Saturday, 3 December 2022

New Croatian Profit Tax to Undo Effects of Important Reforms

December the 3rd, 2022 - The highly unpopular new Croatian profit tax has already been raked over the coals by many, but it seems that it will go as far as to undo all of the very important reforms that have been successfully implemented so far.

As Poslovni Dnevnik/Marija Brnic writes, over the weekend, Finance Minister Marko Primorac will have the opportunity to study a number of proposals that came up in the public debate on his, controversial to many, legal proposal for a new additional income tax.

 Even before that, Primorac repeated to journalists that he wouldn't give up on the introduction of this new Croatian proft tax, which is in fact tax on extra profit, as well as that there should be no exemption of certain sectors from paying this new tax.

Proposals were submitted by numerous large Croatian employers, as well as some smaller ones, consulting firms, banks, associations, and even economic analysts. Marijana Ivanov, a professor at the Faculty of Economics in Zagreb, was among the most active individuals in this debate, and among others, she has been calling for the application of this new Croatian profit tax to be moved to 2023.

Although, it seems, the minister isn't remotely inclined to single out and ''show mercy'' to certain sectors, part of the proposal regards precisely those appeals for him to do so. Along with the Viktor Lenac shipyard, which has warned that it will be the only one in the entire EU to will be burdened with this, a similar cry comes from the Croatian association of shipowners - Mare Nostrum.

With this new Croatian profit tax, they warn, shippers who have chosen to participate in the tonnage tax system will be imposed such a tax incompatible with the tonnage tax system, thus putting them in an unequal position compared to competing EU shippers.

For the Medjimurje-based company Muraplast, an important correction would be to exempt companies using the Investment Promotion Act from paying additional tax, or to propose that, otherwise, the requested amount of additional tax be taxed as normal profit tax, which can be reduced by a certain amount through the Investment Promotion Act . They're also standing up for the protection of energy-intensive companies, which did manage to make somewhat of a profit this year.

The Croatian Chamber of Commerce (HGK) is also active in this regard. In their proposal, they present the case of a member from the automotive industry, which, after coping with some bad times, is already having to deal with a 20 percent drop in orders for next year.

AmCham also joined the debate that literally erupted recently, warning that the announcement of this new Croatian profit tax actually goes against the positive results achieved by the Republic of Croatia through several rounds of tax reform, as well as the efforts the government has made so far to achieve tax stability and predictability. They fear the move will do nothing but call the positioning of Croatia as an investment destination into question once again.

For more, make sure to check out our dedicated news section.

Wednesday, 23 November 2022

Minister Marko Primorac Reveals More About Unpopular New Profit Tax

November the 23rd, 2022 - Croatian Finance Minister Marko Primorac has revealed more about the highly unpopular recently introduced tax on profit. Many in the business world consider this new tax, which some are calling a ''tax on tax'' to be deeply detrimental to the success of larger companies.

As Poslovni Dnevnik writes, Finance Minister Marko Primorac pointed out the face that the Republic of Croatia is planning to introduce (yet another new) tax on all companies that enjoyed extra profit because it is a ''solidarity tax'' considering that we're in difficult times and that people should be helped as much as possible.

According to the proposal of the Ministry of Finance, the additional profit tax should be collected during the declaration of profit tax - at the end of April 2023. It would be a one-time payment, without the obligation to pay any advances, 24sata writes.

''The additional tax would only apply to the year 2022. It would be an extraordinary and one-time measure. The Law on Special Profit Tax is expected to enter into force by December the 31st, 2022 by urgent procedure. We expect 2.1 billion kuna in revenue to flow in from the introduction of this additional tax and that estimate is based on data for 2021,'' said Minister Marko Primorac.

The additional profit tax would include, he says, all economic activities. All companies headquartered in Croatia would need to pay this tax if their profit increased by more than 20 percent compared to the average of the last four years. It is also important to note the fact that only the amount that exceeds 20 percent will be taxed with this additional tax.

It's worth noting that many companies have complained that they simply don't have any ''extra'' profit to enjoy and that all earnings they have achieved since the end of the restrictive measures and economic downturn caused by the coronavirus pandemic have been spent on patching up the issues experienced back during that time. Others, including the Croatian Employers' Association (HUP) deem the introduction of this new profit tax a ''punishment'' to companies doing well and yet another obstacle to any boost to the already enfeebled domestic economy during difficult times dominated by spiralling inflationary pressures.

For more, make sure to keep up with our news section. For all you need to know about any other new laws and taxes which affect businesses in Croatia, follow our dedicated business section.

Sunday, 20 December 2020

Croatia Entering 2021 With Lower Income and Profit Tax Rates

ZAGREB, Dec 20, 2020 - Croatia is entering 2021 with a fifth round of tax reform under which the two income tax rates will be reduced from 24 to 20% and from 36 to 36%, while the profit tax rate for businesses with an annual income of less than HRK 7.5 million would be cut from 12 to 10%.

The fifth round of tax reform, which will reduce the tax burden by an estimated HRK 2 billion, is governed by the amended laws on income tax, profit tax, VAT, fiscalisation in cash transactions and local government financing, which come into force on January 1.

Lower income tax rates - higher income for about 900,000 taxpayers

The amended Income Tax Act will result in higher wages or pensions as the lower rate will be reduced from 24 to 20% and the higher rate from 36 to 30%. The basic non-taxable monthly income remains at HRK 4,000, while monthly incomes of up to HRK 30,000 will be subject to the 20% tax rate instead of the 24% as has been the case so far and monthly incomes of above HRK 30,000 will be taxed at 30% instead of the present 36%.

Should employers use these lower tax rates to increase their workers' wages, that would mean an increase in net monthly pay of between several dozen kuna to up to 2,000 kuna, depending on pay rates, benefits for dependants and local tax rates.

Lower taxes for youth

The amended Income Tax Act also provides for tax relief for young people of up to 30 years old. Young people aged up to 25 years will be exempt from income tax and those aged between 26 and 30 will be entitled to an income tax cut of 50%.

Profit tax rate reduction

Under the amended Profit Tax Act, as of January 1 the profit tax will be reduced from 12 to 10% for businesses with an annual income of up to HRK 7.5 million. The lower rate will also apply to all non-profit organisations that pay a lump-sum tax rate, to dividend payments and to performances by foreign performers. 

For businesses with an annual income of more than HRK 7.5 million, the profit tax rate remains at 18%.

(€1 = HRK 7.5)