directly reduces the tax base. The amortisation can therefore be used as a mean to pay lower tax on higher profit, but it is also possible to prevent negative bussiness result of previous year by reduction of amortisation rates. The said amortisation rate for certain groups of long term assets amounts:
– 5% for the real estate through 20 years,
– 20% for personal vehicles through 5 years,
– 25% for immaterial assets, equipment, vehicles (beside personal) and mehanisation through 4 years,
– 50% for computers, computer equipment and programmes, mobile phones and computer network throught 2 years and
– 10% for otherequipment through 10 years.
By the amendments of Profit Tax Act, there is a possibility of accelerated amortisation provided, which allows duplication of tax recognised amortisation rates through one half of the utility period. The aplication of the accelerated amortisation should be justified by enhanced usage of property that is subject of amortisation.
An interesting amendment of the Profit Tax Act is the full exemption from the payment of profit tax due to the increase of the share capital. It is provided namely, that a person is exempted from payment of profit tax if the profit is reinvested in the increase of the company capital. The requirement for reduction of a tax base for the amount of reinvested profit is to submit a proof about such capital increase to the tax office within 6 months from the expiry of a dead line for tax return.
This tax exemption has been introduced with the purpose of investment incentive, therefore subsequent reduction of capital due to payment of profit to company members represents the tax base.
For the investments of micro-entrepreneurs in the amount of minimum 50.000,00 €, the incentives holder’s profit tax rate is decreased for 50% (current profit tax rate in Croatia is 20%) during the time period of 5 years from the beginning of the investment, with the condition that 3 new workplaces, in relation to this investment project, are opened within one year from the beginning of the investment. Therefore, in this case, the profit tax is decreased for the micro-entrepreneur from 20% to 10% for a maximum period of 5 years from the beginning of the investment.
For the investments higher than 3 million Euros the profit tax rate is decreased for 100% within 10 years with a condition that at least 15 new workplaces, in relation to this investment project, are opened. Therefore, in this case, the investor wouldn’t pay any profit tax for the time period of 10 years from the beginning of the investment.
There are also various ways of tax eases, as for example expences of education of employees, which are recognised as a deductible item of profit tax two time: first as an expense in the total amount and second time as a tax ease up to max. 70% of arised costs.
The tax base can be reduced for the amount of all expenses related to the realised incom. Therefore it is important to determine which itmes are to be recognised as a tax base reducing expense. All the tax charges can be treated as an expense (e.g. income tax from the lease, profit tax etc.), unused holidays, education costs, undue invoices in the moment of tax return etc.