NIS PROPERTY CROATIA

According to the Constitution of the Republic of Croatia, everybody has the obligation to participate in the financing of public expenditure, in proportion to the economic strength of the entity. The Croatian tax system is based on a number of direct and indirect taxes. Direct taxes are paid personally or by the employer, while indirect taxes are not covered by the entity paying them to the national budget, but by another party (final consumer). Direct taxes are: profits tax, personal income tax and surtax on personal income tax. Indirect taxes include: value-added tax, special taxes (excise duties) and real estate transfer tax. Other tax income comes from local taxes (county, municipal and city levels), customs duties and social insurance contributions.

Corporate income tax

The tax base is profit established according to accounting principles as the difference between revenues and expenditure. For a resident entity, this means total profits generated both in Croatia and abroad. For a nonresident, it is the profits generated in Croatia. The law separately regulates all items that increase or reduce accounting profit. The tax rate is 20%. Profits tax is assessed for the respective business year. In the course of the year, advances are paid on the basis of the tax return for the previous year.

Profits arising from investment (from a minimum of HRK 4 m to HRK 60 m, and also made conditional upon the number of employees (a minimum of 10 to 75 employees) are taxed at rates ranging from 0 to 10% over a ten-year period, starting from the end of the first year of investment. The total tax relief an investor is entitled to over the tax relief period may not exceed the amount of the investment itself. Companies registered for and engaged in shipping do not pay profits tax on earnings arising from the use of ships in international navigation. A taxpayer established under special regulations for the purpose of occupational rehabilitation and for the employment of disabled persons pays profits tax at the rate of 5%. Taxpayers registered and engaged exclusively in research and development do not pay profits tax.

Withholding tax

Withholding tax is a tax on profits earned by a nonresident in the Republic of Croatia. Withholding tax is paid at the rate of 15% on interest, royalties and other intellectual property rights, on market research services, tax and auditing services, and on tax advising services paid to foreigners.

Personal income tax

A taxpayer is a natural person (resident or non-resident in Croatia) who earns taxable income. For residents, income generated both home and abroad is subject to this tax, while non-residents pay tax only on income generated in Croatia. When determining taxable income, contract provisions on the avoidance of double taxation and provisions of multilateral international agreements have precedence over the provisions of domestic laws. The tax base for personal income is the total amount of income, classified by source: income from employment; income from self-employment (also called personal independent activities); income from property and property rights; income from capital; income from insurance; other income.

There are categories of income that are not subject to personal income tax (allowances in the period of temporary unemployment which are paid by the Croatian Employment Service; sick pay from the Croatian Institute for Health Insurance during the period of temporary inability to work; income of regular students, as provided by special regulations and up to a certain amount; compensation for occupational injuries, etc.). Four tax rates apply for the calculation of personal income tax (15, 25, 35 and 45 percent).

Real estate transfer tax

Real estate transfer tax is paid by those who acquire property (involves the purchase and sale, exchange, inheritance, donation, merger or withdrawal of property from a company, property acquisition in the process of liquidation or bankruptcy, and on the basis of a court decision). The acquisition of new buildings delivered by entities subject to VAT is taxed under the Value-added Tax Act at the rate of 22%. Real estate transfer tax is paid at the rate of 5% on a tax base calculated as the sale value of property at the moment of acquisition. The law provides for a number of real estate transfer tax exemptions (general tax exemptions and tax exemptions for property brought into a company).

Value added tax (VAT)

Value-added tax (VAT) is paid only by those (undertakings) that are registered for entrepreneurial activity, that is, by: undertakings that deliver goods or provide services; importers; exporters which export goods under regular conditions, i.e. not under any special regulations; domestic entrepreneurs (natural persons) whose total annual amount of delivered goods or services exceeds HRK 85,000. The tax base is the amount charged for delivered goods or services. The Republic of Croatia applies three VAT-rates: 22% - general rate; 10% - applies exclusively to accommodation services, bed and breakfast, half board or full board provided at any type of commercial hospitality establishment, and to agency commission for the said services; 0% - applies to all types of bread and milk; professional, scientific, artistic, cultural and educational books, schoolbooks, scientific periodicals and on certain medicines and orthopaedic aids.

Tax refund

Foreign nationals are entitled to a refund of VAT for goods bought in Croatia and taken abroad, and if the amount on the bill exceeds HRK 500. VAT shall be refunded to the buyer or applicant if the original VAT-form (PDV-P) is sent to the seller of the goods within six months of the date on which the bill was issued. Foreign undertakings exhibiting at fairs are entitled to VAT-refund only for precisely defined services and goods delivered by domestic undertakings: renting of exhibition space; providing the exhibition space with electricity, water, gas, heating, cooling, phone and telecommunication connections; materials needed to furnish the exhibition space; parking costs.

Compulsory social insurance contributions

The Croatian compulsory social insurance system is composed of: compulsory pension insurance based on generational solidarity (so-called Pillar I): contributions are paid to the Croatian Pension Insurance Institute from salary, at the rate of 20%; compulsory pension insurance based on personal capitalised savings (Pillar II); contributions are paid to compulsory pension funds (freely chosen by the insured person) from salary, at the rate of 5% (persons insured under both Pillar I and II pay at rates 15% + 5%; unemployment insurance; contributions are paid to the Croatian Employment Service on salary, at the rate of 1.70%; special contributions for insurance against occupational injury and occupational diseases are paid on salary, at the rate of 0.50%. The rate of from and on-salary contributions totals 37.2%.

Holiday house tax

Holiday house tax is paid by legal entities and natural persons that possess holiday houses, in the amount of HRK 5 to 15 per square meter of usable house area. It is local tax, mostly not implemented by Croatian municipalities.

Here you can download comprehensive Guide through Croatian tax system (pdf file, 0.9 MB), published by the Central Tax Office.