Local TPA experts on the most important changes on VAT, Personal Income Tax, Real Estate Tax in Croatia this year.
1. Value Added Tax in Croatia
- For certain food categories as well as for services and related copyright of writers, composers and artists, the VAT rate is reduced to 13 %.
- The application of reduced category of 5 % VAT is extended also to drugs that have an approval of the competent authority, regardless of whether they are issued on prescription or not and on books and magazines in any form, except those which mainly contain ads or mainly or entirely have video or music content.
- The taxable person is obliged to register for VAT during the year in which their taxable supplies exceed HRK 300,000. According to previous regulation, in such cases registration for VAT was mandatory from the following calendar year.
- Taxable persons are allowed to deduct 50 % of input VAT for the cars purchased regardless of their value (according to the old regulation the VAT deduction was limited to HRK 400,000 of the car value).
- A non-established taxable person who has Croatian VAT ID number and invoices goods and/ or services to a Croatian taxable person, will no longer be able to apply reverse-charge mechanism, but will be obliged to charge Croatian VAT to their customer.
- There is an obligation for taxable persons to submit the book of incoming invoices (U-RA book) electronically together with a VAT return.
- Standard VAT rate will be reduced from 25 % to 24 % from January 1st, 2020.
2. Personal income tax and social security contributions
- New category of non-taxable payments related to bonuses for employees and other forms of additional compensation of the employees (additional salary, addition to salary etc.) was introduced up to 5,000.00 HRK per year.
- Tax bracket for taxation at the rate of 24 % is increased from HRK 17,500 to HRK 30,000 per month (i.e. HRK 210,000 to HRK 360,000 per annum). Income above this amount is taxed at the rate of 36 %
- The level of the tax burden for renters in tourism is adjusted.
- In case of borrowings provided to individuals at favourable interest rates, the difference between the lower favourable interest rate and the annual interest rate of 2 % is taxable income (instead of the current annual rate of 3 %).
- Compulsory insurance contributions for unemployment (1.7 %) and safety at work (0.5 %) are abolished.
- Health insurance contribution is increased from 15 % to 5 %.
3. Real Estate Transfer Tax
Real Estate Transfer Tax rate is decreased from 4 % to 3 %.
4. General Tax Act in Croatia
- Binding opinions may be requested for any tax related transaction provided that it is related to a future (i.e. not already occurred) transaction.
- For persons who have a permanent residence (i.e. an apartment owned or leased for more than 183 days within one or two calendar years, regardless of whether they reside in that apartment or not) in Croatia and abroad (e.g. persons working abroad), the basic criterion for determining the place/ state of taxation is the place/ state of their family residence or the place/ state of work.
- The definition of a permanent establishment of a non-resident is harmonized with the definition provided in the Corporate Profit Tax Law, whereas this definition includes the elements of the new OECD Model Tax Convention on Income and on Capital from 2017. The changes are in particular related to preparatory and auxiliary activities and the concept of a dependent agent.
- The Tax Authorities may prohibit the operation and block the access to the content of the internet address of an entrepreneur performing business activities online in case of violation of regulations resulting in illegal tax benefits.
5. Corporate Profit Tax
- The taxable person may, in accordance with the BEPS, as a tax-deductible expense, determine exceeding borrowing costs up to 30 % of EBITDA or up to EUR 3 million if such a higher amount is obtained.
- Rules regarding profit shifting are:
- Interest limitation rule
- Controlled foreign company (“CFC”) rule
- The tax position of closed-end investment funds is prescribed – are not taxable person for the purposes of the corporate profit tax.
- Receivable write-offs made in accordance with the special regulation on the procedure of extraordinary administration in companies of systemic importance (so-called Lex Agrokor) will be tax deductible for the Corporate Profit Tax purposes already in the tax return for 2018.