Acts on the Amendments of Corporate Income Tax Act, Value Added Tax Act and Personal Income Tax Act have been passed

Corporate Income Tax Act

• The payment of market research, tax consulting, business consulting and audit services is no longer subject to withholding tax, except when they are paid to taxpayers who have their registered seats or places of effective management in countries that are on the EU list of non-cooperative jurisdictions, and if those countries do not have a Double Tax Treaty with the Republic of Croatia.

• The withholding tax rate has been increased from 20% to 25% for payments to taxpayers who have their registered seats or places of effective management in countries that are on the EU list of non-cooperative jurisdictions, and if those countries do not have a Double Tax Treaty with the Republic of Croatia.

• The taxpayers who do not meet the condition of minimum shareholding for an uninterrupted period of 24 months can exercise the right to withholding tax exemption for payment of interest and royalties if they provide Croatian Tax Authorities with a suitable guarantee. The Finance Minister will prescribe the conditions for accepting a suitable guarantee by Corporate Income Tax Regulations.

• The withholding tax exemption for payment of interest, royalties, dividends and profit shares applies, besides taxpayers that are residents of the EU member states, also to residents of the European Economic Area - Norway, Iceland and Liechtenstein. The Finance Minister will prescribe the method of implementation by Corporate Income Tax Regulations.

• Before these amendments, the taxpayers were obliged to pay corporate income tax at the moment of filing the tax return. The taxpayers will now be obliged to pay corporate income tax and determine the overpaid corporate income tax no later than four months after the end of the tax period for which the corporate income tax return is filed. The provisions in question apply to corporate income tax returns filed after 31 December 2023, that is, for the tax period ending on 31 December 2023.

• Before these amendments, tax deductible donation expenses have been determined up to 2% of the revenue generated in the previous tax period. Newly defined tax deductible donation expenses may include also up to 2% of the revenue generated in the current tax period. Additionally, an exception is added, which allows tax deductible donation expenses for the purposes determined by strategic projects according to special regulations or the strategy of the competent ministries even if they exceed 2% of the revenue realized in the previous or current tax period. The tax base, besides the tax non-deductible donations based on the above-mentioned amounts, is increased for donations that result in a direct or an indirect benefit to the taxpayer or its related person. It is also added that any prize with no legal basis, gift or other material or non-material benefit, which can be sanctioned in accordance with the regulations of criminal legislation, is not treated as a tax-deductible business expense. The Finance Minister will prescribe the procedure for tax deductibility of donation expenses by Corporate Income Tax Regulations.

• Certain amounts are rounded to whole numbers for the benefit of taxpayers e.g., the amount of revenue for the purpose of determining the corporate income tax rate (10% or 18%) is rounded from EUR 995,421.06 to EUR 1,000,000.00.

• The fixed assets determining threshold is increased, for the purposes of corporate income tax calculation, from EUR 464.53 to EUR 665.00, as well as the threshold for tax deductibility of a receivables write-off from third party individuals from EUR 26.54 to EUR 40.00.
  

Value Added Tax (VAT) Act

• Stipulations on correction of tax base in relation to inability to collect (partly or fully) overdue receivables are amended. The amendments relate to receivables that have been overdue for more than a year, and for which the taxpayers will be able to unilaterally correct tax base under prescribed conditions. Taxpayers applying this mechanism will be obliged to inform the competent Tax Authorities office of the correction made within the due dates for the submission of VAT return for the period of correction. The recipient of the supply will be obliged to correct related input VAT in the tax period in which it received the supplier’s notification on the correction of the tax base. This obligation of the recipient will be monitored by the Tax Authorities by means of a information on the correction submitted by the supplier. If the recipient fails to correct the input tax deduction, the competent Tax Authorities office will debit the recipient and issue resolution on this.

• Provisions of the VAT Directive prescribing certain requirements for payment service providers to report transactional data of cross-border payments (so-called CESOP reporting) will be implemented into national legislation, with the aim of establishing controls over cross-border supplies and combating fraud in VAT area.

• Amounts that were previously denominated from HRK to EUR under the rules prescribed by the Act on the introduction of the euro are rounded (e.g. the threshold for VAT registration is rounded to EUR 40,000, value of gifts of small value is rounded to EUR 22).
  

Personal Income Tax Act

• Personal allowance is increased from EUR 530,90 to EUR 560.
• Tax bracket for higher personal income tax rate (30%) is increased from EUR 47,780 to EUR 50,400.
• The surtax is abolished with the purpose of implementation a simpler tax system. By abolishing the surtax, the cities and municipalities will be able to determine income tax rates themselves, but within limited ranges, as follows:
  • Municipalities: lower personal income tax rate 15% - 22%, higher personal income tax rate 25% - 33%;
  • Cities with less than 30,000 residents: lower personal income tax rate 15% - 22,4%, higher personal income tax rate 25% - 33,6%;
  • Cities with more than 30,000 residents: lower personal income tax rate 15% - 23%, higher personal income tax rate 25% - 34,5%;
  • City of Zagreb: lower personal income tax rate 15% - 23,6%, higher personal income tax rate 25% - 35,4%.
• During Quarter IV of 2023, municipalities and cities are obliged to make a decision on the level of income tax rates and publish it in the Official Gazette by the end of the current year at the latest, with entry into force on 1 January 2024.
• New tax rates on property and capital income are introduced, as follows:
  • Property income generated from rent or lease - tax rate of 12%;
  • Income from time-limited cession of property rights – tax rate of 24%;
  • New tax rates on property and capital income are introduced, as follows:
  • Capital gain income:
    • based on disposal of financial assets – tax rate of 12%;
    • based on disposal of equity shares – tax rate of 12%;
  • Dividend income and profit shares income – tax rate of 12%;
  • Interest income – tax rate of 12%;
  • Self-employment income – lump-sum taxation of crafts – tax rate of 12%;
  • Income realized from disposal of real estate and property rights – tax rate of 24%.
• The salary burden is reduced through the reduction of base for pension insurance pillar I contribution, up to a maximum of EUR 300. A fixed allowance of EUR 300 is introduced for gross salaries up to EUR 700, while for gross salaries from EUR 700,01 to EUR 1,300 a gradual reduction of the tax allowance is introduced, which is calculated as follows: 0,5 x (1,300 – base).
• A new income tax rate of 12% is determined for the self-employment income which implies lump-sum taxation of crafts.
• The non-taxable amount of tips is determined in the amount of EUR 3,360 per annum. The tips exceeding the prescribed non-taxable amount are considered as final other income taxable at the tax rate of 20%. The obligation to submit information on the receipt of a tip to the Tax Authorities via an electronic link established for the purposes of fiscalization of cash transactions is also introduced.

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