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
Email: d.mijic@finum.hr