News from the Republic of Croatia
In order to protect the citizens` standard of living, as well as the performance of institutions and companies, the Government of the Republic of Croatia adopted a new package of measures to fight against price increases.
One of these measures refers to the increase of non-taxable receipts for the employees. Namely, based on Article 31, Paragraph 3 of the Act on the Government of the Republic of Croatia ("Official Gazette", no. 150/11, 119/14, 93/16, 116/18 and 80/22), the Government of the Republic of Croatia at the session held on 8th of September 2022 has concluded the following:
The Minister of Finance is obliged to issue a Rulebook on amendments to the Personal Income Tax Rulebook, which will increase the amount of non-taxable receipts prescribed by the Personal Income Tax Rulebook ("Official Gazette", No. 10/17, 128/17, 106/18, 1/19 , 80/19, 1/20, 74/20 and 1/21), as follows:
- occasional awards from 3.000,00 kn up to 5.000,00 kn per year
- work performance awards and other forms of additional rewards for employees from 5.000,00 kn up to 7.500,00 kn per year
- awards to employees’ children until the age of 15 from 600,00 kn up to 1.000,00 kn per year
- gift to employee in kind from 600,00 kn up to 1.000,00 kn per year
- reimbursement of meal expenses from 5.000,00 kn up to 6.000,00 kn per year
- reimbursement for use of the employee’s personal car for business purposes from 2,00 kn/km up to 3,00 kn/km
- severance payments from 8.000,00 kn up to 10.000,00 kn.
The aforementioned changes are expected to come into force at the beginning of October 2022.
Incentives for the installation of thermal station and solar panels
To achieve energy security, it is proposed to reduce VAT rate to 5% for the supply of heating from thermal stations. This includes considerations for the supply of firewood, pellets, briquettes and woodchips until 31st of March 2023 and applies to both households and entrepreneurs.
Furthermore, to encourage the transition to renewable energy sources, it is proposed to tax the supply and installation of solar panels for households and the non-profit sector with 0% VAT.
Special Corporate Income Tax
In order to distribute the burden of the crisis more fairly, the Government plans to submit a proposal for the Special Corporate Income Tax Act to the Parliament by the end of the year. The aim of this Act is to additionally tax companies that achieve an extraordinary level of profit and whose profit has increased significantly compared to the period before the occurrence of extraordinary circumstances. The details of this possible new tax liability for companies are not known yet.
Tax Authority`s opinion - Changes related to the operations of the credit institution Revolut Bank UAB
Having in mind the changes related to the operations of the credit institution Revolut Bank UAB, the Tax Authority has issued a new opinion regarding the possibility of the payment of receipts to the taxpayers` accounts in the subject bank.
Namely, as of June 1, 2022 the Tax Authority has received a notification from the Croatian National Bank according to which Revolut Bank UAB was granted a permission to expand the supply of services in the territory of the Republic of Croatia. In addition to providing deposit services, Revolut Bank UAB is starting to provide payment services. Those services refer to services of opening and maintaining payment accounts, such as current accounts or giro accounts in the Republic of Croatia.
Accordingly, the Tax Authority stated that, from their point of view, there are no longer obstacles for the payment of receipts to the taxpayers` accounts opened in the subject bank.
Therefore, the opinion in the question annuls the opinion issued on September 27, 2021 in the part that refers to the possibility of paying receipts to the accounts of the Revolut Bank UAB.
Additionally, currently there are still some of the open questions related to payments to Revolut Bank UAB account (such as enforcement procedures and similar).
Tax Authority`s opinion - Cooperation with travel agencies tour operators from third countries
In its opinion, the Tax Authority referred to cooperation with travel agencies and tour operators from third countries. Namely, a question regarding the application of the provisions of Article 187, Paragraph 6 of the Value Added Tax Rulebook in case when travel agencies and tour operators from third countries sell travel packages to citizens and domestic taxpayers was received, as well as what happens in case when they are registered for VAT purposes on that basis in the Republic of Croatia. The next question is how domestic travel agencies should act in case when they cooperate with travel agency or tour operator from a third country, i.e. which obligations a domestic agency that applies a special VAT scheme for travel agencies (so called Tour operator margin scheme – “TOMS”) has in that case. The last question is related to the responsibility of domestic travel agency if the travel agency from a third country does not register and submit tax returns in the Republic of Croatia.
Given that detailed information about supplies made within the framework of a business relationship between a domestic travel agency and a travel agency or tour operator from a third country were not provided, the Tax Authority gave general comments stating that, if the taxpayer does not have a headquarter or a fixed establishment from which the service is provided in the EU, the provisions regarding TOMS does not apply to such taxpayer.
Furthermore, in each individual case it is necessary to determine whether a taxpayer, who does not have a registered headquarter or a fixed establishment in the territory of the EU, provide individual services (for example, accommodation in a tourist facility, passenger transport services, organization of excursions, catering, tour guide services, etc.) or a single service that consists of several individual elements, but whose separation into individual elements would be artificial. If such taxpayer supplies individual services in the EU, the place of supply must be determined for each service. In case where the place of supply is the Republic of Croatia, such service is subject to Croatian VAT, applying the appropriate VAT rate.
Also, if a taxpayer, who does not have a registered headquarter or fixed establishment in the EU, supplies a single travel service consisting of several elements, in which the accommodation service in a tourist facility in the Republic of Croatia is the main element of the single service, then the remaining services are considered auxiliary services that have the same tax treatment as the main service.
To services provided by a taxpayer who does not have a registered headquarter or fixed establishment in the EU, and which are considered as taxable in the Republic of Croatia according to the provisions of Articles 18 to 23 and Article 26 of the VAT Act, whether it is an individual or single service, depending on the tax status of the recipient of the service and whether the service provider is registered for VAT purposes in the Republic of Croatia, VAT is paid as follows:
- if the recipient is a domestic taxpayer or a foreign taxpayer registered for VAT purposes in the Republic of Croatia, and the service provider is not registered for VAT purposes in the Republic of Croatia, the provision prescribing reverse charge based on Article 75, Paragraph 2 of the VAT Act (i.e. Article 194 of EU VAT Directive) applies;
- if the recipient is a taxpayer and the service provider is registered for VAT purposes in the Republic of Croatia, the service provider charges Croatian VAT;
- if the recipient is a person who is not a taxpayer (for example, a citizen), the service provider charges Croatian VAT in one of the following ways: (i) registering for VAT purposes in the Republic of Croatia or (ii) registers in one of the EU member states for application of a special taxation procedure for services performed by taxpayers without headquarter in the EU, according to the provisions of Articles 119 to 125 of the VAT Act (One Stop Shop – OSS applies).
Finally, the Tax Authority notes that the provision of Article 187, Paragraph 6 of the VAT Rulebook has no effect on the application of TOMS in the manner prescribed by Articles 91 to 94 of the VAT Act, which are applied by domestic taxpayers. Also, the Tax Authority has confirmed the fact that domestic taxpayer bears responsibility in case of fulfillment of the conditions from Article 127 and 127a of the VAT Act.