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Croatia Income Tax - Legal Advice for Foreign Investors

Income Tax in Croatia

Updated on Friday 23rd July 2021

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Why-start-a-business-in-Croatia.jpgCroatia has a great tax regime that represents a huge benefit to foreign investors looking to start a company in this country. The country imposes progressive income tax rates, depending on the generated income. Persons who want to know more about Croatia income tax can talk to one of our Croatian lawyers. Our advisors can help foreigners start a business in Croatia and offer legal advice if interested in mergers and acquisitions.
 
 

What are the income tax rates in Croatia?

 
First of all, it is important to note that the standard corporate income tax is set at a 18% rate in Croatia, according to recent updates and changes, however, the following tax rates must be considered:
 
  1.  15% rate for incomes of no more than HRK 36,000;
  2.  25% rate for more than HRK 36,000, not exceeding HRK 81,000;
  3.  35% rate for more than HRK 81,000, not exceeding HRK 252,000;
  4.  45% rate for incomes of more than HRK 252,000.
 
Also, municipalities in Croatia can impose their own taxes, but these won’t affect persons who are not tax domiciled in this country. Foreign investors interested in more details about the income tax rates in Croatia can talk to one of our Croatian attorneys. Our team of advisors can give full support and guidance for tax registration in Croatia and also for EORI registration.
 

Are there any tax exemptions in Croatia?

 
Yes, interest payments on investments and loans, the dividends receive abroad, or the capital gains from trading activities are exempt from the income tax. The same is applicable to gifts and inheritance in the first line of succession, in Croatia. Please feel free to talk to us and find out more about the tax regime in Croatia and about the applicable tax exemptions.
 

Is there a wealth tax in Croatia?

 
No, there is no wealth tax imposed in Croatia. This is another great tax benefit offered in this country, besides the income tax found at low rates. If you would like to know more about taxation in Croatia, our team of lawyers is at your disposal at any time. Please bear in mind that our advisors can help foreign and local entrepreneurs start a business in Croatia. 
 

Other tax facts in Croatia

 
The dividend tax in Croatia has been eliminated in 2005, however, a withholding tax of 12% is applicable to dividends in this country. The VAT rate in Croatia is set at 25%, but lower rates apply to different types of products and services. For example, the hotel and accommodation services, the restaurants, and the water supply are subject to a 13% VAT rate. Just like most of the countries, Croatia signed numerous double taxation treaties to avoid fiscal evasion and protect the incomes. Bulgaria, Chile, Malaysia, Luxembourg, UK, Italy, Ireland, Hungary, Georgia, Denmark, Greece, Norway or Poland are among the countries that signed double tax agreements with Croatia. All the provisions of the double taxation treaties signed by Croatia can be explained by one of our Croatian lawyers.
 

Extra details about CIT in Croatia

 
It is important to note that for taxpayers with revenues not exceeding HRK 7,5 million the income tax is set at a 10% rate, starting with January 2021 (the previous rate was 12%), also applicable to non-profit organizations. We remind that companies engaged in independent operations in Croatia, branches of foreign firms, and companies that control shares in capital are subject to the corporate income tax in this country. 
 
The registration for taxation of companies in Croatia must be done prior to the start of any kind of activity in this country. The tax regulations differ from one country to another, so it is best to have complete legal advice by your side and solicit the assistance of a Croatian lawyer.
 

Can the income tax be reduced at a certain point?

 
Yes, there are specific conditions under which the income tax can be reduced. We present you the main requirements to consider for reduced Croatia income tax:
 
  • In the case of share adjustments and unrealized gains, the income tax can be reduced. A condition in this sense is to be included in the profit and loss account of the company.
  • Tax reduction or exemption applies for costs of companies activating in the research and development sector in Croatia.
 
Assisting foreign investors in business registration, from a legal point of view, enters our attention. Entrepreneurs who want to discuss further details about Croatia income tax can get in touch with one of our lawyers in Croatia.
 

Tax rate reduction in Croatia – New rates for 2021

 
The Croatian authorities recently revised the tax regime and successfully implemented new reforms, starting with January 2021. We highlight a few updates:
 
  • Capital gains, rental incomes, interests, and dividends will be levied with a 10% rate instead of a 12% rate.
  • A 20% tax rate instead of 24% applies to incomes from stock option plans and employment earnings that do not exceed HRK 360,000 per year.
  • In the case of incomes higher than HRK 360,000, a tax rate of 30% instead of 36% applies starting with this year. 
 
One should note that the new tax rates apply for incomes generated in 2021. More on this topic can be discussed with one of our tax advisors in Croatia. Legal assistance is offered by our dedicated team of attorneys in Croatia.
 

Tax reforms that aim incomes of Croatians

 
The same Income Tax Act that was recently modified mentions that starting with January 2021, mentions that there will be no income tax for people up to 25 years old. Half of the income tax now applies to the incomes of persons aged up to 25 years. The 5th round tax reform in Croatia entered into force this year.
 
 

Making investments in Croatia – What to consider

 
Croatia has a huge business potential in front of foreign investors. Besides a great tax regime and a series of investment incentives, foreigners enjoy a stable and secure business climate in Croatia. The economic stability, the confidence, and financial support provided in Croatia are great benefits for foreigners interested in making business in this part of Europe. Besides that, the skilled and experienced workforce available in Croatia can be an excellent choice for entrepreneurs who want to relocate for business purposes in this country. Here are some facts and statistics about Croatia’s economy and foreign investments that you might find interesting:
 
  1. The World Bank and particularly the 2020 Doing Business report ranked Croatia 51st out of 190 economies in the world, in terms of simplified business conditions.
  2. More than USD 32,884 million represented the total FDI stock in 2018 in Croatia.
  3. About 30% of the total FDIs in Croatia are directed to the financial services sector.
  4. Germany, Austria, the Netherlands, and Italy are the main investors in Croatia.
 
The business climate in Croatia offers equal conditions to both local and foreign investors who want to generate profits in this country. The legislation related to foreign investments is permissive, as long as the business conditions are respected from the beginning. Even the company registration process in Croatia has been simplified in recent years, allowing foreigners to start a business in a fast manner and no complicated formalities.
 

FAQ about Croatia income tax

 
1. Who is obliged to pay income tax in Croatia?
Companies with permanent establishments and activities in Croatia must register for taxation in this country. The income tax enters the attention of firms.
 
2. Do residents in Croatia pay the income tax?
Yes, there are specific tax rates, according to the type of employment, categories of revenues, and more. This is also called the personal income tax.
 
3. What is the corporate income tax in Croatia?
The corporate income tax in Croatia is set at 18%, however, specific rates are imposed, depending on the amount of revenues. You can discuss in detail about these aspects with our advisors.
 
4. What is the Croatia income tax for revenues not exceeding HRK 7,5 million?
Until 2021, the income tax was of 12% rate for revenues of no more than HRK 7,5 million. Now, the 10% rate applies.
 
5. How can a tax advisor in Croatia help me?
Instead of dealing on your own with the tax compliance in Croatia, it is best to have legal support by your side. Our team has the necessary expertise in the field and can help local and foreign entrepreneurs align with the tax requirements in Croatia.
 
 

Working with our lawyers in Croatia

 
Croatian business rules can be entirely explained by our team of Croatian lawyers who have experience in this field. Some aspects related to the incorporation of a company may differ from those in the country of origin, so it is good to have legal help on your part, instead of facing possible problems related to the creation of documents.
 
In addition to these aspects, registration with financial authorities for the payment of taxes, obtaining business licenses and permits, relocation of companies, legal representation in litigation cases, advice and investment support, debt recovery or immigration issues come to the attention of specialists. It is important to know that our clients can rely on confidentiality, trust, and specialized help when they collaborate with us.
 
Those interested in starting a company in Croatia can contact our law firm in Croatia and find out more details. Our team is at your disposal with complete legal advice and support for tax registration in Croatia.