Escolar Documentos
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Table of Contents
1. Introduction..........................................................................................3
2. Value added tax changes in the Croatian rates.................................4
2.1..................................Changes entered into force on March 1st 2012
6
2.2................................Changes entered into force on January 1st 2013
7
2.3..................................Changes entered into force on March 7th 2013
7
3. Corporate Income Tax Act perceived changes...................................9
4. Personal Income Tax Act and Contributions Act.................................11
4.1...................................Changes entered into force on March 1st 2012
13
5. Croatian excise duties........................................................................15
5.1.............................Excise duties on alcohol and alcoholic beverages
16
5.2.....................................................Excise duties on tobacco products
18
5.3...............................Excise duties on energy products and electricity
20
6. Conclusion..........................................................................................23
7. References.........................................................................................24
1. Introduction
The tax system of any country depends on its economic, political and
social system. Therefore, the changes in these systems are inevitably
followed by changes in the composition of the taxation system.
Major
changes that impact that system are considered as a tax reform. On July
1st 2013, Croatia is to experience a monumental change in its system, as it
is to become the 28th Member of the European Union. Because of this, the
Croatian Government is obliged to bring about certain tax reforms in order
to comply with the regulations that govern the Member States of the EU.
This paper will provide an overview of the most important changes in the
Croatian taxation system with regard to:
In addition to this, I will also explain the most important changes in the
Croatian Excise Duties Act regarding the excise rates for product affected
by them, mainly: alcohol and alcoholic beverages, tobacco products and
energy products and electricity.
Due to the fact that considerable changes have been introduced at such
short notice and amidst an economic crisis that continues to grip this
country
the
consequences
(although
yet
indiscernible)
are
worth
examining, as they are sure to be felt by the public and economy sectors
as well as the citizens of the country.
rapid fiscal effect of VAT, as well as due to the need for further
compliance and alignment of the Croatian legislation with that of the
European Union (Bratic 2013). This increase in the general VAT rate by 2%
was done in an effort to increase tax revenues in 2012. An overview of the
Croatian tax revenues for the period 2008-2012 is given in table 2.1.
Table 2.1. Croatian tax revenues, 2008-2012
Total
state
(excluding
budget
revenue
contributions
in
million HRK)
VAT revenues (in million HRK)
Share of VAT revenues in total
2008
115.7
2009
110.2
2010
107.4
2011
107.0
2012
108.6
73
58
66
52
49
41.30
37.05
37.68
39.31
40.52
8
35.8
0
33.0
9
35.7
4
36.2
2
37.0
Figure 2.1. General VAT rates in EU and Croatia, early 2013 (%)
or other containers;
White sugar from the sugar cane or beet.
Abolition of input VAT deduction for the
procurement
and
contents etc.
A new 5% rate introduced on vessels for sport and leisure which
were previously under temporary admission procedure and are to be
put into the customs procedure of free circulation by May 31 st of
2013.
war veterans;
Abolition of VAT exemption for the import of goods received by
religious organizations from foreign religious organizations and other
natural individuals used for the purpose of performing some type of
a religious activity;
Abolition of VAT exemption for freelance artists;
Abolition of VAT exemption for the purchase of fuel for ships sailing
on high seas;
The introduction of value added tax on building land as of January 1 st
2015.
Regarding this new Croatian VAT Act it is also important to mention that
according to estimates from the Croatian Minister of Finance Slavko Linic,
such actions may lead to a drop in the state budget revenues by about
HRK 500 million in 2013 (or by approximately HRK 1 billion in the
upcoming years), but it is also expected to facilitate operations of Croatian
companies exporting to EU countries and to ensure greater liquidity
(Radio.net 2013). Related to this matter, the Croatian Prime Minister Zoran
Milanovic emphasized that although the VAT tax for tourism was reduced
from 23% to 10% (applicable from January 1st 2012) because of the great
The Croatian CIT rate is currently 20%. Figure 3.1 provides a comparison
between the Croatian CIT rate and other European countries.
Figure 3.1. CIT rates in Croatia and other European countries (%)
10
changed their CIT rates, Croatia has a relatively long period of CIT rate
application of 20% (the rate has not been modified since its application in
2001). However, due to the fact that Croatia is on its way to becoming a
Member State of the EU, the Government has added amendments to the
Corporate Income Tax Act (Ernst&Young 2012b) as follows:
months;
The CIT base may be decreased for the profit that is for investment
Under the previous bylaws of the Corporate Income Tax Act all profits were
taxed in Croatia, irrespective of whether they were paid out to the
stakeholders or reinvested into new ventures. The latest proposed reform
states that if profit is reinvested into the companys share capital in the
first six months of the following fiscal year, the reinvested amount will be
exempt from taxation. What is also interesting is that the dividends are
now a part of taxable income, although the dividends up to HRK 12.000
annually will be exempt from taxation if they are paid to private local
individuals.
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activities; or
A natural successor.
Typical sources of taxable income include sources such as: income derived
form employment, income gained from property and other property rights,
income that comes as a result of performing individual activities, income
that comes about as a result of investment making etc.
The tax rate on personal income in Croatia has a progressive rate (persons
with higher income pay higher taxes) and it goes from 12% to 40%. If we
take a look at the Croatian personal income tax rate for the last five years
and compare it to some other countries in Western and Southern Europe, it
can be noticed that the Croatian rates were equal to those find in Spain in
2008-2010, Greece in 2010, and Switzerland in 2011-2012.
Figure 4.1. Personal income tax rates in Croatia and other select
European countries (%)
12
In March of 2012, Croatia has entered several changes into the Personal
Income Tax Act because of its subsequent entry into the European Union.
These changes include the following mandates (Ernst&Young 2012a):
13
2.200 (for retirees from HRK 3.200 to HRK 3.400 per month).
The tax rate schedule is also changed meaning that new tax
brackets now apply on a new tax base (gross salary reduced by
obligatory contributions from salaries and personal allowances) and
they are as follows:
o Monthly tax brackets:
The 12% rate applies to income up to HRK 2.200;
The 25% rate applies to income between HRK 2.200 and HRK
8.800; and
The 40% rate applies to income exceeding HRK 8.800.
o Annual tax brackets: These are generally determined as being
12 times the monthly brackets, however is should be taken
into account that there was an exception in 2012, when the
annual brackets were averaged over the whole year due to
Additional changes to the Personal Income Tax Act stipulate that, unless
specifically exempt, all non-cash salary items (benefits) are generally
taxable according to the market value (including 25% VAT). Typical noncash salary items include items such as private use of company available
cars, housing and rental reimbursements, meals, loans with an interest
rate that is below 3% etc. An example of how non-cash salary item are
taxes is provided below for the private use of a company car.
EXAMPLE: Tax value for the private use of a company car
14
The taxable value of this type of non-cash salary item is calculated in one
of three ways:
a) Based on the number of actual driven kilometers for private use in a
months time;
b) Tax value is equal to 1% of the purchase price (including 25% VAT of
the company car per month for those purchased); or
c) Tax value is equal to 20% of the monthly lease installment including
again 25% VAT.
Mandatory Contributions Act
The Act on Mandatory Contributions primarily concerns health insurance
contributions and social security contributions, which are typically
deducted from income and paychecks.
The two most prominent changes in the Act on Mandatory Contributions
include (Ernst&Young 2012b):
Employ
15
Pension insurance
Pension insurance (based on gross salary and
paid by the employer in addition to gross salary)
Health insurance
Unemployment insurance
Insurance against work injury
Total contributions
Source: KPGM (2012b)
yee
15%
5%
er
20%
13%
1.7%
0.5%
15.2%
(cigarettes,
cigars,
cigarillos
and
smoking
tobacco);
c) Energy products (motor fuel or heating fuel, or electricity).
16
Amount of excise in
Minimum excise
Beer
Still wines
Sparkling wines
Other
alcoholic
Croatia
HRK 40.00
HRK 0.00
HRK 0.00
HRK 0.00
duty in EU
HRK 13.89
HRK 0.00
HRK 0.00
HRK 0.00
beverages
Intermediate
products
HRK
HRK
500.00
800.00
containing
containing
less than
15% vol.
15% vol.
of pure
of pure
alcohol or
alcohol
more
Ethyl alcohol
HRK 5.300.00
Source: Tax Administration of RC (2013)
HRK 334.15
HRK 4.084.03
The difference in excise duty rates between Croatia and the EU is primarily
due to the fact that in Croatia every alcoholic product is taxed at a single
rate, while in the European Union there are typically one or more standard
or reduced rates for all categories of goods.
On accession to the European Union some of the changes in the Croatian
Excise Duties Act that will come into force include (Kulis 2013):
17
18
19
July 1st, 2013 Total excise must come to at least 57% of the average
weighted retail price of cigarettes released for consumption and 64
euro per 1.000 cigarettes. Currently that percentage is about 52.2%
20
Current excise prices on all tobacco products are shown in table 5.2.
Table 5.2. Excise duties rates on tobacco products in Croatia and EU
Amount of excise in
Excise product
Cigarettes
Cigars
Cigarillos
tobacco
accession
HRK
accession
HRK
180.00 per
475.00
1000
per 1000
items
items
HRK
items
HRK
1.100.00
600.00 per
per 1000
1000
items
items
HRK
items
HRK
Fine-cut tobacco
Other
Croatia
Before EU
1000
1000
items
HRK
items
HRK
kg of
product
HRK
product
HRK
in EU
1000
items
items
items
Source: Tax administration of RC (2013); Kulis (2013)
5.3. Excise duties on energy products and electricity
21
When it comes to the 2013 Croatian Excise Duties Act, the biggest
changes are with regard to the duties regarding energy products and
electricity. More specifically, the Law (article 84) states that in addition to
an increase in rates, taxation will now be extended to natural gas, coal,
coke and electricity.
The rates for these products are listed in table 5.3.
Table 5.3. Excise duties rates on energy products and electricity
Excise product
Amount of excise in
Minimum excise
Croatia
(1) HRK 3.801.00 per
duty in EU
(1) HRK 3.126.00 per
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 l
1000 kg
1000 kg
1000 kg
HRK 160.00 per 1000
kg
HRK 111.00 per 1000
kg
kg
Gas oil:
(1) For motor fuels;
(2) For heating
Kerosene:
(1) For motor fuels;
(2) For heating
22
MWh
business use)
Coal and coke:
(1) For business use
As can be seen in the table above, excise duty rates in Croatian arent that
different than those found in the European Union. The only exceptions to
this, where rates arent compliant with the minimally prescribed EU rates,
are with regard to excise duty rates for liquid petroleum gas and kerosene.
A comparison in excise duty rates between Croatia and other EU countries
for petrol (both leaded and unleaded) is provided below in figure 5.2.
23
24
6. Conclusion
In response to the need for fiscal consolidation and financial adjustment of
the Croatian taxation system with that of the Member States of the
European Union, it is clear that Croatia has made some obvious and
commendable changes. With regard to its Value Added Tax system, the
most noticeable change is that it first increased its general VAT rate (from
23% to 25%) in 2012, and then abolished the zero rate in early 2013. Such
changes in VAT rates are expected to increase tax revenues, provided that
there are no economic activity reductions or other reduction in personal
consumption of Croatian citizens. The Croatian Corporate Income Tax Act,
also introduced some changes to its mandates, and these primarily
concern the introduction of the withholding tax and the taxation of
dividends, while reinvested profit now becomes exempt from taxation.
When it comes to the changes in the Personal Income Tax and Mandatory
Contributions Act these primarily concern increases in the amount of
monthly personal income and decreases in health insurance contributions.
Finally, with regard the new Croatian Excise Duties Act the changes are not
that distinctive. This act is mostly harmonized with the minimal rates
prescribed in the European Directives, although the exception are the
excise duties on tobacco products, where increases in rates and price are
expected to be preformed until December 31st 2017 upon which time they
should be fully harmonized with those found in EU Member States.
25
7. References
Bradbury, P., 2011. New Croatian Prime Minister Zoran Milanovic reduces
tourism VAT. Available at:
http://www.digitaljournal.com/article/316617 [Accessed May 27,
2013].
Bratic, V., 2013. Value Added Tax: Changes in Rates in Croatia and Trends
in the European Union.
Business Dictionary, 2013. What is personal income tax?
BusinessDictionary.com. Available at:
http://www.businessdictionary.com/definition/personal-incometax.html [Accessed May 26, 2013].
Croatian Parliament, 2013. Croatian Excise Duties Act. Narodne novine.
Available at: http://narodnenovine.nn.hr/clanci/sluzbeni/2013_02_22_357.html [Accessed May
29, 2013].
Delegation of the EU to RC, 2013. Croatia and EU - prejudices and realities.
Delegation of the European Union to the Republic of Croatia.
Available at: http://www.delhrv.ec.europa.eu/?lang=en&content=61
[Accessed May 29, 2013].
Ernst&Young, 2012a. HR and tax alert.
Ernst&Young, 2012b. The Croatian Tax Package.
European Commission, 2013. VAT rates Applied in the Member States of
the European Union, European Commission. Available at:
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rat
es/ [Accessed May 24, 2013].
Expat Croatia, 2013. Important taxes. Expat Croatia. Available at:
http://www.expatcroatia.net/once-youre-here/banking-afinance/5141-important-taxes [Accessed May 26, 2013].
Investopedia, 2013a. Corporate Tax Definition. Investopedia. Available at:
http://www.investopedia.com/terms/c/corporatetax.asp [Accessed
May 25, 2013].
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