Interest Rates for the year 2020
The Ministry of Finance has published its annual market interest rate for related party borrowings 2020. The interest rate amounts to 3.42 % p.a.
This interest rate is both the lowest and the highest tax-deductible interest rate that can be charged on loans between domestic and foreign related parties. To clarify further:
Foreign related parties
- If interest on loans provided by a Croatian company to a foreign related party is not charged or it is charged at the rate below the prescribed rate of 3.42% p.a., then the corporate profit tax base must be increased for the difference in the Corporate Profit Tax return;
- If interest on loans provided by a foreign company to a Croatian related party is charged at the higher interest rate than the prescribed rate of 3.42% p.a., corporate profit tax base must be increased for the excessive interest charges in the Corporate Profit Tax return.
Domestic related parties
The above market interest rate rules also apply on loans between domestic related parties when one of the parties is in a tax favourable position; specifically, when:
- it pays corporate profit tax at the rate lower than the prescribed corporate profit tax rate or if does not pay tax at all (i.e. uses tax relieves); or
- if in the respective tax period it utilises tax losses carried forward from previous years
Penalty interest
New penalty interest rate which the Tax Authority will charge in the period from 1st January 2020 to 30th June 2020 amounts to 6.11% p.a.