Update: 25 May 2020
The Republic of Croatia introduced a range of tax measures to assist the economy and its citizens effected through the COVID-19 virus with aim of maintaining liquidity, economic activity and retention of employment. The most imported at this time are:
1. COVID-19 measures for companies in Croatia
General Tax Act (GTA)
Businesses and citizens affected by the coronavirus crisis will be allowed to defer payment of certain taxes such as personal income tax, corporate profit tax, value added tax and social contributions. The payment can be postponed for a period of three months, with the possibility of extension to additional three months. Thereafter, a 24-month payment of debt in installments, will be provided interest-free.
Value Added Tax
The main requirement for the application for tax deferral still remains a 20% decrease in revenues. All taxpayers meeting the main requirement, irrespective of their annual turnover, may apply for a tax deferral of VAT liabilities if VAT liability arises from invoices that have been issued or are incoming but not yet settled.
Personal income tax
Income obtained by natural persons on the basis of reliefs as prescribed by the GTA, shall not be considered as income from self-employed activity. The personal income tax calculations will be processed sooner and any overpayment of personal income tax will be paid out sooner than prescribed. The citizens will receive a refund of prepaid income tax and surtax during the month of June.
Corporate profit tax
The Tax Authorities may, grant to the certain groups of taxpayers who, due to special circumstances, have discontinued their operations or continued to operate on a reduced scale, determine the advance payment of income tax or profit in the smaller amount, or in the amount of HRK 0.00 in two ways: ex-officio or upon request.
Required conditions for the possibility of filing a Payment postponement request (as prescribed by GTA):
Entrepreneurs (legal and natural persons) can apply for deferred payment of due taxes, contributions and duties if they have all their tax liabilities settled before the occurrence of special circumstances, or if they have a past debt of less than 200,00 HRK on the day of filing a payment postponement request. The following conditions must be met:
- If due to the occurrence of special circumstances, revenue is reduced by at least 20% in the month preceding the month of application, compared to the same period of the previous year, or
- If entrepreneurs expect their revenues to be reduced by at least 20% in the next three months as a result of special circumstances, compared to the same period of the previous year.
- In addition to meeting these indicators, for the value added tax liability due, the taxpayer must demonstrate that the value added tax liability arises from incoming and outgoing invoices that have not been paid yet.
Measures for preserving jobs by Croatian Employment Institute
- In addition to above tax reliefs, there are certain subsidies that are implemented by the Croatian Employment Institute in order to save jobs in the most vulnerable sectors such as textile, clothing, footwear, leather and wood manufacturing sectors, sectors closed by the decision of Civil protection Directorate as well as any other sectors that can prove an extraordinary impact of Covid-19.
- The target group of workers includes all insured persons with the impacted employer (part-time workers, workers on fixed term contract, citizens of the EU or third countries, expatriates), except for retired workers and foreign workers from third countries whose residence and work permit expired. The target group of workers includes also workers employed in the branches or representative offices of foreign companies in the Republic of Croatia.
The subsidies are as follows:
- amount of HRK 4.000,00 per month for a full-time employee,
- amount of HRK 2.000,00 per month for a part-time employee,
- In addition, the state will take over the payments of contributions in the amount of HRK 1,460, so the total subsidy to companies per worker will be at the level of HRK 5,460.
- Employers can receive support up to a maximum period of 3 months (March, April, May).
- Employers need to prove and provide evidence of cancelled contracts, contracted projects, problems they had in the transportation and supply of goods, ordering raw material, explanation of revenue decline and similar.
- This relief measure only can be claimed provided employers retain employees.
The 2. COVID-19 package for companies in Croatia
The second package of measures for saving the economy include the following important measures in terms of tax regulations:
1. Submission of financial statements
- Entrepreneurs are obliged to submit annual financial statements with the accompanying audit report to the Financial Agency for public announcement within eight months from the last day of the business year.
- Entrepreneurs are obliged to submit annual consolidated financial statements with the accompanying audit report to the Financial Agency for public announcement within ten months from the last day of the business year.
- Entrepreneurs (legal and natural persons) are obliged to submit to the Financial Agency by 30 June of the current year a balance sheet, profit and loss account and additional data of the previous calendar year for statistical and other purposes.
- The submission of the branch office’s accounting documents may not exceed eight months after the balance sheet date, but the time limits ruled by the law of the Member State by which the parent company of the branch office is governed will be taken into account, unless otherwise regulated in special circumstances – which the branch office must be able to prove in case of supervision.
- An entrepreneur who did not have any business transactions during the business year, or does not have any assets and liabilities recorded in the books, is obliged to submit to the Financial Agency a Statement of Inactivity for the previous business year by 30 June of the current year.
2. Exemption or deferral of tax payments
The criteria for deferring or paying taxes and contributions (income tax, profit tax and social security contributions except pension insurance on the basis of individual capitalized savings) depends on the company’s revenue and percentage of decline in revenue:
- Companies that did not exceed an annual turnover of HRK 7.5m and have a decrease in revenue of at least 50% in the period ending 3 months after the enactment of the General Tax Act amendments (i.e. by 20 June 2020) in comparison with the same period last year (YOY), are entitled to full exemption from the obligation to pay taxes and other public duties for the months of April, May, and June.
- Companies that did exceed an annual turnover of HRK 7.5m and have a decrease in revenue of at least 50% in the period ending 3 months after the enactment of the General Tax Act amendments in comparison with the same period last year, are entitled to proportional exemption from the obligation to pay taxes and other public duties for the months of April, May, and June. The proportional exemption will correspond with the percentage of revenue decrease of the taxpayer.
- A taxpayer who earns income by renting flats, rooms and beds to tourists and organizing camps will be exempt from tax in the amount of ¼ of the annual lump sum income tax and surtax payable by the end of the second quarter of 2020.
3. Delay in VAT payments until issued invoices are paid or VAT payment according to cash principle
- With regard to the payment of value added tax, it is proposed to pay value added tax when the invoice is paid rather than on invoicing.
- It should be noted that this measure is not in line with EU rules, since any change in the VAT system must be agreed with the EU, and its implementation is currently controversial, but since it is a measure that will be controlled by the Croatian Tax Administration, we believe that its application is legitimate at this time.
|Overview of COVID-19 virus relief measures in other CEE/SEE countries
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