Each payment received by a foreign legal entity in the Republic of Croatia, according to the Profit Tax Act (Official gazette 177/04 to 146/08) 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. The tax base is the gross amount of a fee paid to a non – resident recipient (without the VAT since it is not paid on certain overseas services).
The withholding tax is paid on:
- interest (except on interest on commodity loans for the purchase of good used for carrying out of a taxpayer’s business activity; interest on loans granted by non-resident bank or other financial institution, nor interest paid to holders of government or corporate bonds)
- royalties and other intellectual property rights
- other intellectual services: management fee, market research, fiscal and business consulting, auditor services, and similar.
This does not include: advertising and publicity services, holding courses, seminars and workshops, engineering and architectural services, intermediation and representation services, services enabling the use of databases and payrolls paid to employees sent to work in Croatia by their foreign employers.
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, the withholding tax base may even be lower, depending on the provisions of the signed agreement.
When such an agreement exists and if at the payment the payer has proof of the foreign receiver’s residence (certified by a foreign tax authority), only the difference between the contractual and legally prescribed tax base (if any) shall be calculated.
However, if at the 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 the certified forms as proof of residence, and claim the paid tax back 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 profit tax return, a resident payer must also present the Tax Administration a detailed list of all fees paid to abroad.
