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13.5. Other Anti-Avoidance Rules

Hybrid Mismatches

Effective from 1 January 2020, Croatia has adopted hybrid mismatch rules in line with the EU Anti-Tax Avoidance Directive (ATAD 2). The hybrid mismatch rules prevent entities that are liable to income tax in Croatia from being able to avoid income taxation or obtain a double non-taxation benefit by exploiting differences between the tax treatment of entities and instruments across different countries.

If a mismatch arises, it is neutralized by:

  • Disallowance of deduction of expenditure under the hybrid arrangement to the extent that the corresponding income is not included in the tax base or is deducted twice; and
  • Inclusion of the income arising from the hybrid arrangement as taxable income to the extent that it is deductible for the payer.

Financial Account Information Reporting and Exchange

Effective 2017, Croatia has adopted measures to implement the automatic exchange of financial account information with EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for exchange of information developed by the OECD under the Common Reporting Standard (CRS). Croatia is also a party to the OECD Mutual Assistance Convention and the related Multilateral Competent Authority Agreement, and as such exchanges financial account information under CRS with qualifying non-EU countries. Further, on 20 March 2015, Croatia concluded an inter-governmental agreement (IGA) with the United States with respect to the US Foreign Account Tax Compliance Act (FATCA) which entered into force on 27 December 2016.

Mandatory Reporting of Cross Border Tax Arrangements (DAC6/ MDR)

Croatia has published the law implementing the EU Council Directive (DAC6/MDR), which requires the reporting of cross-border tax planning arrangements and exchange of information with the other EU Member States. The reporting requirement primarily applies to intermediaries that design, market, organize, or manage the implementation of a reportable arrangement. However, the reporting requirements may also be applied to the taxpayers in certain cases, including where an intermediary is subject to confidentiality obligations or where a taxpayer has designed an arrangement without external intermediaries.

The requirements apply from 1 January 2020 and reportable transactions must be disclosed within a period of 30 days from the day after the arrangement is implemented/ made available/ ready for implementation.

The taxpayers must submit a notice on the use of arrangements, which is due within three months after the year in which an arrangement was implemented. Further, for marketable arrangements, intermediaries must submit a report containing updated information on the arrangements within a month after each quarter.

Under a transitional regime, reportable transactions where the first step of implementation occurred between 25 June 2019 and 1 July 2020 must be disclosed by 31 August 2020.  

Non-fulfillment of the reporting obligations such as failure to report an arrangement, delay in reporting, or failure to notify other intermediaries or the relevant taxpayer about the exemption from filing due to the confidentiality obligations will attract penalties.

COVID-19 Emergency Measures

Due to the COVID-19 pandemic, the EU Council adopted an amendment to the Directive whereby the Member States may opt to defer the reporting under DAC6 by up to 6 months.

Croatia has adopted the deferral option and is postponing the reporting requirements as follows:

  • Reportable arrangements, the first step of which was implemented between 25 June 2018 and 30 June 2020, must be reported by 28 February 2021;
  • The 30-day period for reporting other arrangements begins from 1 January 2021 for reportable arrangements between 1 July 2020 and 31 December 2020; and
  • The deadline for the first periodic reporting of marketable arrangements is 30 April 2021.

Exit Tax Rules

Effective 1 January 2020, Croatia has introduced exit tax rules in line with the EU Anti-Tax Avoidance Directive (ATAD1) (see Sec. 11.1.).

Low or No Tax Jurisdictions and Tax Regimes

Croatia has several specific anti-avoidance rules for transactions with entities located in non-cooperative jurisdictions as listed by the EU unless the relevant jurisdiction has a tax treaty with Croatia. This includes:

  • A higher withholding tax on certain payments to entities established in non-cooperative jurisdictions (see Sec. 8.2.3.); and
  • CFC implications with respect to entities established in non-cooperative jurisdictions (see Sec. 13.3.1.).

The EU list of non-cooperative jurisdictions as of 24 February 2022 includes the following jurisdictions:

American Samoa Anguilla (removed effective 12 October 2021) Barbados (removed effective 26 February 2021) Dominica (removed effective 12 October 2021)
Fiji Guam Palau Panama
Samoa Seychelles (removed effective 12 October 2021) Trinidad and Tobago The US Virgin Islands
Vanuatu      

Ultimate Beneficial Ownership Disclosure

On 25 May 2019, Croatia introduced the requirement for legal entities established in Croatia to maintain adequate, accurate, and current information on their own ultimate beneficial ownership (UBOs) in a special register.

Legal entities having their registered office in Croatia or carrying out taxable business activities in Croatia are required to be linked to the Central Registry (UBO register) maintained by the Croatian Financial Agency (FINA). However, companies listed on a regulated market or on a multilateral trading mechanism are not required to maintain a special UBO register. Entities established after 1 December 2019 have to register and submit UBO information within 30 days of their establishment. Further, legal entities have to update the data within 30 days from the date of change in the information previously entered.

A fine in the range of HRK 5,000 to HRK 350,000 is levied on legal entities that do not file relevant, accurate, and updated data in the Register of Beneficial Owners in the prescribed manner within the due dates. A member of the management board or other responsible natural person of the legal entity is fined with an amount in the range of HRK 5,000 to HRK 75,000.