Resident companies are liable to profits tax in Croatia on their worldwide income, unless specifically exempt or otherwise relieved.

Taxable income is determined by reference to the financial statements prepared in accordance with the accepted accounting standards. It is defined as total revenues less total expenditure, as adjusted for prescribed tax base increases, or allowed reductions for losses and similar.

Expenditure incurred for the business is ordinarily deductible, although the deduction of certain expenses, such as those relating to motor vehicles or representations costs, is capped. In contrast, eligible R&D expenditure may be deducted for up to 150% of actual cost. Interest charges are deductible subject to two caps, relating respectively to a debt-equity ratio and a maximum interest rate (see Sec. 13.2.)

Income from dividend and profit distributions is exempted from corporate profit tax subject to the following conditions:

The payer must be subject to corporate profit tax or equivalent tax;
The payer must be established as an entity whose legal form is comparable to a corporate entity; and
The distribution must not be a deductible expense for the payer.

Dividend distributions from profits earned before 29 February 2012 are exempt from corporate tax.

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