NF-2011-01 - 2011 Croatian Tax Changes - Highlight 

With year-end approaching, we provide a short summary below of the major changes in Croatian tax legislation in 2011.

Personal Income Tax
The Croatian Parliament adopted Amendments to the Personal Income Tax (PIT) Law which came into force as of 15 October 2011 (National Gazette, 114/11) and Amendments to the PIT Regulations which came into force as of 8 December 2011 (National Gazette, 137/11).

Loans with a favourable interest rate
The interest rate for the calculation of income on employer provided loans was reduced from 4% per annum to 3% per annum with effect from 15 October 2011. If an employer provided loan at an interest rate below 3% per annum, the difference between 3% per annum and the interest rate on the loan is treated as income for the employee. Employers should ensure that they are not calculating income based on the higher rate of interest.

Payment of dividends and profit shares on the basis of share capital
Payments of dividends and profit shares on the basis of share capital are no longer required to be made to the shareholder’s giro account in a bank.

However, payers of dividends and profit shares on the basis of share capital are now required to maintain records of calculated and paid dividends and profit shares on the basis of share capital for every individual shareholder and to submit a prescribed report of calculated and paid dividends and profit shares (DU Form) to the Tax Authorities. 

DU Form has to be prepared and submitted to the Tax Authorities by 15th of the month for the previous month in which dividends and profit shares were paid.

Furthermore, if advance payments of dividends and profit shares on the basis of share capital are made during the tax period, than the DU Form should not be submitted following the advance payment, but the dividend is considered to be paid in the moment when the advance payments are settled from the realised profit. Exceptional, if the advance payments of dividends are made in current tax period for the previous tax period, than the dividend is considered to be paid in the moment of making the advance payment.

Corporate Profit Tax
Related party interest rate limit
On 30 June 2011 the Croatian National Bank proclaimed a decrease in the Croatian National Bank discount rate from 9% per annum to 7% per annum (National Gazette 74/11), effective as of 30 June 2011.

Accordingly, as of 1 July 2011 the maximum corporate profit tax deductible interest rate on loans from a Croatian tax non-resident to a Croatian tax resident related party decreased from 9% per annum to 7% per annum. Conversely, the minimum interest rate on loans from a Croatian tax resident to a Croatian tax non-resident has also decreased from 9% per annum to 7% per annum.

The interest rate on all cross-border related party loans should be checked and appropriate action taken, if required.

Value Added Tax
The Croatian Parliament adopted Amendments to the Value Added Tax (VAT) Regulations which came into force as of 1 August 2011 (National Gazette, 89/11).

With these changes electronic invoicing was introduced in the VAT legislation (before these changes, electronic invoicing was anticipated and regulated in other legislation; however, VAT legislation still required original invoices to be issued in paper form). 

As of 1 August 2011 it is not mandatory to issue invoices in paper form for goods delivered / services provided; they can be issued electronically, if certain conditions are fulfilled.

As these conditions might be difficult to satisfy, all taxpayers delivering goods / providing services should check to see if these changes could apply to them as this could significantly ease the invoicing process.

For further information please contact Kristina Grbavac, Senior Manager, Taxation Services.

Contact:

Tel:  +385 1 5390 006
Fax: +385 1 5390 111

tax@kpmg.hr
kpmg.hr