07/2014 Tax news. Proposal for changes and amendments to the General Tax Act. Other

Transcription

1 07/2014 Tax news Amendments to the VAT Act Amendments to Personal Income Tax Amendments to the Croatian Corporate Income Tax Act Changes to the Bylaw on the special tax on motor vehicles Proposal for changes and amendments to the General Tax Act Other

2 Amendments to the VAT Act (passed by the Croatian Parliament on 25 November 2014) Application of the reverse charge mechanism to supplies by taxable persons not established in Croatia Opposite to the first draft of proposed changes to the VAT Act, which were covered in our recent tax news, provision regarding the application of the reverse charge mechanism to supplies by taxable persons not established in Croatia (article 75, paragraph 2) will not be changed. Therefore, if foreign company sells goods or services to a Croatian company, the Croatian company has to charge the VAT (reverse charge). Expanded application of reduced VAT rate on drugs Based on the provisions of the current VAT Act, reduced VAT rate of 5% applies only to prescription drugs which are on the list published by the Croatian Health Insurance Fund. Based on amendments, as of 1 January 2015, reduced rate of 5% will apply to all prescription drugs. Other important changes to the VAT Act which were covered in our recent tax news (06/2014): Special scheme for tour operators Third party s joint and several liability of payment of unpaid VAT Possibility of suspension of the VAT identification number Extended application of the cash accounting scheme Change of place of supply rules for B2C electronic, telecommunication and broadcasting services Abolishment of the requirement of filing annual VAT return Reporting of domestic supplies subject to reverse charge new VAT report (Form PPO) VAT treatment of sale of real estate from 1 January 2015 VAT exemption for supply of goods and services under diplomatic and consular arrangements 2 EY Tax news - Croatia 07/2014

3 Amendments to Personal Income Tax (passed by the Croatian Parliament on 25 November 2014) New tax brackets The Parliament has adopted amendments to the Personal Income Tax Act to reduce the tax burden on employment income (salaries) from 1 January In that respect, the basic personal allowance will increase from HRK 2,200 to HRK 2,600. Also the top rate of 40% is to be applied to taxable income of HRK 13,200 (currently it is applied to taxable income of HRK 8,800). For a single individual residing in Zagreb, this will increase their net salary for approximately HRK 50 to HRK 1,000 (depending on their gross salary). Sample calculations are below: Introducing tax on interest As of 2015, interest income arising from bank savings, securities, investment funds and loans (based on current rules, only interest from loans was subject to tax) will be taxable. The tax rate will be 12% (increased by any applicable city tax), unless it is included in the annual tax return in which case it may be taxed at annual tax rates and brackets (12%, 25%, 40%). Introducing tax on capital gains As of 2016, capital gains arising from financial assets disposed of by the individual (realized capital gains) within 3 years of acquisition will be taxable. Capital losses will be utilized only against capital gains incurred in the same year. The tax rate will be 12% (increased by any applicable city tax). The individual taxpayer will be obliged to maintain records on financial assets as well as to report taxable income within 8 days of realization. Taxation of dividends As of 2015, tax deduction for nontaxable dividend of HRK 12,000 will be cancelled (the deduction was allowed via annual tax return). Thus the dividend will remain taxable at 12% (increased by any applicable city tax) unless it is included in the annual tax return in which case it may be taxed at annual tax rates and brackets (12%, 25%, and 40%). Additionally, the adopted amendments to the Personal Tax Act include reference to the Constitutional Court ruling from June 2014 saying that dividends paid out from profits earned in the period 2005 to end of February 2012 should not be subject to tax, regardless of the payout date or the date when the decision to distribute dividends was made. CURRENT TAX BRACKETS Gross taxable income (Gross 1) HRK 5.000, , , , , , , , ,00 Pension contributions 1.000, , , , , , , , ,20 Tax liability HRK 254,88 783, , , , , , , ,74 Net taxable income HRK 3.745, , , , , , , , ,06 Employer's contributions HRK 860, , , , , , , , ,00 Total salary cost (Gross 2) HRK 5.860, , , , , , , , ,00 NEW TAX BRACKETS Gross taxable income (Gross 1) HRK 5.000, , , , , , , , ,00 Pension contributions 1.000, , , , , , , , ,20 Tax liability HRK 198,24 665, , , , , , , ,14 Net taxable income HRK 3.801, , , , , , , , ,66 Employer's contributions HRK 860, , , , , , , , ,00 Total salary cost (Gross 2) HRK 5.860, , , , , , , , ,00 DIFFERENCE IN NET SALARY HRK 56,64 118,00 118,00 118,00 295,00 649,00 967,60 967,60 967,60 % of increase in net salary 1,51% 2,26% 1,78% 1,47% 3,18% 6,29% 8,50% 6,20% 3,98% 3 EY Tax news - Croatia 07/2014

4 Taxation of unreported income As of 2015, unreported income will be taxed at 40% (increased by any applicable city tax). As a part of the continuous efforts to capture non-compliers, the Tax Authorities are comparing taxpayer s assets with incomes, and in case of discrepancies, they may assess additional deemed taxable income to the individual if the incomes prove to be insufficient for the acquired assets. So far such income would be allocated as additional income to individual s specific circumstances (e.g. employment income, self-employment income, etc.). Based on the adopted changes, such income will be considered as other income subject to 40% tax rate. New rules for annual tax return filing For annual tax returns for 2015 (filing in 2016) and going forward, special procedure will be introduced for annual tax return filing which assumes that in many cases the individual taxpayers will no longer be required to file the annual tax return; instead, the Tax Authorities will assess their annual tax liabilities based on available data and issue a tax assessment by the end of June of the following year. The taxpayer will be allowed to appeal against such tax assessment by the end of July. The special procedure will not be applied to certain categories of taxpayers such as: self-employed taxpayers or cases where the Tax Authorities do not hold (nor they are responsible to hold) data on individual s incomes and taxes. Katarina Dijan Executive Director Vladimir Nol Petra Megla Read this QR code to access our current and past Tax newsletters: Personal tax and social security advisory Advisory in the area of employee cross-border arrangements and support in preparation of tax returns for Croatian individuals working abroad and foreigners on assignment to Croatia Immigration services 4 EY Tax news - Croatia 07/2014

5 Amendments to the Croatian Corporate Income Tax Act (passed by the Croatian Parliament on 25 November 2014) Maša Šarić Executive Director Decrease of tax base for income from dividends and shares in profit Further to the proposed amendments to the Croatian Corporate Income Tax Act ( CIT Act ) that we commented on recently, the amendments to the CIT Act which passed the Parliament procedure clarify that the taxpayer may still decrease the tax base for income from dividends and shares in profit received from third country companies and EU companies assuming certain conditions prescribed by the CIT Act are fulfilled. Confirmation if the conditions related to the type of tax paid and legal form of the company paying the dividend for EU member state residents is prescribed by the CIT Bylaw. Tax incentive for reinvested profits Conditions for obtaining tax incentives for reinvested profit prescribed by the proposed amendment to the CIT Act that we commented on recently were accepted by the Croatian Parliament. The amendment to the CIT Act which passed the Parliament procedure differentiate from the initially proposed amendments in a way that it clarifies that the non-current assets may be purchased from third parties and from related parties under the condition that prices are at market conditions. Value adjustment of non-current asset New provision is introduced in the CIT Act prescribing value adjustment of non-current asset which is currently prescribed only by the CIT Bylaw. The rule remains unchanged, i.e. value adjustment of non-current asset is tax deductible expense up to the amount of annual depreciation for specific groups of non-current assets prescribed by the CIT Act. WHT on dividends In order to align the CIT Act with the Amendment to the Personal Income Tax Act, clarification is being introduced in a way that dividends and share in profit distributed to foreign companies from the profit earned up to 29 February 2012 are exempt from withholding tax. Other amendments Taxpayers who chose to have a tax year different from the calendar year should keep their status unchanged for at least 3 years (currently 5 years). Marta Glasnović Senior Marko Starčević Tax advisory services Tax advisory and tax health checks corporate income tax, VAT and other indirect taxes VAT mapping Tax optimization reviews Tax due diligence and tax structuring services Tax controversy Assistance in communication with Tax Authority during tax audits Assistance in administrative procedures (preparation of Objections and Appeals) and administrative court proceedings (preparation of Law Suits to the Administrative Court) Transfer pricing services Preparation/review of transfer pricing documentation Design of transfer pricing models 5 EY Tax news - Croatia 07/2014

6 Changes to the Bylaw on the special tax on motor vehicles (in application from 1 October 2014) Sanja Stojić Senior Changes prescribe additional requirements related to classification of vehicles which are exempt from special tax on motor vehicles and for which deduction of input tax is possible. Furthermore, changes made to the Bylaw explain the practices of Customs Authorities when the manufacturer/ dealer files a bianco debenture as an insurance instrument, and the Customs Authorities determine that the manufacturer/dealer is late with special tax payments. Accounting compliance services Bookkeeping Preparation of financial statements Support to annual closing and preparation of financial statements Support in performance of various accounting tasks Proposal for changes and amendments to the General Tax Act Below we outline the most significant proposed changes and amendments to the General Tax Act ( GTA ). The proposed changes and amendments have not yet been put into Parliament procedure. Binding opinions According to the proposed changes, the tax body would be authorized, on the taxpayer s request, to provide binding opinion with respect to tax treatment of future and intended transactions and business activities of the taxpayer. The expenses for issuing the opinion will be entirely borne by the taxpayer. Correction of the tax returns The proposal relating to articles prescribing the corrections of the tax returns is that in exception to the current deadline of 12 months, the tax return may be corrected due to application of the EU regulations, but at latest by the statute of limitation periods prescribed by the GTA. Also, a new provision has been proposed with respect to correction of the tax return, i.e. the taxpayer is obliged to correct the tax return within 15 days in case of executable decision is reached based on the tax audit, court decision or other authority decision. Administrative contract and administrative settlement The current legislation prescribes the possibility of signing administrative contract or administrative settlement for execution of the tax resolution. The proposed amendments to the legislation would introduce the conditions for signing the administrative contract or settlement, the content of the administrative contract or settlement and content, conditions and location for submission of the application for signing the administrative contract or settlement between the taxpayer and the tax body. Tax compliance services Preparation or review of corporate income tax, VAT and other tax returns Preparation or review of tax provision and calculation of deferred taxes Payroll services Local employment Local employment with EU based entities 6 EY Tax news - Croatia 07/2014

7 Other changes and amendments The definition of the profits of the permanent establishment is being extended in way that it states that the profit that can be earned in transactions with other parts of the company, as if they were separate and independent parts conducting same or similar business activities under same or similar conditions by taking into account functions performed, assets used and risks undertaken, is being attributed to that permanent establishment. An additional obligation for submission of reports to the tax body in relation to facts relevant for taxation is being prescribed. A new provision regarding the statute of limitations is being introduced stating that objection for statute of limitation for determination of the tax liability can be asserted until the first level resolution which determines the tax liability becomes effective. The provision regulating the subject of the tax audit is being extended in way that the subject of the tax audit, beside one or more taxes, can also include all facts relevant for taxation, accounting documents and evidences, business activities and other information and other evidences and documents relevant for taxation. Additionally, provisions regulating enforcement procedure and penalties for tax offences are being extended as well. 7 EY Tax news - Croatia 07/2014

8 OTHER Recent activities of the Tax Authorities tax audits The Tax Authorities have started performing industry specialized tax audits. In October 2014, taxpayers providing taxi services and services of maintenance and repairment of motor vehicles were subject to such audits. Most irregularities identified relate to non-issuing of the invoices and noncompliance with the fiscalization rules. In November 2014, the bakery businesses are subject to such audits. Furthermore, according to the announcement, as of 1 January 2015 the Tax Authorities should start performing horizontal monitoring. It is still unclear how those will be conducted. In other EU countries, such procedures are performed on a voluntary basis, in cooperation with taxpayers. Therefore, the Tax Authorities act more as advisor what means that they give suggestions to taxpayers on appropriate tax treatments of their transactions. The purpose is improvement of cooperation between the Tax Authorities and taxpayers as well as the improvement of the efficiency of tax collection, rather than imposing penalties. Notice of Tax Authorities is on amendments in the taxation of telecommunications services, radio and television broadcasting and electronic services The Tax Authorities have issued notice on amendments to the VAT Act (applicable as of 1 January 2015) relating to the place of supply of electronic, telecommunication, TV and radio broadcasting services provided to consumers (non-taxable persons). As already mentioned in previous publications of tax news, the place of supply of the above stated services will be where recipient is established or permanently or usually resides. Notice can be found at the following web page: PdviEu/Documents/Obavijest%20 o%20izmjenama%20na%20 podru%c4%8dju%20pdv-a%20 ( ).pdf Intrastat thresholds for 2015 The Intrastat reporting threshold applicable for arrivals in 2015 will be HRK 1.8 million (approximately EUR 235,000) while the threshold for dispatches in 2015 will be set at HRK 1 million (approximately EUR 130,000). Read this QR code to access our current and past Tax newsletters: 8 EY Tax news - Croatia 07/2014

9 Contacts EY Assurance Tax Transactions Advisory Dénes Szabó Partner Tax Services Tel: +385 (1) Katarina Dijan Executive Director Human Capital Services Tel: +385 (1) Marta Glasnović Senior Business Tax Advisory Tel: +385 (1) Maša Šarić Executive Director Business Tax Advisory Tel: +385 (1) Sanja Stojić Senior Global Compliance and Reporting Tel: +385 (1) About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Vladimir Nol Human Capital Services Tel: +385 (1) vladimir.nol@hr.ey.com Petra Megla Human Capital Services Tel: +385 (1) petra.megla@hr.ey.com Marko Starčević Business Tax Advisory Tel: +385 (1) marko.starcevic@hr.ey.com Ernst & Young Advisory LLC Radnička cesta 50, Zagreb, Croatia Tel: Fax: Ernst & Young Advisory LLC All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/hr 9 EY Tax news - Croatia 07/2014