The Croatian Government is currently considering a draft law which, if implemented in its present form, would make certain taxation changes on a regional basis. The changes are planned to cover four different districts. The towns and cities included in the various districts are geographicaly widespread but broadly speaking, the districts are as follows:-
District I - the western end of the southern border with Bosnia
District II - various towns along the length of the border with Bosnia
District III - Western and Eastern Slavonia and some of the Adriatic Islands
District IV - the Istrian Peninsula
The propoased changes will affect the Income Tax Act, the Profit Tax Act and taxes on real estate.
In the affected districts it is proposed to raise the basic personal allowance of 700 Cr. Kunas per month as follows:-
District I - to 3,500 Cr. Kunas
District II - to 2,800 Cr. Kunas
District III - to 2,100 Cr. Kunas
District IV - to 1,400 Cr. Kunas
Although the current 25 % rate of Profit Tax will remain unchanged, it is planned to increase the percentage of protective interest (an index-linked deduction from the taxable base) which may be deducted from taxable income, again in the specified districts, from its national level of 3 %, as follows:-
District I - to 15 %
District II - to 12 %
District III - to 9 %
District IV - to 6 %
The basis of calculation remains the same, namely, the book value of equity at the beginning of the relevant tax period.
It is proposed that residents of the specified districts who are self-employed will be allowed to deduct from their taxable income a percentage (ranging from 10-25 %) of protective interest on capital investments made by them in machinery and equipment.
It is planned to abolish all taxation on Real Estate in the specified areas.
This Article has been written with the assistance of Inzenjerski Biro Revizija, Zagreb.
The content of this article is intended to provide general information on the subject matter. It is not a substitute for specialist advice.
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