To Avoid the Use of Identification Number Penalty up to 10,000 Kuna

In legal transactions and in record databases, previously assigned numerical designations for legal and natural persons and new identification numbers will function for at least two years. Personal identification numbers will first be assigned to newborn children and newly established companies.

Written by: mr. sc. Marija Zuber, advisor-editor at the magazine Accounting and Finance
[email protected]

As of January 1, 2009, the Tax Administration will begin implementing a comprehensive and demanding task of assigning personal identification numbers to all Croatian citizens and legal entities based in Croatia. Personal identification numbers will also be assigned to foreign natural and legal persons, as well as their branches and other organizational parts, if there is a reason for their monitoring in Croatia. This extensive and technically demanding task should be completed within two years, i.e., by December 31, 2010.

The Minister of Finance was obliged to adopt a special regulation within four months from the date of entry into force of the Law on Personal Identification Number, which would more specifically regulate the procedure for assigning the personal number, delivery of notifications about the assigned number, the content of requests for persons who have a legal interest in being assigned a personal number before it is done ex officio, and other issues. Although the regulation had not been published in the official gazette by early December 2008, the content of the Law indicates the procedures and rules that the Tax Administration will follow when assigning the personal identification number.

The personal identification number is a personal numerical designation of a legal or natural person that will be used in official records and in the exchange of data between business entities, state bodies, and other institutions. It consists of eleven digits and one control digit, i.e., a total of twelve digits. Ten of the total twelve digits are formed by a system of random numbers and have no connection to the characteristics of the subject to whom they are assigned. When the personal identification number is used for the purposes of international data exchange, it will have the letter designation HR along with the twelve mandatory digits. For natural persons, the personal identification number will replace the current citizen identification number, which has 13 digits and is assigned by the Ministry of the Interior. For legal persons and other business entities, the personal identification number will replace the use of the statistical number of seven or eight digits assigned to business entities by the State Bureau of Statistics.

Transitional period of two years.

The assignment of numbers will be organized successively. The work will be carried out in stages, so that in legal transactions and in record databases, previously assigned statistical or numerical designations for legal and natural persons and new identification numbers will function for at least two years. Personal identification numbers will first be assigned to newborn children and newly established legal entities. Only then will personal identification numbers be assigned to persons who already have a certain MBG or legal entities established by the end of 2008.

Natural and legal persons are not obliged to submit a request for the assignment of a personal number. The Tax Administration will carry out this task ex officio, using the data available to it in various record databases. For example, for Croatian citizens registered in birth records, numbers will be assigned based on data from birth registries. For persons who are Croatian citizens but were not born in Croatia and are not registered in birth records, numbers will be assigned from the citizenship database.

Personal identification numbers will be assigned to trading companies, institutions, and cooperatives based on data from the commercial court register. For associations and other non-profit legal entities, data from the registries maintained by the competent county offices or relevant ministries will be used. Given that the registration of each legal entity in Croatia is linked to the obligation to register in the appropriate register or registry with the competent judicial or state body, there is a database for each business entity from which the Tax Administration will draw the necessary data for assigning the personal identification number.

The Tax Administration will enter the assigned identification number in the official confirmation of the personal number. The person to whom the number is assigned should receive the confirmation by mail at the address where they are registered in the official records. If they do not receive the appropriate confirmation by the end of the deadline set for the assignment of personal numbers, the person will request the assignment of a personal number from the Ministry of Finance using a request form that will be prescribed by a special regulation.
Confirmation of the personal identification number is a public document and serves as the basis for entering the personal number in all official records where data about a person is kept for various purposes. If an oversight, error, or mistake occurs, and the same person is assigned two numbers, the later assigned number must be canceled. The Tax Administration will issue a decision on the cancellation of the second assigned personal number, and the legal or natural person will have to return the confirmation that was subsequently declared invalid.

To foreigners who pay taxes.

Personal identification numbers will also be assigned to foreign natural and legal persons for whom there is any legal reason for their registration and monitoring in Croatia. For example, personal numbers will be assigned to foreigners who are granted permanent residence in Croatia, foreigners who are issued work permits, foreigners who have property in Croatia from which they may earn taxable income, thus becoming taxpayers for that income. Foreign legal entities operating in Croatia, either through branches or in another legal form, will also receive personal numbers. Foreign legal and natural persons working in Croatia are currently assigned a system number that serves to record their tax obligations, and after January 1, 2009, the system number for foreigners will be replaced by the personal identification number.

The Tax Administration, as part of the Ministry of Finance, is authorized to establish and maintain a record of all assigned personal identification numbers. In addition to the number, this record will contain personal data about the citizen or business entity necessary for their identification, such as name and surname or the name of the legal entity. In principle, the personal identification number is not a secret number. If there is a legal interest, any person can gain access to data about the identification number. However, the provisions on the protection of personal data must be respected, as regulated by a special law.

Use of the identification number.

The new personal number will be used on all official papers that are the basis for exercising and using certain rights before the competent state and other official institutions. The personal number will be entered on all applications and submissions in mutual communication of users. For example, the personal identification number of employees and their family members will be entered in the tax card to determine the right to tax relief when taxing income tax, as well as in the records of pension and health insurance holders. The personal number will also be used when registering ownership in all public registries where data about ownership of real estate and movable property is kept. It will be used in electronic business and in payment transactions. It will be indicated on payment orders for mandatory public contributions.

Neglecting the obligation to use the assigned identification number, failing to connect data kept in official records with the personal number of the legal or natural person for whom the data is kept, as well as avoiding the use of the personal number in the daily work of business entities or in data exchange, is punishable by a fine ranging from 1,000 to 10,000 kuna per offense. The same amount is provided as a penalty for the responsible person in the legal entity.

Of course, the use of the personal identification number does not exclude the obligation of business entities to continue fulfilling the obligations imposed by other regulations that govern the mandatory content of business papers and other business documentation. Thus, trading companies will continue to indicate all data required by the Companies Act on business papers. Legal entities that keep business books according to the Accounting Act must continue to pay attention to the prescribed content of a reliable document as a valid document for entering data into business books, as determined by accounting regulations.

Realistically about the assessment of effects.

A lot is expected from the personal identification number. It is announced that the new way of marking citizens and business entities will contribute to reducing tax evasion and combating corruption. It will also be used for international data exchange, so in a way, the personal identification number is perceived as a prerequisite for establishing order in the legal and financial system of Croatia. All these expectations are justified and desirable. However, one must be realistic and not overlook the fact that it is still just a new way of numerically designating legal and natural persons. This new way of marking will incur new costs for the tax administration, which must assign about five million personal identification numbers within two years.

It is difficult to overlook the justified question of whether the tax administration, alongside this extensive and demanding task, will have enough capacity to perform regular tax supervision tasks. The time and money spent by taxpayers should not be limited only to reducing abuses in the tax and financial system, although that is undoubtedly an important goal. The introduction of the personal identification number should result in coordinated, interconnected actions of various state offices, bodies, and institutions of state and local authorities, in order to accelerate and simplify the procedures and processes that citizens and legal entities undertake in their daily lives and business.