Additional Corporate Income Tax Act has been passed

The Croatian Parliament passed the Additional Corporate Income Tax Act ("Act") at the extraordinary parliamentary sitting held on Friday, 16 December 2022. The Act will enter into force on the day of its publication in Official Gazette. Below are the main points of the newly introduced Act:

• Additional corporate income tax applies to all taxpayers (legal entities or individuals subject to corporate income tax) with annual revenue above HRK 300 million in 2022.
• Additional corporate income tax will be paid on the additional corporate income tax base representing a positive difference between the taxable profit of the tax period (2022) and the average taxable profit of the previous four tax periods (namely, years 2018, 2019, 2020 and 2021) increased by 20%.

• Additional corporate income tax will be paid on the tax base mentioned above at a rate of 33% and would apply to the tax period starting in 2022.

• Additional corporate income tax base should be assessed regardless of the corporate income tax liability assessment under the Corporate Income Tax Act. Tax shield from tax losses brought forward from earlier periods should not be considered when determining the additional corporate income tax base. Accordingly, it is possible that some taxpayers will not have corporate income tax liability based on tax losses carried forward but will be subject to the additional corporate income tax. However, an important change was implemented compared to the initial Proposed Act. In particular, the taxpayers that are using incentive measures under the Investment Incentive Act can reduce their additional corporate income tax liability determined according to the provisions of this Act by applying the incentive rate at which, according to the Investment Incentive Act, they reduce their corporate income tax liability in the same tax period. Details on reducing the additional corporate income tax liability will be prescribed by the regulations.

• Another important change compared to the initial Proposed Act is that the previous tax period in which the taxable profit was negative or zero (0) will not be included in the calculation of the average taxable profit of the previous four tax periods. For example, when calculating the average taxable profit, if the taxable profit in one of the four previous tax periods was negative or zero, the sum of the taxable profits of the remaining tax periods will be divided by three (3).

• The deadline for filing of the additional corporate income tax return is equal to the deadline for filing of the corporate income tax return.

• The Act also foresees taxpayers who will be exempt from paying the additional corporate income tax. Specifically, the Act stipulates that these are the newly founded legal entities that commenced business in 2022, legal entities that are terminating their business operations in 2022 and the taxpayers who did not report taxable income in the lines 36 or 39 in the corporate income tax returns for all four previous tax periods.

• In addition, income that would be exempt from the additional corporate income tax base is:
  • income resulting from write-offs of liabilities by creditors in pre-bankruptcy and bankruptcy proceedings;
  • income in bankruptcy proceedings resulting from the sale of assets for creditor settlements;
  • income or profit from sale (or other disposal) of long-term tangible or intangible assets used in production and for provision of services to a non-related party;
  • income or profit realized from the sale (or other disposal) of long-term tangible or intangible assets used in production and for provision of services to a related party, provided that the sale or other disposal was carried out by 31 October 2022;
  • profit or loss from the sale or other disposal to a related party of shares in subsidiaries which were sold or disposed of after two years from the acquisition, and if the sale was performed to a related person, provided that the sale or other disposal method was carried out by 31 October 2022.
    
• Additionally, when determining taxable profit for 2022, unrealized losses of financial assets whose change in fair value is recognized through the profit and loss account (for which the tax base has been increased in the corporate income tax return’s line 22) can be excluded. However, this does not apply to loans and receivables. In case this exemption is used, the taxpayer is obliged to provide the tax authorities with an appropriate explanation of the change in the value of the financial asset.

• To determine taxable profit for 2022 and taxable profit for the four previous tax periods, statutory changes are taken into account. However, the Act does not specify how the statutory changes will be taken into account in more detail. It is expected that the regulations will provide a more detailed explanation.

• If a taxpayer is obliged to pay a solidarity contribution in accordance with Council Regulation (EU) 2022/1854, this taxpayer will not be additionally subject to the additional corporate income tax.

• Details of determining the additional corporate income tax, the tax return form and other details will be regulated by the regulations issued by the Minister of Finance within 90 days from the Act’s entry into force.    

Contacts:

In case of any questions and/or comments to the Act, please feel free to contact us.

Natko Sertić
Partner
nsertic@deloittece.com

Ida Zrilić
Director
izrilic@deloittece.com