Country Name: Croatia
Currency: Euro (€) (EUR)
Primary Tax Authority: Croatian Tax Administration (Porezna uprava)
Key Legislation:
- Corporate Income Tax Act (Zakon o porezu na dobit)
- Personal Income Tax Act (Zakon o porezu na dohodak)
- Value Added Tax Act (Zakon o porezu na dodanu vrijednost)
Fiscal Authority Allocation
Centralized Fiscal System:
Croatia operates a centralized tax system, with the Croatian Tax Administration managing the collection of taxes, including income tax, VAT, and other national taxes. Local authorities collect certain taxes, such as property tax and municipal fees, but income tax remains a national tax.
Corporate Income Tax (CIT)
Standard Rates: 10% and 18%
Croatia has a two-tier corporate income tax system:
- Companies with an annual turnover of up to €1 million are taxed at a reduced rate of 10%.
- Companies with a turnover exceeding €1 million are taxed at the standard rate of 18%.
Corporate Forms and Taxation:
- Limited Liability Company (Društvo s Ograničenom Odgovornošću – d.o.o.): The most common corporate form, subject to CIT rates depending on turnover.
- Public Limited Company (Dioničko Društvo – d.d.): Typically used by larger businesses, subject to the same CIT rates based on turnover.
- Branches of Foreign Companies: Taxed on Croatia-sourced income at the applicable CIT rate based on turnover.
Exemptions and Incentives:
- Investment Incentives: Croatia offers reduced CIT rates and tax holidays for companies making significant investments in specific sectors, such as technology, infrastructure, and tourism.
- Special Economic Zones (SEZs): Companies operating in SEZs benefit from CIT reductions and other tax incentives aimed at attracting foreign investment.
- R&D Incentives: Companies involved in R&D activities can benefit from enhanced deductions on qualifying expenses.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 25%
Croatia applies a VAT rate of 25% to most goods and services, one of the highest in the EU. Reduced rates of 13% and 5% apply to specific goods and services, including food, books, and medical supplies.
Exemptions:
Healthcare, education, and certain financial services are exempt from VAT. Exports are zero-rated, allowing businesses to reclaim VAT on inputs.
Personal Income Tax (PIT)
Progressive Rates:
Croatia has a progressive personal income tax system with two main tax brackets:
- Income up to €47,780: 20%
- Income above €47,780: 30%
Dividends:
Dividends are taxed at a flat rate of 10%, with no additional social security contributions applied.
Additional Mandatory Contributions
Social Security Contributions:
Both employers and employees are required to contribute to the social security system, covering pensions, healthcare, and unemployment benefits.
- Employer Contribution: 16.5% of gross salary.
- Employee Contribution: 20% of gross salary (15% for pensions and 5% for healthcare).
Withholding Taxes
- Dividends: 10%
- Interest: 10%
- Royalties: 15%
These withholding tax rates may be reduced under Croatia’s double taxation agreements (DTAs).
Transfer Pricing Rules
Croatia adheres to the OECD transfer pricing guidelines, requiring related-party transactions to be conducted on an arm’s-length basis. Documentation must be maintained for transactions between related parties, especially for cross-border dealings.
Special Tax Regimes
- Special Economic Zones (SEZs): Companies operating in designated zones can benefit from tax incentives, including reduced CIT rates, exemptions from real estate taxes, and customs duty waivers.
- Tourism Incentives: The tourism sector benefits from tax incentives, particularly in underdeveloped regions, and for investments in sustainable tourism infrastructure.
Other Taxes
- Real Estate Transfer Tax: A 3% tax is applied to the transfer of real estate.
- Capital Gains Tax: Capital gains are taxed at 10%, with exemptions available for the sale of real estate held for more than two years.
- Excise Duties: Excise duties are levied on products such as fuel, alcohol, and tobacco.
Double Taxation Agreements (DTAs)
Croatia has signed over 60 double taxation agreements with countries worldwide, including EU members, the United States, and China. These treaties help prevent double taxation and reduce withholding taxes on dividends, interest, and royalties.
Local Taxes
Local governments are entitled to collect certain taxes, including real estate taxes and tourist taxes. Municipalities also impose waste management fees and other minor taxes, but these are separate from the national tax system.
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by April 30th of the following tax year. Personal income tax returns are due by February 28th. The tax year coincides with the calendar year.
Penalties for Late Filing:
Penalties for late filing or non-compliance include fines and interest charges on unpaid tax amounts. The interest rate for overdue tax payments is generally set at 12% annually.
Recent Developments
Digital Taxation:
Croatia is considering a digital services tax aimed at multinational technology companies, following EU trends in taxing the digital economy.
Green Tax Incentives:
The Croatian government has introduced tax incentives to encourage investments in renewable energy and environmentally friendly technologies. This includes accelerated depreciation for green investments and exemptions on excise duties for electric vehicles.
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