Amendments to Tax Laws – What to expect?!

Draft bill of amendments concerning Value Added Tax Act, Income Tax Act, Act on Contributions and Real Estate Transfer Act was presented on September 20th 2018 during a Government session.

 

Value Added Tax Act (VAT)

Amendments to the VAT Act foresee expanding the application of a lower 13% VAT rate as of 2019 on  baby diapers, fresh meat, fish and crabs, vegetables, fruit and nuts, and eggs as well as reducing the general value added tax (VAT) rate to 24 percent from the year 2020.

Proposition was made to change of the provisions on the use of company cars for private purposes, for which 50 percent of the tax deduction was made. It is necessary to coordinate the legislation with the requirements of the European Commission regarding to the abolition of the threshold for car tax and the right to prepaid goods for vessels and aircraft. Now, the entrepreneurs have the possibility to deduct 50 percent of their subscription for the purchase or rental of cars and other personal transport vehicles whose value does not exceed 400,000 kuna. It is now proposed to cancel this value threshold.

Due to tax collection efficiency and reduction of various types of abuse, it is proposed that taxpayers will enter the VAT system as soon as the conditions for entry (entry threshold are currently 300 thousand kuna) are fulfilled. Current standard for entry to the VAT system is at the beginning of the next calendar year.

Changes in the application of the reverse charge are also proposed: in the case of foreign taxpayers who have a Croatian VAT identification number, they will no longer be able to apply the reverse charge to the domestic recipient. The application is introduced on the transfer of the tax liability in the country of delivery of concrete steel and iron and products made of concrete steel and iron (armature).

 

Profit Tax Act

The draft proposal to amendment of the profit tax act stipulates a new interest rate limitation rule, according to which the taxpayer, as a taxable expense can determine the overdue borrowing costs (the difference between income and interest expense) to only 30 percent of EBITDA or up to EUR 3 million if it comes to a larger amount.

It also regulates a rule on controlled foreign companies, under which a foreign subsidiary that does not pay tax in the country of residence or is paid at a low rate will be taxed, if it generates income (passively) from interests, copyrights, licenses, financing, insurance, etc.

This rule will not include companies that carry out significant economic activity, but only more “fictitious” companies that are established with the intention of transferring profits.

Existing 20% rate of​​ withholding tax is extended to interests, dividends, copyrights and other benefits if they are paid to persons from non-cooperative countries (Tax oasis).

 

Income Tax Act

With the draft proposal to amendment of the Income Tax Act, an extension of the tax bracket for the application rate of 24 percent is proposed. According to the current income tax regulations on the monthly tax base of up to 17,500 kuna, the advance of income tax on employment is paid at a rate of 24 percent (up to HRK 210,000.00), while if the monthly tax bracket exceeds 17,500 kuna the advance of income tax on employment is 36 percent. The Government now proposes that salaries of up to 30,000 kuna are taxed at a rate of 24%, or up to an annual amount of 360,000 kuna and for exceeding that amount at a rate of 36%.

Also, the Government proposes to tax on benefits in kind based on the awarding or optionally purchasing own shares that employers and payers receive or pay, to employees or other related persons as income from capital at a rate of 36 percent, receipts made on temporary basis or occasional transactions in agriculture at the rate of 12 percent as the final other income. The proposed amendments stipulate that when determining the right to a personal allowance for supported members, due to serious injury and recognized disability, they do not take into question the damages paid by the insurance. The possible circle of people who can be considered as supported members is also expanded.

According to the Proposal, scholarships of over 15 thousand kuna per year mean that a scholar can no longer be a supported member. “We eliminate this limit now, which means that parents will be able to count on tax relief for their children,” said the Minister of Finance.

The government suggests that local self-government units (JLS) decide on managing the lump sum income tax for private renters in tourism per bed or accommodation unit in the camp, whereby this lump sum can not be less than 150 or more than 1,500 kuna.

Now the lump sum of income tax to private renters in tourism is the same as the amount of the accommodation tax, whose rate depended on the type or class of the tourist resort and the season, and ranged from 150 to 300 kuna until this year.

 

Act on Contributions

With the draft proposal to amendment of the Act on Contributions, it is proposed to abolish employment contribution of 1.7 percent and occupational health contribution by 0.5 percent while increasing the health insurance contribution from 15 to 16.5 percent, respectively the remuneration of entrepreneurs is reduced by 0.7 percentage points.

It is also proposed to regulate the minimum annual basis for calculating contributions in the amount of average salary, coefficient 0.65 and figure 12 in proportion to the period in which the duties of a member of the management company and / or executive director of the company and / or the co-manager are performed. This will be achieved by annual calculation, which will determine the possible difference in the contribution for payment in the decision of Tax Administration.

 

Real Estate Transfer Tax Act

Amendments to the Real Estate Transfer Tax Act are planned to further reduce real estate transfer tax rates from 4 to 3 percent, applying from 1st January 2019.

 

Fiscalisation Act

By implementing amendments to the Fiscalisation Act, all taxpayers are the parties obligated to implement fiscalisation, while a separate provision determines who is considered obligated to implement fiscalisation for invoicing and non- invoicing according to a special regulation. An amendment is necessary to prescribe the obligation of the fiscalisation of self-payment devices. Among the important changes are the cancellation of the exemption from the obligation to implement the fiscalisation procedure and sales of goods or services from vending machines; the introduction of a fiscalisation obligation of sales when selling goods or services through self-payment devices.

It also extends the deadline for setting up the cash registers with full termination of work from 2 days to 5 days, a new obligation to accompany the supporting documents is introduced, if it is stated on the payment information, it is obligatory to write “this is not a fiscalised invoice”. Taxpayers have an adjustment period of 2 years for fulfilling the obligations of the sale fiscalistion.

 

General Tax Act

The draft of General Tax Act clearly defines excises as taxes, the penal procedure is regulated as an exception to the preservation of the tax secret, the topics that have so far been defined for binding opinions are being cancelled, and thus the more frequent use of this institute is sought.

Amendments on the suspension of enforcement of financial assets, on the write-off of due tax (on which the claims will be written-off as uncollectible if it comes to a settlement or an appropriate solution during legal action) and seizure for the purpose of securing payment. Procedure that regulates statue on limitation in case of ongoing legal action concerning determination of taxes and interests, or payment of taxes, interests and enforcement costs has been cancelled.

 

Source: Government of the Republic of Croatia