Each payment realised by a foreign legal entity in the Republic of Croatia, according to the Income Tax Act (Official gazette 177/04 to 80/10) is subject to calculation of the so-called withholding tax at a 15% rate. This tax must be calculated and paid by the resident payer upon compensation payment to a non-resident. Tax base is the total amount of a fee paid to a non–resident recipient (without the VAT which is paid on certain overseas services).
Withholding tax is paid on:
1. interest (except on interest on commodity loans for the purchase of goods used for carrying out a taxpayer’s business activity; interest on loans granted by international banks or other financial institutions, interest paid to holders of government or corporate bonds)
2. royalties and other intellectual property rights
3. other intellectual services: management fee, market research, fiscal and business consulting, auditing services etc.
This does not include: advertising and publicity services, courses, seminars and workshops, engineering and architectural services, mediation and representation services, services enabling the use of databases and payrolls paid to employees sent to work to Croatia by their foreign employers.
1. interest (except on interest on commodity loans for the purchase of goods used for carrying out a taxpayer’s business activity; interest on loans granted by international banks or other financial institutions, interest paid to holders of government or corporate bonds)
2. royalties and other intellectual property rights
3. other intellectual services: management fee, market research, fiscal and business consulting, auditing services etc.
This does not include: advertising and publicity services, courses, seminars and workshops, engineering and architectural services, mediation and representation services, services enabling the use of databases and payrolls paid to employees sent to work to Croatia by their foreign employers.
Payment accounts for withholding tax are:
1660 – withholding tax on fees for using intellectual property rights
1678 – withholding tax on fees for market research services, tax consulting, auditing services etc.
1694 – withholding tax on interest
1660 – withholding tax on fees for using intellectual property rights
1678 – withholding tax on fees for market research services, tax consulting, auditing services etc.
1694 – withholding tax on interest
Since an agreement on avoidance of double taxation signed between two countries stands above national legislation, if Croatia entered such an agreement with the non-resident’s country, withholding tax base may even be lower, depending on the provisions of the signed agreement.
When such an agreement exists and if the payer has proof of the foreign receiver’s residence upon payment (certified by a foreign authority), only a possible difference between the contractual and legally prescribed tax base (if any) is calculated.
However, if upon payment the payer does not have such a proof, he is obligated to calculate the withholding tax according to Croatian laws.
The receiver may subsequently provide certified forms as proof of residence, and claim refund of the paid tax within three years from the end of the year in which the payment was made. The reason for this return arises from the fact that, the payment based on the invoice issued to the payer was reduced by the withholding tax, which was paid by the payer on behalf of the receiver.
The receiver may subsequently provide certified forms as proof of residence, and claim refund of the paid tax within three years from the end of the year in which the payment was made. The reason for this return arises from the fact that, the payment based on the invoice issued to the payer was reduced by the withholding tax, which was paid by the payer on behalf of the receiver.
When presenting the annual income tax return, a resident payer must also submit a detailed list of all fees paid to abroad to the Tax Administration.
A novelty in the Income Tax Act (from 2010) is a provision according to which withholding tax is paid at a 20% rate (instead of the previously prescribed 15%) on all kinds of services which are paid to persons who have their seat or place of effective management in countries (except for the countries of the European Union) where income tax rate is lower than 12,50% (so-called tax oases):
1. US Virgin Islands
2. Andorra
3. Anguilla
4. Antigua and Barbuda
5. Aruba
6. The Bahamas
7. Bahrain
8. Belize
9. Bermuda
10. British Virgin Islands
11. The Dominican Republic
12. Gibraltar
13. Grenada
14. Guersney
15. Jersey
16. The Cayman Islands
17. The Cook Islands
18. Liberia
19. Liechtenstein
20. The Marshall Islands
21. Monaco
22. Montserrat
23. Nauru
24. Niue
25. The Netherlands Antilles
26. Turks and Caicos Islands
27. The Isle of man
28. Panama
29. Samoa
30. Seychelles
31. Saint Lucia
32. Saint Kitts and Nevis
33. Saint Vincent and the Grenadines
34. Vanautu
1. US Virgin Islands
2. Andorra
3. Anguilla
4. Antigua and Barbuda
5. Aruba
6. The Bahamas
7. Bahrain
8. Belize
9. Bermuda
10. British Virgin Islands
11. The Dominican Republic
12. Gibraltar
13. Grenada
14. Guersney
15. Jersey
16. The Cayman Islands
17. The Cook Islands
18. Liberia
19. Liechtenstein
20. The Marshall Islands
21. Monaco
22. Montserrat
23. Nauru
24. Niue
25. The Netherlands Antilles
26. Turks and Caicos Islands
27. The Isle of man
28. Panama
29. Samoa
30. Seychelles
31. Saint Lucia
32. Saint Kitts and Nevis
33. Saint Vincent and the Grenadines
34. Vanautu
Payment account for a payment of such calculated tax is 1864 – withholding tax on services paid to persons whose seat is outside the European Union, and whose general or average income tax rate is lower than 12,5%.
Posted on June the 30th, 2011
