Croatia: Proposal for windfall profits tax

A draft proposal for an “extra profits tax” was published on 17 November 2022. The draft proposal provides:

• Extra profits tax would apply for only the one tax period beginning on or after 1 January 2022 to corporate profit taxpayers, regardless of the type of performed business activity, which during the relevant tax period earned:
  • Total income exceeding HRK 300 million
  • Taxable profit at least 20% higher than the average taxable profit in the last four tax periods
• The basis for calculating extra profits tax would be the difference between the taxable profit earned during the relevant tax period and the average taxable profit of the four previous tax periods increased by 20%.
  • Income from the write-off of liabilities in pre-bankruptcy and bankruptcy proceedings and income in bankruptcy proceedings resulting from the sale of assets to settle debts to creditors and income from the sale of long-term tangible and intangible assets (which were used in the process of production or provision of services) to unrelated persons would be excluded.
  • The extra profits tax base must also be corrected for any adjustments of income or tax liabilities assessed in tax inspections.
  • If a taxpayer reported a tax loss in any of the previous tax periods, it would be assumed that the taxable profit of that tax period is equal to zero.
• The extra profits tax rate would be 33%.
• A separate extra profits tax return must be submitted, but the same deadlines apply for return submission and payment of extra profits tax liabilities as for corporate income tax.
• Extra profits tax would not apply to independent entrepreneurs established in 2022 or to those who ceased business activities during the relevant tax period (without transferring activities to other taxpayers).
• A taxpayer and the Croatian tax authority can enter into an administrative agreement to settle extra profit tax liabilities. 

Read a November 2022 report prepared by the KPMG member firm in Croatia