After the Croatian Employers’ Association (HUP) filed a lawsuit on 11 September 2012 questioning the constitutionality of the government’s amendments to the Income Tax Act, on 3 April 2013, the Constitutional Court has temporarily suspended the execution of amendments to the income tax legislation which prescribed retroactive taxation of dividends earned from retained profit prior to the law enforcement.
On the meeting held on 18 September 2013, the Constitutional Court made the final decision on compliance of the acts of the Law on amendments to the Income Tax Act with the Constitution of the Republic of Croatia with the conclusion that it was not in line with the Constitution.
In the meantime due to this lawsuit, the Croatian government decided to amend the Income Tax Act. Instead of the year in which a profit is earned, the date when the decision on the distribution of dividend is made will be relevant. The general market practice is that the decision on dividend distribution is made at the AGM. Consequently this would mean that on all future dividends withholding tax will be applicable. The new amended Income Tax Act will be in force as of 19 October 2013.
According to the currently available information this amendment to the Income Tax Act will not influence in any way the investors obligations towards previously received dividend sand paid taxes.
Impact on investors: As of 19 October 2013 the obligation related to withholding tax on dividend will be based on the time when the decision on the distribution of a dividend is made. If such decision is made after 01 March 2012 the dividend will be taxable.