Certain incentives are available to enterprises in Croatia subject to the fulfillment of the following minimum investment in fixed assets:

EUR 50,000 together with at least 3 new jobs for micro-enterprises;
EUR 150,000 together with at least 5 new jobs for small, medium, and large enterprises;
EUR 50,000 together with at least 10 new jobs for Information communication technology (ICT) system and software development centers; and
EUR 500,000 for projects related to modernization and growth in productivity of business processes.

Investment Incentives

Investment incentives are provided in the form of reduced corporate tax rates for 10 years for approved investments based on the investment amount and the minimum number of personnel employed. The investment amounts and reduction in the tax rate are as follows:

EUR 150,000 to EUR 1 million - 50% tax rate deduction with at least 5 employees;
EUR 1 million to EUR 3 million - 75% tax rate deduction with at least 10 employees; and
Over EUR 3 million - 100% tax rate deductions with at least 15 employees.

Investment incentives are available to micro-enterprises in the form of a 50% reduction in the corporate tax rate over a period of 5 years with a minimum investment of EUR 50,000 and the creation of a minimum of three new jobs.

The minimum period for maintaining the investment and newly created jobs linked to an investment is:

5 years for large enterprises; and
3 years for small and medium-sized enterprises.

Employment Incentives

Employment subsidies are available at the following percentages (applied to eligible costs of jobs creation) depending upon the level of unemployment in the county where investment project is located:

County unemployment rate up to 10% - 10% capped at EUR 3,000 per employee;
County unemployment rate between 10% to 20% - 20% capped at EUR 6,000 per employee; and
County unemployment rate more than 20% - 30% capped at EUR 9,000 per employee.

The above incentive rates are for the recruitment of long-term unemployed persons, regardless of the length of service and level of education.. Qualifying persons are those registered as unemployed with the Croatian Labour Service that are either unemployed for at least six months, older than 50 years, or without work experience. For other categories of workers, the incentive rate is 40% of the amount specified above.

The incentive rate is increased by 50% for development and innovation activities and 25% for business support activities and high added value activities.

Incentives for Modernisation of Business Processes

An incentive in the form of a corporate tax reduction at varying rates for a period of 10 years is available for investment in automation, robotization, and digitalization of processes in the manufacturing and processing industry. The amount of the corporate tax reduction depends on the amounts invested, as follows:

50% for investments of EUR 500,000 to EUR 1 million;
75% for investments of EUR 1 million to EUR 3 million; and
100% for investments of more than EUR 3 million.

It is in addition required to maintain at least the same number of employees throughout the period of investment utilization.

Finally, by the end of the 3-year period following the realization of the investment, the level of productivity per employee must have been increased by at least 10% relative to the productivity per employee during the year preceding the investment. project.

Deductions for R&D Activities

Additional deductions are provided for certain research and development activities. The activity types and amount of additional deduction include (increased by new R&D incentive regime enacted on 26 July 2018):

Additional 100% deduction of eligible costs for fundamental research;
Additional 50% deduction of eligible costs for applied/industrial research;
Additional 25% deduction of eligible costs for experimental development research; and
Additional 50% deduction of eligible costs for a feasibility study.

Deductions with respect to industrial research and experimental development may be increased by 20% for small enterprises and by 10% for medium enterprises, subject to certain conditions. The deduction may also be increased by 15% for certain joint undertakings in the EU/EEA and where the results of a project are published publicly, or the results are free or open-source computer programs.

Eligible R&D costs include:

Staff costs for researchers, technicians, and other auxiliary staff on a proportionate basis, where staff spends part-time on a project;
Depreciation of instruments and equipment for a period, to the extent used for a project;
Research costs incurred on the basis of contracts, knowledge, and patents obtained or licensed from other parties under market conditions, as well as the cost of advisory and similar services used solely for a project (these costs limited to 30% of total eligible project costs);
Operating expenses (costs of materials, consumables, and similar products) arising directly from a project; and
Additional overhead costs calculated by applying a fixed rate of 15% on the eligible direct staff costs.

Incentives for Investment in Development and Innovation Activities

An incentive is available for investment in development and innovation activities by way of a non-refundable grant of 20% of the actual eligible costs for purchasing plant/machinery representing high technology equipment, subject to a maximum amount of EUR 500,000.

Incentives for Capital Expenditure

An incentive is granted for an investment project if the minimum investment in fixed assets is EUR 5 million, and 50 new jobs are created within 3 years from the start of the project. Additionally, non-refundable subsidies between 10% and 20% of the eligible costs of investments are available for projects if incurred for:

Construction of a new factory, production facility, or tourist facility, and
Buying new machines (i.e., production equipment).

The non-refundable subsidies could be up to EUR 1 million, depending on the applied percentage of the eligible costs, provided the portion of investment in the machines/equipment is at least 40% of the investment, and at least 50% of the machines/equipment are of high technology.

COVID-19 Emergency Measures

Wage Subsidy

In response to the COVID-19 pandemic, Croatia announced a wage subsidy scheme of up to HRK 4,000 per month per full-time employee (based on the percentage drop in turnover) and HRK 250 towards pension insurance contributions for companies engaged in the following sectors:

Transport;
Catering;
Accommodation;
Event organization;
Crop and livestock production;
Fishing and related activities; and
Services related to passenger and water transport, including occasional transport.

From 1 October 2020, the wage subsidy scheme is extended to all companies (irrespective of the sector) with less than 10 employees and whose business activities ceased due to restrictions imposed in relation to the pandemic until 31 December 2020.

For companies employing more than 50 employees, the subsidies received must be repaid before 31 December 2021 if the company pays dividends or makes other profit distributions, assigns its shares to persons authorized to manage all or part of the company, or buys-back its own shares.

Fixed Cost Relief

In response to the COVID-19 pandemic, Croatia announced support measures to cover fixed costs incurred by businesses with a decline in revenue of at least 60% in March 2021 and April 2021 (extended from February 2021) in comparison to March 2019 and April 2019, respectively. For businesses that commenced operations after March or April 2019, the decline in revenue will be computed in comparison to November 2020. Businesses that commenced operations in December 2020 or later are not eligible for the relief.

The measure includes:

For businesses with a decline in revenue ranging from 60% to 90%, the amount of qualifying fixed cost covered is equivalent to the percentage decline; and
For businesses with a decline exceeding 90%, all qualifying fixed costs will be covered.

Qualifying costs include costs for rent/lease of business premises, utilities, phone, internet, etc.

Taxpayers are required to submit support requests to the tax authorities by 17 May 2021 and 15 June 2021 for claims relating to the period March 2021 and April 2021 respectively. The claims can be filed electronically through the ePorezna portal.

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