Croatia's draft amendments to the Profit Tax Law would impose a 50% tax on 2026 profit margins that exceed a company's 2023–2025 average by more than 15%, targeting medium and large domestic taxpayers under a bill open for consultation.
Croatia’s government has published a draft law proposing amendments to the Corporate Income (Profit) Tax Law. The key measure is the introduction of a temporary excess profit tax applicable exclusively for the 2026 tax year.
This legislation proposes amendments to Croatia’s Profit Tax Law, primarily to introduce a temporary tax on excessive profit margins for the 2026 tax year (payable in 2027).
The legislation targets medium and large enterprises that generate the majority of their revenue domestically, applying a 50% tax rate to earnings that significantly exceed historical averages. The measure is designed to combat inflation by targeting companies that have disproportionately increased their profit margins during the energy crisis and inflationary period.
The key measures are as follows:
Target audience and scope
The excess profit tax applies only to medium and large taxpayers that generated more than 50% of their 2026 revenue in Croatia. Newly established sole proprietors filing their first corporate income tax return are exempt.
Identifying “excessive” profit margins
The law defines an excessive profit margin by comparing a company’s 2026 adjusted profit margin to its historical performance:
- The baseline (2023–2025): The company’s adjusted profit margins are individually calculated for the three prior tax periods (2023, 2024, and 2025) and averaged.
- Incomplete data rules:
- If adjusted profits were reported in only two of the three prior years, rather than averaging them, the 2026 margin is compared directly to the higher of those two years (a rule designed to favour the taxpayer).
- If adjusted profit was reported in only one of those years, the 2026 margin is compared directly to that single year’s margin.
- The trigger threshold: An excessive profit margin is triggered if the 2026 adjusted profit margin is more than 15% higher than this historical baseline.
Calculating the tax base and 50% tax rate
If a company meets the threshold, a 50% excess profit tax applies to the calculated excess portion of its profit.
The taxable amount is determined based on the deviation of the 2026 profit margin from its historical average by 15%, multiplied by the company’s adjusted 2026 total income. Taxpayers can proportionally reduce their regular corporate income tax liability based on the excess tax base.
Required financial adjustments (exclusions)
To ensure the tax targets actual operational price-gouging rather than normal business growth, investment gains, or extraordinary accounting events, both the 2026 data and the baseline years’ data must be adjusted. The following items are excluded when calculating the profit margins:
- Investment and asset disposal: dividend and profit-sharing income; gains or losses from selling long-term production assets to unrelated parties, or to related parties before 30 June 2026; and gains or losses from selling stakes above 10% in other companies.
- Extraordinary debt and court events: debt write-off income from pre-bankruptcy or bankruptcy proceedings, proceeds from bankruptcy asset sales, and court-awarded damages.
- Operational exclusions: depreciation on long-term production assets, status changes from mergers or acquisitions, and gains or losses from foreign business units.
- Financial elements: Realised and unrealised gains or losses on financial assets, plus general financial income and expenses, unless the taxpayer is a financial institution or draws more than half its income from financial operations.
