Zagreb

Taxation in Zagreb, Croatia

What are the tax rates in Zagreb, Croatia? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Zagreb, Croatia.

Personal taxation in Zagreb

Effective personal income tax rate

Annual income$25,000$40,000$80,000$125,000$200,000
Rate12%16%20%22%26%

Teleport city rankings for personal income tax

Personal taxation puts Zagreb in position 37 of all Teleport Cities.
WORSTBEST

Basis

Residents are taxed on worldwide income; nonresidents are taxed only on Croatia-source income.

Residence

An individual is resident if he/she has a permanent residence or habitual abode in Croatia.

Filing status

There is no joint taxation; spouses are treated as separate persons for tax purposes.

Rates

Rates are progressive at 12%, 25% and 40%, depending on gross income. Interest on savings accounts is taxable at a flat 12% rate.

Deductions and allowances

Each individual is entitled to a personal allowance of HRK 2,600 per month. The deduction may be further increased for each dependent family member.

Taxable income

The tax base is total income from employment, self-employment, property and proprietary rights, capital, insurance and other income, less personal allowances. Gross income is reduced by the employee’s pension contribution payments (20% of gross income).

Capital gains

Capital gains are subject to tax at rates ranging from 25% to 40%, depending on the nature of the transaction. Gains from the sale of property (tangible/intangible) are taxable at 25% if the property was owned for less than three years; gains from the sale of property owned for more than three years are exempt. Costs of disposal/alienation may be deducted as expenses. Gains derived from the sale of shares are taxable at a 12% rate as from 1 January 2016 (previously, such gains were exempt).

Other taxes on individuals

Real property tax

Supplies of real property made by private individuals are subject to a 5% real estate transfer tax. For this purpose, the tax base is the market value of the building.

Inheritance/estate tax

Transfers of cash, securities or movable assets with an individual market value in excess of HRK 50,000 are subject to a 5% inheritance and gift tax, regardless of the transferor. The tax does not apply to movable property inherited or received as a gift if the transfer is subject to VAT. The taxation of inherited or donated real property is governed by the Real Estate Transfer Tax Act. Transfers between immediate relatives (spouses, siblings and children) regarded as inheritances or gifts are not subject to taxation.

Social security

Social security contributions consist of pension contributions (borne by the employee, but withheld by the employer) at a rate of 20% of gross salary, and a health and employment contribution (borne and paid by the employer) at a rate of 17.2% of gross salary.

Compliance for individuals

Penalties

Penalty interest is charged at a rate of 12% per year and penalties range from HRK 2,000 to HRK 50,000.

Filing and payment

Individuals must submit an annual tax return by the end of February following the tax year. Any outstanding tax liability must be paid within 15 days of receipt of the annual tax assessment.

Corporate taxation in Zagreb

Teleport city rankings for corporate income tax

Corporate taxation puts Zagreb in position 9 of all Teleport Cities.
WORSTBEST

Basis

Residents are taxed on their worldwide income; nonresidents are taxed on Croatian-source income only. Foreign-source income derived by residents is subject to the same corporate tax rules as Croatian-source income.

Taxation of dividends

Dividend income is not subject to tax in corporate income tax in Croatia. Dividends are, however, subject to withholding tax, except for dividends paid to a resident entity (see below under “Withholding tax”).

Residence

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.

Losses

Tax losses may be carried forward for up to five consecutive years. The carryback of losses is not permitted.

Incentives

An enhanced deduction is available for R&D (scientific research and development) expenditure, i.e. the taxpayer may reduce its taxable base by 100% to 150% of qualifying expenditure.

Taxable income

The corporate tax base is the difference between revenue and expenses assessed in the profit and loss statement under the accounting rules, which is then adjusted for tax-specific items under the corporate tax provisions.

Capital gains

Capital gains are included in taxable income and taxed at the standard rate of 20%.

Other taxes on corporations

Real property tax

See below under "Transfer tax."

Social security

Social security contributions consist of pension contributions (borne by the employee, but withheld by the employer) at a rate of 20% of gross salary, and a health and employment contribution (borne and paid by the employer) at a rate of 17.2% of gross salary.

Other

Forest contributions, tourism contributions and cultural monument contributions may apply.

Transfer tax

Supplies of real property made by taxable persons are subject to VAT at 25% if made prior to the first occupation, or within two years of the date of first occupation. Supplies of construction property always are subject to VAT. Under certain conditions, previously occupied reconstructed buildings may be regarded as unoccupied, and therefore may fall within the scope of VAT. Other transfers of buildings and all transfers of land (which are exempt from VAT) are subject to 5% real estate transfer tax. The tax base for real estate transfer tax purposes is the market value of the real property.

Compliance for corporations

Consolidated returns

Consolidated returns are not permitted; each company must file a separate return.

Penalties

Penalty interest is charged at 8.14% per year, and penalties range from HRK 2,000 to HRK 200,000.

Rulings

Rulings are available from July 2015. The scope is limited to the following: (1) the determination of taxable deliveries for the purposes of input VAT division; (2) the application of tax rules to investment projects in Croatia exceeding HRK 20 million in value; (3) the corporate income tax on mergers and acquisitions that are not exempt under EU directives; and (4) the application of double tax treaty provisions.

Tax year

The tax year is the calendar year or any 12-month period approved by the tax authorities.

Filing requirements

Croatia operates a self-assessment regime. Corporate tax is payable in 12 equal monthly installments. The tax return must be filed within four months of the financial year end.

Other taxation in Zagreb

Value added tax

Filing and payment

VAT returns, EC sales lists and EC purchases lists are due by the 20th day of the current month for the prior VAT period. Payments must be made by the end of the month following the VAT period. VAT-related penalties include interest at a rate of 8.14% per year, and fees from HRK 1,000 to HRK 500,000.

Rates

The standard rate is 25%, with reduced rates of 13% and 5%.

Taxable transactions

VAT is imposed on the sale of goods, the provision of services, the intra-Community acquisition of goods and on imports.

Registration

Registration is compulsory where the annual value of transactions exceeds HRK 230,000. A company may register voluntarily if the threshold is not met, but voluntary registration is for a minimum period of five years. Nonresidents carrying out taxable activities in Croatia typically must register for VAT purposes. A VAT identification number must be obtained by residents carrying out transactions within the EU.

Anti-avoidance rules

Transfer pricing

Transfer pricing rules apply to domestic and cross-border transactions between related parties, as well as to domestic transactions if one of the parties is operating at a loss, has tax losses carried forward, pays tax at lower rate or qualifies for tax relief. Transfer pricing methodologies are prescribed in accordance with the OECD transfer pricing guidelines. Transfer pricing studies and benchmark analyses are required.

Thin capitalization

A portion of the interest paid on loans granted by a shareholder or a related party, or by a third party and guaranteed 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 four times the value of the shareholder’s share of the taxpayer’s equity. If the loans subject to thin capitalization rules exceed the 4:1 ratio at any time, the amount of interest attributable to the excess is not deductible. The thin capitalization rules do not apply to loans granted by banks or other financial institutions, although the application of the exemption is not clear if the bank loan is guaranteed by the shareholder or another related party.

Investment basics

Foreign exchange control

The Foreign Exchange Act regulates domestic and foreign currency transactions. Legal entities, as well as domestic and foreign individuals, may open foreign currency accounts in local banks. There are no restrictions on Croatian residents opening foreign currency accounts abroad.

Accounting principles/financial statements

IAS/IFRS applies for large and publicly listed companies. Croatian Financial Reporting Standards (CFRS) govern the preparation and presentation of financial reports for unlisted small and medium-sized companies. Financial statements must be prepared annually.

Principal business entities

These are the sole trader, joint stock company, limited liability company, economic interest grouping, general and limited partnership, branch of a foreign corporation and representative office.

Withholding tax

Dividends

Dividends paid to a nonresident (other than a private individual) are subject to a 12% withholding tax, unless the rate is reduced or an exemption applies under a tax treaty, or the dividends qualify for an exemption under the EU parent-subsidiary directive.

Other

A mandatory 20% withholding tax applies to fees for services, other than those listed above under “Technical service fees,” paid to entities located in countries that are considered to be tax havens or financial centers, excluding EU countries and countries that have concluded a tax treaty with Croatia (the tax authorities have issued a list of such jurisdictions).

Technical service fees

A 15% withholding tax is levied on technical service fees (for market research, audit, tax consulting, business consulting) paid to a nonresident unless the rate is reduced or an exemption applies under a tax treaty.

Interest

A 15% withholding tax is levied on interest paid to a nonresident (other than a private individual), unless the rate is reduced or an exemption applies under a tax treaty or the EU interest and royalties directive.

Royalties

A 15% withholding tax is levied on royalties paid to a nonresident (other than a private individual), unless the rate is reduced or an exemption applies under a tax treaty or the EU interest and royalties directive.