Mazars Tax Newsletter, March 2021

Tax News from Republic Of Croatia

Amendments to the General Tax Rulebook

Extension of the deadline for the submission of the CIT return

By the amendments to the General Tax Rulebook, that recently entered into force,  deadline for submission of CIT return for 2020 has been extended to June 30 2021, including all other forms and reports that are submitted along with the CIT return, and those returns for which the liability of submission is due in the same deadline as the one prescribed for submission of CIT return (e.g. PD IPO form and tourist board contribution).

Liabilities and contributions that are determined on the basis of CIT returns, accompanying forms and reports are due for payment on June 30 2021.

However, the extension of the deadline is not applicable to taxpayers whose tax period is not equal to the calendar year (opening of bankruptcy, statutory changes, discontinuation of business, etc.), or those who are not obligated to submit a tax return four months after the tax period expires.

Exceptionally Croatian CIT revenue rule on tax recognition of depreciation expense and other applicable costs related to apartments, vessels and holiday homes will not apply for 2020.

Personal allowance for dependent members

In addition to the extending the deadlines for the CIT return, the amendments to the General Tax Rulebook  stipulate that when determining the right to personal allowance for dependent members for 2020 and 2021, receipts received by individuals on the basis of donations will not be taken into account under certain conditions, i.e. if received donations meet the conditions of humanitarian actions and publicly announced actions in accordance with Article 8, paragraph 1, point 5 of the Personal Income Tax Act.

Tax Authorities' instruction

Regarding last year's adoption of amendments to the VAT Act and Rulebook which introduced provisions relating to new rules for the B2C supplies of services and distance sales of goods in other member states (applicable from 1. July 2021), the Tax Authority issued an official instruction in which it explained the new rules.

Namely, starting from 1st July 2021, application of the MOSS scheme will be extended to all B2C services and distance sales of goods, so called OSS (One Stop Shop). The purpose of this electronic system is to enable taxpayers to fulfil their VAT obligations towards all EU Member States in one Member State by filing a VAT return through this system from which the data will be automatically transferred to those Member States where supplies are taxable.

In this regard, the VAT Act prescribes the following special taxation procedures:

1. Special taxation procedure for supply of B2C services by taxable persons not established within the EU

2. Special taxation procedure for the distance sale of goods within the European Union, for supplies of goods within a Member State by using electronic interfaces enabling such supplies and for services supplied by taxable persons established within the European Union but not established in the Member State of consumption

3. Special taxation procedure for distance sales of goods imported from third territories or third countries

4. Special taxation procedure for registration and payment of import VAT 

Taxpayers are able to apply for the application of special taxation procedures in the Republic of Croatia as of 1 April 2021, regardless of the fact that these amendments to the VAT Act will enter into force on 1 July 2021.

Taxpayers who do not choose to apply the special procedures set out in points 1, 2 and 3 will be required to register for VAT purposes in each Member State where their supplies are taxable.

The registration portal for the use of special taxation procedures is available at the following link.

Special taxation procedure for supply of B2C services by taxable persons not established within the EU

A special procedure for the taxation of B2C services provided by taxpayers non established within the EU may be applied by any taxpayer who does not have a registered office, fixed establishment, residence or habitual residence in the territory of the European Union.

Namely, a taxpayer from a third country may choose any Member State as the Member State of registration. A taxpayer, who chooses the Republic of Croatia as the Member State of registration, must electronically notify the Tax Authority on the start, termination of his activity as a taxpayer or change of his activity when conditions for the application of special taxation procedure are no longer meet.

The VAT return for the special taxation procedure is submitted electronically for each calendar quarter until the last day of the current month after the end of the quarter. The VAT return shall indicate all Member States of consumption and the total value of the services provided. In addition, VAT must be paid in HRK no later than the deadline for the submission of VAT return.

In addition, a taxpayer applying this special procedure is not entitled to Input VAT deduction through regular VAT returns for these services, however, he is entitled to a VAT refund in accordance with the VAT refund procedure for taxpayers not established in the European Union.

Special taxation procedure for the distance sale of goods within the European Union, for supplies of goods within a Member State by using electronic interfaces enabling such supplies and for services supplied by taxable persons established within the European Union but not established in the Member State of consumption

This special procedure may be applied by:

• a taxpayer which distant sale goods within the European Union,
• a portal enabling the sale by a taxpayer from a third country within the same Member State,
• a taxpayer which is not established in the Member State of consumption and provides services to a non-taxable person.

A taxpayer applying this special procedure does not have to issue an invoice for distance sale of goods within the European Union.

If he applies for this special procedure, the taxpayer must apply it to all long-distance supplies of goods within the European Union and to services provided to non-taxable persons in the European Union.

A taxpayer with a registered office in the Republic of Croatia must electronically notify the Tax Authority on the start, termination of his activity as a taxpayer or change of his activity when conditions for the application of special taxation procedure are no longer meet.

The VAT return for this procedure is submitted electronically for each calendar quarter until the last day of the current month after the end of the quarter. The VAT return shall indicate all Member States of consumption and the total value of deliveries made. However, VAT must be paid in HRK no later than the deadline for the submission of VAT return.

In addition, a taxpayer applying this special procedure is not entitled to deduct input VAT in the Member State of consumption, but is entitled to a VAT refund in accordance with the VAT refund procedure for taxpayers established in another Member State.

Exception:

It should be noted that for the distance sale of goods and telecommunications services, radio and television broadcasting services and electronically provided services to individuals in other Member States, a threshold of HRK 77,000 is prescribed up to which the rules and VAT of the supplier Member State apply.

Taxpayers who perform these supplies in total value below the threshold, are obliged to submit an overview of telecommunications services, radio and TV broadcasting and electronically performed services and the distance sale of goods by January 20 of the current year for the previous calendar year on the ecommerce form.

At the time of exceeding the threshold, the taxpayer can apply for the application of the OSS, and if he does not choose this option, he must register for VAT in each Member State where the place of taxation of his supplies is located. After exceeding the threshold of HRK 77,000.00, the taxpayer must submit the e-commerce form within 8 days of exceeding the threshold.

It is important to emphasize that the threshold does not apply to other services provided to individuals, supplies of goods within the same Member State and taxpayers from third countries.

Additionally, taxpayers which make these supplies below the threshold are required to submit two e-commerce forms by July 20, 2021, one for the period from 1 January 2020 to 31 December 2020 and the other for the period from 1 January 2021 to 30 June 2021.

Special taxation procedure for distance sales of goods imported from third territories or third countries

This special procedure - IOSS (Import One Stop Shop) covers only goods whose intrinsic value does not exceed HRK 1,135.00, except for goods subject to excise duties.

Taxpayers can apply IOSS regardless of whether they have a registered office, residence, habitual residence or fixed establishment in the European Union, given that taxpayers from third countries must appoint an intermediary based in the European Union as the person responsible for paying VAT and fulfilling obligations under this special procedure.

The distance sale of goods imported from third territories or third countries is the supply of goods transported from third territories or third countries to the European Union to a individual or a non-taxable legal person whose acquisition of goods within the European Union is not subject to VAT, or any other person who is not a taxpayer.

The taxpayer applying this special procedure or his intermediary is obliged, for each calendar month until the last day of the current month after the end of the month, to electronically submit a VAT return for the special taxation procedure and indicate for each Member State of consumption, the total value of the supplies made and the total amount of VAT to be paid. VAT must be paid in HRK no later than the deadline for submitting the return.

A taxable person applying this special procedure is not entitled to deduct input VAT in the Member State of consumption, however, he is entitled to a VAT refund in accordance with the VAT refund procedure for taxpayers established in another Member State and the VAT refund procedure for taxpayers, which are not established in the territory of the European Union.

Special taxation procedure for registration and payment of import VAT

This special procedure may be applied if the import of goods in shipments whose intrinsic value does not exceed HRK 1,135.00 is not subject to the special procedure referred to in point 3. It may be applied by a person declaring goods to the Customs Authority on behalf of the individuals (e.g. courier services).

The individual for whom the goods are intended is responsible for paying VAT. The person who declares the goods to the Customs Authority collects VAT from the person for whom the goods are intended and makes the payment of such VAT.

The VAT return is submitted by the last day of the current month for the previous month. VAT is paid monthly until the expiry of the payment deadline applicable to the payment of customs duties on importation.

Other news

• OECD - guidance on the transfer pricing implications of the COVID-19 pandemic

Related to the implications of COVID-19 virus, the Tax Authority published the Croatian version of the Guidelines dealing with an issues and implications arising from the impact of the COVID-19 pandemic on the operations of multinational groups and all other companies involved with their related parties. These Guidelines aim to answer four key questions that have been highlighted as a priority, i.e. as those within which numerous and important issues arose:

1. comparability analysis - the mentioned area deals with the preparation of economic (benchmarking) analysis in the light of the impact of the COVID-19 pandemic on the activity of companies,

2. losses and distribution of specific costs for COVID-19 - this area, among other things, seeks to answer the question of the possibility of allocating losses to limited risk companies,

3. state aid programs - within the mentioned area it is possible to find Guidelines related to the treatment of state aid programs from the aspect of transfer pricing and their impact on the business results of companies;

4. transfer pricing agreements (APAs).

In light of the above, it can be concluded that Croatian Tax Authority monitors current events in the field of transfer pricing and that the OECD Guidelines as such represent an unofficial legislative framework when it comes to transfer pricing analysis, although the Republic of Croatia is still not an OECD member. Further, when preparing transfer pricing documentation for 2020, it is certainly recommended to take into account the previously mentioned Guidelines.

• The Croatian Chamber of Commerce membership fee

Due to the epidemic caused by the Covid-19 virus, the Croatian Chamber of Commerce passed a Decision on the temporary abolition of the obligation to pay membership fees on the 24^th of March 2021. The decision is valid from March 1 to March 31, 2021. The temporary abolition of the obligation to pay membership fees relates to the following activities: