Croatia: Digital taxation and digital transformation

Since efforts by the European Union to introduce a digital tax failed, individual Member States have started taking responsibility for taking the taxation of digital services to the next level, by proposing a tax on large internet and technology companies at national level. There are no official statements or announcements from the Croatian Ministry of Finance with regard to introducing a digital tax on advertising or similar digital services. One might argue that the cost of introducing a digital tax is greater than the benefit that might be gained from it when it comes to a small economy, such as Croatia. Due to the dramatic growth of the digital economy, national authorities hope that these tax challenges will be internationally coordinated.

Increased pace of digitalisation in Croatia

The Croatian tax authorities have stepped up their digitalisation efforts since 2013, in order to make communication with taxpayers more effective and transparent. The digital transformation in Croatia also included making changes to the way taxpayers communicate with the tax authorities. Tax returns must be submitted electronically by taxpayers online using an application called ePorezna (eTaxation). Information on taxable income earned in Croatia or abroad by natural persons, private entrepreneurs or sole proprietors can be reported to the tax authorities electronically. The tax authorities are able to
communicate with legal or natural person taxpayers electronically, and starting from 2018 they are able to deliver tax resolutions or certain tax confirmations electronically upon request. Croatian taxpayers are able to access data electronically to check if they have any outstanding tax liabilities or have prepaid tax amounts.

E-invoicing

With regard to the objectives pursued by the strategy of the European Commission to create a Digital Single Market, the Croatian Ministry of Economy, Entrepreneurship and Crafts prescribed using electronically issued invoices (e-invoices) as the only way of invoicing for public procurement purposes, starting from 1 July 2019. Issuing paper invoices in public procurement processes is not permitted in line with European norms. Their efforts have been recognised by the European Union and mentioned as a positive example for other Member States.

Taxation of e-services

According to the Croatian VAT Act, the services listed below are considered electronically supplied services:

• supply of websites, hosting of websites
• remote maintenance of programs and equipment, supply of computer software
• supply of music, films and games, broadcasting of political, cultural, sporting, scientific and entertainment programs and events, and distance or remote learning

General rules on the reverse charge mechanism are applicable when services are provided by a Croatian entity to a foreign entity.

MOSS scheme for B2C supplies

When e-services are provided to a nontaxable person (B2C supplies), the place of supply is considered to be the place where that person is resident.

When a taxable person supplying e-services to non-taxable persons in Croatia exceeds the threshold of HRK 77,000 (roughly EUR 10,400), from that point onwards foreign taxable persons must register for VAT in Croatia, and calculate and pay VAT at the rate of 25%. Alternatively, if this person applies the optional Mini One Stop Shop (MOSS) scheme, and accounts for VAT in a single country, they do not need to register for VAT in Croatia.