Croatia has published a set of 2021 reform Acts, including the Act on Amendments to the Corporate Income Tax, Personal Income Tax, Value Added Tax and Fiscalisation. Our Croatia team’s digest of the most important amendment aspects follows below.
Amendments to the Corporate Income Tax Act
The following CIT-related amendments have been introduced:
• Decrease of corporate income tax rate for entrepreneurs with income up to HRK 7.5 million from the previous rate of 12% to a new rate of 10%;
• Decrease of withholding tax on payment of dividends and profit shares to foreign legal persons from 12% to 10%;
• Decrease of withholding tax rate for performances by foreign performers from 15% to 10% (when the fee is paid by a domestic or a foreign payer under a contract with a foreign legal person);
• Credit institutions can treat expenses related to write-off of receivables from non-related natural or legal persons as tax-deductible based on approved credit placements with values in accordance with the special regulations of the Croatian National Bank;
• The taxpayer should perform control and, if necessary, adjustment of transfer prices for each tax period to rationalize the procedures related to transfer pricing and prevent misunderstandings, corrections of tax returns and court or arbitration proceedings.
Amendments to the Personal Income Tax Act
Personal Income Tax rates will be reduced as follows:
• from 24% to 20% for personal income taxation for taxable income below HRK 30,000;
• from 36% to 30% for personal income taxation for taxable income above HRK 30,000;
• from 12% to 10% for annual and final income (e.g., profit distributions) and lump-sum taxation of activities (e.g., rental of apartments or flats).
Another amendment has been the defining of the tax treatment of the national allowance for elderly people which – from 1 January 2021 – amounts to HRK 800 per month. This allowance would not be regarded as income subject to personal income tax and would not be taken into consideration when determining the right to personal allowance deduction for dependant family members.
Additionally, personal income of digital nomads would not be subject to personal income tax. Digital nomad is a third-country national who is employed or performs business through telecommunication technology for a company or for his own company which is not registered in the Croatia, and does not perform business or provide services to employers in Croatia.
The percentage of increase of personal income tax has been increased from 50% to 100% when the disparity between the value of income and assets with which it was acquired is determined. With this in mind, after the decrease of the maximum tax rate, the tax on income earned in this way would be calculated at a rate of 30% instead of 36%, and the tax thus calculated would be increased by 100% (so the total tax rate would be 60%).
Another amendment has been the simplification for reporting of income from property generated from rent and lease of movable and immovable property. If such contracts are being signed in front of a notary public, it would be mandatory to report the notarized contracts to the Tax Authorities.
Additionally, the Government has simplified the possibility of pay-outs of benefits in kind based on the allocation or optional purchase of own shares given by employers to employees, members of the management board and natural or other related persons, which are used as a way of rewarding employees.
Last but not least in relation to personal income tax, in terms of income taxation, the other type of income in amount of HRK 12,500 which was added to the annual base up to HRK 360 thousand will not be taxable.
Amendments to the Value Added Tax Act
The threshold for the application of the VAT cash accounting scheme has been increased from the previous HRK 7.5 million to a new threshold of HRK 15 million.
The possibility of applying the calculation category of VAT on imports in order to relieve the taxable persons in terms of engaging financial resources for the payment of VAT on imports has been extended.
When the distance selling of goods exceeds the threshold of HRK 77,000, the sale will be taxed in the Member State in which the recipient of the goods who is not a taxable person has residence. Additionally, the foreign taxable person will pay the Croatian VAT when the total value of distance selling of goods, telecommunications services, radio and television broadcasting services and electronically performed services exceeds the threshold of EUR 10,000 and vice versa, Croatian taxable persons will pay VAT in another Member State when the value of these supplies exceeds the threshold of HRK 77,000. The above is applicable as of 1 July 2020.
Amendments to Fiscalisation Act
The Government has introduced the obligation to carry out the procedure of fiscalisation of sales via self-service devices. QR codes will need to be displayed on each issued and fiscalized invoice (except taxpayers who collect turnover with means that are not considered as cash transaction in accordance with the provisions of the Fiscalization Act).
Given the broad range of widely impacting changes in the tax legislation, Croatian companies are advised to seek assistance in assuring compliance and determining if any changes to their current business practices is required.
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