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Tax benefits of corporate income taxation in the Republic of Croatia

A company is, by definition, a business entity that independently and permanently performs economic activity in order to make a profit by producing, trading goods or providing services on the market.

The most common form of company that appears in Croatian practice is a limited liability company, and the minimum share capital required for the establishment of this company is 20.000,00 HRK, which amounts to approximately 2,660 EUR.

Frequently asked questions when founding a limited liability company mostly focus on the amount of the tax rate at which profits are taxed, and the amount of the tax rate that is applied to the payment of profits paid to company members.

Starting from January 2021, the Republic of Croatia applies one of the lowest corporate income tax rates compared to the tax rates applied in other EU Member States, as follows:

  • 10% if revenues up to 7.500.000,00 HRK were generated in the tax period, or
  • 18% if the revenues generated in the tax period are equal to or bigger than 7.500.000,01 HRK.

In the calculation of income tax returns submitted to the tax administration by the end of April, taxpayers can use a number of benefits (reductions of the tax base) and benefits, including state aid for education and training, state aid for research and development projects, and tax relief and exemptions for entities operating in assisted areas. The tax loss can be carried forward by law for 5 years and thus reduce the income tax base.

For companies from the manufacturing sector that are micro-entrepreneurs and that in the Republic of Croatia invest a minimum amount of 50,000 EUR in manufacturing facilitiesand equipment, and employ at least 3 workers, are entitled in accordance with the Investment Promotion Act to reduce the income tax rate by 50% in a period of 5 years.

Furthermore, the same Act prescribes incentive measures for labor-intensive investment projects, and tax incentives for small, medium and large enterprises.