Latest change in the Croatian tax system relates to the General Tax Law (GTA), which followed the amendments to the Corporate Profit Tax, VAT, Real Estate Transfer Tax and Personal Income Tax / Social Security regulations (all introduced end of 2014). Here we present the summary of the significant changes.
Facts of the case
The Amendments to GTA (most provisions in force as of 17 March 2015) introduced several new „solutions“ to the system of determination and collection of taxes in Croatia. One of these is issuing binding opinions by the Tax Authority upon request of the taxpayer with respect to the tax treatment of future planned transactions. The question of binding opinions has been raised a lot in the past and should finally improve the position of the taxpayers as well as the legal security of the tax system in Croatia. Details of the procedure (deadlines, costs, etc.) however remain to be defined in the Bylaw.
GTA further enables taxpayer and the Tax Authority to conclude an „administrative agreement“ and „adminsitrative settlement“. Administrative agreement may be concluded at the request of the taxpayer for the period of maximum 24 months with the purpose of settling outstanding tax debt. It suspends the enforcement of the final tax resolution as well as the statute of limitation. There are several limitations to concluding an administrative agreement though (e.g. blocked account of the taxpayer, ongoing procedure because of the abuse of rights with respect to taxes, etc.).
Adminsitrative settlement may be concluded by the Tax Authority and the taxpayer with respect to the tax liabilities determined in the tax inspection, before the taxpayer receives the Report on performed tax inspection. Settlement may relate to the determined tax liability in the proceedings in which the tax base is determined by assessment, to the payment deadlines, decrease of default interest and waiver of the offence charges by the Tax Authority (if in line with the Offence Law). Precondition for an administrative settlement is the taxpayer’s waiver of the legal remedies. An administrative settlement is however not allowed in case of suspicion of committing a criminal act. There is a possibility to conclude administrative settlement with respect to the obligation determined in the tax resolution, which is still not executed, if the taxpayer files a request within 6 months from the day the Amendments have been introduced.
With respect to the correction of the tax returns, the Amendments introduce rules on retroactive correction of the tax returns (within deadline of 15 days) based on the request of the Tax Authority (details to be defined in the Bylaw), EU rules, final tax resolution or final court ruling.
Finally, there is a newly introduced rule on the electronic delivery of the tax decisions to the entrepreneurs, whereas no request or consent of the taxpayer is required (in force as of 1 January 2016).
Amendments to the Corporate Profit Tax Regulations included new rules on the decrease of the tax base for the dividend income (whereas detailed conditions for the descrase as well as assumptions relating to payer from EU Member states were introduced) and limitation of tax loss in line with the rules on the state aids and “deminimis” benefits.
Reinvested profit was redefined and the conditions for the tax exemption purposes were widened (investment in long term assets required, whereas tax incentives cannot be cumulated; keeping same number of employees).
New detailed rules have been introduced with respect to the limitation of the tax recognized impairment cost of long-term assets, registration and reporting obligations of permanent establishments in Croatia, tax recognized donations (for charity purposes) and tonnage tax.
Value Added Tax regulations have also been amended. Some of the significant amendments relate to the new VAT treatment of supply of land and buildings. As of 2015 VAT is payable on the supply of building or its parts before their first occupation or use, or within 2 years from the date of its first occupation or use to the date of the next supply (including reconstructed buildings), and the supply of the construction land. Supplies of other buildings and agricultural land is VAT exempt, whereas respective input VAT needs to corrected. In case of VAT exempt supplies, there is however a right to opt for VAT, under condition that the recipient of the supply is VAT payer with the full right to input VAT deduction. The right to opt must be exercised at the time of supply, i.e. the supplier and the recipient need to notify the Tax Authority.
Amendments also introduced special procedure for all telecommunications services, radio and television broadcasting services and electronically supplied services where a taxable person with no established business in the EU supplies to non-taxable persons in EU. According to the new rule, these services are VAT taxable according to the business seat / residence of the recipient of the service.
VAT refund request will no longer be requiredfor supplies of goods and services within diplomatic and consular agreements, to international bodies in line with respective international agreements, but these will be VAT exempt supplies.
No annual VAT form will be required as of 2015. All adjustments and corrections for the respective year will be reflected in the VAT form for the last tax period in the calendar year (month / 3-month period).
The possibility to apply procedure of payment of VAT according to the collected payments is introduced for taxpayers with net value of supplies not exceeding EUR 3 mil in the previous year. There are however limitations to application of this procedure (e.g. for supplies within EU).
The amendments to the VAT regulations also introduced the possibility for the Tax Authority to suspend VAT identification number in case of suspected misuse of this number and cancelation of VAT identification number in case the taxpayer does not prove differently within one year. Furthermore, the amendments introduced guarantor liability for VAT by the taxpayer - recipient of the supply, if there are objective circumstances indicating that the taxpayer knew about fraudulent activities surrounding the transaction.
Real Estate Transfer Tax regulations followed amendments of the VAT regulations. Supply of real estate subject to VAT will not be considered supply for real estate transfer tax purposes, but RETT will be payable only:
- when supplier of real estate is not a VAT payer, irrespective of the type of the real estate,
- when VAT payer supplies used real estate and relating land after 2 years from the day of first usage (except if VAT payer opts for VAT, when the VAT liability is with the acquirer),
- when VAT payer supplies agricultural and other land (except construction land and except if VAT payer opts for VAT, when the VAT liability is with the acquirer).
Amendments to Personal Income Tax regulations changed again the tax brackets applicable within progressive taxation of personal income and, amongst several other changes, introduced tax on savings interest. Accordingly, as of 2015 savings interest, as well as interest on securities, interest on loans and interest based on the investment in the investment funds will be subject to 12% personal income tax (calculated and paid by the payer). Interest calculated until the end of 2014 will not be taxable under the new rules.
Amendments to the Law on Contributions introduce exemption from payment of health contribution as well as contributions for employment and work injuries and professional disease up to 5 years for employers who employ on an indefinite time employees and seconded employees younger than 30 years of age.