Hybrid Mismatches

Effective 1 January 2020, Croatia has adopted hybrid mismatch rules in line with the EU Anti-Tax Avoidance Directive (ATAD 2). The hybrid mismatch rules prevent entities that are liable to income tax in Croatia from being able to avoid income taxation or obtain a double non-taxation benefit by exploiting differences between the tax treatment of entities and instruments across different countries.

If a mismatch arises, it is neutralized by:

Disallowance of deduction of expenditure under the hybrid arrangement to the extent that the corresponding income is not included in the tax base or is deducted twice; and
Inclusion of the income arising from the hybrid arrangement as taxable income to the extent that it is deductible for the payer.

Croatia also implemented the reverse hybrid mismatch rules in line with the EU ATAD 2, effective 1 January 2022.

Exchange of Cross-Border Tax Rulings and Advance Pricing Arrangements

In line with BEPS Action 5 and the EU directive on mutual administrative assistance, Croatia has adopted various measures in its domestic laws to enable the exchange of information on cross-border tax rulings and advance pricing agreements (APAs) beginning from 1 April 2017.

Financial Account Information Reporting and Exchange

Effective 2017, Croatia has adopted measures to implement the automatic exchange of financial account information with EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for the exchange of information developed by the OECD under the Common Reporting Standard (CRS). Croatia is also a party to the OECD Mutual Assistance Convention and the related Multilateral Competent Authority Agreement and, as such, exchanges financial account information under CRS with qualifying non-EU countries. Further, on 20 March 2015, Croatia concluded an inter-governmental agreement (IGA) with the United States with respect to the US Foreign Account Tax Compliance Act (FATCA), which entered into force on 27 December 2016.

Mandatory Reporting of Cross Border Tax Arrangements (DAC6/ MDR)

Croatia has published the law implementing the EU Council Directive (DAC6/MDR), which requires the reporting of cross-border tax planning arrangements and the exchange of information with the other EU Member States. The reporting requirement primarily applies to intermediaries that design, market, organize, or manage the implementation of a reportable arrangement. However, the reporting requirements may also be applied to the taxpayers in certain cases, including where an intermediary is subject to confidentiality obligations or where a taxpayer has designed an arrangement without external intermediaries.

The requirements apply from 1 January 2020, and reportable transactions must be disclosed within a period of 30 days from the day after the arrangement is implemented/ made available/ ready for implementation.

The taxpayers must submit a notice on the use of arrangements, which is due within three months after the year in which an arrangement was implemented. Further, for marketable arrangements, intermediaries must submit a report containing updated information on the arrangements within a month after each quarter.

Under a transitional regime, reportable transactions where the first step of implementation occurred between 25 June 2019 and 1 July 2020 must be disclosed by 31 August 2020.

Non-fulfillment of the reporting obligations, such as failure to report an arrangement, delay in reporting, or failure to notify other intermediaries or the relevant taxpayer about the exemption from filing due to the confidentiality obligations will attract penalties.

COVID-19 Emergency Measures

Due to the COVID-19 pandemic, the EU Council adopted an amendment to the Directive whereby the Member States may opt to defer the reporting under DAC6 by up to 6 months.

Croatia adopted the deferral option and postponed the reporting requirements as follows:

Reportable arrangements, the first step of which was implemented between 25 June 2018 and 30 June 2020, had to be reported by 28 February 2021;
The 30-day period for reporting other arrangements began from 1 January 2021 for reportable arrangements between 1 July 2020 and 31 December 2020; and
The deadline for the first periodic reporting of marketable arrangements was 30 April 2021.

Mandatory Reporting of Information by Digital Platform Operators (DAC7)

Effective 1 January 2023, Croatia implemented the EU Council Directive (DAC7) which requires digital platform operators, located both inside and outside the EU, to report information about income earned by sellers of goods and services through their digital platforms. Digital collaborative platforms generally consist of any software, including a website or a part thereof, and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity, directly or indirectly, to such users.

The reporting obligations apply to reporting platform operators. A reporting platform operator means an entity that concludes contracts with sellers to provide access to the platform or part of it.

A platform operator is considered as established in Croatia if it:

Is a resident for tax purposes in the Republic of Croatia;
Is established under the laws of the Republic of Croatia;
Has a place of administration (including a place of effective administration) in the Republic of Croatia;
Has a permanent establishment in the Republic of Croatia; or
Facilitates relevant activities of EU sellers or the rental of immovable property located in a Member State, where the platform operator is:

not a tax resident nor registered or managed in a Member State;
does not have a permanent place of business in a Member State; and
is not a qualified platform operator outside the EU.

A platform operator is considered a qualified platform operator if:

All of its activities qualify as relevant activities;
It is a tax resident; and
Registered under the laws or has a place of administration, including actual management, in a qualified jurisdiction.

A relevant activity is an activity carried out for consideration including the following:

Renting of immovable property, including residential and commercial properties, parking spaces, etc.;
Personal service;
Sale of goods; and
Rental of any mode of transport.

The report is required to be submitted annually by 31 January of the following calendar year. The information reported is automatically exchanged with the tax authorities of the concerned EU Member State for enforcing tax rules and ensuring tax compliance.

Failure to comply with the reporting requirements may attract a levy of penalties.

EU Joint Audits

Joint audits in the form of administrative enquiries can be conducted jointly by the Competent Authorities of two or more EU Member States. One or more other Member States can request a joint audit and the Croatian tax authority must inform the applicant of its participation within 60 days from the receipt of the request. During the joint inspection, the official of the requesting authority together with the official of the Croatian tax authority will have similar rights as the Croatian tax authority, to enter the premises of the taxpayer, access the documents of the taxpayer and require the taxpayer to make a statement. The Croatian tax authority and the requesting authority must agree on the results of the audit and issue a joint audit report in writing. A copy of the final audit report is sent to the taxpayer within 60 days of its issuance.

Exit Tax Rules

Effective 1 January 2020, Croatia has introduced exit tax rules in line with the EU Anti-Tax Avoidance Directive (ATAD1) (see Sec. 11.1.).

Low or No Tax Jurisdictions and Tax Regimes

Croatia has several specific anti-avoidance rules for transactions with entities located in non-cooperative jurisdictions as listed by the EU unless the relevant jurisdiction has a tax treaty with Croatia. This includes:

A higher withholding tax on certain payments to entities established in non-cooperative jurisdictions (see Sec. 8.2.3.);
CFC implications with respect to entities established in non-cooperative jurisdictions (see Sec. 13.3.1.); and
Increased duty to cooperate with respect to documentation and disclosure requirements for transactions with a non-cooperative jurisdiction (including public CbC reporting requirements, see Sec.13.4.3.).

The EU list of non-cooperative jurisdictions adopted on 18 October 2024 includes the following jurisdictions:

American Samoa	Anguilla (effective 12 October 2022)	Antigua and Barbuda (removed effective 18 October 2024)	The Bahamas (removed effective 26 February 2024)
Barbados (removed effective 26 February 2021)	Belize (removed effective 26 February 2024)	British Virgin Islands (removed effective 23 October 2023)	Costa Rica (removed effective 23 October 2023)
Dominica (removed effective 12 October 2021)	Fiji	Guam	Marshall Islands (removed effective 23 October 2023)
Palau	Panama	Russia (effective 14 February 2023)	Samoa
Seychelles (removed effective 26 February 2024)	Trinidad and Tobago	Turks and Caicos Islands (removed effective 26 February 2024)	The U.S. Virgin Islands
Vanuatu

The following jurisdictions are listed on the EU grey list (Annex II) as of 18 October 2024:

Albania (removed effective 26 February 2024)	Armenia (removed effective 18 October 2024)	Aruba (removed effective 26 February 2024)	Antigua and Barbuda (effective 18 October 2024)
Barbados (removed effective 14 February 2023)	Belize (effective 26 February 2024)	Botswana (removed effective 26 February 2024)	British Virgin Islands (effective 23 October 2023)
Costa Rica (effective 23 October 2023)	Curaçao (effective 14 February 2023)	Dominica (removed effective 26 February 2024)	Eswatini (formerly Swaziland)
Hong Kong (removed effective 26 February 2024)	Israel (removed effective 26 February 2024)	Jamaica (removed effective 14 February 2023)	Jordan (removed effective 23 October 2023)
Malaysia (removed effective 18 October 2024)	Montserrat (removed effective 23 October 2023)	North Macedonia (removed effective 14 February 2023)	Qatar (removed effective 23 October 2023)
Seychelles (effective 26 February 2024)	Thailand (removed effective 23 October 2023)	Turkey	Uruguay (removed effective 14 February 2023)
Vietnam

Ultimate Beneficial Ownership Register

Croatia introduced beneficial ownership disclosure requirements effective 25 May 2019, whereby all legal entities established after 1 December 2019 are required to disclose information on their ultimate beneficial owners within 30 days of their establishment (30 days of issuance of OIB number in case of trusts and legal arrangements created under foreign laws). Existing companies were required to disclose beneficial ownership information by 31 December 2019. Any changes in the information are required to be disclosed within 30 days of the change.

The beneficial ownership reporting requirements apply to:

Legal entities, including companies, branch offices of foreign companies, associations, foundations and institutions; and
Trusts and equivalent entities created under foreign laws which have to obtain an OIB number in the Republic of Croatia.

The following entities are exempt from the beneficial ownership reporting requirements:

Legal entities solely founded by the Republic of Croatia;
A unit of local and regional self-government; or
Joint-stock companies listed on the regulated securities market.

Failure to comply with the requirements, including non-disclosure and disclosure of incorrect information, attracts fines ranging from HRK 5,000 to HRK 350,000.

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