Amendments to the Croatian value added tax ("VAT") Regulations
Tax News, December 2015
Amendments to the Value Added Tax Regulations ("Regulations") that came into effect on 8 December 2015 have been published in the official gazette Narodne novine, number 130/2015.
The amendments influence a number of areas. The most important are those relating to the tax treatment of shortages resulting from food donations and taxation of exchange rate differences in financial leasing arrangements.
Taxation of shortages – delivery of food for no consideration
The Regulations prescribe that a delivery of food free of charge (a donation), which a taxpayer performs for the purpose of preventing the food going to waste, for environment protection and as aid to final recipients in accordance with legislation prescribing donations of food and animal food, exclusively to non-profit entities who carry out humanitarian activities in accordance with special regulations and are registered as agents who participate in the food donation chain up to 2% of revenues in the previous year, will be regarded as a tax deductible shortage.
Taxpayers will have to report the made donations in a new form “Report on executed donations” - DONH Form. The form is filed electronically by the 20th day of the month following the end of the accounting period. The DONH Form does not have to be submitted if a taxpayer did not perform a delivery of food for no consideration. The interim and final provisions section of the Regulations prescribes 20 June 2016 as the first deadline by which taxpayers have to submit the DONH Form for donations performed in 2015 and donations performed in the first five mounts of 2016 (individual forms for each period of taxation for taxpayers who perform monthly reporting and one from per trimester for taxpayers whose period of taxation is from the first to the last day of quarter.)
Taxation of exchange rate differences in financial leasing arrangements
Regulations explicitly prescribes that the differences arising from changes in exchange rates due to the application of currency clause after delivery of the object of financial leasing are considered as a part of the financing service (interest) and are VAT exempt. These amendments eliminate the concerns about the tax treatment of exchange rate differences that resulted from the previous Tax Authority’s opinions and conclusions from tax audits.
Other Regulation amendments
Tax base for motor vehicles
A vendor who has registered for sale of motor vehicles or a leasing company, which does not purchase motor vehicles for their private purposes, should not include the amount of the special tax on motor vehicles in the VAT base when the amount is transferred to the acquirer/user of the vehicle.
For calculating the amount of the special tax, only the portion of the amount that the acquirer of the motor vehicle or the lessee did not settle should be taken into account under the condition that the value in HRK is charged in accordance with the value decreased in accordance with special regulations.
Exemption for goods imported for the benefit of disaster victims
Regulation amendments introduce the abolishing of the VAT exemption for imports of materials and equipment by humanitarian and charitable legal persons and institutions, in accordance with section 44 (1) (12) of the VAT Act, imported from third countries and required for rebuilding disaster affected areas.
Tax exemptions for transport and all other freight-forwarding services for transit goods
The application of the procedure related to goods in transit is proved in accordance with the customs legislation. For a transport of goods by railway, where a simplified transit procedure is applied, a bill of lading - CIM (which should be completed and verified in accordance with the procedure defined by the Regulations) is used as proof for the VAT exemption.
Tax exemptions for exportations - Export of Goods
The supporting documentation necessary to prove this tax exemption, in case of using hard copy documents (Single Administrative Document or commercial documents) is defined as the original sample of the documents certified (evidence number, signature and official stamp) by the competent customs office.
For repairs, processing, adaptation, finishing or processing of imported goods, the taxpayer should, in addition to the export documentation, also hold the import customs documentation.
Proportional input VAT deduction
For a taxpayer whose accounting period is from the first to the last day of month the Regulation amendments terminate the possibility to apply the estimated percentage utilized for the previous year for the first accounting period in the current year.
Therefore, based on the amendments, all taxpayers who apply the pro rata mechanism, must, regardless of their VAT reporting period (i.e. monthly, quarterly), for their first accounting period in the current year calculate and apply a newly assessed percentage calculated on the basis of actual deliveries realized during the previous year.