This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
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Chapter 11. Croatia
Abstract
11.1. Overview
Croatia has approximately 1.5 million hectares of agricultural land and the sector is characterised by small scale family run farms.
The tax structure in Croatia includes both direct taxation through income taxes and corporation taxes, and indirect taxation through value added tax. In addition, there are excise duties, taxes on property and customs duties. Taxes are levied by federal, county and city or municipal levels and in some instances jointly.
There is a special provision in the personal income taxation system for the agriculture and forestry sector whereby low-income farmers are either exempt from paying income tax altogether or they are able to calculate the tax on the basis of a flat rate. Low-income farmers are not obligated to register for VAT. The purpose for this exception is to decrease the administrative burden for small producers and to facilitate the production and selling of domestic agricultural products. Farmers (and fishers) are exempt from excise duties on blue diesel fuel which significantly reduces their costs of production.
11.2. Income taxation
For personal income tax the taxpayer in the income tax system is a natural person who realises income, who inherited tax liabilities arising from the income of a deceased relative and who receives income from inherited sources of income.
Income tax is calculated and paid for the calendar year (the tax period). The tax rates are 24% for annual income of up to HRK 360 000 (since 1 January 2019) and 36% for income above that threshold. Taxpayers have a right to deduct a personal allowance of HRK 3 800. For final income (income from property, capital, insurance, refunds from social security contributions etc.), the tax rates are 12%, 24% and 36% depending on the source of income, without any personal allowance deductions.
Income from self-employment in agriculture and forestry is subject to the general tax rates. However, farmers’ income is taxed only if at least one of the following conditions is met:
In the previous calendar year, their total annual receipts agriculture and forestry activities exceeded HRK 80 500.
They are selling processed agricultural products (e.g. wine produced from grapes).
They are VAT registered.
They are choosing to pay taxes.
Further, a self-employed farmer may deduct from the tax base any employment incentives, state aid for education and training, and incentives for research and development. Farmers (and all other taxpayers) from regions with difficult economic conditions can also benefit from tax reliefs (50% exemption in Group I areas and 100% exemption from personal income taxes for taxpayers from the Vukovar region).
Income from agriculture and forestry activities may be taxed on a flat rate basis if in the previous calendar year, the total annual income did not exceed HRK 300 000 and the farmer is not obliged to pay VAT.
Surtaxes on personal income tax can be levied by local government on residents, including farmers. Tax rates of up to the following amounts can be charged by the different levels of local government:
10% for municipalities.
12% for a city with up to 30 000 inhabitants.
15% for a city with more than 30 000 inhabitants.
18% for the City of Zagreb.
Profits are taxed at 12% for income up to HRK 3 million and 18% for income above this level. A farmer who conducts business through a company or who carries out agricultural activities through crafts (or equivalent activities) may be subject to profit tax.
Profit tax applies if the farmer voluntarily chooses to pay this instead of income tax, or if farmer’s total receipts in the previous tax period were above HRK 3 million, or if two of the following conditions were met by the farmer:
In the previous taxation period their income was above HRK 400 000.
They own fixed assets worth more than HRK 2 million.
In the previous taxation period, they employed more than 15 employees.
Farmers subject to profit tax and who carry out activities in the assisted areas (Group I areas or the City of Vukovar), benefit from lower tax rates. The amount of tax relief granted is consistent with the general EU rules on state aid.
11.3. Property taxation
The real estate transfer tax shall be paid by the purchaser of real estate when no value added tax (VAT) is paid on such transfer. In 2019 the transfer tax rate of 3% is multiplied by the tax base, which is the market value of the real estate. There are no specific provisions for farmers.
Inheritance and gift tax of 4% is charged on cash, money claims and securities, as well as movables if the market value of the movable property exceeds HRK 50 000. The taxpayer is a natural or legal person inheriting, receiving a gift or obtaining the property. There are no special provisions for farmers.
11.4. Tax on goods and services
Value added tax (VAT) rates in Croatia are the following: 25% (the standard rate); 13% (applies to seedlings and seeds, fertilisers, pesticides and other agrochemicals, animal feed (other than pet food), fresh or chilled meat, fresh or chilled sausages or similar meat products, live, fresh or chilled fish, molluscs or other aquatic invertebrates, fresh or chilled crustaceans); or 5% (applies to basic foodstuff i.e. bread and milk).
A farmer must be registered for VAT if:
Their total annual taxable income in the previous or current calendar year exceeds HRK 300 000.
They voluntarily opt into the VAT system (for instance because of expected higher volume of production, planned investments or the planned submission of a request for financing from EU funds).
A number of taxes are implemented in Croatia, such as the special motor vehicle tax, excise duty on electricity, excise duty on natural gas, excise duty on solid fuels.
Tax exemptions for so-called “blue diesel” fuel are in place for farmers. No excise duty (which otherwise amounts to HRK 3 060 per 1 000 litres) is charged on this fuel, which can only be used in agriculture, fisheries and aquaculture.
11.5. Environmental taxes
A number of environmental taxes and charges exist such as charges for environment pollutants, charges for the environmental impact of waste and a special environmental charge for motor vehicles. None of the environmental taxes are specific to the agricultural sector. Agricultural policy measures, including through payments, are used to incentivise the positive environmental impact of agriculture.
According to the European Commission, Croatia’s revenues from environmentally-related taxes reached 3.86% of GDP in 2014. This was higher than the EU average of 2.46% and in this respect amongst EU Member States, Croatia is second only to Slovenia.
11.6. Tax incentives for R&D and innovation
Prior to the accession to the European Union, Croatia implemented state aid in the form of tax deductions for research and development projects. This tax relief was provided until the end of 2014, when it was terminated as a result of commitments undertaken during the accession negotiations.
In mid-2018, Croatia introduced the Law on State Aid for Research and Development Projects containing new tax incentives for R&D projects. The law includes the following deductions:
200% for fundamental research costs.
150% for industrial research costs.
125% for experimental development costs.
150% for feasibility study costs.
11.7. Other taxes
If farming is their sole or main occupation a farmer is obligated to pay contributions for compulsory insurance. These contributions are for pension and health insurance. This obligation also holds if the farming activity is carried out by a farmer employed elsewhere.
If the farmer employs workers, the farmer is obliged to calculate and pay contributions for retirement insurance from workers’ salaries. As an employer, farmers are responsible for contributing to the employee’s compulsory insurance.