DOING
BUSINESS
IN
CROATIA
doing business
in Croatia
foreword
This booklet has been prepared for the use
of clients, partners and staff of HLB
International member firms. It is designed
to give some general information to those
contemplating doing business in Croatia
and is not intended to be a comprehensive
document. You should consult us,
therefore, before taking further action. HLB
Croatia and HLB International cannot be
held liable for any action or business
decision taken on the basis of information
in this booklet. The information given in
this booklet is not exhaustive and is only
meant to be a guide. Unless otherwise
indicated, details are based on conditions
existing at August 2008.
HLB Croatia
August 2008
1
Doing Business in Croatia
about HLB International
Formed in 1969, HLB International is a
world-wide network of independent
professional accounting firms and
business advisers. The network comprises
member firms in over 100 countries who,
collectively, have more than 1,720
partners and 13,510 staff in over 450
offices. Member firms provide clients with
a comprehensive and personal service
relating to auditing, taxation, accounting,
and general and financial management
advice.
Up-to-date information and general
assistance on international matters can be
obtained from any of the member firm
partners of HLB Croatia listed in this
booklet or from the Executive Office in
London:
HLB International
Executive Office
21 Ebury Street
LONDON SW1W 0LD
UK
Telephone: +44 (0)20 7881 1100
Fax: +44 (0)20 7881 1109
E-mail: [email protected]
Website: www.hlbi.com
HLB International is a world-wide network of
independent professional accounting firms and
business advisers, each of which is a separate and
independent legal entity and as such has no liability
for the acts and omissions of any other member. HLB
International Limited is an English company limited
by guarantee which co-ordinates the international
activities of the HLB International organisation but
does not provide, supervise or manage professional
services to clients. Accordingly, HLB International
Limited has no liability for the acts and omissions of
any member of the HLB International organisation,
and vice versa.
Doing Business in Croatia
2
contents
3
Doing Business in Croatia
FOREWORD
1
ABOUT HLB INTERNATIONAL
2
GENERAL INFORMATION
4
BUSINESS ENTITIES
9
ACCOUNTING AND AUDITING
12
TAXATION
14
CONTACTS IN CROATIA
21
general information
Country profile
The Legislative Branch
Croatia is located at the crossroads of
the Mediterranean and Central Europe.
It covers approximately 87,600 square
kilometers of which 31,000 square
kilometers borders the Adriatic Sea,
lakes and inland rivers.
The country`s legislature is the Parliament
of the Republic of Croatia (Sabor Republike
Hrvatske). The Parliament has only one
house, and representatives (zastupnici) to
the Parliament are elected in direct
parliamentary elections, held once every
four years. Eligible voters are all men and
women over the age of 18. The Election
Act regulates the elections in detail.
Croatia has seen growing political stability
over the last decade, with the political
arena becoming increasingly bipolar,
dominated by the centre-right HDZ
(Croatian Democratic Union) and the
centre-left SDP (Social Democratic Party).
The HDZ won the 2005 elections, and
formed a government in a coalition with a
several smaller parties, with HDZ
president Dr. Ivo Sanader, serving as
Prime Minister. National elections were
held again in November 2007, with the
HDZ again forming a government in a
coalition with several smaller parties.
Croatia offers potential foreign investors
the following beneficial characteristics:
its central position within South Eastern
Europe and developed transport routes
- the Zagreb-Rijeka, Zagreb-Split,
Zagreb-Ljubljana, Zagreb-Hungarian
border motorways, international
airports located in Zagreb, Pula, Split,
Dubrovnik and Zadar, an extensive
network of freight and passenger sea
ports (Rijeka, Pula, Zadar, Split, Šibenik,
Ploèe, Dubrovnik).
According to the Croatian Bureau of
Statistics, Croatia has a population of
approximately 4,442,000. Population
density is about 78.5 persons per
square kilometer. As the result of a low
birth rate and high death rate, the
population is gradually declining.
Government and Legal System
Croatia is a parliamentary democracy.
Croatia possesses a multi-party system
based on the principle of three branches
of government (system of tripartite
authority).
· Legislative;
· Executive;
· Judicial.
The Executive Branch
As Croatia is a parliamentary democracy,
the executive power is divided between
the President (Predsjednik Republike
Hrvatske) and the Cabinet (Government of
the Republic of Croatia). The President is
elected in direct presidential elections for a
period of five years, and can serve two
terms. Stjepan Mesiæ is currently serving
his second five-year mandate as
President. Presidential elections are due to
be held again in February 2010.
Doing Business in Croatia
4
The President represents the state in
the country and abroad, and his powers
are essentially those of state protocol.
He has the authority to dissolve
Parliament and he proposes a candidate
for a mandate of Prime Minister. The
Cabinet holds the highest executive
power in Croatia. According to protocol,
the President appoints the Prime
Minister of the Cabinet who is usually a
president of the party that has most
votes in the Parliament. The Prime
Minister is confirmed by the Parliament,
and he has the power to appoint the
members of his Cabinet.
Judicial Branch
Judicial power in general is regulated
through the Law of the Courts and is
inspired by the idea of independent
courts. The State Judiciary Council
appoints all judges for life and is an
independent state institution formed of
Parliament members, the judicial
authorities, well-respected public
persons and members of the Croatian
Bar Association. The Minister of Justice
names the presidents of the courts from
among the appointed judges and the
president of the Supreme Court of
Croatia is chosen by the Parliament
based on a proposal from the Cabinet.
Types of courts:
·
·
·
·
Courts of General Jurisdiction;
Commercial Courts;
Police Courts;
Administrative Court.
Human Rights in Croatia
Human rights and basic civil freedoms in
Croatia are guaranteed by chapters two
and three of the Constitution that regulate
the basic rights and freedoms of every
citizen, non-citizen and legal entity (as we
mentioned before this is regulated through
the Constitutional Court of Croatia).
Economic, social and cultural rights of
individuals are also provided for in other
parts of the Constitution
Membership of International
Organizations
Croatia became an official member of the
United Nations (UN) in May 1992, of the
Council of Europe (C of E) in November
1996 and of the World Trade Organization
(WTO) in November 2000.
In addition, Croatia is a member of the
following organizations:
· The International Monetary Fund (IMF);
· The International Bank for
Reconstruction and Development (IBRD);
· The European Bank for Reconstruction
and Development (EBRD);
· The International Financial Corporation
(IFC);
· The International Maritime Organization
(IMO);
· The Intergovernmental Organization for
International Carriage by Rail (OTIF);
· The Food and Agriculture Organization of
the United Nations (FAO);
· The International Organization for
Standardization (ISO);
· The Central European Free Trade
Agreement (CEFTA).
Croatia currently holds the status of an
official candidate and is in the process of
negotiating its entry into the European
Union. Croatia's Stabilization and
Association Agreement with the European
Union was signed in October 2001 and
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Doing Business in Croatia
came into effect in February 1, 2005. It
is expected that Croatia could enter the
European Union in 2010, while the
Protocol for the Republic of Croatia
joining into the NATO was signed on
July 9, 2008.
The Economy
In the past 18 years Croatia has seen a
successful transformation from a
centrally planned economy, through a
war-transitional economy to a free,
market economy.
The strengthening of entrepreneurship,
the reduction of taxes, increasing
employment, the strengthening of the
social security system, the reduction of
state spending and an increased
emphasis on the role of science and
new technologies in the economy are
the main priorities of the Government's
economic policy.
Gross Domestic Product (GDP) in
million HRK in 2007 amounted
275,078, GDP in million EUR in 2007
was 37,497, GDP per capita in EUR in
2007 was 8,452, GDP year on year rate
of growth was 5.6 %, average year on
year inflation rate amounted 2.9 %,
export of goods and services as % of
GDP was 49.0, import of goods and
services as % of GDP was 57.3, external
debt in million EUR was 32,929,
unemployment rate (persons 15 to 64
years) amounted 9.6% and average net
salary for the period of January to
August 2008 amounted 4,798 HRK.
Working in Croatia
The Labour Law was introduced
effective from 1 January 1996, with
supplements and amendments added in
2001 and 2004. The Labour Law is
broadly in line with Western European
legislation. The main stipulations are as
follows: employment agreement, working
hours, salary, minimum wage, holidays,
period of employment, termination of an
employment agreement,
severance/redundancy.
Employees of a company that employs at
least 20 people may set up an employees
council. The Labor Law regulates
operations of this council and the council
is empowered by law to appeal against
certain decisions of the employer. Trade
unions are also able to promote the
interests of employees, to set minimum
wages and to engage in collective
bargaining with employers.
Foreign nationals can stay in Croatia for
up to 90 days during a 6-month period
without any special requirements (tourist
stay); however, within 24 hours of arrival
in Croatia they are obliged to register their
stay at the nearest police station and to
register their departure from the country
(hotels and other lodgings perform that
service automatically).
The Republic of Croatia has a quota
system for work permits. The Government
decides on the number of work permits
that will be issued every year. This
decision includes the number of work
permits that can be extended and the
number of work permits that can be
extended and the number of new work
permits for each year.
A business permit covers both a work
permit and a residence permit at the same
time. It is issued to a foreign national who
has a registered craft or equivalent
business, or is running a business in his
full or partial ownership, or to a foreign
national who provides services in the
name of his/her foreign employer.
Doing Business in Croatia
6
Investment Factors
Language and Currency
Official language in Croatia is the
Croatian language. Worldwide, approx.
7 million people, mostly Croats, speak
it. The Croatian language defers very
little from the Serbian, Montenegrin,
and Bosnian languages, and it is also
well known in Slovenia and FYRM.
The English language is well known in
all regions of Croatia. However, the
Italian language is well spoken in the
coastal Croatia, the German language in
northern Croatia and in tourist regions.
Official currency in Republic of Croatia
is Croatian kuna (Hrvatska kuna). The
abbreviation for kuna used in Croatia is
kn and the international abbreviation is
HRK. The smaller unit is lipa 1 HRK =
100 lipa.
Banking System and Sources of Finance
Croatian banking system consists of the
Croatian National Bank (HNB) - a central
bank, a number of private commercial
banks, and a state-owned commercial
bank. HNB is acting as a state regulator
of the banking system and is a
supervisor for commercial banks. The
Banking Act regulates the banking
system.
Commercial banks are mostly foreign
owned and the largest are Zagrebaèka
banka dd, Privredna banka Zagreb dd,
and Erste&Steiermarkische bank dd.
Most banks offer wide range of services
such as credit lines, loans, paying,
deposits, investment banking etc.
Interests earned in banks are excluded
from the income and VAT taxation.
7
Doing Business in Croatia
Other financial institutions and insurance
enterprises are regulated by separate laws
and by the acts of state regulator - HANFA
(Hrvatska agencija za nadzor financijskih
institucija), who is also a supervisor for all
financial institutions except banks.
Foreign Exchange Controls
The Foreign Exchange Act regulates
domestic and foreign currency
transactions in Croatia. Foreign currencies
are freely convertible in kuna and vice
versa. Import and export of capital is free
and is subject to reporting requirements.
Legal entities, as well as domestic and
foreign individuals, may open foreign
currency accounts in commercial banks.
Social Security System
The Croatian social security system
provides for pension insurance, health
insurance, unemployment insurance and
employment injury insurance. More about
social security system can be found on
page 18.
Other Investment Factors
The Republic of Croatia is stimulating
foreign investments and finance in several
different ways of which the most
important are:
· Reducing bureaucracy by establishing
“one stop shop” - easy set up of a
company,
· 20 % CPT and 0 % income tax on capital
gains,
· 0 % of income tax and VAT on interest
earnings in banks,
· 0 % of VAT on bread, meat, newspaper,
books, insurance services and some
other goods and services,
· No property tax,
· Incentives (described on page 19)
According to the Croatian Companies
Law ("CCL"), foreign investors, under the
condition of reciprocity (which is
assumed), acquire the same rights and
obligations and have the same position
as domestic investors when
incorporating a commercial company in
Croatia.
Foundation of New Companies or
Acquisition of Shares in Existing
Companies by Foreign Investors
Foreign individuals and legal entities
may create new companies or acquire
shares in existing companies in Croatia.
Companies, which are wholly or partly
owned by foreign investors, may
generally operate in all business areas.
Generally, where the chosen activity
requires a permit (i.e. for banks,
insurance companies), the same rules
apply regardless of whether the owners
are domestic of foreign investors.
The following types of business
presence may be established in Croatia
by a foreign legal entity:
· Representative office;
· Branch office; and
· Commercial company.
Branch offices and commercial
companies must be registered with the
Croatian Commercial Court;
representative offices only need to be
registered with the Ministry of
Economy.
Doing Business in Croatia
8
business entities
Classification of Entities
Financial reporting and disclosure
requirements depend on whether a
company is classified as a small,
medium or large entrepreneur.
A company may be classified as:
Small, if the size of operations does not
exceed any two of the following criteria
as at 31 December of the period
preceding the period for which the
classification is determined:
· Total assets up to HRK 27 million;
· Turnover up to HRK 54 million; and
· Up to 50 employees.
Medium, if the size of operations
exceeds any two of the criteria valid for
small companies, but does not exceed
any two of the criteria applicable for
large companies.
Large, if the size of operations exceeds
any two of the following criteria:
· Total assets of HRK 108 million;
· Turnover of HRK 216 million; and
· 250 employees.
In addition, all financial services industry
entities under the supervision of the HNB
or HANFA (including banks, building
societies, insurance companies, leasing
companies, investment fund management
companies and obligatory and voluntary
pension fund management companies as
well as the funds under their
management) and all entities preparing
consolidated financial statements under
IFRS are deemed large due to the nature
of their business.
Types of Entities
The primary legislation governing the form
and regulation of companies is the
Croatian Companies Law (CCL). The CCL
is based on the German Companies Law.
The CCL defines the following forms of
commercial company:
I.
Joint-stock company - Dionièko
društvo (d.d.);
II. Limited Liability Company - Društvo s
ogranièenom odgovornošæu (d.o.o.);
III. General partnership - Javno trgovaèko
društvo (j.t.d.);
IV. Limited partnership - Komanditno
društvo (k.d.).
In practice, most foreign investors are
likely to form or take a financial interest in
either a limited liability company (d.o.o.) or
joint-stock company (d.d.).
9
Doing Business in Croatia
I. Joint Stock Company ("d.d.")
II. Limited Liability Company ("d.o.o.")
A joint stock company is registered in
the Commercial Court Register, and may
be established by one or more physical
persons or legal entities.
A limited liability company is a very
popular entity form for small and mediumsized businesses in Croatia. Further, in
practice, limited liability companies are the
most common legal form for wholly
owned subsidiaries.
A joint stock company has share
capital, which is divided into shares.
The minimum amount of initial share
capital required establishing a joint
stock company is HRK 200,000
(approximately EUR 27,400). The
nominal value of a share must satisfy
the following:
· The minimum nominal value of one
share must not be less than HRK 10
(approximately EUR 1.35); and
· Must be expressed in HRK and must
be divisible by 10.
A limited liability company is registered in
the Commercial Court Register, and may
be established by one or more physical
persons or legal entities.
The minimum share capital required
establishing a limited liability company is
HRK 20,000 (approximately EUR 2,700).
The minimum ownership stake in a limited
liability company is set at HRK 200 or an
amount divisible by 100.
Shareholders of a d.d. are not
personally liable for the obligations of
the company.
Members of a limited liability company are
not personally liable for the obligations of
the limited liability company.
A joint stock company has three
mandatory bodies: the general
assembly, the supervisory board and
the management board.
Assembly
The supreme body of a limited liability
company is the assembly, which must be
held at least once a year.
The general assembly of shareholders is
the supreme corporate body.
Management board members and
supervisory board members must
participate in the general assembly.
Supervisory Board
Generally, limited liability companies
require lower standards of corporate
governance than joint stock companies.
For example, there is no requirement for a
supervisory board to be elected.
A supervisory board consists of at least
3 members and may not exceed,
depending on the amount of the
company's share capital, 9, 15 or 21
members.
The management board is appointed for
a maximum term of five years, with the
possibility of re-appointment. The
management board must report to the
supervisory board on the management,
business policies and the overall
financial position of the company.
Management Board
The management board carries out the
management and representation of a
limited liability company.
The management board consists of one or
more directors. If not determined
otherwise by the Articles of Association,
members of the management board
represent the company jointly.
Doing Business in Croatia
10
III. General Partnership ("j.t.d")
IV. Limited Partnership ("k.d.")
Any two or more legal entities or
physical persons may establish a
general partnership. A general
partnership represents the members
with the goal of permanently
conducting business under a common
name. The members are jointly and
personally liable. A member of a general
partnership may not transfer their share
without the consent of the other
members. Cessation of the membership
of one member leads to the termination
of the general partnership.
A limited partnership may be established
by any two or more legal entities or
physical persons, of which at least one
must be personally responsible for the
obligations of the limited partnership
(unlimited liability partner) and at least one
will not be personally responsible for the
obligations of the limited partnership
(limited liability partner).
A general partnership has no share
capital. Members are required to enter
contributions of equal value unless they
agree otherwise. Contributions may be
in kind, money, rights, work or services.
If the contribution is not paid in money,
members are free to determine the
value of each contribution by
consensus.
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Doing Business in Croatia
A limited partnership is managed by the
unlimited liability partner.
A limited partnership is established by the
Articles of Association, which regulates
the relationship between members of the
limited partnership.
accounting and auditing
The Accounting Law defines accounting
and reporting frameworks applicable in
Croatia. As of 1 January 2008 the
official accounting frameworks in
Croatia are Croatian Financial Reporting
Standards (HSFI) and International
Financial Reporting Standards (IFRS).
For all companies classified as large,
listed companies or those that are in the
process of being listed, the Accounting
Law requires that financial statements
be prepared for each financial year in
accordance with International Financial
reporting Standards (IFRS) published in
National Gazette.
Small and medium sized entities are
required to prepare financial statements
in accordance with Croatian Financial
Reporting Standards (HSFI).
A financial year is usually equal to the
calendar year. However, a period
different from the calendar year may be
used by reporting entities, provided the
registration procedure is followed with
formal approval from the Croatian Tax
Authorities, as defined by the Corporate
Profit Tax Law.
Regulatory supervision for operational
conduct, financial and other reporting
and legal issues for banking
institutions, is performed by the
Croatian National Bank ("the HNB"). The
Croatian Financial Services Supervisory
Agency (in Croatian abbreviated to
"HANFA") is a central supervisory body
for other financial services companies,
such as investment and pension funds,
brokerage companies, insurance
companies as well as leasing companies
and other financial institutions.
Accounting Records
The Accounting Law defines the minimum
ledger system to be kept by all reporting
entities, which is to include a general
ledger, sub-ledgers and a journal
(including journal entities). Ledger records
must be available locally and must be
prepared in Croatian. The general ledger
must be kept for a minimum period of
eleven years, whereas sub-ledgers must
be kept for a minimum of seven years.
A chart of accounts is prescribed for
regulated entities, mainly financial
services industry entities. For the
purposes of statistical reporting, banks are
required to adhere to a relatively detailed
chart of accounts prescribed by the HNB.
Charts of accounts defined by HANFA are
not very detailed.
Auditing
The Audit Law governs the statutory
auditing of financial statements of
companies incorporated in Croatia.
Companies required to have an annual
statutory audit are:
· all listed entities and entities registered
as joint stock companies;
· individual companies (partnerships and
limited liability companies) whose total
income exceeds HRK 30 million in the
preceding period; and
Doing Business in Croatia
12
· companies classified as large
(including banks, building societies,
insurance companies, leasing
companies, investment fund
management companies and
obligatory and voluntary pension fund
management companies as well as
the funds under their management)
and their group member companies.
Consolidated financial statements are
also subject to an annual statutory
audit.
Audits of financial statements are based
on International Standards of Auditing
(ISA) published in National Gazzete, and
a statutory audit may only be performed
by an eligible and authorized auditing
firm, which is registered with the
Croatian Chamber of Auditors.
The Croatian Chamber of Auditors was
founded in March 2006 with the aim of
promoting and developing auditing as a
profession.
Rotation of Audit Companies
The same audit company of a bank,
insurance company or leasing company is
permitted to perform four consecutive
financial statements audits, after which
rotation rules apply.
For all other entities, rotation of audit
companies is not necessary.
Financial Reporting Deadlines
Companies are required to prepare
financial statements for each financial
year, comprising of a balance sheet,
income statement, statement of changes
in equity, cash flow statement, significant
accounting policies and notes to the
financial statements.
Depending on the type and size of a
company, the minimum content and
reporting formats are prescribed by
relevant regulations.
Filing deadlines are as follows:
Only Croatian certified auditors
registered with the Croatian Chamber of
Auditors, qualified in accordance with
the Audit Law, actively employed with a
registered auditing company are
allowed to sign audit opinions. Two
signatures are required on an audit
opinion: one of the Croatian certified
auditor and one of the directors of the
registered audit firm.
Audit firms can be engaged to provide
other services.
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Doing Business in Croatia
· Annual foreign investment declaration 28 February of the current year for the
previous year;
· Annual personal income tax returns - 28
February of the current year for the
previous year;
· Annual statistical reports - 31 March of
the current year for the previous year;
· Annual corporate profit tax returns - 30
April of the current year for the previous
year (or four months after the end of the
fiscal year);
· Monthly / Quarterly VAT returns - last
day of the current month for the previous
month / quarter; and
· Annual VAT returns - 30 April of the
current year for the previous year.
taxation
Tax Year
In general, taxes are levied on a
calendar year basis. In case of a nonstandard business year, tax is due for
the calendar year in which the business
year ended. VAT is always levied on a
calendar year basis in line with the
European VAT regime.
Corporate Profit Tax
The basic principles for the taxation of
business profits are detailed in the
Corporate Profit Tax (CPT) Law and CPT
Regulations. The CPT Law was first
introduced and came into force on
January 1, 1994. The CPT Law has
been amended several times since, with
the most recent amendments effective
as at January 1, 2007.
CPT Taxpayers
Taxable persons with an obligation to
pay CPT in Croatia are as follows:
· A company or other legal or physical
person resident in the Republic of
Croatia, who is permanently and
independently engaged in an
economic activity for the purpose of
realizing profit, income or revenue or
other economic benefits;
· A resident permanent establishment
(an inland business unit) of a nonresident entrepreneur;
· A physical person who realizes income
pursuant to the personal income tax
regulations, if he/she declares that
he/she intends to pay corporate
income tax (profit tax) instead of
personal income tax;
· An entrepreneur - a physical person who
realizes income from small business or
similar activities if:
· Total revenue in the preceding tax period
exceeded HRK 2,000,000, or
· Total profit in the preceding tax period
exceeded HRK 400,000, or
· The value of long-term assets exceeded
HRK 2,000,000, or
· The entrepreneur employed more than
15 employees on average during the
preceding tax period.
· Any other entrepreneur that is not
classified among the entrepreneurs listed
above and is not liable to pay personal
income tax according to the provisions of
the Personal Income Tax and whose
profit is not taxed elsewhere.
Tax period and CPT returns
CPT is usually calculated for the period of
a calendar year, however, upon a
taxpayer's request the Croatian Tax
Authorities (CTA) may allow the calendar
and business years to differ. A CPT return
must be submitted to the CTA within four
months of the business yearend (generally
by 30 April following the relevant calendar
year).
CPT Base Determination
The CPT base is the accounting profit
adjusted for non-deductible and nontaxable items in accordance with the
provisions of the CPT legislation. Profit is
the difference between revenues and
expenditure, i.e. accounting profit
calculated in accordance with the official
accounting framework in Croatia,
Doing Business in Croatia
14
International Financial Reporting
Standards (IFRS) or Croatian Financial
Reporting Standards (HSFI).
Withholding Tax
Croatian domestic CPT Law does not levy
withholding tax on dividend payments.
Tax Losses
Tax losses can be carried forward and
set off against future profits reducing
the tax base within the following five
years, using the first-in-first-out
method.
For losses accrued during the process
of a merger, acquisition or de-merger,
the right of the legal successor to carry
forward tax losses begins after the end
of the period in which the acquisition
takes place.
Tax losses cannot be carried back to
earlier periods.
Corporate profit tax is levied at the rate
of 20% on accounting profit adjusted in
accordance with the provisions of the
corporate profit tax law.
Detailed transfer pricing, thin
capitalization and interest rate limit
rules exist. There are no group taxation
provisions.
Deductible items for CPA purposes
include, amongst others, the following:
· 70%, of car related expenses;
· 30% of entertainment expenses; and
· Depreciation expenses which were not
recognized in earlier periods.
Domestic and foreign dividend income
is not taxable.
Tax losses may be carried forward for a
maximum of 5 years, and no tax loss
carry back provisions exist.
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Doing Business in Croatia
Croatian domestic CPT Law does impose
withholding tax at rate of 15% to the gross
amount of consideration paid by a resident
payer to a non-resident payer for
qualifying interest, intellectual property
rights, market research, tax advisory,
business advisory, audit and similar
services.
Withholding tax is not paid on interest on
commodity loans for the purchase of
goods to perform business activity, foreign
bank and financial institutions loans and
interest on state and corporate bonds.
The withholding tax rate may be reduced
or eliminated if a Double Tax Treaty (DTT)
is concluded between the consideration
recipient`s country and Croatia.
The withholding tax rate may be
decreased/eliminated pursuant to an
effective double tax treaty.
No withholding tax is levied on dividend
payments, except for dividend payments
made to individuals out of profits earned
during the period 1 January 2001 to 31
December 2004.
Double Tax Treaty Network
Croatia currently has a treaty for the
avoidance of double taxation of income
and property ratified and in effect with the
following countries:
Albania, Austria, Belarus, Belgium, Bosnia
and Herzegovina, Bulgaria, Canada, Chile,
China, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Israel, Jordan, S.
Korea, Latvia, Lithuania, Macedonia,
Malaysia, Malta, Mauritius, Moldova,
Montenegro, Netherlands, Norway,
Poland, Romania, Russia, San Marino,
Serbia, Slovakia, Slovenia, South Africa,
Spain, Sweden, Switzerland, Turkey,
Ukraine, United Kingdom.
Value Added Tax ("VAT")
VAT was introduced on January 1,
1998 with its most recent amendment
effective as from August 1, 2007.
VAT is payable on all supplies of goods
and performance of services in Croatia.
Entrepreneurs and legal entities
performing business activities are
obliged to register for VAT purposes if
they had taxable supplies in excess of
HRK 85,000 in the previous year.
Exports are zero-rated.
Invoices for goods delivered or services
rendered must indicate the amount of
VAT as a separate item. Further, for
goods or services that are exempt or
zero rated their status must be clearly
indicated on the invoice.
VAT is calculated on the customs value
of imported good increased by the
amount of customs duty and any other
changes and specific taxes payable on
the import of said goods.
The standard VAT rate is 22% and
applies to most products and services.
As from January 1, 2006 the reduced
VAT rate of 10% applies to tourist
accommodation services and related
agency fees and as from August 1,
2007 to newspapers and magazines
issued on a daily and periodical basis
with the exception of newspapers and
magazines that consist mainly or
entirely of advertisements or whose
main purpose is advertising.
A VAT rate of 0% applies to bread, milk,
educational literature (specified), certain
(specified) medical supplies, scientific
magazines and film projection services.
VAT exemptions (no input VAT recovery)
include: rental of residential property,
services performed by banks, savings
institutions, savings and loan institutions,
insurance and reinsurance companies,
organization of "games of chance" and
betting, medical services, services and
deliveries of goods performed by social
welfare organizations, organizations for
children, pupils and students, religious
communities, or for cultural purposes.
Services are taxable in Croatia if they are
deemed to be supplied in Croatia. The
places of supply rules are similar to those
in the EU. The self-charge mechanism
applies for certain services supplied from
abroad.
Entities in Croatia using financial support
from certain pre-accession EU funds can
be provided goods/services without VAT
being required to be charged, if certain
conditions are met.
Customs Duties
The Customs Law, the Regulation on
implementing the Customs Law, the
Customs Tariff, and other regulations,
regulate customs duties.
Croatian tariff codes are based on the
standard international classification
system and on the European Union tariff
codes.
The Croatian Customs Law recognizes the
following customs procedures: transit,
customs warehousing, inward processing,
processing under customs supervision,
temporary admission, outward
processing, export, free zones and
warehouses, re-export and destruction
under supervision.
Doing Business in Croatia
16
There are numbers of exemptions from
customs duties; such exemptions are
stipulated in the "Regulation on
condition and procedures for obtaining
custom duties relief".
Croatia uses the uniform customs tariff
classification for a range of imports to
determine applicable customs duty,
excise taxes, etc. However, imports
from EU countries or from countries
with which Croatia has a Free Trade
Agreement, are generally free of
customs duties.
Excise Duties
Excise duties are levied on a limited
number of products either imported into
Croatia or manufactured in Croatia.
Therefore, taxpayers for excise duty
purposes are importers or producers.
Employment income is taxed at source in
accordance with the above rates.
The rates of tax applicable to property
income and income and income from
proprietary rights are 15% and 25%
respectively.
Deductions
Basic personal allowance
(annual)
21,600
Dependant spouse personal
allowance factor 0.5 (annual)
10,800
Dependant first child personal
allowance factor 0.5 (annual)
10,800
Dependant second child
personal allowance factor 0.7
(annual)
15,120
Dependant third child personal
allowance factor 1.0 (annual)
21,600
Donations in Croatia
Personal Income Tax
The PIT Law and PIT Regulations that
came into force on January 1, 1994
regulate the PIT system in Croatia.
Commercial Register
Rates
Percentage
(%)
Annual Taxable
IncomeBands
Croatian Kuna (HRK)*
Starting
15
0 - 43,200
Basic
25
43,200 - 108,000
High
35
108,000 - 302,400
Highest
45
Above 302,400
* The middle exchange rate of the
Croatian National Bank (HNB) as at July
31, 2008 was USD 1: HRK 4.63 and
EUR 1: HRK 7.22
All taxpayers are entitled to a basic
personal allowance of HRK 1,800 per
month (HRK 21,600 annually).
17
Doing Business in Croatia
HRK
Up to 2% of
prior year
total receipts
** Annual deduction for the cost of certain
health services, certain costs prescribed by the
personal income tax legislation for the
purchase or construction or maintenance of a
first main residence, interest expenses paid for
the purchase or construction of a first main
residence, rental costs for a main residence,
insurance premiums paid in respect of life
insurance with a retirement savings
component, voluntary and additional health
insurance and voluntary pension insurance
(Pillar 3): all collectively limited to HRK 12,000.
*Annual allowances are based on
multiples of the basic personal allowance
of HRK 1,800 per month and the relevant
factor.
** May only be utilized on the basis of an
annual tax return submitted, with the
exception of insurance premiums which
may be utilized during the year via
monthly payroll, but with a limit of HRK
1,000 per month.
City Surtax
Real Estate Transfers
Municipalities and cities may levy an
additional tax, called city surtax.
Currently, the City of Zagreb has the
highest city surtax rate, being 18%. City
surtax is calculated on the amount of
personal income tax payable.
Irrecoverable transfer tax at the rate of 5%
applies to the transfer of land.
For buildings constructed before the VAT
law became effective (i.e. before 1
January 1998), transfers are subject to
irrecoverable transfer tax-at the rate of 5%.
Social Security Contributions
Employee
Generation
solidarity (Pillar 1)
1, 2
15%
Individual capital
savings (Pillar 2) 2
5.0%
Employer3
15.0%
Health insurance
1.7% (1.6%)4
Unemployment
insurance
Contributions for
employees with
disabilities
(0.1%)4
Insurance against
injury at work
0,5%
Total contributions
20.0%
For newly constructed buildings (i.e. on or
after 1 January 1998), transfers are
subject to VAT at the rate of 22%.
The subsequent transfer of newly
constructed buildings is subject to VAT at
the rate of 22% or transfer tax at the rate
of 5%, depending on whether the seller
was able to deduct VAT as a tax
prepayment when the building was
initially transferred to the seller.
Croatian citizens acquiring their first
property as their main residence are
exempt from paying property transfer tax
(but not VAT, if VAT applies), if certain
conditions are met.
17.2%
1 Maximum annual earnings base for
Pillar 1 s/s contributions 2008 is HRK
502,200.
Further transfer tax exemptions are
available for the transfer of land or
qualifying buildings located in special
state care areas to both companies and
physical persons, if certain conditions are
met.
2 Maximum monthly earnings base for
both pillars, applicable only on
receipts which qualify as salary for a
specific month, is HRK 41,850.
3 Based on gross salary.
4 1,7% unemployment insurance must
be generally paid by all employers.
For employers with 20 or more
employees, the 1,7% unemployment
insurance contribution is split
between 1,6% unemployment
insurance and a 0,1% contribution for
employees with disabilities.
Doing Business in Croatia
18
Transfer Tax
Incentives
The transfer of used cars, other motor
vehicles, boats and planes is subject to
irrecoverable transfer tax at the rate of
5%, unless VAT applies.
A Free Trade Zone ("Zone") is defined as an
area within the territory of the Republic of
Croatia in which economic activities are
carried out in accordance with certain
specific conditions.
Inheritance and Gift Tax
Inheritance tax and gift tax at the rate of
5% applies to transfers to individuals or
legal entities of real estate, cash,
securities, or movables, if their
individual market value exceeds HRK
50,000, where that property is
inherited, received as a gift or otherwise
received (or transferred), without
consideration.
Inheritance and gift tax does not apply
to movable property inherited/received
as a gift if the transfer is subject to VAT.
Inheritance and gift tax provisions are
not applicable under certain other
circumstances, amongst others, the
transfer between immediate relatives
(i.e. spouses, siblings and children).
Other Taxes
Other taxes may apply, according to the
taxpayer's individual or corporate status
and activities.
A founder on the basis of a public tender
or a tender for a new Zone establishes a
Zone.
A user of a Zone can be the founder of the
Zone, or another domestic or foreign legal
or physical person performing business
activities in the Zone based on a contract
with the founder of the Zone. Only these
activities can be carried out in a Zone:
production of goods, improvement of
goods, wholesale trade and mediation in
trade, provision of services, banking and
other financial operations related to the
production of goods and the provision of
services and insurance and re-insurance
of property and persons.
Retail trade is not permitted in a Zone.
Currently, there are 19 Zones in Croatia,
and all of them meet the necessary
requirements for conducting business.
Zone users pay CPT in the amount of 50%
of the prescribed standard rate (or,
currently, 10%).
Zone users who construct or participate in
construction of qualifying infrastructure
facilities in a Zone, where the value of the
investment is greater than HRK 1,000,000
(approx. EUR 137,000) are further
concessionally treated as their CPT rate is
0% for a period of 5 years, or until the
investment level is reached.
19
Doing Business in Croatia
The main statutory incentive areas are
regulated by the:
·
·
·
·
Investment Promotion Law;
Law on Free Trade Zones;
Law on Special State Care Areas;
Law on Renewal and Development of
the City of Vukovar;
· Law on Hill and Mountain Areas;
· Law on Scientific Activities in Higher
Education; and
· Training and Education Incentives
Law.
Under the Investment Promotion Law,
the corporate profit tax rate can be
reduced as follows:
Special State Care Area Law
CPT payers performing business activities
in a Special State Care Area (SSCA) and
employing more than 5 permanent
employees (where more than 50% of the
employees have their residence and
habitual abode in a SSCA), are subject to
the following CPT rates:
· 0% in an area of the first group;
· 5% of the prescribed CPT rate in an area
of the second group (or, currently, 5%);
and
· 75% of the prescribed CPT rate in an area
of the third group (or, currently, 15%).
Investment
range
(in EUR)
New job
positions*
CPT
rate
Period**
The incentive expires on December 31,
2014.
From 0.3
to 1.5 million
10
10%
10 years
Law on the Revival and Development of
the City of Vukovar
From 1.5
to 4 million
30
7%
10 years
From 4
to 8 million
50
3%
10 years
Exceeding
8 million
75
0%
10 years
* Within the first three years of the
investment
** Or until investment level is reached
According to the Investment Promotion
Law, to apply for the tax incentives, a
legal entity should make investments
into the following projects:
· Manufacturing and processing
activities;
· Technological development and
innovation centres; and
· Strategic business support activities.
CPT payers performing business activities
in the City of Vukovar area and employing
more than 5 permanent employees (where
more than 50% of the employees have
their residence and habitual abode in the
city of Vukovar area or in a SSCA) are
exempt from CPT.
The incentive expires on December 31,
2014.
Law on Hill and Mountain Areas
CPT payers performing business activities
in specific hill and mountain areas and
employing more than 5 permanent
employees (where more than 50% of the
employees have their residence and
habitual abode in the respective mountain
area), are subject to 75% of the prescribed
CPT rate (or, currently 15%). There is
currently no expiry date for this incentive.
Doing Business in Croatia
20
HLB in Croatia
how to contact us
Rijeka Office
HLB Inženjerski biro d.o.o.
Riva 20
51000 Rijeka
Zagreb Office
HLB Inženjerski biro d.o.o.
HLB Revidicon d.o.o.
Heinzelova 4a
10000 Zagreb
Telephone: +385 51 322303
Fax: +385 51 214746
E-mail: [email protected]
www.ibr.hr
Telephone: +385 1 4600888
Fax: +385 1 4650355
E-mail: [email protected]
Contact: Tomislav Ugrin
Contact: Michelle Maria Biliæ
Varaždin Office
HLB Revidicon d.o.o.
HLB Croatia is the business name registered by
HLB Inženjerski biro and HLB Revidicon who are
members of HLB International. HLB Croatia offers a
wide range of services relating to auditing,
taxation, accounting, and general financial and
management advice.
Ankice Opolski 2
42000 Varaždin
Telephone: +385 42 214897
Fax: +385 42 313053
E-mail: [email protected]
www.revidicon.hr
Contact: Stjepan Šargaè
21
Doing Business in Croatia
Doing Business in Croatia
22
23
Doing Business in Croatia
Riva 20 · 51000 Rijeka · Croatia
Telephone: +385 51 322303 · Fax: +385 51 214746 · E-mail: [email protected]
Web: www.ibr.hr
Ankice Opolski 2 · 42000 Varaždin · Croatia
Telephone: +385 42 214897 · +385 42 211181 · Fax: +385 42 313053 · E-mail: [email protected]
Web: www.revidicon.hr
HLB Inzenjerski Biro d.o.o. and HLB Revidicon d.o.o. are members of
International. A world-wide network of independent accounting firms and business advisers.