The Croatian Prime Minister, Andrej Plenkovic, made a visit on 13th of July 2017 to meet the United Arab Emirates (UAE) Foreign Minister. During the meeting they discussed political relations and the advancement of economic cooperation. Also a first-time income and capital tax treaty was signed on 13th of July 2017 for the avoidance of double taxation by the Finance Minister of Croatia, Zdravko Maric and Foreign Affairs and International Cooperation Minister of United Arab Emirates, Sheikh Abdullah bin Zayed bin Sultan Al Nahyan. The treaty determines the allocation of taxing rights on different types of income, better conditions for facilitating the exchange of goods and services, and boosting economic activity.
The Deputy Prime Minister and Minister of Foreign and European Affairs of Croatia, Marija Pejčinović Burić, made a visit on 13th of July 2017 in Zagreb to meet the Minister of Foreign Affairs and International Cooperation of United Arab Emirates (UAE) and signed an Income Tax Treaty for the avoidance of double taxation. It was authorized for signature on 29th of June 2017 by the Croatian government for the avoidance of double taxation.
The Minister of Finance, pursuant to Article 14a of the Law on Profit Tax, has issued the ordinance on the procedure for concluding the previous transfer pricing agreement. The ordinance was published in the Official Gazette No. 42/17 on 3 May 2017 and entered into force on April 29, 2017.
The Agreement is concluded in order to determine the tax treatment of one or more transactions between related parties before the transaction began, so that determining an appropriate set of criteria such as methods, parallels, proper alignment or key and critical assumptions regarding future events such transactions during a specific time period.
The criteria that may be agreed upon when concluding the agreement are the methods of transfer pricing, comparable companies transactions and profit indicators, alignment of transfer prices or assumptions regarding the future events of these transactions.
Tax authority may terminate the agreement, unilaterally or in mutual agreement if there is factually incorrect statement of the facts, error or omission in the filed declaration of intention to conclude the agreement and submitted annual reports and other accompanying documentation or submitted any information in this regard, which is not attributable to negligence or intentional failure to comply with obligations of the taxpayer.
The agreement is concluded for a period of up to five years, depending on the characteristics and type of transactions that are subject to the Agreement. The costs of the procedure of concluding unilateral agreement are ranges from HRK 15,000 to HRK 50,000 depending on the taxpayer’s turnover as stated in the most recent tax return.
The BEPS Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting) has now been fully implemented in Croatia, with the full legal framework in place. The Croatian Tax Office published the CbC reporting requirements in late March 2017.
The country by country reporting requirement applies to MNEs headquartered in Croatia with annual consolidated group revenue equal to or exceeding €750 million in the previous year. CbCR applies for fiscal years beginning on or after 1 January 2016. A notification stating whether an ultimate parent entity or surrogate parent entity is required to submit a CbC report on behalf of an MNE group. The deadline for submission is 30 April 2017, unless the tax year does not coincide with the calendar year. Each Croatian tax-resident MNE member that is not the ultimate parent, the substitute parent or the constituting member is to notify the Tax Authorities on the name and country of tax residence of the entity that will file the CbCR report on behalf of the MNG it belongs to. The deadline for submission this information is 30 April 2017, unless the tax year does not coincide with the calendar year.
The CbCR is filed by the ultimate parent of those multinational groups (“MNG”) that have total consolidated revenues of EUR 750 million or more in the last financial year.
The first CbC report for the fiscal year started on or after 1 January 2016 must be by an ultimate parent entity of the MNE group or its surrogate parent entity that is resident in Croatia within 12 months from the last day of that tax year. Thus, for the fiscal year that ended on December 31 2016, the deadline is December 31 2017.
Penalties ranging between HRK 2,000 to HRK 200,000 will apply for noncompliance.
The Regulation regarding the Individual Income Tax Law was published on 6th February 2017 by the tax administration. The Regulation describes the tax treatment for the income of students working via student employment agencies, employment related public transportation costs, costs for business tours or field work, at home or abroad, business trips, employees’ education or training related transportation costs, the method for logging electronic tax card changes that applies from 1st January 2018, foreign pensions and tax refunds computation and new INO DOH form for the reporting of a foreign-sourced income of resident individuals.
The Foreign Account Tax Compliance Act (FATCA) Agreement between the United States and Croatia entered into force on 27 December 2016. The agreement was signed on 20 March 2015 for implementation of the Foreign Account Tax Compliance Act (FATCA).
The US-Croatia intergovernmental agreement IGA states that it was signed pursuant to the Council of Europe-OECD Mutual Assistance Treaty (1988), which authorizes the exchange of information for tax purposes, including on an automatic basis.
The US-Croatia IGA is based on the reciprocal Model 1A agreement. Accordingly, financial institutions in Croatia will be required to report tax information about US account holders to the government of Croatia, which will in turn relay that information to the US Internal Revenue Service (IRS). The United States will also provide similar tax information to Croatia regarding residents of Croatia with accounts in the United States.
The amendments to the Corporate Income Tax Law, Individual Income Tax Law, and VAT law has been gazetted on 12th December 2016. The Laws were approved by the parliament on 2nd December 2016 and will be effective from 1st January 2017. The Finance Minister introduced a tax reform package on 27th October 2016 for simplifying the tax system.