Amendments to the Income Tax Act increase the withholding tax on dividends and shares in profit paid to domestic and foreign individuals from 10% to 12%. The same withholding tax rate will apply to capital gains for domestic and foreign individuals instead of currently applicable 10%.
As for the Profit Tax Act, the most significant change is the increase of the withholding tax from 20% to 25% applicable to all remunerations payable under the Article 31 of the Profit Tax Act (including dividend and interest) to legal entities resident in countries from the EU List of non-cooperative tax jurisdictions, not having a Double Taxation Treaty with Croatia. Interest payments arising from bonds remain to be tax exempt.
Additionally, Article 31f provides exemption from withholding tax on interest, royalties, dividends and shares in profit for related companies that are residents of the European Economic Area (Norway, Iceland and Lichtenstein) for tax purposes under the same conditions prescribed for related companies that are residents of a member state of the European Union for tax purposes. The Minister of Finance is expected to adapt the Profit Tax Act bylaw which should adjust the procedure for legal entities being resident in EEA countries to the already existing procedure applicable to the legal entities that are resident in EU member countries.
Withholding tax on dividend for foreign legal entities remains at the rate of 10%.
Amendments to The Income Tax Act and The Profit Tax Act will become effective on the Croatian market as of 1 January 2024.
Impact on investors: For information purposes.