The standard corporate tax rate is 18% effective for tax years beginning on or after 1 January 2017 (previously 20%). A reduced rate of 10% (12% until 31 December 2020) applies to taxpayers with annual revenue of up to EUR 1 million (EUR 995,421.06 until 31 December 2023).

Capital gains are treated as ordinary income and charged to tax at the standard corporate tax rates.

Pillar 2 Global Minimum Tax

The EU Global Minimum Tax (GMT) Directive entered into force on 23 December 2022, and EU Member States were required to enact laws, regulations, and administrative provisions necessary to comply with the Directive by 31 December 2023.

Essentially, the EU GMT Directive provides for the implementation of an Income Inclusion Rule (IIR) and an Undertaxed Profit Rule (UTPR) with respect to in-scope MNEs, being those with annual consolidated revenues of EUR 750 million or more in at least two of the four fiscal years immediately preceding the tested fiscal year. The IIR and the UTPR are, in combination, referred to as the GloBE Rules. The Directive also allows Member State to opt for the adoption of a Qualified Domestic Minimum Top-Up Tax (QDMTT) for domestic low-taxed entities.

On 22 December 2023, Croatia published the Law on Minimum Global Profit Tax in the Official Gazette, implementing the GMT Directive in Croatia. The law provides for an IIR, a UTPR, and a qualified domestic supplementary tax (intended to be a QDMTT). The IIR and the QDMTT apply in Croatia for financial years beginning from 1 January 2024, and the UTPR applies for financial years beginning from 1 January 2025. However, the UTPR applies from 31 December 2023 for constituent entities of groups whose ultimate parent entities (UPEs) are located in an EU Member State that has opted to postpone the implementation of the IIR and UTPR for six consecutive years as permitted by GMT Directive (according to a Notice released by the EU Commission, as on 12 December 2023 these are Estonia, Latvia, Lithuania, Malta, and Slovakia). The Top-up tax will apply such that the effective tax rate in Croatia is 15%.

The law also includes a transitional safe harbor (see below), aiming to simplify compliance and reduce complexity for certain entities.

The transitional safe harbor applies for fiscal years beginning on or before 31 December 2026 but ending before 1 July 2028. Under the transitional safe harbor rules, the Top-up tax is set at zero for a jurisdiction upon application if any one of the following three tests is met by the jurisdiction:

De-minimis test: Total revenue of less than EUR 10 million and profit or loss before income tax of less than EUR 1 million;
Simplified ETR test: The ETR is equal to or greater than 15% (in 2024), 16% (in 2025), or 17% (in 2026); or
Routine profits test: The profit or loss before income tax is equal to or less than the substance-based income exclusion amount.

The following entities are excluded from the scope of application of the GMT:

Government entities, international organizations, non-profit organizations, and pension funds;
Investment funds and real estate investment vehicles but only when they are the UPE of an MNE Group; and
Entities directly or indirectly owned by the above-mentioned entities.

Filing of Top-Up Tax Information Return

A constituent entity in Croatia must electronically file a declaration of information on additional tax (Top-up tax information return) and applicable notifications within 15 months (18 months for the first year of application) from the last day of the fiscal year. The deadline for submitting the first notification on additional tax information is 30 June 2026.

Further, a constituent entity that is subject to supplementary tax in Croatia must electronically file a declaration of supplementary tax within 30 days from the due date for filing the Top-up tax information return. The supplementary tax must be paid within 30 days from the due date for filing the declaration of supplementary tax.

Failure to submit the Top-up tax information return, notifications, or supplementary tax declaration, or a default in payment of the supplementary tax and other non-compliance occurrences may attract penalties ranging from EUR 3,000 to EUR 100,000.

Key Differences from the OECD Model Rules

Domestic Groups

In contrast to the OECD Model Rules, the EU GMT Directive extends the application of the GloBE Rules to purely domestic groups. Under the OECD Model Rules, only low-taxed foreign entities (or permanent establishments) are considered for applying the IIR. However, under Articles 5, 6, and 7 of the EU GMT Directive, the EU Member State of a constituent entity applying the IIR is required to apply it to not just foreign low-taxed subsidiaries but also low-taxed constituent entities resident, and permanent establishments located, in that Member State. The Croatian legislation includes a similar provision to align with the EU GMT Directive.

The OECD Model Rules provide that where a UPE is a low-taxed entity, top-up tax is applied through the UTPR rather than the IIR. However, in the EU, this would only happen when the UPE is located outside the EU. If the low-taxed UPE is located within the EU, it is required to apply the IIR to itself and its domestic subsidiaries.

Claw Back Provisions

The EU GMT Directive further provides that where the current tax is not expected to be paid within three years following the end of the relevant fiscal year, the tax is clawed back and included in the top-up tax calculation for that fiscal year. This is an extension of Art. 4.1.3(e) of the OECD Model Rules that recaptures current tax not paid in a similar timeframe. The Croatian legislation includes a similar provision to align with the EU GMT Directive.

Deferred Tax

A special transitional rule in Art. 9.1.2 of the OECD Model Rules applies effective 30 November 2021 to deferred tax assets arising from permanent differences that are included in calculating taxable income but are not GloBE income. The transitional rule is retained in the EU GMT Directive but applies effective 15 December 2021. The Croatian legislation provides for a transitional date of 30 November 2021 to align with the OECD Model Rules

Extra Profits (Windfall) Tax/ Solidarity Contribution

An extra profits (windfall) tax applies at the rate of 33% for one tax period beginning on or after 1 January 2022. The windfall tax is not limited to energy sector companies; instead, it applies to companies across all sectors to the extent meeting the specified tests.

The tax applies to companies with total annual income exceeding EUR 39.82 million (HRK 300 million until 31 December 2022) and taxable profit that is at least 20% higher than the average taxable profit in the previous 4 years, i.e., 2018 to 2021. The basis for the tax is the difference between the taxable profit earned in the one tax period beginning on or after 1 January 2022 and 120% of the average profit.

In February 2023, Croatia published a Rule book including guidance on the general provisions, the procedures for the determination of income and taxable profit and the extra profits tax form. The Rule book clarifies that the income threshold (EUR 39.82 million (HRK 300 million)) does not apply for energy sector companies engaged in crude oil, natural gas, coal, and refineries if at least 75% of their turnover is derived from extraction, mining, oil refining, or production of coke oven products. Accordingly, such companies are subject to a "solidarity contribution" in accordance with the EU Council Directive 2022/1854, at the rate of 33% on their surplus profits, which is similar to the extra profit tax but regardless of the total amount of income.

Taxable profit is determined by excluding the following:

Income from the write-off of liabilities in pre-bankruptcy and bankruptcy proceedings;
Income in bankruptcy proceedings resulting from the sale of assets to settle debts to creditors;
Income from the sale of long-term tangible and intangible assets that were used in the business of the taxpayer, provided the sale is made to unrelated persons;
Profit or loss from the sale of shares of companies where more than 20% of the capital is held by the taxpayer for a minimum period of 2 years, provided the sale is made to unrelated persons; and
Unrealized losses of financial assets (except for loans and receivables), provided the change in their fair value measurement was recognized in the profit and loss account and was initially included in the tax base.

Income from the sale of long-term assets to related persons can also be excluded if the transaction occurred before 31 October 2022.

Average profit excludes loss years, with the total profit for the previous 4 years divided by the number of years in which a profit was made to determine the average profit.

An extra profits tax return must be submitted, and payment must be made within the deadline for corporate tax payment (see Sec. 14.3.).

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