Croatia Crypto Tax

The Government of Croatia works to make sure there is effective taxation that allows innovation to take place; at the same time, it provides revenues for improved public services and public investment. Although crypto businesses are still awaiting comprehensive and more specific guidance with regard to taxation, already they are considered liable taxpayers, and therefore standard rules of taxation Croatian and EU apply.

On the whole, Croatia is one of the most open countries to crypto adoption. This population embraces cryptocurrencies as a means of paying across various sectors: in hotels, museums, municipalities, gas stations, and online stores. Usually, lots of crypto-related activities are taxed based on how cryptocurrencies are sourced and what the legal status of the owner is.

The Tax Administration is the public authority that carries out, within the framework of its responsibilities, administrative and other activities aimed at enforcing tax regulations. The main responsibilities of the Tax Administration concern: maintaining the registers of taxes and issuing documents on facts maintained in official records, determining and collecting taxes and compulsory payments, conducting tax audits. Furthermore, within its field of activities, the authority enforces relevant EU directives and international rules.

Benefits of the Croatian Tax System

The Croatian tax system is replete with opportunities to optimize corporate taxation and build new and innovative businesses in a sustainable manner. Croatia signed around 70 international agreements, for example, on the elimination of double taxation, dealing with the question of the right to tax between two or more Contracting Countries. They allow the different businesses with international presence to shelter various types of income from double taxing in different countries. In addition, the treaties were also targeted at ensuring no cases of cross-border tax evasion.

Innovation investment supports are provided for, in accordance with the Act on Investment Promotion covering business support activities, high-value services, innovative projects and manufacturing and processing activities. A number of incentives and reliefs are available for innovative companies registered in Croatia.

If high-technology equipment is purchased, the non-repayable grant is available in the amount of 20% of the actual eligible expenses due to the purchase, but it shall not exceed 3,770,000 HRK (around 500,000 EUR). An additional grant, a type of employment grant, is available if a company creates new jobs in view of an innovative project.

In Croatia, there are numerous tax deductions that crypto businesses can avail themselves of. Generally speaking, the expenses related to a startup are considered to be expenses for Corporate Income Tax purposes in the financial year in which they are incurred, and this is when they have to be deducted. Interest expenses on loans between related companies can also be deducted up to the amount specified by the Ministry of Finance.

Corporate Income Tax

The standard rate of Corporate Income Tax is 18%. Croatian tax-resident companies are obliged to pay tax on profits sourced both in Croatia and abroad, while non-resident companies are taxed only with regard to the profit sourced in Croatia. The tax residents are those companies whose registered office is recorded in the Croatia’s register, or whose place of effective management and control of business is in Croatia.

Income earned with cryptocurrencies is considered subject to Corporate Income Tax, as the difference between the crypto sale price of the company and the purchase price represents income sourced in the sale of cryptocurrencies. In a case where annual revenue of crypto companies does not exceed 7,5 mln. HRK (around 995,421 EUR), then the lower 10% rate applies because it falls under the classification of a small business.

When cryptocurrencies are gained as a result of crypto mining, they’re considered taxable income. Profits made from crypto trading activities using fiat money on crypto exchange platforms are also taxed. The basis for taxation is calculated as the difference between the sale value and purchase value.

Most of the other crypto-related services are taxed under general legislation. As such, for example, the provision of marketing or promotion services to crypto exchanges will fall under Corporate Income Tax. Servicing crypto mining hardware will also be subject to Corporate Income Tax. Holding cryptocurrencies as financial assets does not constitute a taxable event, nor does exchanging cryptocurrencies for any other type of cryptocurrencies.

Capital Gains Tax

Corporate capital gains are taxed at the standard corporate income tax rate; for individuals, the standard Capital Gains Tax rate is 10%, levied on capital gains, interest, and dividends. The taxable amount shall be determined by deducting associated transaction costs, fees, and capital loss from a capital gain realized in the previous year. Taxes are not applicable when the capital gains on a cryptoasset are realized from a sale, provided that the cryptoasset is held for two consecutive years.

Value-Added Tax

The regular VAT rate in Croatia is 25% and is applied to the majority of goods and services sold in Croatia. All respective VAT regulations comply with the requirements of the VAT Directive of the EU. Whereas not every crypto-related activity will result in charging Value-Added Tax, generally, crypto companies are obliged to register as a VAT payer with the Tax Administration.

No VAT threshold registration applies to overseas investors, except where companies conduct distance selling activities. E-commerce organizations selling goods and services to customers with a place of residence in Croatia will be obliged to register as an extractor of the VAT obligation in Croatia when its annual revenues reach 270,000 HRK (approx. EUR 36,000).

This is in line with the ruling of the CJEU and Article 135(1)(e) of the VAT Directive. Quite simply, Croatia does not charge any VAT on cryptocurrencies because they constitute legal means of payment for VAT purposes. In 2015, the CJEU classified cryptocurrencies as equal to banknotes and coins that constitute legal tender.

Other relevant rules cover the following activities:

Withholding Tax

In Croatia, the Withholding Tax rate is 10%, but it may be reduced or exempt on the basis of an applicable double taxation agreement or the EU law that provides for a lower rate or exemption. Certain requirements in a list have to be met for a company to be able to avail itself of the agreements.

These dividends and other distributions of profits to an EU parent company holding a minimum of 10% of the capital of the distributing company for a continuous period of two years are exempt from the Withholding Tax. Where the two-year requirement is not fulfilled, an exemption can be invoked provided that a bank issues a guarantee for the due tax in case the two-year requirement is ultimately not complied with.

The basic tax rate of dividends paid to the resident of a country, which is considered a non-cooperative jurisdiction based on the list compiled for tax purposes by the EU, stands at 20%. This shall not apply in a case when a non-cooperative jurisdiction has entered into a tax agreement with Croatia.

Payroll Taxes

Like every other employer, crypto companies are equally bound by law to withhold a portion of their employees’ salaries in order to take care of Personal Income Tax and Social Security Contributions. When such benefits are paid in cryptocurrencies through any employer and the actual payment complies with the Personal Income Tax Act, such are benefits in kind, and the respective taxes are due, calculated for this type of payment according to the market price of the paid cryptocurrencies at the date of transfer.

Personal Income Tax rates in Croatia are the following:

• Up to 360,00 HRK approx. 47,780 EUR per year – 20%
• Over 360,00 HRK approx. 47,780 EUR per year – 30%

The Croatian social security system covers retirement pension, health and unemployment insurance, insurance against work accidents, and paternal leave. The employers are compelled to pay 16.5% of gross salaries of their employees in the health insurance fund. In any case, for companies employing without interruption staff with no professional experience or under the age of 30, such health insurance contributions could be exempt for 1–5 years.

Chamber of Commerce Contributions

Employers are obliged to pay monthly membership fees to the Croatian Chamber of Commerce, depending on the size of their company. To that end, companies are divided into three categories in respect to the value of assets, total income, and the size of the company. The first category is no longer obliged to pay the contribution, except if they opt to do so in exchange for certain benefits. Those are companies that do not exceed 1 mill. EUR in total assets, 2 mill. EUR in total revenue, and have less than 50 permanent employees. Firms of other categories continue paying contributions that can amount to several hundred euros.

How to pay taxes on crypto in Croatia in 2024?

In 2024, the taxation of cryptocurrency-derived incomes remains in the focus of investors’ and tax authorities’ attention as they try to adapt to the new realities of the digital economy. On the other hand, as cryptocurrencies gain popularity ever faster in Croatia, the public administration has been working on a set of rules with a view to ensuring greater transparency and more equity in the taxation of such incomes. The present article will elaborate in essential detail how one should correctly pay tax on cryptocurrency income in Croatia in 2024, drawing on local legislation and guidance.

Basic principles of cryptocurrency taxation in Croatia

Under Croatian law, cryptocurrencies represent “other means of payment” for the purposes of taxation. The use thereof may or may not be subject to income tax, depending on their nature-considering capital gains or incomes derived from mining, for example.

How to pay tax on income from cryptocurrencies

Recommendations

• If the taxation of cryptocurrencies is complex and continuously changing, seek the help of at least professionals who are certified tax professionals or auditors that have a specialty in cryptocurrencies.
• Account Automation: With the use of cryptocurrency accounting software, this can be much easier in gathering and storing transaction information that may need to be reported for taxes.

Conclusion

In this respect, taxation of income from cryptocurrencies in Croatia within 2024 has to be treated with great care regarding documentation and tax calculation. Knowing the basic principles and requirements, as well as preparation for possible audits from the tax authorities, will help avoid mistakes and penalties. Considering the great speed in developing this market and taking into consideration potential changes in legislation, it’s an important thing to be informed day after day about new news and suggestions in respect to taxation in Croatia.

Table with the main tax rates in Croatia

If you’re looking to optimise your corporate and personal taxes and contributions in Croatia, our team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support in structuring your taxes in accordance with Croatian and international regulations. We also offer Croatian crypto company formation, crypto licensing, and financial accounting services. Contact us now to schedule a personalised consultation.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.