The Croatian Minister of Finance, referring to National Gazette 118/2018 of 27 December 2018, has declared to reduce the interest rate on loans between related parties from 4.55% to 3.96% per annum. The reduction of so called the arm’s length interest rate became effective from 1 January 2019.
Taxpayers can deduct the interest expense with respect to loan received from foreign related parties with the maximum rate 3.96% per annum in 2019. For higher than the prescribed rate, the difference between the exercised interest rate and the prescribed interest rate will be non-deductible for corporate income tax purposes. If a lower rate is applied, the difference between the applied rate and the prescribed rate will be considered taxable for corporate income tax purposes.
