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Views/ Croatia Highlights – Income Tax Law and Compulsory Health Insurance, July 2014
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Miloš VučkovićAdvokat / Senior Partnermilos.vuckovic@karanovicpartners.com
25/07/2014
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Repeal of the provisions of the income tax law (Official gazette no. 125/12) regarding the retroactive taxation of receipt from dividends and profit sharing.

 By the Decision of the Constitutional Court of the Republic of Croatia as of 18 June 2014, retroactive taxation of receipts from dividends and profit sharing are repealed. The repealed provisions of the Income Tax Law (Official Gazette No. 125/12) stipulated that dividends and profit sharing disbursed during the period of applicability of such law from the profit generated from business activities of the company during the period when there was no legal obligation to pay taxes shall be subject to taxation at the rate in force at the moment of profit disbursement.

The Constitutional Court has determined that such statutory solution, which intervenes in legal relationships between the company and the taxpayer which arose before the disputed law came into force, leads to retroactive effect which is constitutionally unacceptable. Since the disputed provisions were repealed rather than cancelled, the Croatian Ministry of Finance will not refund the already paid income tax and surtax.

For entrepreneurs and shareholders – natural persons this in particular means that the disbursement of profit generated:

  • in 2000 and earlier, as well as in 2005, 2006, 2007, 2008, 2009, 2010 and 2011 shall not be subject to tax on private income from capital;
  • in 2001, 2002, 2003, 2004 and in 2012 and later shall be subject to tax on private income from capital at the rate of 12%, and surtax on income tax if introduced based on temporary/permanent residence of the natural person to whom the profit is disbursed. 

Pension insurance application now also includes the application for compulsory health insurance

Croatian Pension Insurance Institute (CPII) and Croatian Health Insurance Fund (CHIF) have agreed on the exchange and takeover of electronic data about the employment status of the insured, i.e. about the insurance status of persons covered by pension insurance on the basis other than employment.

Connecting CPII and CHIF systems facilitates the procedure of registration in the health care system so the applicants do not have to file two applications with two systems any more but only one application, to be filed with the pension system. Each applicant is obliged to report the commencement of pension insurance to the CPII within 24 hours.

Such rationalisation in operations of the two institutes, the exchange and takeover of data, as well as reduction of employer's filing obligations is applied as of 17 July 2014.

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