Marija Zuber: Government Measures – Who is Exempt from Paying Contributions and Taxes

The conditions and procedures for exemption from mandatory contributions and certain types of taxes for entrepreneurs whose business is threatened due to the COVID-19 disease epidemic are prescribed by the Regulation on Amendments and Supplements to the Regulation on the Implementation of the General Tax Law, which has been in force since April 9, 2020.

There are two main groups of fiscal benefits: 1) exemption from the obligation of all contributions from wages and on wages for the amounts of paid net wages co-financed by the Croatian Employment Service, which are available to all users of cash support from the CES, and 2) exemption from the obligation of certain contributions and certain types of taxes for entrepreneurs whose income or receipts have decreased by 50 percent or more compared to the same period in 2019. The conditions and procedures for obtaining each of these exemptions are not identical. Some entrepreneurs will achieve exemptions based on both grounds, while others will only qualify for one.

Co-financed wages

For entrepreneurs who meet the conditions for exemptions based on both grounds, i.e., those who have received support from the CES and have a decrease in income/receipts of 50 percent or more, the exemption from contributions for co-financed net wages will first be recorded, and for the remaining fiscal obligations, the exemption will depend on the decrease in income/receipts. Entrepreneurs who have received cash support from the CES but do not meet the condition of a 50 percent decrease in income will only achieve exemption for co-financed net wages. Finally, those who have not received cash support from the CES but record a decrease in income at the required percentage have the right to exemption in the procedure before the Tax Administration.

The exemption from all contributions on co-financed net wages is carried out ex officio, based on data exchange between the CES and the Tax Administration. Entrepreneurs who use cash support aimed at preserving jobs are obliged to provide the CES with data on each worker to whom a wage has been paid from the funds received from the support, after which this data is linked to the liabilities shown in the JOPPD forms submitted by the employer to the Tax Administration. The exemption is automatically realized, up to the amount corresponding to the net wage paid from the support and is visible on the tax-accounting card of the entrepreneur. The employer is exempt from the obligation of all contributions, while the contribution for the second pillar is paid by the CES.

Condition of income decrease

The exemption from the obligation of certain contributions and certain types of taxes carried out by the Tax Administration is a separate right and is granted to entrepreneurs whose income/receipts have decreased by 50 percent or more from March 20 to June 20, 2020.

These entrepreneurs are divided into two groups: 1) those who had a turnover of up to 7.5 million kuna in 2019 and 2) those whose turnover in 2019 was greater than 7.5 million kuna. Entrepreneurs who had a turnover of up to 7.5 million kuna in 2019 and recorded a decrease in turnover of at least 50 percent compared to the same period in 2019 from March 20 to June 20 of this year are fully exempt from certain types of contributions and certain taxes.

Entrepreneurs with last year’s turnover greater than 7.5 million kuna, under the same conditions of income decrease, are proportionally exempt based on the decrease in income. If their income has decreased by 72 percent, they are entitled to an exemption of 72 percent of certain contributions and certain types of direct taxes due from April 1 to June 20, 2020.

Full or partial exemption is granted for all contributions from wages and on wages for which the obligation was due from April 1 to June 20 and for contributions from other income and on it, except for contributions for the second pension pillar. Thus, for net wages co-financed through the CES, the exemption is granted for all contributions, while for part of the wages paid above the amounts received from support and for wages not financed from CES support, it is granted for the pension contribution for the first pillar and for the contribution for mandatory health insurance. Entrepreneurs whose turnover last year was up to 7.5 million kuna will be fully exempt from the obligation of these contributions, while those whose turnover in 2019 was greater than 7.5 million kuna will be exempt proportionally to the decrease in income.

Direct taxes

The exemption from taxes is granted only for direct taxes, not for turnover taxes. The employer or payer will be exempt from the calculated tax from wages and from the tax on other income paid from April 1 to June 20, for advance payments of income tax from self-employment for which business records are kept and for advance payments of profit tax due from April 1 to June 20, 2020.

The exemption does not apply to income tax from lump-sum crafts, income tax on paid dividends and shares in profits, tax on interest, and on income tax from property and property rights. It does not apply to profit tax for 2019 as that obligation is due on July 31, 2020. Entrepreneurs who have applied for deferral of tax obligations have automatically applied for exemption as well. Those who did not request a deferral had to submit a request for recognition of the right to exemption to the Tax Administration by June 23.

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