Most companies depreciate assets on a straight-line basis; this is because depreciation calculated this way, at the prescribed rates, is recognised for tax purposes. Companies are, however, free to use any depreciation method defined in the IFRS and to estimate the useful lives of all fixed assets in accordance with their accounting policies.
Prescribed annual depreciation rates are as follows:
||Depreciation period (years)
||Depreciation rate (%)
|Buildings and ships of over 1,000 gross registered tonnage (GRT)
|Basic herd and personal cars
|Intangible assets, equipment, vehicles (except personal cars), and machinery
|Computers, computer hardware and software, mobile telephones, and computer network accessories
|Other non-mentioned assets
However, depreciation expenses in excess of the amount allowed for tax purposes are taxable. The value adjustment expenses of tangible fixed assets are non-deductible if such expenses exceed the amount of expense calculated by using the prescribed depreciation rate.
The cost of depreciation of assets that are not used for business purposes is not deductible.
Plant and equipment are considered to be acquired in the period in which installed or ready for use. Plant and equipment includes: tools of trade, information technology infrastructure (including software), furniture and fittings, and motor vehicles (excluding vehicles for personal use).
If the taxpayer writes off a portion of a depreciable asset, the remaining undepreciated portion will be depreciated at the rate prescribed by law. According to the CIT Act, the taxpayer can double the depreciation rates.
Land and forests (renewable resources) are not depreciated.
Financial assets, cultural monuments, and art work are not depreciated.
Depreciation of vessels, aircraft, condominiums, and vacation houses can be tax deductible only if certain conditions are met.
Goodwill is usually the difference between the consideration paid and the fair value of acquired net assets. If the taxpayer applies Croatian Financial Reporting Standards for its financial reporting, then goodwill must be amortised over five years.
The amortisation of goodwill is not recognised for tax purposes.
If the taxpayer applies IFRS for its financial reporting, goodwill impairment (if any) is considered as a non-deductible expense for tax purposes.
Generally, start-up expenses are considered to be expenses in the financial year in which they are incurred. As no special rule is provided for tax purposes, they are considered as tax deductible expenses for CIT purposes in the year in which they are incurred.
According to the CIT Act, late payment interests are tax deductible, unless those interests are due to related companies, regardless of whether the late payment interests are charged by resident or non-resident related parties.
Interest expenses on loans between related companies is also deductible, up to the amount prescribed by the Ministry of Finance as calculated and published by the Croatian National Bank (4.97% for 2017) and if compliant with thin capitalisation rules (4:1 ratio). An alternative approach (instead of the interest rate prescribed by the Ministry of Finance) is the interest rate determined according to the transfer pricing rules, if applied to all contracts.
See Thin capitalisation and Interest rate charged between related parties in the Group taxation section.
Value adjustments arising from the adjustment of the value of claims against customers for goods delivered and services rendered are recognised as deductible expenses if more than 60 days elapsed between the maturity of the claim and the end of the tax period, and if the claims were not collected up to 15 days before filing the CIT return. The claim needs to be recorded in the business books as revenue, and all measures for debt collection have to be taken (legal actions) in accordance with best management practices.
These expenses are permanently deductible if a settlement has been reached with the debtor - CIT payer who is not a related person, in case of bankruptcy, arbitration, or conciliation, based on a special regulation.
In addition, the law introduces a possibility of permanent tax deductibility of expenses from write-offs of receivables recognised from an unrelated person if a taxpayer proves that costs of initiating a procedure to collect the receivable are higher than the amount of the receivable itself or if it proves that it took the necessary actions with due care and diligence of a prudent businessperson with the aim of collecting the receivable, whereby one determined the final inability to collect the amount of the receivable being written off.
Moreover, for the purpose of accelerating the debt reduction procedure, the new regulations introduced a provision encouraging credit institutions to implement the debt reduction procedure during 2017, which relates to bad debt or difficult-to-collect receivables determined as on 31 December 2015, whereby the total expense of a write-off of the receivable, without initiating court or enforcement proceedings, or other proceedings aimed at receivable collection, is recognised as a tax deductible expense. This can be applied only in the tax return for 2017 (or for the tax period which begins in 2017 for taxpayers whose fiscal year is different than the calendar year). In other words, it is a one-off measure.
Donations in a form of gifts in kind or cash for cultural, scientific, educational, health, humanitarian, sports, religious, environmental, or other socially beneficial purposes are tax deductible by 2% of the revenues generated in the previous year. Exceptionally, the amount may exceed 2% of the revenues generated in the previous year, provided that it is granted pursuant to the decisions of competent ministries on the financing of special programs and activities.
The donations of food to prescribed persons for social, humanitarian, and other purposes, and to people affected by natural disasters, made by taxpayers that are food producers and food traders can also be considered as tax deductible (provided the donations are in line with the relevant regulations of the Ministry of Agriculture).
Fines and penalties
Fines and penalties prescribed by Croatian administrative and judicial authorities are considered to be non-deductible expenses.
There are no provisions for tax treatment of taxes paid/accrued. For foreign tax credits, please see the Tax credits and incentives section.
Net operating losses
Tax losses may be carried forward and utilised within five years following the year in which the losses were incurred and must be utilised in the order in which they occurred. The losses may not be transferred to any third party except in the case of merger, de-merger, or acquisition. Tax losses cannot be carried back.
Utilisation of tax losses from previous years in case of statutory changes of legal entities is prescribed in detail in the CIT Act, limiting the entitlement where the legal predecessor is inactive and in case of a significant change in business activity or ownership structure.
Payments to foreign affiliates
The treatment of payments made to foreign affiliates is dealt with through the mechanism of the CIT base. The CIT base is increased for any concealed profit payments made. The tax authorities may audit the expenditure of non-resident taxpayers, examining expenditure on goods and services abroad as well as management, intellectual property (IP), and other fees and payments that may have the character of a profit transfer. If the tax authorities discover that transactions have been used to conceal profit transfers, the difference between the declared price/fee and the average market price/fee will be added back into the taxpayer’s tax base.