Croatia: Treasury rate

The Croatian National Bank has decided to lower its treasury rate from 9% to 7% as of 1 July 2011. The decrease of the treasury rate will affect all taxpayers engaged in related party financing. The Croatian tax regulations provide that the treasury rate is the equivalent of a market interest rate in related party loan transactions and in this respect there has not been any change.

This means that Croatian companies issuing loans to their related parties, both foreign and local, at the interest rate under 7%, will be required to increase their tax base for the difference in income arising from the contractual rate and the rate of 7%. Thus the additional tax burden for lending entities will be lowered.

Conversely, related party interest expenses will be deductible only up to the 7% rate and enterprises borrowing from related parties at the agreed interest rate above 7% will have to treat the difference as a non tax deductible expense. Consequently, companies that are currently borrowing from their related parties at a rate above 7% will incur an additional tax burden.

Income and expenses from related party lending up to 1 July 2011 will remain subject to the 9% rule.

Filming tax rebate. The Croatian Audiovisual Centre has proposed the introduction of a 20% filming tax rebate as of December 2011. The Croatian Tax Rebate for Film and Television will focus on attracting feature films, documentaries and television dramas, with a 3 million euro cap per qualifying production. Foreign producers will need to work with a Croatian co-producer and satisfy a cultural test to be eligible for support.

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