Croatian Tax Package

March 2012
Croatian Tax Package
In this Alert we provide a summary of tax law changes approved
by the Croatian Parliament.
Some changes enter into force on 1 March and 1 May 2012. Other changes are coming
into effect on 1 January 2013 and on the date when Croatia joins the European Union.
In the last section of this Alert we indicate potential issues arising from the change of VAT rates.
Changes to the VAT Act
Changes entering into force on
1 March 2012
• Increase of general VAT
rate from 23% to 25%
• Application of reduced rate of
10% for certain types of supply:
• Edible oils and fats of vegetable
and animal origin
• Baby food and processed cereal-based
foods for infants and toddlers
• Delivery of water except that which is
marketed in bottles or other containers
• White sugar from both cane and beet
• Input VAT on cars (and other vehicles)
and business entertainment costs
becomes entirely non-deductible
Changes to the Corporate
Income Tax Act
• Withholding tax at 12% applies on
dividends and shares in profits paid to
foreign legal entities after 1 March 2012
• Once Croatia becomes an EU Member
(1 July 2013), no withholding tax
should apply on dividend payments to
shareholders (legal entities) in other EU
countries provided that the shareholder
has held at least a 10% equity stake in
the company paying the dividends for
an uninterrupted period of 24 months
• The corporate income tax base may
be decreased for the profit that is for
• Increase of fines for VAT offences
from HRK 10,000 and HRK 20,000
to HRK 40,000 and HRK 50,000
respectively, depending on the nature
of the offense
Changes coming into force on
1 January 2013
• A reduced VAT rate of 10% will apply
to supplies of food, non-alcoholic drinks
and wine and beer in catering facilities
• Possibility of filing quarterly VAT returns
for VAT payers whose value of supplies
of goods and services, including VAT, in
the previous calendar year was less than
HRK 800 thousand
• Increase of threshold for VAT registration
from HRK 85,000 to HRK 230,000
investment purposes used for share
capital increase (first applicable to
2012 profits)
• In line with the amendments to the
OECD Transfer Pricing Guidelines, the
comparable uncontrolled price method
is no longer preferred over other transfer
pricing methods.
• As of 1 March 2012, the period after
which cost of value adjustment of
receivables may be recognized as
tax deductible is reduced from
120 to 60 days
Changes to the Personal
Income Tax Act – entering
into force on 1 March 2012
• Monthly personal allowance has increased
from HRK 1,800 to 2,200 (for retirees up
to a maximum of HRK 3,400 per month)
• New tax brackets apply on the tax base
(gross salary reduced by obligatory
contributions from salaries and personal
allowances), as follows:
Tax brackets (in HRK)
Tax rate
up to 2,200
12%
2,200 – 8,800
25%
above 8,800
40%
• Dividends (and shares in profit) paid
after 1 March 2012 from profits realized
from 2001 onwards will be subject to
12% withholding tax and applicable city
tax rate, with no possibility to utilize
personal allowance and tax deductions.
The deductible portion (up to HRK 12,000
per year) will be taken into account only if
an annual tax return is filed.
• In case of prepayment of dividend,
any negative difference between the
distributable dividend and prepaid dividend
will be considered as withdrawals which
are taxed at 40%. Tax should be paid by
the date of filing the corporate income
tax return.
• Payers of dividends and shares in profits
are no longer obliged to keep separate
records of such payments
• Dividends received based on ESOP or
based on shares held by employees
are not taxable
• Dividends utilized for share capital
increase are not considered as taxable
income of individual shareholder. This
should be applicable first to reinvestment
of 2012 profits.
• Pensions earned by Croatian residents
abroad will be taxed and treated as income
from employment with right to utilize basic
personal allowances of up to HRK 3,400.
Tax prepayments should be calculated
and paid by the taxpayer within eight days
from the receipt of income.
Changes to the Act on
Mandatory Contributions
• The procedure of offsetting outstanding
employer contribution liabilities against
its claims towards the Croatian Institute
for Health Insurance is introduced.
This amendment enters into force on
1 March 2012.
• Health insurance contributions are
decreased from 15% to 13%. This
amendment will come into force on
1 May 2012 and will apply to salaries
earned after 30 April 2012.
Changes to the Act on
Preservation and Protection
of Cultural Assets
The procedure of offsetting outstanding
Based on the amendments of the Act on
Preservation and Protection of Cultural
Assets, the list of activities triggering
payment of the monument protection fee
has been reduced. As of 1 March 2012,
only legal entities performing the following
business activities are obliged to pay the
monument protection fee: wholesale of
tobacco, wholesale of perfumes and cosmetic,
retail of tobacco in specialised stores,
telecommunication (except maintenance
of telecommunication network and radio
and television transmission), money
intermediation, auxiliary activities in financial
services (except insurance and pension
funds) and gambling.
Reduced membership fee
and contribution for the
Croatian Chamber
of Commerce
As of 1 March 2012, monthly membership
fee for Croatian Chamber of Commerce is
decreased as follows:
The entrepreneurs pay membership fee
based on the group to which they are
classified, according to their size.
• First group: from HRK 55 to 50
The rate applicable for calculation of the
contribution for Chamber of Commerce
is decreased from 0,0056% to 0,005% of
companies total income realized for 2010.
• Second group: from HRK 1,500 to 1,275
• Third group: from HRK 5,500 to 4,675.
Changes in
other related
legislation
Implications
of change
of VAT rates
The amendments of the Finance
Inspectorate Act and the Tax
Authorities Act have also been
passed in the Parliament. The
amendments were introduced
due to the changes in internal
organization and functioning of
The most significant change in
the Croatian VAT legislation is
the increase of general VAT rate
from 23% to 25% and application
of reduced rate of 10% for
certain types of supply. Change
of the VAT rate will produce
similar effects as the previous
change of rate from 22% to 23%.
Nevertheless, VAT payers need
to take them into consideration in
order to properly implement the
changes. Below we list some of
the points:
• Adjusting IT systems
• Calculation of VAT on services
performed over two months
(e.g. project starts in February
and finishes in March)
• Calculation of VAT on services
Other announcements
The Minister of Finance has
announced the intention to
publish a list of all taxpayers with
unsettled tax debts.
As taxpayer’s debts toward
the Tax Authorities’ amount
to 25 billion HRK, rationale
the Ministry of Finance and
the Tax Authority.
Part of the activities that were
within the scope of the Finance
Police is transferred to the Tax
Authority.
performed continuously but
invoiced quarterly
• Calculation of VAT in case of
advance payment received in
February and supply made in
March 2012
• Calculation of VAT on supplies
made by VAT payers being
individuals (calculating VAT
liability based on fees collected
from customers) for which
the invoice is issued before
1 March 2012 while the fee
is collected afterwards
• Assessment of VAT in
construction business
• Subsequent change of tax base
due to discounts, rebates and
cassa-sconto based on invoices
issued before 1 March 2012
behind this plan is to improve tax
collection and to create public
finances more transparent.
We suggest checking your tax
balances in the system of the Tax
Authority to avoid being on the
black list.
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