New tax on capital gains

Thu, 03/12/2015

All Croatian investments of private individuals will be subject to a new income tax as of 2016. By Jelena Bilušić, Relationship Manager, GSS Croatia

The Income Tax Act has introduced taxation of capital gains for resident and non-resident individuals at a rate of 12% as per 1 January 2016.

The tax refers to income resulting from disposal of financial assets, namely transferable securities and structured products; money market instruments; UCITS units; derivatives; the proportionate part of the liquidation estate in the event of investment fund liquidation and other revenues generated from ownership stakes in case of liquidation, cessation or offsetting.

Capital gains will not be taxed if the financial assets are disposed of after a period of three years or more from the purchase or acquisition of such financial property.

A taxpayer generating income from capital on the basis of capital gains is obliged to keep records of the same types of financial instruments with respect to the method of successive prices (FIFO). In the same way, records are to be kept by management companies and individuals in charge of financial instruments management on behalf of their clients on the basis of contractual relationship.

The implementation of the FIFO method assumes that a taxpayer, when purchasing certain financial instruments, is obliged to keep records of prices and quantities of acquired financial instruments based on the date of acquisition. In case of disposal of financial instruments the first registered price will be used as the relevant purchase price of the financial instruments until the complete quantity acquired at that price has been utilised.

Records are to be kept for identical financial instruments and have to contain the following details:

  • name, address and local tax ID (OIB) number of the taxpayer
  • name of the financial instrument or the portfolio with the name of the manager (management company)
  • date (according to time line) and manner of acquisition of the financial instruments
  • quantity
  • purchase price
  • date of disposal of the financial instruments
  • manner of disposal of the financial instruments
  • disposed quantity
  • selling price
  • realised yield
  • amount of capital gains/capital loss

An annual report has to be submitted by taxpayers who realised capital losses while disposing of financial instruments by 15 January of the year following the year when the capital loss was realised. In addition to the annual report, copies of the respective records are required to be submitted as well. 

Income from capital subject to capital gains and income tax, as well as the surtax on income tax which was paid in the tax period in the amount determined after taking into account any capital losses in that period, is to be disclosed in the annual income tax declaration.

The taxpayer is the final beneficial owner and it is its responsibility to calculate and execute the payment of the tax and report accordingly to the local Tax Administration. According to the currently applicable by-laws, the set deadline to accomplish that is 8 days. Reporting is to be done using the “JOPPD” form prescribed by local Tax Administration.

There is no capital gains tax or reporting obligation for financial assets acquired prior to 1 January 2016.

Investors are advised to contact local tax advisors or auditors, who will be able to provide them with further support in case of capital gains tax reporting.