The Croatian Government has changed the arm’s length interest rate from 3.42% per annum to 3% per annum regarding loans between related parties for the year 2021. This rate is effective from 1st January 2021 and applies for loans between resident related parties if one of the parties is in a favorable tax position. Also, the interest rate applies as the minimum interest rate on interest income from cross-border financing between related parties when the Croatian resident lender grants the loan and the maximum interest deduction rate for such cross-border financing when the Croatian resident receives the loan. Again, Croatia also applies a 4:1 debt-equity ratio rule and a 30% of EBITDA rule in line with the EU Anti-Tax Avoidance Directive.
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