Corporate - Tax credits and incentivesLast reviewed - 30 December 2022
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 Act on Investment Promotion and pertain to investment projects in:
- Manufacturing and processing activities.
- Development and innovation activities.
- Business support activities.
- High added value services.
Incentive measures can be used by enterprises registered in the Republic of Croatia investing in fixed assets 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 for large enterprises is 50% for large, medium, small, and micro enterprises.
The minimum period for maintaining the investment and newly created jobs linked to an investment is five years for large enterprises, and three years for small and medium-sized enterprises, but no less than the period 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 added value 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.
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:
|Investment amount (EUR)||Number of newly employed persons||CIT rate reduction (%)|
|150,000 to 1,000,000 (from 50,000 for ICT system and software development centres)||5 (10 for ICT system and software development centres)||50|
|1,000,000 to 3,000,000||10||75|
|More than 3,000,000||15||100|
Employment subsidies are incentives for creating new jobs in relation to the investment project. Non-refundable subsidy 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.
|County unemployment rate||Incentive rate|
|Up to 10%||10% (maximum EUR 3,000 per employee)|
|10% to 15%||20% (maximum EUR 6,000 per employee)|
|More than 15%||30% (maximum EUR 9,000 per employee)|
The specified amount of the grant refers to employment of persons that are the long-term unemployed, regardless of length of service and level of education, who are registered as unemployed with Croatian Employment Service that are either unemployed for at least six months, older than 50 years, or persons without work experience. The grant also applies to persons whose contract was cancelled because of the bankruptcy proceedings.
For other categories of workers, the incentive rate is 40% of the amount presented in the table above.
Incentives for education and training
The non-refundable subsidy shall not exceed 50% of the eligible costs. It 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 added value activities
For investment in development and innovation activities, a non-refundable 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 opening new work places related to the investment project.
For investments into business support activities and high added value activities, additional grants (of up to 25% of amounts prescribed by this Act) are available for opening new work places 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.
Those projects can benefit from additional non-refundable subsidies between 10% and 20% of the eligible costs of investments for:
- construction of a new factory, production facility, and
- buying of new machines (i.e. production equipment).
The percentage of non-refundable subsidies depends on the unemployment rate of the county where the investment is located.
The non-refundable subsidies could be up to EUR 1 million, depending on the 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 be increased at least 10% after the expiration of the three-year period of investment project realisation in relation 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, and the result represents the highest amount of tax that can be offset with the domestic tax.
In practice, it means that if the amount of tax paid abroad was charged at a rate equal to or lower than 10%/18%, only the actual amount of foreign tax paid can be offset with the domestic tax.