Taxation in Croatia
Croatia’s taxation framework is a complex system that plays a crucial role in the country’s economic strategy, aligning revenue collection with growth and investment incentives. It includes various taxes, each regulated by intricate rules and rates. A comprehensive knowledge of this system is vital for businesses, investors, and individuals for effective financial management and adherence to regulations.
Taxation system
Croatia’s taxation system is crafted to harmonize with internal fiscal policies and international commitments, providing a well-organized yet flexible taxation framework. It may incorporate a mix of flat rates, progressive scales, and specific exemptions, which mirror the economic goals and social aims of the nation. Grasping the complexities of these tax mechanisms is essential for maximizing financial results, maintaining compliance, and making the most of the opportunities available within the legal structure.
Capital gains tax
Tax responsibilities related to capital gains income comprise maintaining records, assessing income, performing calculations, making prepayments, and filing reports. Holders of financial assets can coordinate with companies or individuals for managing tax-related duties, excluding the actual payment of taxes. Taxpayers are required to notify the Tax Administration about disposals. The rate for income generated from interest, dividends, and capital gains is 12%.
Corporate taxation
In Croatia, the Corporate Income Tax (CIT) is applied to businesses that conduct independent economic activities. The tax base is determined by taking the accounting profit and making adjustments for allowable deductions and items that are not permitted. Residents of Croatia are liable for CIT on their global income, whereas non-residents only pay CIT on income generated within Croatia. There are provisions that can lower the tax base, including dividends and unrealized gains, while specific expenses and entertainment costs can increase it. Additionally, small businesses with annual revenues under EUR 1 million are subject to special tax regulations, benefiting from a lower tax rate of 10%.
Personal income taxation
In Croatia, personal income tax (PIT) follows a progressive structure, with rates that vary from 15% to 35.4% based on an individual’s yearly earnings and their location. Residents are taxed on their global income, whereas non-residents are taxed solely on income obtained from Croatian sources. Various income types, including employment income, self-employment income, and property income, are subject to annual taxation. In contrast, capital income and certain property transactions are treated as final income and taxed separately. Additionally, PIT includes several deductions, allowances, and relief mechanisms to reduce the taxable amount.
Dividend taxation
In Croatia, dividend tax is imposed on capital income obtained from profit distributions. For individuals who reside in the country, dividends incur a tax rate of 10%, along with any relevant surtax depending on where the recipient lives. Non-resident individuals face a 10% withholding tax on dividends, unless an international tax treaty states otherwise. Legal entities do not have to pay corporate income tax on dividend payments. If dividends are paid to a parent company located in the EU, a complete tax exemption might be available provided certain criteria, like holding at least 10% for a minimum of two years, are fulfilled.
Property tax
In Croatia, the main tax on property is the real estate transfer tax (RETT), which is charged at a rate of 3% when ownership of real estate is transferred. This tax is applicable to various types of transactions, including sales, exchanges, gifts, inheritance, and transfers related to company liquidation. Properties that are subject to VAT do not have to pay RETT. Furthermore, Croatia does not have an annual property tax on real estate, except for a minor tax on vacation homes. A capital gains tax of 20% is imposed on the sale of property if the transaction occurs within two years of its purchase.
Inheritance taxation
In Croatia, a flat inheritance tax of 4% is applied to the inheritance of cash, securities, and movable assets (worth over €6,700) for those who are not immediate family members. In contrast, spouses, children, and direct descendants do not have to pay inheritance tax. This same 4% rate is also applicable to gifts of comparable items. The tax is determined based on the market value of the inherited or gifted items, subtracting any debts and expenses.
International taxation
Residents of Croatia are taxed on their global income, while non-residents are only taxed on income generated within Croatia. The income tax rates are progressive, varying from 20% to 30% for earnings from employment, while property and capital income are subject to a flat rate of 10%. Both employers and employees are required to make social security contributions, which have defined rates for pensions and health insurance. Additionally, municipalities may levy a surtax on income tax, which varies by city. Individuals must report and comply with tax obligations based on their residency status and sources of income, with options for deductions available for social security contributions and personal allowances.
Cryptocurrency taxation
In Croatia, cryptocurrency transactions are classified as financial transactions. Individuals are taxed at a rate of 12% on capital gains from selling cryptocurrencies. Companies involved in cryptocurrency trading face corporate income tax, which can be either 18% or 10%, based on their annual revenue. Income obtained from mining cryptocurrencies is taxed, with different rates applied depending on whether it is categorized as self-employment income. However, simply holding cryptocurrencies and trading them for other cryptocurrencies do not trigger taxes unless they are converted into fiat currency.
VAT system
Croatia’s VAT system is in line with the EU VAT Directive. VAT is applicable on the sale of goods, the provision of services, the importation of goods, and intra-Community acquisitions. The standard rate is set at 25% for most products and services. A reduced rate of 13% is applicable to items including hotel stays, food, water supply, and certain cultural services. A 5% rate is designated for essential items such as bread, milk, books, and medications. Furthermore, a 0% rate is assigned to certain passenger transport services, exports, and other activities related to international and intra-community trade.
Our taxation solutions
In a tax landscape that is always changing, expert assistance is crucial. Our firm provides a range of specialized tax solutions aimed at addressing the varied needs of individuals, businesses, and investors in Croatia. Our offerings are crafted to help navigate the intricacies of the tax code, reduce liabilities, and guarantee complete compliance with regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
Navigating the intricate world of taxation can be challenging, and seeking professional guidance can be highly beneficial. Reach out to us today to arrange a consultation with our tax specialists. We will collaborate with you to create a customized tax strategy that meets your goals and adheres to the regulatory requirements in Croatia.
Disclaimer
Tax laws and regulations are continuously evolving and can differ depending on personal circumstances. The information presented here is meant for general guidance and may not represent the latest updates. It is strongly advised to seek the assistance of a qualified tax professional for precise and current advice tailored to your individual situation.