1. Corporate Tax 2009
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Croatia
1 General: Treaties
1.1 How many income tax treaties are currently in force in
Croatia?
There are currently 45 tax treaties in force in Croatia.
1.2 Do they generally follow the OECD or another model?
Although Croatia is not a member state, tax treaties in force have
been influenced by the OECD work on Model Tax Convention, thus
they do generally follow the OECD model. However, certain
articles can differ significantly.
1.3 Do treaties have to be incorporated into domestic law
before they take effect?
Yes and this is done by ratification of the Croatian Parliament. The
ratification and the treaty are then published in the national gazette.
International treaties will then enter into force from the date
determined by the treaty or, if the date is not specified, once all
countries agree to be bound by the treaty. The declaration of effect
is published in the national gazette.
1.4 Do they generally incorporate anti-treaty shopping rules (or
“limitation of benefits” articles)?
Anti-treaty shopping rules are incorporated on a treaty-by treaty and
on an article-by article basis. Thus, there is no general rule and
incorporation of “limitation of benefits” shall depend on negotiation
between countries. There are some treaties in effect with no anti-
treaty shopping rules in place at all.
1.5 Are treaties overridden by any rules of domestic law
(whether existing when the treaty takes effect or
introduced subsequently)?
No. According to the Croatian Constitution, international treaties
that have been duly ratified and in full effect, override any relevant
contradicting domestic law.
2 Transaction Taxes
2.1 Are there any documentary taxes in Croatia?
Generally no, however there are certain taxes that could be treated
as documentary taxes such as the tax on transfer of real estates and
the tax on transfer of used motor vehicles, boats, and airplanes both
amounting to 5% of the item’s value.
2.2 Do you have Value Added Tax (or a similar tax)? If so, at
what rate or rates?
Croatia has VAT at the standard rate of 22%.
For certain products such as bread, milk, books, scientific
publications, some health care products etc. a rate of 0% applies.
For tourist accommodation services, newspapers and magazines
etc. a 10% rate applies.
2.3 Is VAT (or any similar tax) charged on all transactions or
are there any relevant exclusions?
VAT is charged on:
supply of goods and services done in Croatia for
consideration;
personal spending i.e. use of companies property as private,
representation;
supply of goods and services to owners and their families of
those suppliers without consideration; and
import.
Some supply of goods and services are exempt from VAT and the
list of those is very extensive.
2.4 Is it always fully recoverable by all businesses? If not,
what are the relevant restrictions?
VAT is recoverable only by VAT registered businesses. However,
even for the VAT registered business not all VAT could be
recovered. Only VAT, as input tax, that is attributed to taxable
supplies could represent tax credit and eventually be recovered. If
VAT is attributed to exempt supplies, it cannot represent tax credit
and cannot be recovered. If the company has done both taxable and
exempt supplies the amount of VAT representing tax credit that
could be recovered is adequately apportioned according to taxable
supplies to total supplies ratio.
Hrvoje Cipcic-Bragadin
Silvije Cipcic-Bragadin

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2.5 Are there any other transaction taxes?
There are no other transaction taxes other then those specified in the
answer to question 2.1.
2.6 Are there any other indirect taxes of which we should be
aware?
Customs duties are generally payable on import and export of some
goods. Excise taxes are also levied on particular classes of goods
e.g. tobacco, coffee, beer, luxury goods etc.
3 Cross-border Payments
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident?
No, there is no withholding tax imposed on dividends paid by a
locally resident company to a non-resident.
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident?
Yes, in the absence of the relevant double taxation treaty,
withholding tax is levied at a rate of 15% of the gross amount
payments due to a non-resident but only if non-resident is not a
natural person. WHT also applies if a local branch makes payments
for royalties to the founder which is non-resident. However, if a
local entity makes payments to a non-resident, and such non-
resident operates in Croatia through “permanent establishment” e.g.
local branch, there shall be no obligation to WHT if such payments
are taxed on the local branch level.
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident?
Yes, in the absence of the relevant double taxation treaty,
withholding tax is usually levied at a rate of 15% of the gross amount
of interest paid to a non-resident but only if a non-resident is not a
natural person i.e. without legal personality. However, this does not
apply to interest that should be paid to a non-resident based on:
credits (loans) for the purchase of goods necessary for
business activity;
credits (loans) given by international bank or other financial
institution; and
corporate and government bonds if a non-resident has a legal
personality.
Further, WHT is not levied on financial leasing of goods. The same
rule relating to payments to non-residents “permanent establishment”
apply as described in the answer to question 3.2. above.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules?
Yes, but only if interest is based on loans received from a
shareholder that holds an equity stake of at least 25% of the total
shares, equity parts or voting rights in the relevant entity (or from
debt advanced by third party but with a guarantee from a relevant
shareholder), and if such loans during a fiscal period exceed the
amount equal to four times its equity stake in capital or voting
rights, relevant to the amount and duration of those loans.
The thin capitalisation rule does not apply to interest based on
credits (loans) given by banks or other financial institutions.
The thin capitalisation rule does not apply if interest is charged by
the domestic payer of corporate profit tax (CPT).
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured?
No, there are no other “safe harbour” rules except compliance with
debt to equity ratio and incorporation of debt provider which is a
CPT payer in Croatia.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company?
Yes, please see the answer to question 3.4. above.
3.7 Does Croatia have transfer pricing rules?
Yes. The law provides the transfer pricing rules if the services and
goods are exchanged between residents and non-residents, which
are considered to be connected parties, are not consistent with the
arm’s-length principle. Various methods, prescribed by law could
be used to determine the divergence from the arm’s-length.
Further, the law provides for the increase of tax base by regulation
of transactions similar to those that fall within the transfer pricing
rules, but are treated as hidden distribution of profits. Those would
be regulated even if carried out between residents.
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits?
Corporate profit tax (CPT) is levied at 20% rate.
According to the Investment Promotion Law, headline rate could be
lowered up to 100% in accordance with the invested amount,
generated new jobs during specific time period etc.
4.2 When is that tax generally payable?
Tax is calculated for the fiscal period which is usually one calendar
year. The tax reports must be filed before 30th April for the last
fiscal period. The tax should be paid on or before the day that the
tax reports are filed with the authority.
Advances of tax are paid throughout the fiscal period at the end of
each month during the period. The amount of tax advances is
relevant to the amount of tax for the last fiscal period divided by the
number of months in the fiscal period.
Start-up companies do not pay tax advances until the first tax report
is filled.
4.3 What is the tax base for that tax (profits pursuant to
commercial accounts subject to adjustments; other tax
base)?
The tax base is taxable profit pursuant to commercial accounts with
adjustment.

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4.4 If it otherwise differs from the profit shown in commercial
accounts, what are the main other differences?
The adjustments are usually in the form of returned expenses (in
full or in part), which are not tax deductible and work to increase
the tax base, or in the form of deductions (e.g. dividends) so work
to lower the tax base.
4.5 Are there any tax grouping rules? Do these allow for relief
in Croatia for losses of overseas subsidiaries?
No, there are no grouping rules.
4.6 Is tax imposed at a different rate upon distributed, as
opposed to retained, profits?
No, tax is levied at the same rate for distributed and for retained
profits.
4.7 What other national taxes (excluding those dealt with in
“Transaction Taxes”, above) are there - e.g. property taxes,
etc.?
Besides real estate transfer tax, VAT tax, and various indirect taxes
there aren’t any national taxes.
4.8 Are there any local taxes not dealt with in answers to
other questions?
Yes, besides national taxes there might be various local taxes in
effect. Those would usually be tax on gifts and inheritance, tax on
vehicles, tax on vehicles, tax on gaming machines, tax on company
name, tax on leisure premises, tax on expenditures etc.
Which taxes are in effect would depend on the locality.
5 Capital Gains
5.1 Is there a special set of rules for taxing capital gains and
losses?
No, there isn’t a special set of rules for taxing capital gains and
losses. Capital gains are calculated on a tax base for corporate
profit tax.
5.2 If so, is the rate of tax imposed upon capital gains
different from the rate imposed upon business profits?
Please see the answer to question 5.1.
5.3 Is there a participation exemption?
Yes, there is. Income received from dividends and participation in
profits pursuant to equity investment represent 100% tax deduction
of the amount received.
5.4 Is there any special relief for reinvestment?
No, there is no special relief for reinvestment of profits.
6 Branch or Subsidiary?
6.1 What taxes (e.g. capital duty) would be imposed upon the
formation of a subsidiary?
The formation of a subsidiary does not itself trigger any tax.
6.2 Are there any other significant taxes or fees that would be
incurred by a locally formed subsidiary but not by a
branch of a non-resident company?
No, there are not. Both entities are subject to the corporate profit
tax.
6.3 How would the taxable profits of a local branch be
determined?
The tax base for taxable profits of a local branch is determined
pursuant to commercial accounts with adjustments. The local
branch is essentially treated as legal entity for tax purposes. The
accounts of a local branch include all income that could be
attributed to said local branch whether arising in Croatia or outside
Croatia, as if the local branch has legal personality.
6.4 Would such a branch be subject to a branch profits tax (or
other tax limited to branches of non-resident companies)?
No. The branch is subject to corporate profit tax, as any other
entity, at the standard rate of 20%.
6.5 Would a branch benefit from tax treaty provisions, or some
of them?
Yes, many tax treaties involve various benefits for entities doing
business through a local branch, depending on the issue. For
example some treaties define that a profit could be taxed either in
the resident’s country or in the country where the resident operates
through a “permanent establishment” i.e. local branch, but only for
the profits that could be attributed to the local branch. Since profits
of a local branch could be comprised from profits from Croatia as
well as from profits outside Croatia, tax could be to some extent
lowered.
6.6 Would any withholding tax or other tax be imposed as the
result of a remittance of profits by the branch?
No withholding tax or any other tax would be imposed as the result
of remittance of profits by the branch. Local branches are generally
treated as normal tax paying entities, thus are liable for corporate
profit tax.
7 Anti-avoidance
7.1 How does Croatia address the issue of preventing tax
avoidance? For example, is there a general anti-avoidance
rule or a disclosure rule imposing a requirement to
disclose avoidance schemes in advance of the company’s
tax return being submitted?
In general, all relevant facts should be disclosed to the relevant
authority e.g. obtaining more than 50% of equity in a foreign

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Silvije Cipcic-Bragadin
Cipcic-Bragadin
Kala 7
Supetar
Island of Brac
Croatia
Tel: +385 9846 7466
Fax: +385 2163 1822
Email: silvije@c-b.hr
URL: www.c-b.hr
Silvije is a partner in Cipcic-Bragadin mainly in charge of the firm’s
corporate work and TMC work and for our relationship with
international clients. He was educated in Zagreb and in London at
the College of Law of England and Wales. He holds a diploma in
English corporate and commercial law. During his education in
London he was seconded to Deutsche Bank’s corporate finance
team. In 2004 he founded the Croatian PE & VC association and
in 2008 he initiated a founding of the Croatian business angel
network. He is an honorary member of both associations. During
2008 he was collaborating with DLA Piper Croatia where he was
Head of the Corporate group.
Silvije is a pioneer in PE and VC financing and frequent speaker on
various PE investment conferences and workshops. He was one of
the authors of a publication called SME Finance Manual covering
legal aspects of private equity and venture capital.
Hrvoje Cipcic-Bragadin
Cipcic-Bragadin
Masarykova 15
Zagreb
Croatia
Tel: +385 1481 4219
Fax: +385 1487 1949
Email: hrvoje@c-b.hr
URL: www.c-b.hr
Hrvoje is partner in charge of Cipcic-Bragadin’s vast real estate
practice as well as restructuring and insolvency practice including
litigation practice. He is also a registered bankruptcy receiver.
Hrvoje is a relationship manager for local public clients such as the
city of Zagreb, municipality of Bol, municipality of Selca etc. and
has been involved in some of the biggest real estate transactions and
privatisation processes. He is also very active in public procurement
work. Hrvoje has a Croatian education but worked with many law
firms prior to joining Cipcic-Bragadin. Hrvoje speaks fluent English
and German and a little Russian and he’s a member of the
International Chamber of Commerce, the American Chamber of
Commerce in Croatia, and the German-Croatian Chamber of
Commerce and Industry.
Founded in 1928, Cipcic-Bragadin is one of the leading law firms in Croatia recognised in many international legal
guides such as Chambers and Partners, IFLR1000, PLC which Lawyer, Legal 500 etc.
Our goal is to provide first class advice according to international standards. That is why many of Cipcic-Bragadin’s
clients are leading international companies such as the Bank of America, EBRD, Deutsche Bank, Fortis bank, Lenovo,
Yahoo!, and Lexmark. That is also why Cipcic-Bragadin frequently collaborates with leading international law firms.
Our expertise to corporate clients include real estate law (including project finance), corporate law (private equity, M&A),
tax, employment and public procurement law, banking and finance law, technology, media and commercial law, dispute
resolution law, restructuring and bankruptcy law.
With main offices in Zagreb and Supetar, and affiliated offices in Rijeka, Zadar, Split, Makarska, Šibenik, Osijek,
Slavonski Brod and Sisak, we can provide seamless service throughout Croatia.
Cipcic-Bragadin Croatia
company or if the entity is a connected party to another company
etc. that might have impact on the tax liability. However, the exact
information in the tax proceeding could be withheld if they might
lead to, among other cases, to self incrimination. The burden of
proof for the facts used to determine tax liability lies on the relevant
authority, and for those facts that could lower tax liability, to the
relevant party.