NF-2010-04 - Amendments to the Croatian Corporate Profit Tax Law effective as of 1 July 2010 

Tax loss utilization

In case of statutory changes (acquisitions, mergers, de-mergers, etc.) the legal successor is not entitled to utilize the tax losses carried forward of the legal predecessor if:

• the legal predecessor did not perform any business activity for two tax periods before the statutory change; or

• the business activity of the legal predecessor substantially changes in the course of two tax periods following the statutory change.

This rule also applies where there is a change of more than 50% in a company’s ownership structure. 

Transfer pricing – domestic related entities

The transfer pricing provisions, primarily focused on mandatory documentation, have been extended to apply to transactions between two domestic related entities if one of them has a preferential tax status (e.g. is entitled to a preferential CPT rate, is CPT exempt or has tax losses available for utilization). 

Withholding tax on off-shore payments

Withholding tax at the rate of 20% must be withheld on payments for services made to companies outside the EU if the company has its registered seat or place of effective management and supervision in a country with a CPT rate lower than 12.5% and if the country is included in the list to be published by the Ministry of Finance.

Provisions for unused holidays

Provisions for unused holidays made in line with the relevant accounting standards are recognized as a new type of provision which is deductible for CPT purposes.

Company owned vessels, aircraft and holiday homes

A depreciation expense relating to vessels and aircraft or apartments and holiday homes is recognized as an expense for CPT purposes only if the following conditions are fulfilled:

• the taxpayer is registered for the lease of vessels and aircraft or transportation services by vessels and aircraft while revenue realized from the above-mentioned activity(ies) in the tax period amounts to at least 7% of the acquisition value of such assets; or

• the taxpayer is registered for the rental of apartments and holiday houses while revenue realized from the above-mentioned activity in the tax period amounts to at least 5% of the acquisition value of such assets.

If an asset has been fully depreciated, this provision applies to other costs related to its use.

If the taxpayer obtained the asset under an operating lease, the operating lease installment and related expenses are CPT deductible only if the taxpayer realizes business revenue from the respective activity at least equal to the operating lease expense.

Expenses for pillar III pension insurance

Expenses incurred by employers in relation to payments made to Croatian voluntary pension funds (pillar III pension insurance) on behalf of employees up to a maximum of HRK 500 monthly per employee are deductible expenses for CPT purposes and are not subject to Personal Income Tax.

Expenses following tax inspections

Expenses relating to Value Added Tax, Personal Income Tax, city surtax and social security contributions, assessed in the course of a Tax Authorities’ inspection in respect of hidden profit distributions are not deductible for CPT purposes.

Interim dividend payments

Interim dividend payments in amounts which exceed the year-end profit of a company are subject to Personal Income Tax if not repaid by the shareholder by the date of submission of the company’s annual CPT return.

Fixed assets

The threshold value for capitalizing tangible and intangible assets whose useful life exceeds one year has been increased from HRK 2,000.00 to HRK 3,500.00.

CPT annual return – electronic filing

All large and medium sized taxpayers (as defined in the accounting regulations) must file their year-end CPT returns electronically.

Date of application of new provisions

All of the above-mentioned provisions will be applicable only for the part of the 2010 tax year following the date when the Law becomes effective (i.e. as of 1 July 2010). 

CPT Regulations with further details on the above-mentioned provisions should be issued by the Minister of Finance within a four-month period.

For further information please contact Paul Suchar, Partner, Taxation and Regulatory Services or Tomislav Leko, Manager, Taxation Services.

tax@kpmg.hr
kpmg.hr