Corporate Income Tax in Croatia: Permanent Establishment of a Non-Resident in Croatia
A foreign company operating in the Republic of Croatia may, under certain conditions, be subject to corporate income tax. Those wishing to start a business activity in Croatia should therefore have experts check whether this activity leads to a permanent establishment of the company and what tax obligations result from this.
In Croatia, corporate taxation is based on the principle of residence, as well as the principle of origin, which have been implemented into national regulations and international agreements of the Republic of Croatia.
Double Taxation is Avoided
Croatian corporate income tax law provides that a permanent establishment of a non-resident in Croatia shall be subject to corporate income tax. The definition of a permanent establishment (PE) of a non-resident in Croatia is provided in the Croatian general tax law and international agreements for the avoidance of double taxation concluded between the Republic of Croatia and other countries.
We check for you whether your business activity in Croatia leads to a permanent establishment and what tax obligations may arise. Daria Mijić, Tax Leading Specialist, ECOVIS FINUM, Zagreb, Croatia
It should be noted that the Croatian Constitution sets out that the provisions of an international agreement for the avoidance of double taxation, if such an agreement has been concluded, have primacy over the provisions of the general tax law in determining a PE.
In examining the existence of a PE, judgments of the European Court of Justice are also considered, as they are part of the EU acquis and therefore mandatory for EU Member States, i.e., for Croatia. It should be kept in mind that judgments relate to specific cases and circumstances. Therefore, the judgment shall apply only if there is a judgment of the European Court of Justice. in the same or a similar case.
How Corporate Income Tax is Determined
The tax base of business units of non-residents is the corporate income attributable to the business unit in the Republic of Croatia in accordance with Croatian corporate income tax law. It should be noted that regulations relating to a controlled foreign company apply when determining the corporate income of a PE. In addition, the business unit of a non-resident, if participating in taxable deliveries, must also register for VAT purposes in Croatia. The Ecovis experts therefore recommend that before starting business activity in Croatia, it is necessary to check very carefully whether a permanent establishment is being created and what consequences this means for corporate income tax.
For further information please contact:
Daria Mijić, Tax Leading Specialist, ECOVIS FINUM, Zagreb, Croatia
Money Laundering in Germany: Stringent New Rules for Companies
Germany is seen as a money laundering paradise. As a result, on 18 March 2021, the German government introduced the new section 261 of the Criminal Code (StGB) – the offence of money laundering. At the same time, it has implemented an EU directive into national law – more stringently than required by the EU.
With the new law, the German government wants to prevent criminals from smuggling their money, for example from tax evasion, into legal businesses. Also, even reckless subsidy fraud is a predicate offence to money laundering. The aim is to make it easier for authorities and prosecutors to track down assets of criminal origin.
Until now, they have only prosecuted money laundering if the assets in question originated from very specific criminal offences. For this there was a catalogue of predicate offences in which certain crimes and offences were listed. In terms of tax evasion, for example, these were only intentional offences committed on a professional basis or by members of a gang. This is now to be abolished.
Do you want to know when transactions are reportable? Contact us and we will support you. Alexander Littich, lawyer, specialist lawyer for tax law and criminal law, Ecovis in Landshut, Germany
How the New German Law Affects Foreign Companies
In principle, German criminal law only applies to offences committed in Germany. However, foreign companies can also be liable to prosecution if:
they are active in Germany themselves or, for example, through a subsidiary, and must therefore be aware of and comply with German law, or
they commit criminal acts abroad which count as predicate offences for money laundering in Germany and lead to their own criminal liability here.
When Offences Abroad are Punishable in Germany
The legislator has included some regulations in the law in terms of when foreign offences related to the EU are in any case also punishable in Germany. The foreign offence must be punishable either in the country where it was committed or in Germany. The transfer, procurement or use of objects resulting from such acts is then also punishable for money laundering. Or the offence is not necessarily punishable abroad but is punishable in Germany and is one of the priority offences defined by the EU. These include organised crime, corruption, financing terrorism, human trafficking/smuggling, drug trafficking and the sexual abuse and exploitation of children. The transfer, procurement or use of objects resulting from such offences is thus punishable.
With the new regulation, it is no longer important that the perpetrator evades taxes abroad on a professional or gang basis. A single, simple act of tax evasion is sufficient. For example: An entrepreneur in England evades taxes and wants to buy a property in Berlin in Germany with the wrongly received tax refund. This act is punishable in Germany, say the lawyers at Ecovis.
The Consequences for Entrepreneurs
The obligations to report possible violations of money laundering laws are much more comprehensive. In addition to the typically known cash transactions, less commonplace business transactions now also come under scrutiny. If proceedings are initiated, entrepreneurs must justify their business procedures.
Businesses subject to reporting requirements should in future check even more intensively which transactions they have to report. Companies subject to reporting requirements include, for example, banks, real estate agents, insurance companies, tax advisors, lawyers, auditors, or trustees. If an investigation is initiated, entrepreneurs must justify their business practices.
If there is a suspicious activity report for a business transaction, the company is not allowed to continue with that business. This is only possible if the Financial Intelligence Unit (FIU) or the public prosecutor’s office agrees or has prohibited the transaction three days after the suspicious activity report. For companies, the new money laundering act means more bureaucratic effort and even more precise documentation, explain the Ecovis experts.
Greece Income Tax: New Amendments to the Greek Tax Framework
The Greek Parliament has passed a draft law (L. 4799/2021) amending the country’s tax law. With this, the legislator is significantly reducing the corporate tax rate and income tax prepayments and, from 2022, the solidarity contribution for certain types of income.
The Tax Changes in Law L. 4799/2021 Include:
1. Reduction of the Corporate Income Tax Rate
From the tax year 2021 onwards, the income tax rate for legal entities and individuals conducting business activity is reduced from 24% to 22%.
2. Decrease in Income Tax Prepayments
The income tax down payment for freelancers is reduced from 100% to 55%. The prepayment assessment is based on the income tax returns of the tax years 2020 onwards.
From the tax year 2021 onwards, income tax down payments for legal persons and legal entities are reduced from 100% to 80%. In addition, the down payment has been set exceptionally to 70% for 2020 income tax returns.
For Greek banking institutions and branches of foreign banks operating in Greece, income tax prepayment remains at 100% for the tax years 2020 onwards.
Would you like to know more about the effects of the tax changes on your company? Contact us. Dimitrios Leventakis, Managing Director, ECOVIS HELLAS L.T.D., Athens, Greece
3. Exemption from the Special Solidarity Contribution for Special Types of Income for Tax Years 2021 and 2022
For the tax year 2021, all individual income including employment income earned by private sector employees, business income, income from capital (dividends, interest, royalties and rental income), and capital gains is exempt from the special solidarity contribution. The exemption does not apply to employment income earned by public sector employees and pensioners.
For the tax year 2022, employment income earned by private sector employees is exempt from the special solidarity contribution.
4. Five-Year Allocation Benefit Method
A 5-year allocation method is provided for the benefit arising from the offset of the claw back of pharmaceutical expenditure with research and development expenses. The allocation begins from the tax year in which the benefit incurred.
5. Abolition of Tax on Shares Transfer
Tax on the profits gained from the transfer of shares listed on foreign exchange stock markets or other internationally recognised financial institutions and transactions made through multilateral trading facilities is abolished with immediate effect.