Croata Tax & Business Guide - Deloitte

Basic facts
Population 4.6m Inflation 3.4% (2006)*
Main languages Croatian GDP per head US$9,500*
Currency Kuna (HRK) GDP growth 4.7% (2006)*
Economic communities WTO
GDP sources 6.8% agriculture, 30.9% industry, 62.3% services
*Economist Intelligence Unit estimates.
Political environment

Croatia is a parliamentary democracy. The governing coalition is led by the largest party in parliament, the Croatian Democratic Union.

The president is Stipe Mesic. The next parliamentary elections are due in November 2007. In October 2005 the EU started talks with Croatia on accession.
Foreign trade and investment
Exports US$10.4bn (2006)* Imports US$21.6bn (2006)*
*Economist Intelligence Unit estimates.

Leading markets for exports: Italy, Bosnia and Hercegovina, Germany and Slovenia.

Primary exports: Ships and boats, petroleum products, textiles and apparel.

The Croatian market is open to foreign investors, who are treated on the same basis as domestic companies. Limits on national treatment exist in a few areas, such as arms manufacturing.
Business and financing
Business forms Public limited liability company, partnership, joint stock company

Foreign entities are allowed to establish the following types of companies, either alone or with domestic legal entities: public limited liability companies, limited partnerships, joint stock companies and silent partnerships. Foreign persons may acquire shares and ownership stakes in existing joint stock and limited liability companies.
Labour environment
Unemployment rate 17.2% (2006)* Minimum wage HRK 2,080 (monthly)
*Economist Intelligence Unit estimate.

Salaries in the private sector continue to be lower than those in the public sector.

The monthly minimum wage is HRK 2,080.

Croatia adopted new labour laws in mid-2003 aimed at increasing labour market flexibility by reducing the mandatory notification period before dismissal and cutting generous severance package requirements.
Taxation
Corporate tax
Profit tax rate 20%

Resident companies pay tax on worldwide income, with a credit for foreign tax paid; non-resident companies pay tax only on Croatian-source income. An entity is resident for tax purposes if its legal seat or place of effective management and control is in Croatia. Profit tax is imposed at a flat rate of 20%. Dividends received by resident shareholders are exempt from profit tax.
Individual tax
Progressive rates rising to 45%

Resident individuals pay tax on worldwide income; non-resident individuals pay tax only on Croatian-source income. Income tax is payable at progressive rates rising to 45%, increased by surcharges imposed by the local governments. Dividends received by individuals are exempt from personal income tax. Individual entrepreneurs are subject to the profit tax if total revenue exceeds HRK 2m or if certain other conditions are satisfied.
Capital gains
Not subject to taxation

Capital gains derived by an individual are not subject to taxation in Croatia. However, capital gains derived by a legal entity are subject to profit tax. Gains derived by individuals from the sale of immovable property are subject to a 25% flat rate tax unless the property was owned for more than three years or the taxpayer lived in the property before the sale. Gains on intellectual property rights are also subject to the 25% flat rate tax.
Indirect tax
Standard rate 22%

Value-added tax (VAT) applies to most transactions. Exports, basic foodstuffs, and certain agricultural and fishing products are zero-rated. Exemptions include housing rents and financial, insurance and medical services.

Registration is compulsory for businesses with an annual turnover above HRK 85,000, and voluntary registration is possible below this amount.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies make monthly advance payments of tax, based on the previous yearÌs tax return. The tax return must be filed within four months of the end of the period. Employment income is taxed by monthly payments. Individuals that receive non-employment income must file a tax return by February 28th following the tax year.
Additional tax information
Withholding taxes Dividends 0%, Interest 15%, Royalties 15%. Rates may be reduced by double tax treaties.
Tax treaties Croatia has signed more than 25 double tax treaties, and also applies nine treaties concluded by the former Yugoslavia.
Dividends Not taxable.
Revenue protection There are transfer-pricing and thin-capitalisation rules.
Groups There is no provision for group treatment.
Incentives Investment incentives; free zones; areas of special national concern; entities carrying out research and development activities; international shipping activities; mountainous areas of Croatia.
Other taxes Inheritance and gift tax, Firm tax, Advertising tax, Local surcharges, Consumption tax, Public utilities tax, Excise taxes, Tax on transfer of immovable property, Taxes on luxury goods.