Amendments of tax legislation

Amendments of tax legislation



Amendments applicable from

1 January 2019


Tax Newsflash – Amendments of tax legislation

Amendments applicable for tax years starting
from 1 January 2019


Permanent establishment provisions

Definition of a permanent establishment of a non-resident entrepreneur is deleted from the Corporate Profit Tax Law and with that respect refers to application of the General Tax Law.

Write-off of receivables pursuant to specific legislation

Write-off of receivables pursuant to special legislation regarding customer bankruptcy and special legislation regulating extraordinary administration proceedings in companies of systematic importance are considered as tax deductible – these provisions are applicable to
year 2018 corporate profit tax returns and

Interest limitation rule

Borrowing costs exceeding taxable interest income (or economic equivalent) will be tax deductible only up to: (1) 30% of the taxpayer's earnings before interest, tax, depreciation and amortization (EBITDA); or (2) EUR 3,000,000.

This rule will not be applicable to standalone taxpayers (i.e. taxpayers that are not part of a consolidated group and have no related parties or permanent establishments and do not receive or provide loans from/to its members or
shareholders) and taxpayers which are financial companies.

Exceeding borrowing costs in excess of the prescribed amounts can be carried forward for three tax periods.

Controlled foreign company rule Controlled foreign company (CFC) rule is introduced, on the basis of which, under certain conditions, undistributed profit arising from specific categories of income (e.g. interest, royalties, dividends, income from financial activities, etc.) of the CFC or permanent establishment in another country is attributed to the mother company, taxpayer in Croatia and is subject to corporate profit tax.

This rule does not apply to CFC which performs significant economic activity, or CFC whose specific categories of income comprise 1/3 or less of total income. Banks and financial companies are not considered as CFCs if they generate 1/3 or less of total income from transactions with related parties.

Withholding tax

Introduction of withholding tax payable at the rate of 15% on fees for performances of foreign artists (performers) in cases when such fees are payable pursuant to contracts with foreign legal entities. Additionally, there is no obligation to calculate personal income tax and social security contributions the foreign performers.

The increased withholding tax at the rate of 20% will be applicable to all types of payments which are subject to withholding tax and which are paid to recipients in countries which are included on the EU list of non-cooperative jurisdictions.


The most important changes to the Croatian
VAT Law applicable as of 1 January 2019:

Reduced VAT rate of 13% (instead of currently applicable standard VAT rate of 25%) will apply to the supplies of the following products and services:

  • Child diapers;
  • Live animals;
  • Raw or chilled meat, sausages and other butcher’s products;
  • Live and fresh fish, crabs, mollusks and other water invertebrates;
  • Fresh and dried fruit and vegetables and nuts;
  • Fresh poultry eggs; and
  • Services and related copyrights of authors, composers and other artists.

Reduced VAT rate of 5% will apply to both prescription and non-prescription medicines (previously, the reduced VAT rate was applicable only to prescription medicines).

Entrepreneurs will be obliged to register for
VAT during the calendar year in which the total value of supplies exceeds threshold of HRK 300,000.

There will be changes in taxation rules regarding the reverse charge mechanism for taxable supplies made by non-established taxpayers (i.e. reverse charge in accordance with Article 75 (2) of Croatian VAT Law / Article 194 of EU VAT Directive) – the reverse charge mechanism will no longer be applicable for the supplies made by non-established taxpayers that are VAT registered in Croatia.

Taxpayers will be obliged to submit an overview of incoming invoices along with their VAT returns.

Provisions in relation to taxation of electronically provided services will be amended in accordance with the Council Directive (EU) 2017/2455.

In addition to the above changes applicable as of
1 January 2019, as of 1 January 2020 standard VAT rate will be reduced from of 25% to 24%.


Amendments effective as of 1 December 2018 (Amendments on Personal Income Tax Regulations)

In addition to awards for special occasions (Christmas bonus, holiday bonus etc.) which are non-taxable up to the amount of HRK 2,500, as of 1 December 2018 employers may pay to their employees additional non-taxable rewards for performance results or other forms of rewards (including additional salary, increment on salary etc.) up to HRK 5,000 per annum.

Amendments effective as of 1st January 2019 (Amendments to Personal Income Tax Law)

New monthly[1] and annual[2] tax brackets are applicable on the employment income receipts, other income receipts and self-employment income.


Monthly/annual tax base up to 31 December 2018  Monthly/annual tax base As of 1 January 2019  Tax rate
Up to 17.500/210.000 Up to
As of 17.500/210.000  As of


Receipts from voluntary pension funds (3rd pillar) and life insurance funds with savings elements are not considered taxable income, that is, there is no withholding tax obligation for payments of that income by pension funds and insurance companies. Employers are still entitled to pay insurance premiums free of tax on behalf of an employee to Croatian voluntary pension funds up to the amount of HRK 500/6,000 per month/annum.

As of 1st January all receipts based on stock awards and stock option plans will have equal tax treatment, i.e. will be considered as a net capital benefit in kind, subject to 24% tax rate (increased for city surtax, if any) regardless whether they are provided to employees, board members (who are not the employees of the company) or other individuals; or whether the company shares are listed on official stock market; or whether individuals are receiving company’s own shares or shares of another (related) company. As capital income these receipts are not subject to mandatory social security contributions.

Taxpayers who receive income from abroad will have a possibility to choose how to report that taxable income to the Croatian Tax Authorities: as determined in the country of source or as determined based on Croatian legislation. Up to now, income received from abroad was always reported as determined based on Croatian legislation.


As of 1 January 2019 unemployment contribution and injury at work contribution (in the cumulative total amount of the 2.2%) are no longer payable. At the same time health insurance contribution rate is to be increased for the additional 1.5%. This will result with the lower overall employers’ social security contributions for 0.7%.


Employer Contribution
Until 31.12.2018. As of 01.01.2019.
Health insurance contribution
Injury at work contribution
0,5% Ukida se
Unemployment contribution
1,7% Ukida se
17,2% 16,5%


An annual contribution liability is introduced for the board members who are employees of the companies where they are appointed if they were contributing (for all companies) on the base which is below the one prescribed for the full time employment. This will result with the application of the same minimum base for the calculation of the social security contributions for all individuals who are appointed as board members based on an employment contract, regardless whether their employment is defined as a full time or a part time.

Payers of so called “other income” can no longer apply the annual cap for 1st pillar pension insurance contributions. If an overpayment of 1st pillar pension insurance contributions occurs, a recipient is entitled to submit a request to the Croatian tax authorities to proceed with the refund of the overpaid 1st pillar pension insurance contribution. This request can be submitted as of 1 February of the year for the previous year.

[1] Applies to the calculation of personal income tax prepayment on employment income.
2 Applies to the annual income tax calculation on employment income, other income and self-employment income.


Real Estate Transfer Tax rate will be reduced from 4% to 3% as of 1 January 2019.


Binding opinions will not be limited to a specific scope, but may be requested by the taxpayer on any tax treatment of future or intended transactions.

Rules for determination of the place of residence for individuals having residential address in Croatia and abroad is extended in such a way that, for tax purposes, the place of residence is considered to be the place in the country where the family of the individual is located or, for unmarried individuals, in the country from which the individual predominantly goes to work or where the individual is predominantly habitually present. If the other country where the individual has a residential address does not consider such an individual to be its tax resident, then it is considered that such an individual is resident in Croatia for tax purposes.

The definition of related parties is expanded to include persons that, for tax purposes, constitute a singular risk in a way that they perform business activities using the same premises and equipment in continuity.

Carrying out a business activity via the Internet will be restricted if such an activity is carried out for the purpose of avoidance of compliance with regulatory provisions, obtaining tax benefits or acting in a way that is detrimental to the community. In that case, the Croatian Tax Authorities may prohibit such an activity to be carried out by initiating a restriction to access the Internet webpage through which the business activity is carried out.

Tax assessments and other documents issued by the Croatian Tax Authorities can be issued electronically, electronic invoices can be issued by the taxpayer (unless expressly prohibited by the invoice recipient) and accounting documents can be kept electronically. The Minister of Finance will issue regulations that will regulate this in more detail.

With respect to fiscalisation audits or audits of tax compliance in games of chance, the Croatian Tax Authorities will issue only tax minutes, i.e. there will no longer be an obligation to issue a tax resolution.

The Croatian Tax Authorities ex officio monitor statutes of limitation with respect to tax refund rights.

Changes in the provisions for determining the permanent establishment of a non-resident

General Tax Law will implement general provisions on the permanent establishment (“PE”) of a non-resident, which is in accordance with the current provisions within the Corporate Profit Tax Law. In addition, gains realized by non-residents with respect to real estate in Croatia will be subject to Croatian taxation.

More detailed provisions will be introduced on agency PEs, which are in line with the 2017 OECD Model Tax Convention on Income and on Capital. Generally, an agency PE will be constituted by a person who usually concludes contracts or has a major role in the process of concluding a contract of a non-resident.

An agent acting solely on behalf of one or more closely related non-residents will not be considered as an independent agent.

When determining the profits of a PE, it is required to take into account the functions performed at the level of a PE, the assets it uses in performing business activities and the risks it takes over when carrying out business activities.


Statistical report on outstanding unpaid receivables (Form OPZ-Stat) will need to be filed on an annual basis within deadlines for filing personal income tax or corporate profit tax returns, as opposed to current quarterly reporting obligation.



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