Limited liability companies established in Croatia must pay corporate income tax of 18% or 12%, depending on the revenues generated, with the 12% rate applying to annual revenues below HRK (Croatian kuna) 3 million. The Ecovis experts know that full tax exemption is possible within the EU.

Decision on the distribution of profit

Each member of the company’s share of the profit is calculated after the profit and loss statement for the business year has been prepared. For the profit from previous years to be paid out, a decision must be made on the distribution of profit for a specific business year.

Who can profit be paid to?

The realised profit of the company and dividends can only be paid to members of the company. In other words, exclusively to the owners. If the profit is paid to employees, which is sometimes interesting to start-ups, it must be ensured that such profit payments are taxed as income from employment (salary), explain the Ecovis advisors. Thus, if profits were paid to non-employee board members, the pay-out would be taxed as other income.

Which regulations apply to dividend repatriation?

According to the Income Tax Act, the receipt of profit and dividend payments is seen as income from capital. Capital income tax is 10% + surtax, according to the place of residence of the income recipient.

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Sara Lorković, Accounting and tax, ECOVIS FINUM, Zagreb, Croatia

Dividend payments to residents

Payment of profits / dividends to residents:

  • Natural persons are taxed with capital income tax at the rate of 10% plus surtax (if applicable), except for the payment of profits made prior to 31 December 2000 and from 1 January 2005 – 29 February 2012.
  • Legal entities are not taxed

Payment of profits must be made to the bank giro account of the company member / shareholder.

Dividend payments to non-residents

Payment of profits / dividends to non-residents, unless otherwise specified in an international treaty for the avoidance of double taxation:

  • Natural persons are subject to capital income tax at the rate of 10%
  • Legal entities are subject to withholding tax (WHT) at the rate of 10%

To apply the lower rate specified in the international agreement, the payer must have a certified application form for tax reduction, tax exemption or refund of overpaid dividend tax under the agreement on avoidance of double taxation between the Republic of Croatia and the other country.

Full tax exemption within the EU

Full exemption applies when dividends and shares of profits are distributed to a parent company from a different EU Member State provided that:

  • the recipient of the dividend or profit share has a minimum holding of 10% in the capital of the company distributing the dividend or profit share
  • the minimum holding has been held for an uninterrupted period of at least two years

For further information please contact:

Sara Lorković, Accounting and tax, ECOVIS FINUM, Zagreb, Croatia
Email: info@finum.hr