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Croatia: Determining the interest rate on related-party loans

Croatia: Interest rate on related-party loans

Concerning the interest rate on loans between related parties for purposes of the corporate profit tax, the arm’s length interest rate is 4.55% per annum, effective 1 January 2018. Alternatively, the arm’s length interest rate on loans between related parties can be based on an interest rate determined by applying one of the transfer pricing methods.

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Accordingly, for corporate profit tax purposes, as of 1 January 2018:

  • The maximum tax deductible interest rate on loans received by a taxpayer from a foreign related party decreased from 4.97% per annum to 4.55% per annum 
  • The minimum taxable interest rate on loans provided by a taxpayer to a foreign related party also decreased from 4.97% per annum to 4.55% per annum

These rules also apply to loans between two Croatian taxpayers if one of the taxpayers is in a corporate profit tax “favourable position.”

All taxpayers that receive loans from or provide loans to related parties therefore need to consider the conditions of their loan arrangements and, if warranted, take certain steps.

Background

For corporate profit tax purposes in Croatia: 

  • For the period from 1 July 2011 to 30 October 2015, the applicable arm’s length interest rate on loans between related parties was 7% per annum. 
  • For the period from 31 October 2015 to 31 December 2015, the applicable arm’s length interest rate on loans between related parties was 3% per annum.
  • For the 2016 year, the applicable arm’s length interest rate on loans between related parties was 5.14% per annum. 
  • For the 2017 year, the applicable arm’s length interest rate on loans between related parties was 4.97% per annum or the arm’s length interest rate determined by applying one of the transfer pricing methods. 

 

Read a 2018 report (Croatian and English) prepared by the KPMG member firm in Croatia

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