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Croatia

22 November 2019

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Croatia Tax Reform Legislation Submitted in Parliament

The Croatian government has submitted draft bills in parliament for the amendment of several tax laws. Some of the main measures are summarized as follows:

  • An increase in the threshold for the 12% reduced corporate tax rate from annual revenue up to HRK 3 million to annual revenue up to HRK 7.5 million (same threshold increase provided for individual entrepreneurs to elect to be subject to corporate tax);
  • The implementation of exit tax rules in compliance with Council Directive (EU) 2016/1164, the EU Anti-Tax Avoidance Directive (ATAD1);
  • The implementation of hybrid mismatch rules to address double deduction and deduction without inclusion mismatches in compliance with the EU Anti-Tax Avoidance Directive as amended by Council Directive (EU) 2017/952 (ATAD2);
  • The implementation of the measures of Council Directive (EU) 2018/822 (DAC6) on reportable cross-border tax planning arrangements;
  • Individual income tax changes, including:
    • An increase in the monthly basic personal allowance from HRK 3,800 to HRK 4,000;
    • Changes to treat supplementary health insurance premiums paid by employers as employment income, above a prescribed amount; and
    • The introduction of a 100% individual income tax base reduction for employees up to the age of 25, and a 50% reduction for employees between the ages of 26 to 30 (reduction limited to the lower/upper income tax bracket threshold - HRK 360,000);
  • Value added tax changes, including:
    • The amendment of the 2018 Law on Amendments to the VAT Act by deleting paragraph 1 of Article 6, which provided for a reduction in the standard VAT rate from 25% to 24% from 1 January 2020 (i.e., the standard VAT rate will be kept at 25%);
    • An increase in the threshold to apply the cash accounting scheme for VAT from HRK 3 million to HRK 7.5 million;
    • The extension of the 13% reduced VAT rate to the preparation and serving of meals and desserts inside and outside a catering facility; and
    • Measures to harmonize domestic VAT rules with EU rules, including in relation to combatting VAT fraud.

Subject to approval, the measures will generally enter into force on 1 January 2020. However, the measures on reportable cross-border tax planning arrangements will apply from 1 July 2020, including with respect to reportable arrangements during the period 25 June 2019 to 1 July 2020, and measures regarding reverse hybrid mismatches will apply from 1 January 2022.

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