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Croatia: Tax changes effective 1 January 2020

Croatia: Tax changes effective 1 January 2020

Tax amendments effective 1 January 2020 concern corporate profit (income) tax, individual (personal) income tax, and the value added tax (VAT) regimes.


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Corporate income (profit) tax

For 2020, the tax measures for corporate taxpayers include the following measures:

  • Entities with annual revenue of HRK 7.5 million or less are subject to:
    • Payment of corporate profit tax at the lower rate of 12%
    • Mandatory entry of a sole trader into the corporate profit tax system
    • Flat rate taxation of business activities conducted by a non-profit organization
    • Application of the cash principle in determining the tax base
  • Expenses related to transportation and accommodation in health facilities will be considered to be tax deductible donations for health purposes.
  • Value adjustments of trade receivables will be considered to be tax deductible also in instances when there is a settlement with a debtor that is not a corporate profit taxpayer.
  • Upon conclusion of liquidation, or other procedures by which business activities are terminated, the taxpayer is obliged to finalize business books, prepare financial statements, and determine tax liabilities as at the last day of the tax period. The tax base must include amounts that would be included if all assets were converted into cash.
  • Rules regarding acquisition and valuation of rights in statutory changes are defined in more detail.
  • Taxpayers that initiate procedures such as transfers of headquarters, statutory change, and the conclusion of liquidation are required to notify the tax authorities of these procedures within 30 days from the start of formal activities before competent authorities.

Pursuant to EU Directives 2016/1164 and 2017/952 (the anti-tax avoidance directive or ATAD) the following are introduced:

  • Exit taxation—that is, taxation of capital gains realized in certain cases when business activities or assets are transferred cross-border
  • Hybrid mismatch rules that define the tax treatment of cross-border hybrid mismatch arrangements.

Value added tax (VAT)

  • Standard VAT rate will remain at 25%.
  • Reduced VAT rate of 13% (previously subject to the 25% standard VAT rate) will also apply to:
    • Services of preparing and serving meals (including take away)
    • Services and related copyrights of phonographic-right holders
  • The threshold to charge VAT on the cash basis is increased from HRK 3 million to HRK 7.5 million.
  • VAT exemption for supplies of public interest is granted to all entities regardless of their institutional form.
  • A taxpayer will be able to adjust VAT if the acquirer of the goods and services not having a permanent establishment or habitual residence in Croatia notifies the taxpayer in writing that a VAT refund was not requested.

Also, the VAT “quick fixes” regime applies with regard to EU transactions involving:

  • Call-off stock arrangements (i.e. movement of one’s own goods)
  • Chain supplies
  • Conditions for application of VAT exemption on intra-Community supplies

Individual (personal) income tax

  • The tax authorities will, after the end of 2019, provide a refund (through an annual tax assessment) of individual income tax paid on employment income to certain taxpayers. Concerning refunds to certain individual taxpayers, annual tax assessments historically have been issued in June for the previous year, such that eligible taxpayers could expect a tax refund for the 2020 year in June 2021.
  • The basic monthly personal allowance is increased from HRK 3,800 to HRK 4,000.
  • The personal allowance for dependent family members remains the same.
  • Additional non-taxable benefits are introduced—such as insurance premiums that employers may pay for their employees based on additional and private health insurance, up to a prescribed amount.
  • New provisions address whether specific activities qualify as employment activities for taxation purposes.
  • Employers may use personal allowances during the payment of a last salary to a former employee.

Other measures

  • Voluntarily disclosure is introduced for foreign-sourced income, when individual income tax and social security contributions liabilities will arise at the date of voluntary disclosure.
  • Agreements and business relationships between related parties will be recognized only if these are made under the same conditions as would be agreed with unrelated parties.
  • Concerning the motor vehicle special tax, an individual who acquires a used motor vehicle given to that individual by his/her spouse, or by certain relatives, is exempt from administrative tax only if that vehicle was previously registered on the donor's name.

Read a December 2019 report prepared by the KPMG member firm in Croatia 

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