Croatia

The Act on Investment Promotion provides the following reliefs and incentives for taxpayers.

Investment promotion incentives

Incentive measures for investment projects in the Republic of Croatia are regulated by the Investment Promotion Act and pertain to investment projects in:

• Manufacturing and processing activities.
• Development and innovation activities.
• Business support activities.
• High value-added services.

Incentive measures can be used by enterprises registered in the Republic of Croatia investing in fixed assets (intangible and tangible) the minimum amount of:

• EUR 150,000 together with creating at least five new jobs related to the investment project in the period of project implementation for investment projects.
• EUR 50,000 together with creating at least three new jobs for micro enterprises.
• EUR 50,000 together with creating at least ten new jobs for ICT system and software development centres.
• EUR 3 million together with creating at least 15 new jobs related to the investment project in the period of project implementation for investment projects through economic activation of inactive assets owned by Republic of Croatia.
• EUR 500,000 for projects related to modernisation and growth in productivity of business processes.

The amount of aid shall be calculated as a percentage of investment value, which is determined on the basis of eligible investment costs. Eligible investment costs are:

• tangible (value of land/buildings and plant/machinery) and intangible assets (patent rights, licences, know-how), or
• gross wage calculated over a period of two years.

The larger of these two amounts constitutes the baseline for calculating the amount of aid.

The percentage of investment value used for calculating the aid amount is 50% for large, medium, small, and micro enterprises.

The minimum period for maintaining the investment and newly created jobs linked the investment after its completion is five years for large enterprises, and three years for small and medium-sized enterprises, but no less than the duration of use of the incentive measures.

The following incentive measures are available:

• Tax incentives.
• Employment incentives.
• Incentives for education and training.
• Incentives for investments in development and innovation activities, business support activities, and high value-added activities.
• Incentives for the capital expenses of investment projects.
• Incentives for labour intensive investment projects.
• Incentives for investment projects through economic activation of inactive property owned by Croatia.
• Incentives for modernisation and growth in productivity of business processes particularly in manufacturing and processing, through automation, robotisation and digitalisation.

Tax incentives

Tax incentives decrease the CIT rate, depending on the amount of the investment and the number of new jobs created. 

Tax incentives for micro entrepreneurs require a minimum investment of EUR 50,000 and allow tax incentives in the form of a 50% decrease of the tax rate over a period of five years, with a minimum of creating three new jobs. Tax incentives for small, medium, and large entrepreneurs over a period of ten years from the start of investment can be obtained under the following conditions:

For investment projects starting on or after 1 January 2025 tax incentives apply exclusively to profits generated from the business activity related to the investment project, wherby, in calculating the tax base for the profit tax of the investment project activity, income from capital, rent, interest and intellectual property are excluded.

Employment incentives

Employment cash grants are incentives for creating new jobs related to the investment project. Cash grants for eligible costs of new jobs created depends on the unemployment rate in the county in which the investment is located. The incentive rate is applied to eligible costs of jobs creation.

Incentives for education and training

Cash grants shall not exceed 50% of the eligible costs. They may be increased, up to a maximum aid intensity of 70% of the eligible costs, as follows:

• By 10 percentage points if the training is given to workers with disabilities or disadvantaged workers.
• By 10 percentage points if the aid is granted to medium-sized enterprises.
• By 20 percentage points if the aid is granted to small and micro enterprises.

Incentives for investments in development and innovation activities, business support activities, and high value-added activities

For investment in development and innovation activities, a cash grant shall be approved for the purchase of plant/machinery amounting to 20% of the actual eligible costs for purchasing plant/machinery, in the maximum amount of EUR 500,000, provided that the purchased plant/machinery represents high technology equipment. For such investments, additional grants (of up to 50% of amounts prescribed by this Act) are available for creation of new jobs related to the investment project.

For investments into business support activities and high value-added activities, additional incentives (of up to 25% of the amounts prescribed by this Act) are available for creation of new jobs related to the investment project.

Incentives for the capital expenses of investment projects

An incentive can be granted for an investment project if the minimum investment in fixed assets is EUR 5 million and 50 new jobs are created within a three-year period from the start of the project or at least 30 new jobs to the investment project of micro, small and medium-sized enterprises.

Those projects can benefit from additional cash grants between 10% and 20% of the eligible costs of investments for:

• Construction of a new factory, production facility.
• Buying of new machines (i.e. production equipment).

The cash grants can amount up to EUR 1 or EUR 2 million, depending on the unemployment rate of the country where the investment is located and applied percentage of the eligible costs, with the condition that the part of investment in the machines/equipment equals at least 40% of the investment and that at least 50% of those machines/equipment are of high technology.

Incentives for labour intensive investment projects

Labour intensive investment projects in fixed assets are those with at least 100 new jobs created within a three-year period from the start of the project.

Initial employment incentives can be increased by an additional 25% for up to 300 new jobs, 50% for a minimum of 300 new jobs, and up to 100% for a minimum of 500 new jobs.

Incentives for investment projects through economic activation of inactive property owned by Croatia

An incentive is available for free lease of inactive property for up to ten years from the start of investment.

The requirement for this incentive is an invested amount of at least EUR 3 million in the fixed assets and 15 new jobs created within a three-year period from the start of the project.

In addition, the investor has to achieve a 50% increase in the value of the inactive property within three years in relation to the estimated value of the inactive property at the time of starting the lease.

Incentives for modernisation of business processes

Incentives for modernisation of business processes are related to automation, robotisation, and digitalisation of processes in the manufacturing and processing industry.

An investment project for which the incentive for modernisation can be granted implies investment in fixed assets in the minimal amount of EUR 500,000 together with preservation of an initial number of employees through the whole period of investment utilisation.

The CIT rate will be reduced 50% for investments amounting from EUR 500,000 to EUR 1 million, 75% for investments amounting from EUR 1 million to EUR 3 million, and 100% for investments amounting to more than EUR 3 million for a period of ten years counting from the year when the investment started.

The level of productivity per employee must increase by at least 10% after the three-year investment project realisation period compared to productivity per employee one year prior to the application of the investment project.

Foreign tax credit

If a domestic taxpayer has paid tax abroad on profit derived abroad, the tax paid can be included in its CIT return, up to the CIT rate in Croatia. The amount of paid tax abroad, which can be offset with the domestic tax, is calculated in the following way:

• The domestic tax rate is charged on the revenues/profit derived from abroad (up to the amount of the tax liability determined domestically and up to the amount of tax paid abroad), and the result represents the highest amount of tax that can be offset with the domestic tax.

Tax withheld on income not specified in a DTT, or when an agreement is not in place, reduces the tax base if the taxpayer obtains proof of tax paid abroad (which cannot be refunded).