Croatia Income Tax Rates

Croatia income tax rates are progressive between 12% - 40%. The top 45% rate is reduced to 40% in 2010.

Annual Taxable Income in Croatian Kuna (HRK)   /   Tax Rate %

HRK 0 - 43,200                                      12%
HRK 43,200 - 129,600                             25%
Above HRK 129,600                                40%

City Surtax (Surtax on Income Tax)

Municipalities and cities in Croatia may levy an additional tax, called city surtax. Currently, the City of Zagreb has the highest city surtax rate, at 18%. City surtax is payable depending on the residence or habitual abode of the taxpayer. Croatian city surtax is calculated on the amount of personal income tax payable.

Taxpayer: Those liable to pay income tax who have a domicile or a common residence in the area of the commune / municipality that has prescribed the obligation to pay the tax.

Tax Base: The tax base for city surtax is the amount of income tax in Croatia.

Tax Rate:
-A commune at the rate of up to 10%
-A city with a population below 30,000 at a rate of up to 12%
-A city with a population over 30,000 at a rate of up to 15%
-The city of Zagreb at a rate of up to 30%

Example City Surtax Rates:

Bilje 5%
Bizovac 3%
Breznica 10%
Brinje 10%
Cerna 5%
Cerovlje 2%
Dubrovnik 15%
Gračišće 5%
Gradec 5%
Karlovac 12%
Krašić 6%
Metković 10%
Našice 8%
Petlovac 5%
Podgora 10%
Split 10%
Vodice 6%
Zagreb 18%

Tax Year: Croatia tax year begins on January 1st and ends on December 31 of the same year.

Taxpayer: A taxpayer in Croatia is a natural person who acquires an income. If several natural persons jointly acquire an income, each natural person separately is a taxpayer, in respect of his/her share in the jointly acquired income.

A resident has the following sources of income acquired in Croatia and abroad (the world income principle) are taxed on:
1. Income from employment,
2. Income from independent personal activities (self-employment),
3. Income from property and property rights,
4. Income from capital,
5. Income from insurance,
6. Other income.

Nonresident people who has the following sources of income acquired in Croatia are taxed on:
1. Income from employment,
2. Income from independent personal activities (self-employment),
3. Income from property and property rights,
4. Income from capital,
5. Income from insurance,
6. Other income.

Croatia Tax Base for Resident and Nonresident Individuals

Tax Base of a Resident: The total amount of income that the taxpayer obtains inland and abroad (income from employment + income from independent personal activities or self-employment + income from property and property rights + income from capital + income from insurance + other income) - personal allowances.

Income from independent personal activities (self-employment income) acquired by a resident in Croatia and abroad shall be reduced by:
1. the amount of salaries of the newly employed persons and rewards to pupils during practical work and apprenticeship,
2. the amount of expenses for education and professional improvement,
3. the amount of expenses for research and development, and
4. the loss carried in Croatia and abroad.

Tax Base of a Nonresident: The total amount of income that the taxpayer obtains in Republic of Croatia (income from employment + income from independent personal activities or self-employment + income from property and property rights + income from capital + income from insurance + other income) - personal allowance.

Income from independent personal activities (self-employment income) acquired by a nonresident in Croatia shall be reduced by:
1. the amount of salaries of the newly employed persons and rewards to pupils during practical work and apprenticeship,
2. the amount of expenses for education and professional improvement,
3. the amount of expenses for research and development, and
4. the loss carried in Croatia.

About Croatia Taxation System: Croatia tax structure includes both direct taxation through income taxes and profit taxes, and indirect taxation through value added tax. In addition, there are excise taxes, real estate tax and local taxes. In Croatia income taxes are assessed on individuals. The profit tax is essentially a corporate tax. Croatia tax year is, in most respects, the calendar year. The current Croatian tax system includes the following main taxes:

- Personal income tax
- Profit tax
- Value added tax (VAT)
- Special tax (excise duty)
- Real estate transfer tax

Croatia Corporate Tax (Profit Tax)

Croatia corporate tax rate is a flat 20%.

An entity is resident if it is incorporated and registered in Croatia or if it is controlled and managed in Croatia. An entity also may become resident by carrying out business activities in Croatia that meet the criteria for a permanent establishment.

Principal business entities in Croatia are the joint stock company, limited liability company, branch of a foreign corporation and representative office.

Residents are taxed on their worldwide income, nonresidents are taxed only on Croatian source income. Foreign source income derived by residents is subject to the same corporate tax rules as Croatian source income.

The corporate tax base is the difference between revenue and expenditure assessed in the profit and loss statement under the accounting rules, which is then increased and reduced for tax-specific items under the statutory corporate tax provisions.

Residence - An entity is resident if it is incorporated and registered in Croatia or if it is controlled and managed in Croatia. An entity also may become resident by carrying out business activities in Croatia that meet the criteria for a permanent establishment.

Basis - Residents are taxed on their worldwide income; nonresidents are taxed only on Croatian-source income. Foreignsource income derived by residents is subject to the same corporate tax rules as Croatiansource income.

Taxable income - The corporate tax base is the difference between revenue and expenditure assessed in the profit and loss statement under the accounting rules, which is then increased and reduced for tax-specific items under the statutory corporate tax provisions.

Taxation of dividends - Dividends are not subject to tax in Croatia.

Capital gains - Capital gains are taxable income and are taxed at the standard rate of 20%.

Losses - Tax losses may be carried forward for up to 5 consecutive years. Tax losses may not be carried back.

Tax Rate - 20%
Surtax - No
Alternative minimum tax - No

Foreign tax credit - Foreign tax paid may be credited against the domestic tax liability up to the amount of tax that would have been paid on such profits in Croatia, by providing proof of the foreign tax payment.

Participation exemption - No
Holding company regime - No

Incentives - Investment incentives may reduce the corporate tax rate, depending on the amount invested and the number of employees connected to the investment.

Deductions are available for R&D (scientific and developmental) expenditure up to double the amount of qualifying expenditure. Grants are provided to taxpayers that, in connection with a new investment, create new employment or professionally train or requalify employees. Additionally, a percentage of the general and specialised training costs not associated with a new investment may be used to reduce the income tax base.

Withholding tax:

Dividends - Dividends are not subject to withholding tax.

Interest - A 15% withholding tax is levied on interest paid to nonresidents unless the rate is reduced or exempt under a tax treaty.

Royalties - A 15% withholding tax is levied on royalties paid to nonresidents unless the rate is reduced or exempt under a tax treaty.

Branch remittance tax - No

Other taxes on corporations:

Capital duty - No
Payroll tax - No

Real property tax - If real property is not subject to VAT (i.e. buildings completed before VAT was introduced on 1 January 1998), the acquisition of a building is subject to a real estate sales tax at a rate of 5%. The tax base is the purchase value of the building. Any subsequent transfer of a building that exited the VAT system is subject to the real estate transfer tax rather than VAT. Land is always subject to the real estate transfer tax.

Social security - Social security contributions consist of pension contributions (borne by the employee but withheld by the employer) at a rate of 20% of gross salary, and a health and employment contribution (borne and paid by the employer) at a rate of 17.2% of gross salary.

Stamp duty - No

Transfer tax - See under "Real property tax".

Other - Forest contributions, tourism contributions and cultural monument contributions may apply.

Anti-avoidance rules:

Transfer pricing - Methods are prescribed in accordance with the OECD transfer pricing guidelines. Transfer pricing studies and benchmark analyses are required.

Thin capitalisation - Interest on a loan granted by a shareholder is not deductible if the shareholder holds 25% or more of the shares/voting rights of the taxpayer and the value of the loan exceeds 4 times the value of the taxpayer's equity. The thin capitalisation rules do not apply to loans granted by banks or other financial institutions.

Controlled foreign companies - No

Administration and compliance:

Tax year - The tax year is 12 months or another period if approved by the tax authorities.

Consolidated returns - Consolidated returns are not permitted; each company must file a separate return.

Tax Filing requirements - Croatia operates a selfassessment regime. Corporate tax is payable in 12 equal monthly instalments. The tax return must be filed within 4 months of the financial year end.

Tax Penalties - Late interest charges apply at a rate of 17% per year and penalties range from HRK 1,000 to HRK 200,000.

Croatia Tax Incentives: Investment incentives may reduce the corporate tax rate in Croatia, depending on the amount invested and the number of employees connected to the investment. Tax deductions are available for R&D (scientific and developmental) expenditures up to double the amount of qualifying expenditure. Grants are provided to taxpayers that, in connection with a new investment, create new employment positions or professionally train or re-qualify employees. Additionally, a percentage of the general and specialized training costs not associated with a new investment may be used to reduce the income tax base.

The main statutory incentive areas are regulated by the:
- Investment Promotion Law;
- Law on Free Trade Zones;
- Law on Special State Care Areas;
- Law on Renewal and Development of the City of Vukovar;
- Law on Hill and Mountain Areas;
- Law on Scientific Activities and Higher Education.; and
- Training and Education Incentives Law.

Under the Investment Promotion Law the reduced corporate profits tax is as follows:

Investment Range (in EUR) / New Job Positions / Tax Rate % / Period

From 0.3 to 1.5 million                    10                       10%         10 years
From 1.5 to 4 million                       30                        7%          10 years
From 4 to 8 million                          50                        3%          10 years
Exceeding 8 million                          75                        0%          10 years

According to the Investment Promotion Law, in order to apply for the tax incentives, a legal entity should make investments into the following projects:
- Manufacturing and processing activities;
- Technological development and innovation centres; or
- Strategic business support activities.

Croatia VAT Rates (Value Added Tax)

The standard Value Added Tax (Porez na Dodanu Vrijednost - PDV) rate in Croatia is 23%.

Taxable transactions - VAT is imposed on the sale of goods and the provision of
services.

Rates - The standard rate is 23%, with reduced rates of 10% and 0%.

Registration - Registration is compulsory where the annual value of transactions exceeds HRK 85,000. A company may register voluntarily if the threshold is not met. Once entering into the VAT system, a taxpayer cannot opt out for 5 years.

Filing and payment - VAT returns and payments are due by the end of the current month for the prior VAT period. A taxable entity must also file an annual VAT return by the end of April of the year following the tax year. VAT-related penalties include interest at a rate of 17% per year and fees from HRK 1,000 to HRK 500,000.