Taxation Incentives

The taxation system in Croatia is equal for residents and non-residents. Furthermore, Croatia has signed contracts for avoiding double taxation with 38 different countries.

Basic taxes in the taxation system of the Republic of Croatia

Type of tax Tax rate
Corporate Income Tax 20%
Personal Income Tax 12-40%
surtax 0-18%
Value added tax (besides the exception of 0% for
certain product categories and 10% for tourism)
23%
Property Transfer Tax 5%


The incentive measures regulated by the Investment Promotion Act apply to investment projects covering:

- Business activities in production and processing
- Technology and innovation activities
- Strategic business support activities

The period in which the investment must be realized and work places created is 3 years. The minimum period in which the investment and created work places must be maintained is 5 years but not shorter than the period in which incentives are being used.


TAX INCENTIVES
Investment corporate income tax (profit tax) are as follows:
Investment Value (mil EUR) Min. New Workplaces Max. Period of Use
(years)
Beneficial Profit Tax Rate
Production and processing Technology innovation activities and strategic business support services Production and processing Technology innovation activities and strategic business support services
0.3 – 1.5 0.1 – 1.5 10 5 10 10%
1.5 – 4 1.5 – 4 30 15 10 7%
4 – 8 4 -8 50 25 10 3%>
> 8 > 8 75 50 10 0%


Areas of Special National Concern
Taxpayers who execute their activities in the areas of special national concern and permanently employ more than 5 employees, with more than 50% of the employees having domicile and habitual residence in an area of special national concern for at least 9 months, pay profit tax at the following rates:

Areas of Special National Concern Time Period Profit Tax Rate Vukovar – Srijem County
GROUP 1* 2011 - 2013 25% of prescribed rate Bogdanovci, Borovo, Ilok, Lovas, Markušica, Negoslavci, Nijemci, Nuštar, Stari Jankovci, Tompojevci, Tordinci, Tovarnik, Trpinja, Vukovar, vinkovci – naselje: Mirkovci
GROUP 2** 2011 - 2013 75% of prescribed rate -
GROUP 3*** 2011 - 2013 25% of prescribed rate Babina Greda, Berak, Drenovci, Gunja, Jarmina, Otok, Privlaka, Vođinci, Vrbanja


* 2014 – 2016 – 75% of the prescribed tax rate; from 2017 – 100% of the prescribed tax rate
** from 2014 – 100% of the prescribed tax rate


Incentives Concerning the City of Vukovar
Law on Reconstruction and Development of the City of Vukovar defines the incentives to be used for business subjects doing their business activities in the City of Vukovar.
Taxpayers executing activities in agriculture or fisheries in the area of the City of Vukovar and who employ more than 5 employees, with more than 50% of the employees having domicile and habitual residence in the City of Vukovar, or in the hill and mountain area, or an area of special national concern, are exempted in full from the profit tax payment until Croatia joins the European Union.

Taxpayers executing activities, other than in agriculture or fisheries, under the same conditions as stated above shall pay the profit tax as follows:

- 25% of profit tax rate in the period from 2011 till 2013
- 75% of profit tax rate in the period from 2014 till 2016
- From 2017 onwards 100 % of the prescribed profit tax rate

INCOME TAX
Income taxpayers who carry out independent activities in the areas of special national concern:
 
Areas of Special National Concern Time Period Income Tax Rate
GROUP 1 2005 – 2014 Free of tax
GROUP 2 2005 – 2014 25% of prescribed rate
GROUP 3 2005 – 2014 75% of prescribed rate

Income taxpayers executing activities in the City of Vukovar are exempt from income tax of ten years from the date of application of this Act (until the end of 2014), and then income tax is reduced by 75%.

Income tax payers (in the special care and in the City of Vukovar) are exempt from income tax if they employ more than two workers for an indefinite period in which more than 50% of workers have residence and stay in areas of special national concern at least nine months during taxable period.

Employment incentives
County Unemployment Rate Max. Amount of Support Regarding Eligible Costs for Opening New Workplaces Increase for the Technology and Innovation Activities Increase for the strategic business support activities
< 10% 10%
(1.500 EUR)
+50%
(750 EUR)
+25%
(350 EUR
10– 20% 15%
(2.000 EUR)
+50%
(1.000 EUR)
+25%
(500 EUR)
> 20% 20%
(3.000 EUR)
+50%
(1.500 EUR)
+25%
(750 EUR)


Incentives for Large Investment Projects
Large investment projects are those considered to have a large impact on the domestic economy. Large investment projects are the ones where the amount of the investment in long-term assets amounts to at least 15 million EUR and that are creating at least 100 new jobs associated with investment in three year period.
County Unemployment rate Non-Refundable Financial Support
  Assets (factory, plant or equipment Infrastructure
> 20% Up to 5%  eligible costs Max. 1 mil. EUR* Up to 5% eligible costs Up to 0.5 mil EUR

* Subject to the condition that the part of the investment in machinery or production equipment amounts to at least 40% of the total investment, of which minimum of 50% must be high-technology.


TAX INCENTIVES
Investment
(€ million)
People employed Period
(years)
Corporate Income Tax
0.3 – 1.5 10 Up to 10 10%
1.5 - 4 30 Up to 10 7%
4 - 8 50 Up to 10 3%
> 8 75 Up to 10 0%


EMPLOYMENT INCENTIVES
Unemployment rate Incentive rate in relation to eligible costs of opening new workplaces Increase for technology innovation and development centres Increase for business support strategic activities
< 10% 10%
Up to 1,500 EUR
+50%
(750 EUR)
+25%
(375 EUR)
10 - 20% 15%
Up to 2,000 EUR
+50%
(1,000 EUR)
+25%
(500 EUR)
> 20% 20%
Up to 3,000 EUR
+50%
(1,500 EUR)
+25%
(750 EUR)



AID TO COVER ELIGIBLE COSTS OF TRAINING LINKED TO AN INVESTMENT
  Special education General education
Large entrepreneurs Up to 35% Up to 60%
Small and medium entrepreneurs Up to 45% Up to 80%


For the projects concerning establishment and development of technology and innovation centres the allowable non-repayable grant shall not exceed 5 % of the actual eligible costs of investment in fixed assets, or in the case of the purchase of equipment for the technology and innovation centre in question the maximum aid amount shall not exceed EUR 500,000 expressed in legally equivalent HRK value, provided that the purchased equipment for the technology and innovation centre constitutes high-tech equipment.
A large investment project or investment project of significant economic interest is mean an investment project which involves a large economic activity, such as construction of a new factory or industrial plant, starting-up of a new economic activity, as well as development of new technologies, with the value of investment in fixed assets of the recipient of incentive measures of not less than EUR 15 million expressed in equivalent HRK value, provided that a minimum of 100 new jobs linked to the investment are created, starting from the end of the first year of investment.
For large investment projects, in the regions (counties) of the Republic of Croatia where the registered unemployment rate according to the data of the Croatian Bureau of Statistics for the preceding year exceeds 20%, the recipient of incentive measures shall be granted an increase in the incentive measures not exceeding 5 % of the actual eligible costs of investment in fixed assets:

  • for the costs of setting up of a new establishment or plant;
  • for the costs of purchase of new machinery or manufacturing equipment, whereby the maximum total aid amount shall not exceed EUR 1 million expressed in legally equivalent HRK value, provided that at least 40 % of the total value of investment is apportioned to the machinery or manufacturing equipment and at least 50 % of the purchased machinery or manufacturing equipment constitutes high-tech machinery or equipment;


For the large investment projects, the carrying-out of which implies the construction of new or extension or enlargement of the existing infrastructural facilities and installations linked to the investment, a non-repayable grant not exceeding 5 % of the actual costs of the construction of new or extension or enlargement of the existing infrastructural facilities and installations shall be awarded, subject to a maximum amount of EUR 500,000 expressed in legally equivalent HRK value.

In adition to goverment incentives local government can give their own incentives like cheaper land in business zones, comunal fees free of charge or reduced, etc.