tax-changes

Tax Changes 2019

As of 1 January 2019, the following tax changes will become effective:

Crowe Croatia
29.11.2018.
tax-changes
Tax Changes

VALUE ADDED TAX

VAT at the rate of 5% will be payable on:

  • Books, except those which mainly contain ads or mainly or entirely have video or music content. Such books are taxed at the rate of 25%. Similar provisions are introduced for newspapers and magazines; and
  • Drugs that have an approval of the competent authority, regardless of whether they are issued on prescription or not.

VAT will be reduced to the rate of 13% instead of 25% and will be payable on:

  • Live animals, fresh or cooled meat and entrails;
  • Fresh or cooled sausages and similar products;
  • Live, fresh or cooled fish, crabs, seafood;
  • Fruits and vegetables;
  • Nuts;
  • Eggs;
  • Children diapers, and
  • Services and related copyright of writers, composers and artists.

The Taxpayer will be obliged to register for VAT during the year in which his taxable supplies exceeded HRK 300,000. According to previous regulation, in such cases registration for VAT was mandatory from the following calendar year.

A special record of incoming invoices (i.e. so-called Book of incoming invoices, whose prescribed content will not be changed) will be electronically submitted each month along with the VAT return.

Taxpayers will be allowed to deduct 50% of input VAT for the cars purchased regardless of their value (according to the old regulation the VAT deduction was limited to HRK 400,000 of the car value).

Electronic services performed by a Croatian taxpayer in other EU Member States could be taxed with Croatian VAT, provided that the value of these services does not exceed HRK 77,000 without VAT.

Taxpayers which are not established within the EU will be able to apply Moss scheme (Mini One-Stop-Shop) for electronic services, i.e. if they provide services in several EU Member States, taxpayers will be able to pay VAT only in one EU Member State.

Non-established taxpayer who has Croatian VAT ID number and invoices goods and/ or services to a Croatian taxpayer, will no longer be able to apply reverse-charge mechanism, but will be obliged to charge Croatian VAT to its customer.

Sale of concrete steel or iron and products made from such steel and iron (armatures) will be subject to reverse-charge mechanism (the same as construction services).

Standard VAT rate will be reduced from 25% to 24% from 1 January 2020.

CORPORATE PROFIT TAX

Receivable write-offs made in accordance with the so-called Lex Agrokor will be tax deductible for the Corporate Profit Tax purposes already in the tax return for 2018.

Withholding tax will be payable on fees for performance of foreign artists, entertainers and athletes when, in accordance with the service agreement, such payments are made to foreign legal entity.

The obligation to pay withholding tax at the rate of 20% is extended to interest, dividend, royalties and other fees if paid to legal entities established in countries that are listed as non-cooperative jurisdictions for tax purposes by the European Union and with which the Republic of Croatia does not apply double tax treaty.

The following rules with regard to profit shifting are introduced:

  • Interest limitation rule: interest and other borrowing costs related to borrowings received from abroad will be tax deductible up to EUR 3,000,000 or 30% of earnings before interest, tax, depreciation and amortisation (“EBITDA”), whichever is lower. This rule is not applicable for financial undertakings and standalone taxpayers, i.e. those that are not part of a consolidated group, are not obliged to prepare consolidated financial statements, have no associated enterprise or permanent establishment and do not approve or receive loans from their shareholders.
  • Controlled foreign company (“CFC”) rule: if, for example, a foreign company is considered to be a controlled foreign company of a Croatian company, and is not subject to tax or is exempt from tax in foreign jurisdiction, the Croatian company must include in its tax base the profits of the controlled foreign company arising from the following categories of income: interest or financial assets income, royalties or intellectual property fees, dividends, financial leasing, insurance, banking, etc.

PERSONAL INCOME TAX AND SOCIAL SECURITY CONTRIBUTIONS

Tax bracket for taxation at the rate of 24% is increased from HRK 17,500 to HRK 30,000 per month (i.e. HRK 210,000 to HRK 360,000 per annum). Income above this amount is taxed at the rate of 36%.

Insurance compensation for serious injury and disability, scholarships and awards for excellence of students and child support for a deceased employee or a former employee with a complete loss of working ability are excluded when determining the right to a personal allowance for supported members. In the last two cases, the prescribed exemption is applicable only for children in elementary school up to 15 years of age.

Stock options granted to the employees will no longer be taxed as income from employment (salary) but as final capital income (such income is not included in the annual personal income tax return) at the rate of 24% (increased for city surtax, if applicable). The market value of such receipt will be gross income (previously net income).

Other receipts

Reimbursement of social security contributions and income realized as the difference between the reported income and actual assets is considered as final income (not included in the annual personal income tax return) and taxable at the rate of 36%.

Income of individuals on occasional seasonal jobs in agriculture is considered as final income (not included in the annual personal income tax calculation) taxable at the rate of 12%.

In case of borrowings provided to individuals at favourable interest rates, the difference between the lower favourable interest rate and the annual interest rate of 2% is taxable income (instead of the current annual rate of 3%).

Non-taxable payments

As of 1 December 2018, the amount of non-taxable payments that can be paid by the employer to an employee is increased from HRK 2,500 to HRK 7,500 per year, regardless of the purpose of the payment.

If employer pays voluntary pension and life insurance premiums for the employee, such payments are no longer considered as taxable income of the employee.

Donations by individuals for transportation and accommodation costs for healthcare purposes are not considered as taxable income.

Receivable write-offs to individuals in accordance with special bankruptcy regulations are not considered as taxable income for these individuals.

Textbooks, workbooks and notebooks which are provided free of charge by local authorities to elementary and high school students, as well as cash benefits paid out from the local authorities’ budget, are not considered as taxable receipts.

Formal and informal education programs for unemployed persons and other socially vulnerable groups which are organized free of charge by individuals and/ or legal entities and financed from the state budget or EU programs, are not considered as taxable receipts.

Social security contributions

Compulsory insurance contributions for unemployment (1.7%) and safety at work (0.5%) are abolished. Health insurance contribution is increased from 15% to 16.5%. The total social security contributions on salary will amount to 16.5%. Following this, the total salary burden with social security contributions is decreased from 37.2% to 36.5%.

The minimum base for calculation of social security contributions for board members, executive directors and liquidators cannot be lower than 0.65 of the average gross salary (proportionate to the number of months spent on that function). Any difference in social security contributions for payment will be determined in annual calculation by resolution issued by the Tax Authorities. If the company does not pay social security contributions on the prescribed base for the board member, director and liquidator, they must personally pay the difference at the end of the year.

Foreign income

For the purpose of determining the foreign income, taxable income will be considered income stated in foreign certificates and determined in accordance with foreign tax regulations.

Obligation to keep business records in the Republic of Croatia for self-employment income realized abroad does not exist anymore.

Taxpayers have the option to pay personal income tax advance payments on foreign income in the Republic of Croatia throughout the year and in that manner choose to tax their foreign income in accordance with the Croatian tax regulations.

Flat-rate taxation

Flat tax rate per bed or per accommodation unit in Camp cannot be less than HRK 150 nor higher of HRK 1,500.

REAL ESTATE TRANSFER TAX

Real Estate Transfer Tax rate is decreased from 4% to 3%. The lower rate is applicable on contracts concluded from 1 January 2019.

EXCISE DUTIES

A new Excise Duties Law was adopted which regulates, among others, the following:

  • Reimbursement of part of the excise duty paid on diesel fuel used in the commercial truck transportation of goods (truck of at least 7.5 BRT).
  • Deadline for payment of excise duty on alcohol and alcoholic beverages is extended from 30 to 60 days.
  • Obligation to assess the difference in excise duty on cigarettes in stock which used to be paid upon each increase in excise duty on cigarettes and/ or increase in retail cigarette price is now abolished.
  • Energy usage control measures will be introduced, i.e. special approvals will be issued for the sale of energy products used as motor fuel and heating gas.

FISCALISATION

If a fiscalisation taxpayer issues a document stating the payment details on it prior to issuing an invoice, the following should be noted on such document “This is not a fiscalized invoice”.

Deadline for which the fiscalisation taxpayer is required to re-start the payment device is extended now from two to five days.

As of 1 January 2021, the obligation to issue fiscalized invoices will be introduced for the sale of goods or services through self-service devices (e.g. parking machines, milk vending machines, etc.).

GENERAL TAX ACT

Binding opinions may be requested for any tax related transaction provided that it is related to a future (i.e. not already existing) transaction.

For persons who have a permanent residence (i.e. an apartment owned or leased for more than 183 days within one or two calendar years, regardless of whether they reside in that apartment or not) in Croatia and abroad (e.g. persons working abroad), the basic criterion for determining the place/ state of taxation is the place/ state of their family residence or the place/ state of work.

The Tax Authorities may prohibit the operation and block the access to the content of the internet address of an entrepreneur performing business activities online in case of violation of regulations resulting in illegal tax benefits).

The definition of a permanent establishment of a non-resident is harmonized with the definition provided in the Corporate Profit Tax Law, whereas this definition includes the elements of the new OECD Model Tax Convention on Income and on Capital from 2017. The changes are in particular related to preparatory and auxiliary activities and the concept of a dependent agent.

Definition of related persons is extended and now it also includes persons who use the same premises, equipment or employees in continuity, thus achieving continuity of their activities.

An electronic invoice can be issued if the invoice recipient does not explicitly refuse to receive such invoices.

Tax authorities must monitor the statute of limitation for tax refund “ex officio”, i.e. they do not need an official request to do so.

OPZ-STAT

OPZ-STAT form will be submitted annually within the deadlines prescribed for filing of the Personal Income Tax or Corporate Profit Tax return (instead of quarterly basis as prescribed).

TOURIST CONTRIBUTION

A new Law on tourist contributions was proposed and should enter into force as of 1 January 2020. In accordance with the new Law, certain activities/ companies will no longer be subject to the tourist contribution (e.g. IT companies, sports facilities, etc.). Banks will become obliged to pay the tourist contribution on income from the category: “Income from fees and commission”. Furthermore, the proposed Law should simplify the process of calculation of the tourist fee (e.g. number of calculation rates is reduced from 28 to 5, the classification of the taxpayer’s headquarters into tourist classes according to which the applicable tourist contribution rate is determined is abolished, for certain taxpayers the possibility of one-off payment of the tourist contribution is introduced instead of payment of advance payments, etc.).

 

In care of any queries please feel free to contact us.

Your Crowe Team