Taxation of companies in Croatia
The company is considered resident in Croatia, it is created and controlled and if it is managed in Croatia. Also, a foreign company can be considered as a resident if its activities are carried out on the territory of Croatia, and it falls under the description of doing business through a permanent establishment.
The basis for taxation of resident companies is profit, regardless of the place (country) of its receipt. Profits earned by resident companies from abroad are subject to the same rules as profits earned within the country. Non-resident companies are taxed only on profits earned within the country.
Taxable profit is the difference between income and expenses incurred, which are reported in financial results in accordance with accounting rules, and which can be adjusted for tax purposes.
Dividends are not subject to corporate income tax, however, withholding tax is withheld from dividends (except for dividends that are paid to another company – a resident of Croatia.
Capital gains are included in a company’s taxable income at the standard corporate income tax rate.
The company can show losses for no longer than 5 years in a row, while the transfer of losses to the previous period is prohibited.
The standard corporate income tax rate is 18%, while companies whose annual income does not exceed 3,000,000 kunas (about 402,500 Euros) are taxed at a rate of 12%.
The offset of paid income tax is possible in an amount that does not exceed, respectively, the amount of such tax that could be paid in Croatia. It is possible to apply a credit if you provide proper proof of payment of tax in another country.
Under the Investment Promotion Law, certain companies are eligible for a corporate income tax reduction of 50 or 100 for a period of 5 to 10 years, depending on the size of the enterprise, the amount of investment and the number of newly created workers. places. The types of activities for which you can receive benefits, for example, are: production, development and innovative technologies, business support and additional services in the service sector. Who can apply for benefits:
- micro business – investments from 50,000 Euros, at least 3 new jobs;
- small business, medium business, large business – investments from 150,000 Euro, at least 5 new jobs.
Tax at source
Dividends paid to a non-resident are subject to withholding tax at a rate of 12%, unless the rate is reduced, or exemptions under double taxation treaties apply, or fall under the provisions of the EU Parent-Subsidiary Directive. Dividends paid to companies registered in low-tax jurisdictions will be subject to a 20% source tax.
Withholding tax of 15% is levied on interest and royalties paid to a non-resident (non-individual), unless exemptions under the Double Tax Treaties or the EU Interest and Royalty Directive apply. Similar to dividends, interest and royalties paid on companies registered in low-tax jurisdictions will be subject to a 20% withholding tax.
Social payments consist of contributions to pensions (paid by the employer, but withheld from employees’ income) at a rate of 20% of salary before taxes, and contributions to health insurance and to the employment fund (the obligation to accrue and pay lies with the company) at a rate of 17.2 % of salary before taxes. Social security contributions from other income are paid at reduced rates of 10% for a pension fund and 7.5% for health insurance.
Related party transfer pricing rules apply to both domestic and international transactions.
Thin capitalization rules. Part of the interest paid on loans provided by a shareholder / member of the company or provided by a third party and guaranteed by the shareholder / member is not deductible if the shareholder / member owns a stake in such a company of more than 25% of the shares or the right to vote, and the amount of the loan exceeds 4 times the value of the shareholder’s/participant’s share in the company. If a loan that falls under the thin capitalization rules exceeds the ratio of 4:1, the amount of interest in excess is not deducted.
Thin capitalization rules do not apply if loans are provided by banks or other financial institutions, however, the question remains when the loan is provided by a bank or financial institution, and the shareholder / participant acts as a guarantor.
The tax period of a company is any 12-month period of a year approved by the tax authority.
Submission of consolidated reporting is not allowed, each company prepares reports on its activities.
Croatia has a self-assessment regime. The tax is paid in 12 equal monthly installments. Financial statements are submitted within 4 months from the end of the company’s financial year.
In case of late payment of taxes, fines are charged at a rate of 6.54% per annum, and the amount of the fine, therefore, ranges from 2,000.00 to 200,000.00 kunas. Repeated violations have the same results and the fine can be from 3,000.00 to 300,000.00 kunas.
Value Added Tax
The sale of goods and the provision of services in Croatia, as well as the purchase of goods within the EU and imports, are subject to VAT.
The standard VAT rate is 25%, however, a reduced rate of 13% or 5% may apply to certain goods and services. Some goods/services are not subject to VAT.
Registration as a VAT payer is mandatory if the company’s annual turnover exceeds 300,000.00 kunas (40,000 Euros) per year. Also, a company can register as a VAT payer voluntarily before reaching the turnover. Voluntary registration is carried out for a minimum period of 3 (three) years. Non-residents who carry out taxable activities in Croatia are not required to register as a VAT payer. The VAT number, in this case, must be obtained by residents who conduct transactions within the EU.
VAT reporting, EU Shopping Lists and EU Sales Lists are due by the 20th of the month, for the previous reporting period. Payment must be made before the end of the month following the reporting period. Interest on VAT-related penalties is levied at a rate of 6.54% per annum and can range from 1,000 to 500,000 HRK.