Mazars Tax News - January 2024
Tax changes in 2024
Amendments to the tax rulebooks were published in the Official Gazette, which came into force at the beginning of 2024, while certain provisions are also applicable for the period of 2023. Below is an overview of the most important changes.
Amendments to the Corporate Income Tax Rulebook
Amendments related to tax-deductible donation expenses
Provisions related to donations for the purposes determined by strategic projects according to the special regulations or the strategy of the competent ministries are explained in more details. Namely, strategic projects are projects that have been determined in accordance with special regulations or strategies by the Decision of the competent ministry, adopted with the consent of the Government of the Republic of Croatia. In this regard, tax-deductible expenses of the taxpayer are determined based on the Confirmation of recipient of donation which contains the essential elements of the Decision. Thereby, the recipient is obliged to submit a report on the total amount of received funds along with a list of donors to the competent ministry, no later than March 31st of the current year for the previous year.
Furthermore, tax-deductible expense is the one related to donation of food carried out in accordance with the special regulations prescribed by the Ministry of Agriculture, which determine the procedure for donating food with the aim of preventing the spoilage of large quantities of food and protecting the environment, to the persons prescribed by the Corporate Income Tax Act for social, humanitarian, and other purposes. The above also applies to the gifts given to the persons affected by natural disasters. The taxpayer is obliged to provide relevant documentation according to the applicable regulations, so it can be undoubtedly established that the donation was made for the previously described purposes.
The taxpayer submits to the Tax Authorities certain information about donations in the appendix of Corporate Income Tax Return in the part X.
Other amendments
The tax base thresholds for taxpayers who apply the flat rate taxation system have been increased, i.e., rounded.
The definition of entertainment expense has been expanded, so related reward for a well-performed service (tip) determined in accordance with a special regulation on personal income taxation, based on authentic documentation, is also considered as one.
The tax base is increased for all expenses, including taxes and contributions related to any undue award, gift or other material or non-material benefit, regardless of the value, which can be sanctioned in accordance with the regulations of criminal legislation. The above applies to the submission of the Corporate Income Tax return for the year 2023.
The interest rate on a granted loans between related parties adopted by the Minister of Finance is determined as the arithmetic mean of the interest rate of the European Central Bank on the main refinancing operations, which was published by the Croatian National Bank in the current calendar year. For 2024, the prescribed interest rate on loans between related parties is 3.25%. Additionally, if withholding tax is paid on the interest, the amount of tax non-deductible interest is reduced proportionally to the amount of withholding tax paid.
The provisions related to the interest and royalty payments between affiliated companies located in different Member States according to Directive 2003/49/EC are in a proper way applicable to entities that are residents of the European Economic Area or the Swiss Confederation for tax purposes.
Amendments to the Value Added Tax Rulebook
Subsequent change of a tax base in case of discount or cancellation
The Rulebook clarifies in more details the provisions related to the subsequent change of the tax base in the event of a discount or cancellation. As it was stated before, in case of cancellation or various types of discounts, the taxpayer who made the supply can reduce the tax base if the taxpayer to whom the good was supplied or the service performed is informed of the correction. Thereby, the subject notification should contain the date, PIN, and name (and surname if natural person) of the taxpayer who performed the supply, PIN / VAT ID, and the name (and surname if natural person) of the taxpayer who received the supply, invoice number, invoice date, amount of the corrected tax base and the amount of corrected VAT.
Furthermore, if a small taxpayer or a non-taxpayer has been notified of the correction of the tax base, the taxpayer who made the supply should also have proof of the refund of part or the total sales price. Exceptionally, proof of return is not required if the supply has not been paid by the time of correction.
Thereby, subsequent discounts reduce the tax base only if they are given in the mutual relationship between the supplier and the recipient. If the supplier has to pay a contractual penalty to the recipient, the penalty does not reduce the tax base.
Subsequent change of the tax base in case of impossibility of collection
A taxpayer who has made a supply to another taxpayer may reduce the tax base in case of inability to collect all or part of overdue receivables that have not been collected for more than one year if the taxpayer:
- Notifies the taxpayer to whom supply was made and,
- Has a proof that all actions with the care of a good entrepreneur (enforcement procedure, court action, etc.) were taken.
The taxpayer is obliged to submit a notice of correction for those periods of taxation in which the tax base is reduced due to the impossibility of collecting all or part of overdue receivables that have not been collected for more than one year, and it is submitted electronically through the VAT Correction Form.
A taxpayer who has made a supply to a person who is not a taxpayer can reduce the tax base in case of inability to collect all or part of overdue receivables that have not been collected for more than one year if there is evidence that all actions were taken with the care of a good entrepreneur.
Once the conditions for the correction of the tax base are met, the taxpayer should do it within a period of 6 months. After the 6-month period has passed, correction will no longer be possible.
It is important to emphasize that amendments related to the subsequent changes of the tax base in case of impossibility of collection refer to invoices issued after 1st of January 2024, which means that the first corrections will be possible at the beginning of 2025.
Amendments to the Personal Income Tax Rulebook
The final table of prescribed annual Personal Income Tax rates is available on the link on the website of the Tax Authority.
Personal Income Tax is not paid on receipts based on a reward for a well-performed service received from the third parties (tips) recorded in the fiscalization system according to a special regulation on fiscalization up to six times the amount of the basic personal allowance per year, i.e. EUR 3,360.00 per year. Receipts above the stated amount are considered to be other income, and payers of such receipts from which other income is determined must submit the JOPPD form by the 15th day of the month following the month in which these receipts were paid. A natural person who receives such receipts from two or more employers is obliged to submit a written statement to each employer prior to the payment stating whether natural person has received payment of subject receipts from another employer and in what amount. If part of these receipts has already been paid for the same period, only the difference up to the prescribed amount can be paid as non-taxable. However, a natural person is not obligated to submit a written statement if the payer of the receipt has access to information regarding the paid non-taxable tips provided by the Tax Authority.
The monthly Personal Income Tax advance is determined by applying a lower rate of 15% and a higher rate of 25%.
The amount of non-taxable receipts in the form of scholarships and awards, as well as of income from employment (awards, per diems, etc) have been increased, i.e. rounded up.
Act on Minimum Global Income Tax
In December 2023, the Act on Minimum Global Profit Tax was published, which entered into force on 31st of December 2023. The aforementioned Act is in accordance with Council Directive (EU) 2022/2523 (Pillar 2) whose goal is to ensure that the profits of multinational companies are taxed in the place where economic activities are performed and where profits are made. A minimum global effective tax rate of 15% has been agreed, while its application will be determined on the basis of consolidated revenues in the previous four years. Therefore, the stated rate will be applicable to multinational companies with revenue exceeding EUR 750 million on a consolidated basis in two of the previous four years.
The obligation arising from the Act includes the parent company that meets the income requirement according to the consolidated financial statement and each of its affiliated companies, regardless of the legal form of establishment. The application of this Act will not affect the procedure for determining the Corporate Income Tax liability.
Other news
Double Taxation Avoidance Treaty signed between the Government of the Republic of Croatia and the Government of the Hong Kong Special Administrative Region of the People's Republic of China
In January 2024, the Agreement on the Avoidance of Double Taxation of Income and Property and the Prevention of Tax Evasion and Tax Avoidance was signed between the Government of the Republic of Croatia and the Government of the Hong Kong Special Administrative Area of the People's Republic of China. The aim of this Treaty is to increase the level of overall economic activity and further development. The Contract has not yet entered into force, but you can read more about it at the link.
Treaty on the Avoidance of Double Taxation signed between the Republic of Croatia and the Republic of Cyprus
The Minister of Finance of the Republic of Croatia and the Minister of Finance of the Republic of Cyprus have signed a Treaty between the Republic of Croatia and the Republic of Cyprus for the Elimination of Double Taxation on Income and Property and the Prevention of Tax Evasion and Avoidance, which will provide numerous tax relief and benefits for the taxation of all types of income and profits. The Treaty has not yet come into force, and more information about it can be found at the link.
Overview of countries with which the Republic of Croatia has confirmed reciprocity in the field of VAT refunds to foreign taxpayers
In January 2024, the Republic of North Macedonia was added to the list of countries with which the Republic of Croatia confirmed reciprocity in the field of VAT refunds to the foreign taxpayers.
The Tax Authority`s opinion – Application of the VAT rate of 0% to the supply and installation of solar thermal panels
The Tax Authority received an inquiry related to the application of the VAT rate of 0% on the supply and installation of solar thermal panels. The question arises what is meant by the term solar panels. It is stated that in terms of construction regulations without a building permit, and in accordance with the main design, a system of solar collectors, i.e., photovoltaic modules, can be built for the purpose of producing heat or electricity, and a confirmation is requested that a VAT rate of 0% applies to solar thermal panels.
In its response, the Tax Authority states that the term supply and installation of solar panels implies the implementation of projects of the construction of simple buildings in terms of the law regulating construction, which includes the design and performance part by one or more contractors. The 0% VAT rate applies to the necessary equipment and works, including a group of equipment such as photovoltaic panels, inverters, batteries (optional), building structures, cable distribution, solar collectors, hot water tanks, circulation pumps, and a group of works and services such as installation, design, obtaining permits, and connection to the electrical distribution network.
Consequently, the VAT rate of 0% is applied to the supply and installation of solar thermal panels, i.e. solar collectors.
The Tax Authority`s opinion – Application of reduced VAT rate of 5% on galenic and magistral preparations
In the issued opinion, the Tax Authority referred to the application of a reduced VAT rate of 5% on galenic and magisterial preparations. Namely, the Ministry of Health has submitted a notice that both galenic and magisterial preparations are defined as medicines and that medical products that are made as part of pharmacy activities in the pharmacy laboratory or galenic laboratory have a license from the regulatory body for medical products and medical devices (in this case the Ministry of Health). Therefore, in accordance with tax regulations, reduced VAT rate of 5% is applied to these medicines.
