Tax Disputes Guide in Croatia

The Tax Authorities (TA) select taxpayers for tax audits based on risk evaluations and consideration of their tax power, with priority given to large taxpayers. Tax audits can be triggered by significant VAT refund requests or disparity of assets and income. Taxpayers can exclude the risk of a tax audit by requesting special status which aims to promote voluntary compliance with tax obligations and to reduce the administrative burden of tax audits (horizontal monitoring). During special status, the TA do not initiate tax audits and rely on taxpayers’ voluntary commitment to fulfil tax liabilities.

The right of the TA to determine tax liability (including interest) expires after 6 years from the date on which the statute of limitations period began. In most cases this is 7 years. A tax audit can generally be initiated within 3 years of the start of the statute of limitation period and, exceptionally, up to the end of the statute of limitation period (in case of tax frauds, if initiated by other bodies, disparity of assets and income, cross-border and related party transactions, etc.).

The TA can initiate a tax audit without notifying the taxpayer if the notice would compromise the tax audit’s purpose (despite the general rule that taxpayers must be notified at least 8 days before initiation). The TA can enter the taxpayer’s land and business premises and seize items, payment instruments, securities and documents that may serve as proof in an infringement or criminal procedure. They can also check business records and verify the authenticity of documents, give warnings and orders and seal the taxpayer’s facilities/premises or equipment.

Taxpayers have protections prescribed by the Croatian General Tax Act, i.e. the right to be informed, participate, appeal, etc.

The refusal to disclose information is permitted in some circumstances, e.g. to the taxpayer’s family members in cases when disclosure may expose the taxpayer or their family members to criminal charges; or to lawyers, notary publics, tax advisors and other prescribed professions when obtained in the course of their professional duties.

Business secrets are also protected: the parties of a tax procedure may request disqualification of an expert witness if the expert opinion could result in disclosure of a business secret or harm to the parties’ business activities.

Tax penalties are set out in specific tax legislation as well as in the General Tax Act and are usually in the form of monetary fines of up to EUR 92,900. Default interest may also be imposed.

As for criminal charges, tax evasion of amounts exceeding EUR 2,654 is a criminal offence punishable by a prison sentence of between 6 months and 5 years. However, criminal judgements for tax evasion are not as usual in practice, as it is more likely that the TA will push towards a monetary fine.

After the tax audit is finalised, there is a final meeting with the TA when settlement can be reached or when the TA issue minutes to which the taxpayer has the right to object. After the expiration of the objection deadline/receiving additional minutes, the TA issue a tax resolution, with the right to appeal to the second instance body. An administrative procedure usually takes 2-3 years.

An appeal against a second instance resolution is not possible. Instead, an administrative dispute can be initiated before the competent Administrative Court. An appeal against the judgement of the Administrative Court can be filed with the High Administrative Court.

Interim measures, such as deferrals or instalment payments, may generally be available, depending on the circumstances of each case.

Alternative dispute resolution mechanisms, such as mediation or arbitration, are not formally part of Croatian tax law, although certain institutes such as tax settlement are initially approached in “amicable spirit”.

Courts are not specialised in tax matters. Tax disputes are handled by the same Administrative Courts that resolve all other administrative matters.

There are two judicial levels: the Administrative Court as the first instance court, and the High Administrative Court as the second instance (appeal) court.

Court procedures may last several years (on average 3-5 years), and cases brought before a higher instance court may be referred back to a first instance court for a repeated procedure.

An extraordinary legal remedy – Extraordinary examination of the lawfulness of the final decision – can be initiated before the Supreme Court by the State Attorney.

As of 1 January 2025, the TA expanded the list of situations in which it can initiate a tax audit within the 6-year statute of limitations. This has contributed to insecurity among taxpayers, particularly those involved in cross-border or related-party transactions.

Additionally, the TA began issuing tax resolutions based on “indirect tax audits” without notifying taxpayers that they were being audited.

We recommend hiring a tax lawyer or advisor immediately after receiving a notice of tax audit to assist with the process and ensure that all documents are reviewed and carefully selected before submission to the TA. The audit is the most important part of the process, so it is crucial to handle queries from the TA properly. Once the findings are recorded, it becomes much more difficult to persuade the TA to change them.