| Croatia Income Tax Rates Croatia income tax rates for 2009 are progressive between 15% - 45%.
Tax Band / Tax Rate % / Taxable Income in Croatian Kuna (HRK)
Starting 15% HRK 0 - 43,200
Basic 25% HRK 43,200 - 108,000
High 35% HRK 108,000 - 302,400
Highest 45% Above HRK 302,400
As of 1 July 2008, all taxpayers are entitled to a basic personal allowance of HRK 1,800 per month (HRK 21,600 annually). Employment income is taxed at source in accordance with the above rates.
The minimal monthly gross salary for full time work (40 hours a week) in the period 1 July 2008 to 31 May 2009 is HRK 2,747 (approximately EUR 375).
Income from letting property is taxed at 15% (after a 30% fixed expenses deduction is applied). Proprietary rights (e.g. limited authorship rights, industrial rights, etc) are taxed at 25% (no fixed expenses deduction is applied). Where there is a requirement to file an annual personal income tax return, income from letting property and proprietary rights is then, in addition to income generated from other sources, subject to marginal tax rates.
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%
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
Social Security Contributions in Croatia: Social security contributions in Croatia are 20% paid by the employee and 17.2% paid by the employer.
Social Security Contributions / Employee / Employer
Generation solidarity (Pillar 1) 15.0% -
Individual capital savings (Pillar 2) 5.0% -
Health insurance - 15.0%
Unemployment insurance - 1.6% - 1.7%
Contributions for employees - 0.1%
with disabilities
Insurance against injury at work - 0.5%
Total Contributions 20.0% 17.2%
Transfer Tax in Croatia: The transfer of used cars, other motor vehicles, boats and planes is subject to irrecoverable transfer tax at the rate of 5% in Croatia, unless VAT applies.
Croatia Inheritance and Gift Tax: Inheritance tax and gift tax at the rate of 5% applies to transfers by individuals or legal entities of real estate, cash, securities, or movables, if their individual market value exceeds HRK 50,000 (approximately EUR 6,800), where that property is inherited, received as a gift or otherwise received (or transferred), without consideration.
Inheritance and gift tax does not apply to movable property inherited/received as a gift if the transfer is subject to VAT.
Inheritance and gift tax provisions are not applicable under certain other circumstances, amongst others, the transfer between immediate relatives (i.e. spouses, siblings and children).
Real Estate Transfers Tax: Irrecoverable transfer tax at the rate of 5% applies to the transfer of land in Croatia.
For buildings constructed before the VAT law became effective (i.e. before 1 January 1998) transfers are subject to irrecoverable transfer tax at the rate of 5%. For newly constructed buildings (i.e. on or after 1 January 1998) transfers are subject to VAT at the rate of 22%.
The subsequent transfer of newly constructed buildings is:
- subject to VAT at the rate of 22% if the seller was able to deduct VAT as a tax prepayment when the building was initially purchased by the seller; or
- transfer tax at the rate of 5% in all other cases.
Croatian citizens acquiring their first property as their main residence are exempt from paying property transfer tax (but not VAT, if VAT applies), if certain conditions are met.
Further transfer tax exemptions are available for the transfer of land or qualifying buildings located in special state care areas to both companies and physical persons, if certain conditions are met.
Customs Duties: Croatia uses the uniform customs tariff classification for a range of imports to determine applicable customs duty rate, excise taxes, etc. Imports of goods originating from EU countries, or from countries with which Croatia has a Free Trade Agreement, are generally free of customs duties.
Other Taxes in Croatia: Other taxes may apply, according to the taxpayer's individual or corporate status and activities.
Croatia Corporate Tax (Profit Tax)Croatia corporate tax rate in 2009 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.
Taxation of Dividends: Dividends are not subject to tax in Croatia.
Capital Gains Tax: Capital gains in Croatia are treated as taxable income and are taxed at the standard corporate tax rate of 20%.
Losses: Losses may be carried forward for up to 5 consecutive years. Tax losses may not be carried back.
Alternative Minimum Tax: There's no alternative minimum tax in Croatia.
Foreign Tax Credit: Foreign tax paid may be credited against the domestic tax liability in Croatia up to the amount of tax that would have been paid on such profits in Croatia, by providing proof of the foreign tax payment.
Withholding Tax on Dividends: Dividends are not subject to withholding tax in Croatia.
Withholding Tax on Interest: A 15% withholding tax is levied in Croatia on interest paid to nonresidents, unless the tax rate is reduced or exempt under a tax treaty.
Withholding Tax on Royalties: A 15% withholding tax is levied on riyalties paid to nonresidents, unless the tax rate is reduced or exempt under a tax treaty.
Branch Remittance Tax: There's no branch remittance tax in Croatia.
Payroll Tax: There's no payroll tax in Croatia.
Real Property Tax in Croatia: If real property is not subject to Value-Added Tax (i.e. buildings completed before Value-Added Tax 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 Value-Added Tax system is subject to the real estate transfer tax rather than Value-Added Tax. Land is always subject to the real estate transfer tax in Croatia.
Thin Capitalization: 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.
Tax Year: Tax year in Croatia is the calendar year.
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 22% and applies to most products and services. A reduced VAT rate of 10% applies to:
- tourist accommodation services and related agency fees,
- newspapers and magazines issued on a daily and periodical basis, with the exception of newspapers and magazines that consist mainly or entirely of advertisements or whose main purpose is advertising.
A Value Added Tax (VAT) rate of 0% (input VAT recovery possible) applies to bread, milk, educational literature (specified), certain (specified) medical supplies, scientific magazines and film projection services, as well as to exports.
VAT exemption (no input VAT recovery) applies to: rental of residential property; services performed by banks, savings institutions, savings and loan institutions, insurance and reinsurance companies; organisation of "games of chance" and betting; medical services; services and deliveries of goods performed by social welfare organisations, organisations for children, pupils and students, religious communities, or for cultural purposes.
Services are taxable in Croatia if they are deemed to be supplied in Croatia. The places of supply rules are similar to those in the EU. The reverse-charge mechanism applies to certain services supplied from abroad.
The registration threshold is taxable supplies of HRK 85,000 (approximately EUR 11,600) or more in the previous year.
Entities in Croatia using financial support from certain pre-accession EU funds are entitled to obtain goods / services without being subject to Value Added Tax, if certain conditions are met.
In Croatia, Value Added Tax is paid:
- on the delivery of all kinds of goods (products, goods, newly-built buildings, equipment and so on) and all services rendered inland for compensation,
- on own consumption,
- on the delivery of goods and services rendered without compensation and with a personal discount,
- on the import of goods inland,
- on services that a foreign entrepreneur performs for a domestic entrepreneur inland
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