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Croatia: VAT

Alessandro PasutWith the accession to the EU, VAT on intra-community acquisitions is chargeable upon invoice issuance, or if invoice has not been issued, it should be charged no later than the 15th day of the month following the month in which the acquisition occurred.
The supply of goods to final customers within the EU will be taxable in Croatia, unless the value of the supply in question exceeds the distance selling threshold prescribed by the respective Member State. The proposed threshold for Croatia is HRK 270,000 (approximately EUR 35,700). The supply of land for construction will no longer be VAT exempt.
Invoices for the intra-community supply of goods should be issued no later than the 15th day of the month following the month in which the sale occurred. In case the supplier fails to issue the invoice in time, the acquirer is obliged to self-assess the VAT. Simplified invoice for the supply of goods and services not exceeding HRK 700 (approximately EUR 90) has been introduced. It will also be possible to issue collective invoices for several supplies made in the same month.

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Croatia: new tax law proves to be effective

Alessandro PasutNew tax law proves to be effective: the rigorous new measures implemented by the Croatian tax administration prove to be effective. In the tourism industry tax inspectors are implementing the new tax law aimed at controlling the grey economy by cracking down on businesses that avoided paying sales taxes. Several hotels, bars and restaurants were closed for some days due to financial irregularities. According to Finance Minister Slavko Linic the new measures adopted this year have been successful for the tax administration, bringing in much-needed revenues to the State, but the process known as “fiscalisation” is only beginning. In the six months since the start of the fiscalisation, the state recorded increased revenues of 1.73 billion euro against the same period last year, the tax administration reported.

The president of the Croatian Employers’ Association supports the finance ministry in the implementation of the new tax regulation. He said entrepreneurs who do not meet all the fiscal obligations constitute unfair competition to others.

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Croatia: Mercator has been sold to Croatian Agrokor Group

Slovenian retail chain Mercator has been sold to Croatian Agrokor Group, according to reports today by the Croatian media citing the announcement of the Slovenian news agency STA.

Trade consortium of majority shareholder of Mercator concluded the agreement with Agrokor Group to sell 53% of Mercator shares, priced at 86 euros per share. In recent weeks, there were increased pressures of certain political and other circles so that the contract wouldn’t be realized.
NLB (New Ljubljana Bank) as a bank, which is 100% owned by the Slovenian state has about 10% of Mercator shares.

Mercator and Agrokor confirmed today that all the conditions for the conclusion of the transaction were fulfilled so that the majority stake in Slovenia’s retail chain can be sold to the largest Croatian food Group. The agreed price per share is 86 euros, meaning that Agrokor for a majority stake in Mercator will have to pay 172 million euros. Agrokor will also make a capital increase in Mercator with 225 million euros, of which 200 million will go to pay off the debt, and 25 million for operating capital.

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Croatia: Electronic Submission of tax returns

As of 1 January 2012, the following taxpayers are obliged to file their tax returns and other reports electronically: medium and large sized entrepreneurs (according to the definition provided by the Accounting Law) and VAT taxpayers whose annual taxable deliveries of goods and services exceed of HRK 800,000 (domestic taxable deliveries and exports).

Employers or payers of salaries and pensions that have more than 100 employees, retirees and other persons to whom receipts are paid in accordance with the Personal Income Tax Law, are only obliged to electronically file monthly income declaration forms if not otherwise specified. Taxpayers not otherwise required to submit tax returns and other reports electronically may voluntarily register and use the electronic taxation service „ePorezna“, which brings a number of benefits.

Currently, electronic submission of the following tax returns and other reports are allowed: monthly and annual VAT returns; monthly reports on salaries and other income; annual corporate income tax return; annual calculation of the monument fee; annual calculation of the tourist fee; and insight into the Croatian Tax Administration’s records of the taxpayer.

The following tax returns and reports must be physically submitted on electronic media: annual information on salaries or pensions; annual report on allowances disbursed and the advance payments of withholding tax on other income, income from property rights, income from capital and income from insurance and annual information on personal income tax deductible insurance premiums and voluntary health insurance premiums.

As of 1 January 2012 the submission of the Annual Financial Statements to the Financial Agency (FINA) is no longer free of charge.  However, if Annual Financial Statements are submitted electronically, the service continues to be free of charge.

In order to use ePorezna services a digital certificate with information proving the identity of the legal entity, including an electronic signature must be obtained.  The authorized issuer of digital certificates is FINA and the certificate is issued on a FINA e-card that also allows users access to certain other services.

The General Tax Law prescribes penalties for both legal entities and individuals who do not electronically submit tax returns and other reports ranging from HRK 5,000 to HRK 500,000 and for the responsible person ranging from HRK 2,000 to HRK 100,000.


Croatia: Tax changes in 2011

Some changes to the income tax law have come into force respectively on 15 October and 8 December 2011.

Loans with a favorable interest rate: The interest rate for the calculation of income on employer-provided loans is reduced from 4% to 3%. If an employer-provided loan has an interest rate below 3%, the difference between 3% and the interest rate on the loan is treated as income to the employee.

Dividends and profit shares on the basis of share capital: It is no longer necessary to make payments of dividends and profit shares on the basis of share capital to the shareholder’s giro account in a bank. However, payers of dividends and profit shares are now required to maintain records of calculated and paid dividends and profit shares for every individual shareholder, and to submit a prescribed report of calculated and paid dividends and profit shares (DU form) to the tax authorities.

The DU Form must be prepared and submitted to the tax authorities by the 15th day of the month following the month in which dividends and profit shares were paid. If advance payments of dividends and profit shares on the basis of share capital are made during the tax period, the DU form must be filed following the advance payment, but the dividend is considered to be paid when the advance payments are settled against the realized profit.

There is an exception provided if the advance payments of dividends are made in the current tax period for the previous tax period; in such instances, the dividend is considered to be paid in the moment of making the advance payment.

Value added tax: The changes to VAT regulations approved with effect from 1 August 2011 introduce electronic invoicing. Thus, as of this day it is not necessary to issue paper invoices for goods supplied and services provided. Invoices can be issued electronically, if certain conditions are met.



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.


Croatia: New law on foreigners

In the framework of the accession process to the European Union, Croatia has to adjust national regulations with the EU law. Thus, in May, a draft of the new law on foreigners has been published and was submitted for approval to the Croatian Parliament.

Regarding their work and stay in Croatia, the draft states that in future foreigners coming to work in Croatia will not need a work-business and a residence permit, but will be able to obtain a single permit for work and stay. The permit for work and stay out of the quota regime is extended to categories for which business permit is currently required.

Additional conditions are required for obtaining a work and stay permits for one key person who is not a-EU citizen: the subscribed capital of the respective company must be higher than HRK 100,000; at least three Croatian citizens must be employed in the company on positions other than procurement, members of the board or supervisory board; the gross salary of the key person has to amount at least to the average gross salary in Croatia.

If more than one foreigner, who is not an EU citizen, is holding key positions in the company the conditions for work and stay permits are the same except that five Croatian citizens have to be employed.

New specific conditions will be introduced for obtaining a permit to work and stay for a non EU citizen who is a person self-employed in its own company or in a company in which he/she has a share of over 51%.

The possibility of work without a work permit for up to 90 days is extended to assignees. An assignee is defined as a person employed by the employer established in the member states of the European Economic Area sent by his/her employer to Croatia based on the agreement signed between the employer and a company in Croatia; or as a person sent to its branch office or related company or a person hired temporarily out to the company which operates in Croatia while keeping such worker employed during the hire out period.


Croatia: VAT regulations

VAT legislation in Croatia has recently undergone a number of significant changes. Some amendments have been introduced as antirecession measures while others are a part of the EU harmonization process.

As an antirecession measure, effective 1 August 2009 the standard VAT rate was raised from 22% to 23%. In order to harmonize Croatian VAT legislation with the EU VAT Directive additional amendments to the VAT Law were made, effective 1 January 2010, including:

-the institutional VAT exemption previously applicable to banks, insurance companies and other financial institutions was replaced with a financial service exemption;

- an obligation for foreign entrepreneurs to register for VAT when performing  VATable deliveries in Croatia was introduced

-  the right for non Croatian entities to claim VAT refunds on the basis of reciprocity was introduced;

- small value gift exemptions were introduced;

-  rules regarding the place of taxation of services were amended but the EU VAT package was not implemented (further changes are expected to be put before Parliament in mid 2010).

As the amendments to the VAT Law are quite extensive and introduced new taxation concepts, completely new VAT Regulations have been implemented which particularly prescribe services that are considered to be financial services; methods for input VAT recoverability; procedure for VAT refunds to foreign entities not performing VATable deliveries in Croatia; guidance regarding the application of VAT exemption for small value gifts etc.

However, the amendments to the VAT legislation proved to be insufficient to ensure a uniform application by taxpayers and left space for various interpretations of the introduced provisions. Therefore, the Croatian Tax Authorities announced that additional guidelines will be issued which should eliminate inconsistencies and provide guidance to taxpayers.


Croatia: Miscellaneous

Croatia - flag


Foreign exchange regulations. Amendments to the Foreign Exchange Act have come into force on 1 January 2011. According to the new rules, residents are allowed to open bank accounts in banks and other financial institutions abroad without approval and authorization by the Croatian National Bank.
Residents can also receive loans from foreign financial institutions without having to transfer the granted loan into a Croatian bank account. This provision applies both to enterprises and private persons.
Pursuant to the amendments the Croatian National Bank lifted the administrative restrictions on cash payments and reimbursements in business transactions between residents and non-residents in HRK and foreign currencies.
The Prevention of Money Laundering and Terrorism Financing Act, however, still contains rules limiting cash payments by all enterprises and private persons performing a registered activity. Within Croatia, cash payments are limited to the amount of 105,000 HRK or in business transactions with non-residents to the amount of 15,000 euros.

Tax deductions. The Personal Income Tax Act in force since 1 July 2010 has abolished tax deductions that can decrease annual tax base and result in potential tax refund, with the exception of paid compulsory health insurance up to the amount of prescribed compulsory health insurance contributions and gifts in cash and in kind transferred to the current account for specific purposes, up to 2% of taxpayer’s income in the annual tax return submitted and the annual income tax assessed in previous year.
However, in the annual tax return for 2010 deductions referring to payments made until 30 June 2010 can be claimed up to a total amount of HRK 6,000. These deductions are granted for interest paid on housing loans, investments in real estate, paid rent, paid premiums of life insurance and additional health insurance, voluntary pension insurance, and payments made for healthcare.