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Taxation of Foreign Companies in Croatia

Taxation of Foreign Companies in Croatia

Updated on Tuesday 24th September 2019

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Taxation of Foreign Companies in CroatiaAll Croatian companies and any legal or natural person with residency in Croatia are taxable subjects. The corporate income tax rate is 12% for revenues up to HRK 3 million and 18% rate for more than HRK 3 million. Any foreign company based in Croatia has to pay the corporate tax on all its profits from Croatia and abroad. Our lawyers in Croatia can tell you more about the taxation of foreign companies in the local economy and can also provide support and legal assistance for starting a business in Croatia.

 

What types of incomes are levied in Croatia?

 
The incomes of businesses in Croatia, derived from real estate properties, from employment or the one from independent personal activities carried out in Croatia and delivered within the Croatian territory are subject to taxation in Croatia.


Corporate income tax in Croatia


Businessmen who want to invest in Croatia and start a company must know that a foreign company is considered resident of Croatia if it is incorporated and registered within the country. The difference between revenue and expenses assessed in the profit and loss statements under the accounting rules, which is then adjusted for tax specific items under the corporate tax provisions, is the taxable income of foreign companies in Croatia. The corporate income tax in Croatia is paid at a rate of 12% and is applicable to enterprises which conduct economic activities with the purpose of deriving profit, to branches of foreign businesses and to Croatian companies which pay the corporate income tax. The corporate income tax usually includes the following items:

  • •  Dividends – taxation of foreign companies in Croatia does not include dividends; nevertheless, they are subject to withholding tax, except for dividends paid to a resident entity;
  • •  Capital gains – they are taxed at the standard corporate income tax rate;
  • •   Losses – may be carried forward up to five consecutive years.

No surtax, alternative minimum tax, participation exemption and holding company regime applies to foreign companies operating in Croatia. There are several tax incentives provided by the local authorities. These include: tax deductions for specific activities (investments), business support activities and activities with higher value added. For these activities, the taxation base may be reduced by 50% up to 100%. Our attorneys in Croatia can provide you with detailed information about the tax incentives available for foreign companies.

 

Is there a wealth tax in Croatia?

 
No, Croatia does not impose a wealth tax on interest payments on loans, on pensions received from overseas, on capital gains from real estate properties owned for more than 3 years or on inheritance (if in the first line of succession) and gifts. Also, foreigners are not obliged to pay the wealth tax for capital gains derived from financial assets like trading securities. Feel free to get in touch with one of our lawyers in Croatia and find out more about the legal support our team can offer in matters of taxation.
 

The VAT in Croatia

 
Companies in Croatia have the obligation of registering for VAT purposes. At the moment, the standard VAT rate is set at 25%, mentioning that there are discussions regarding the reduction of this tax, starting with 2020. The authorities in Croatia are planning to cut the VAT from 25% rate to 24% rate, additional information about other types of VAT rates being on the debate. The VAT in Croatia is imposed on the import of goods, on the supply of goods, for buying and selling goods in Croatia or abroad. We remind that foreign companies with establishments in Croatia need to register for VAT purposes if the HRK 230,000 threshold is reached. 
 

The dividend tax in Croatia

 
It is important to know that the dividend tax has been abolished since 2005 in Croatia, this governmental measure encouraging the foreign investments in a higher percent that before. However, a withholding tax of 12% rate applies to dividends in Croatia, if paid to non-resident enterprises, mentioning that a low tax rate is imposed if the provisions of a double taxation agreement signed with Croatia enters the discussion. Besides taking advantage of this important tax measure, foreign entrepreneurs in Croatia have the same business rights as the domestic ones, the applicable legislation being permissive to both type of investors. Also, having no profit tax for 10 years for foreign businesses established in Croatia is another reason to decide on making investments in this country. As short and important advice, it is recommended to have a clear picture of the business direction in Croatia and about the governing laws in this country, particularly when it comes to taxation. In this matter, the legal support of our Croatian lawyers will prove helpful for international investors looking for a business in Croatia.
 

Double tax treaties signed by Croatia

 
Besides the great taxation system applicable in Croatia, investors can also benefit from the protection of the double taxation treaties signed with countries worldwide, to avoid taxation twice on incomes. Such treaties are extremely helpful for foreign companies with establishments and operations in Croatia. Armenia, Belarus, Chile, Bulgaria, Albania, Austria, Bosnia and Herzegovina, Canada, Czech Republic, China, Denmark, Finland, Georgia, France, Estonia, Germany, Hungary, Greece, India, Ireland, Iceland, Indonesia, Italy, Kosovo, Kuwait, Jordan, Latvia, Lithuania, Luxembourg, Malaysia, Macedonia, Mauritius, Malta, Moldova, Morocco, Montenegro, Norway, the Netherlands, Poland, Romania, Spain, Switzerland, Syria, Turkmenistan, Turkey, UK and Ukraine are a few of the countries that signed double taxation agreements with Croatia and that protect both companies and residents in this state.
 
We have gathered information, facts and statistics about the business and the economy in Croatia that you might find it useful when deciding on investments in this country:
 
  • for 2018, the FDI inward flow was USD 1,159 million;
  • the “2019 World Doing Business" report ranks Croatia 58th among 190 worldwide economies;
  • according to UNCTAD 2019 World Investment Report, the total FDI stock for 2018 in Croatia was USD 32.8 million;
  • around 30% of the foreign investments in Croatia were directed to the financial services sector in 2018.


Taxable profits of foreign companies in Croatia


Every company based in Croatia is subject to the local taxation system. Foreign enterprises must pay company tax on all their profits from Croatia and abroad. Taxable profits of foreign companies in Croatia include the money resulted from investments, doing business and selling assets for more than they cost (chargeable gains).

If you want to start a company in Croatia and need tax consultancy, feel free to contact our law firm in Croatia.