Thursday, 23 February 2017

Croatia enacts 2017 tax reform

Tax reform legislation for 2017, approved by the Croatian parliament on 2 December 2016 and published in the official gazette on 9 December 2016, includes new rules that generally reduce the overall tax burden for both individuals and companies, and may be viewed as a step toward improving the country’s general business environment.
Unless otherwise noted, the changes apply as from 1 January 2017.
Amendments to the corporate income tax act aim to more equitably distribute the tax burden by reducing the general tax rate and eliminating certain tax benefits. The following are some of the more important measures:

  • The standard corporate income tax rate is reduced from 20% to 18%, and a further reduced rate of 12% applies to small enterprises (i.e. enterprises with annual revenue not exceeding HRK 3 million).
  • Small enterprises and taxpayers that fall within the scope of the cash accounting VAT scheme may opt to pay corporate income tax based on cash flow, instead of under the accrual system.
  • Fifty percent of entertainment expenses is tax deductible (previously 30%).
  • A taxpayer may elect to calculate interest deductions on related-party loans based on the arm’s length principle or the rate announced by the Minister of Finance based on the rate prescribed by the National Bank.
  • As from taxable year 2016, a write-off of receivables may be tax deductible if the taxpayer can demonstrate that the related collection expenses exceed the write-off amount, or if future collection is deemed impossible after legal proceedings have been initiated.
  • Relief for “reinvested profits” (which was introduced in 2012 and allowed enterprises meeting specific criteria a deduction for reinvested profits) is abolished, but taxpayers that applied the relief in earlier periods must continue to meet the qualifying criteria to avoid recapture of previously granted benefits.
  • An advance pricing agreement (APA) program is introduced (although it is unclear whether unilateral or bilateral APAs, or both, will be allowed). 

Source: Deloitte