Key tax factors for efficient cross-border business and investment involving Croatia.
With the following countries, territories and jurisdictions:
|Bosnia & Herzegovina||Jordan||Russia|
|Bulgaria||Rep. of Korea||San Marino|
Joint-stock company ("dioničko društvo - d.d.") and limited liability company ("društvo s ograničenom odgovornosti - d.o.o.")
Registered share capital of HRK 200,000 for joint-stock companies. Registered share capital of HRK 20,000 for limited liability companies.
A company is a resident if its registered office or its place of management and supervision of business is located in Croatia.
Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Croatian source income.
Taxpayers are required to submit a CIT return no later than four months following the end of the tax period. Medium-sized and large taxpayers as well as all VAT-registered taxpayers are required to submit the CIT return electronically.
A Balance Sheet and Income Statement should be submitted together with the CIT return.
The standard corporate income tax rate is 18 percent and a 12 percent rate applies to companies with revenue of up to HRK 3 million (approximately EUR 405,000).
This standard rate may be reduced by 50 percent, 75 percent or 100 percent based on certain investment related incentives or if the company is located in a free zone or a special support area, provided certain conditions are met.
The WHT rate on interest is generally 15 percent. However, WHT is not applied on interest in relation to:
15 percent on payments for market research, tax and business advisory and audit services.
15 percent on fees for performing foreign artists if such fees are payable pursuant to contracts with foreign legal entities.
20 percent on all payments made to non-resident companies in countries regarded as non-cooperative jurisdictions (i.e. companies with registered offices in EU blacklisted jurisdictions).
Dividend income is not subject to corporate tax in Croatia.
Capital gains should be included in the annual corporate income tax calculation.
Tax losses can be carried forward for up to five years. Tax loss carry-back is not available.
Real estate transfer tax applies on the transfer of certain types of land and buildings at the rate of 3 percent (levied on the purchaser, represents irrecoverable cost).
A controlled foreign company (CFC) rule was introduced as of January 1, 2019 on the basis of which, under certain conditions, undistributed profit arising from specific categories of income (e.g. interest, royalties, dividends, income from financial activities, etc.) of the CFC or permanent establishment in another country is attributed to the parent company taxpayer in Croatia and is taxed accordingly. This rule does not apply to a CFC that performs an economic activity of substance, or to a CFC whose specific categories of income comprise one-third or less of total income. Banks and financial companies are not considered CFCs if they generate one-third or less of total income from transactions with related parties.
Documentation to the support the arm's length nature of transactions with related parties is required. PD-IPO form (form on transactions with related parties) must be submitted with the CIT return.
Yes, limited application, 4:1 debt-to-equity ratio for interest expenses.
The arm’s length interest rate for CIT purposes on loans between related parties is 3.96% per annum, effective as of January 1, 2019 (4.55% per annum for 2018).
Borrowing costs exceeding taxable interest income (or economic equivalent) will be tax deductible only up to: (1) 30 percent of the taxpayer's earnings before interest, tax, depreciation and amortization (EBITDA); or (2) EUR 3,000,000.
Does not apply to standalone taxpayers and taxpayers that are financial companies.
Excessive borrowing costs can be carried forward for three tax periods.
General anti-avoidance rules apply.
R&D incentives are provided in the form of an additional tax base reduction for justified R&D expenses for research and development projects or feasibility studies.
The maximum tax relief that a company may receive is:
The tax relief may be further increased by 15-20 percent, depending on the size of the taxpayer and the type of research undertaken.
Incentives for education and training are available up to a maximum of 80 percent of eligible expenses depending on the type of education and training (general or specific) and the type of business (small, medium or large). These incentives can be further increased by 10 percent if training is provided to ''disadvantaged workers'' (e.g. younger than 25 years of age and that have not previously received regular wage, disabled, etc.).
The standard rate is 25 percent, and the reduced rates are 13 and 5 percent.
Source: Croatian tax law and local tax administration guidelines, updated 2019.
KPMG in Croatia
T: +385 (0)1 5390 032