Taxation

Tax obligations

Would a private equity fund vehicle formed in your jurisdiction be subject to taxation there with respect to its income or gains? Would the fund be required to withhold taxes with respect to distributions to investors? Please describe what conditions, if any, apply to a private equity fund to qualify for applicable tax exemptions.

Where corporate income tax is concerned, the Croatian tax authorities see only an OIFRC as tax-transparent vehicle. On the other hand, a ZIFRC would be considered as a ‘normal’ company and thus subject to corporate income tax.

The tax treatment of distributions made by Croatian PE funds depends on their beneficiaries, namely whether they are domestic or foreign, individual or corporate investors.

Domestic individual investors

  • Capital gains are subject to a withholding tax of 12 per cent; and
  • dividends are subject to withholding tax of 12 per cent.

Domestic corporate investors

  • Not subject to taxation of capital gains or dividends; and
  • corporate income tax is set at 12 per cent for revenues below 3 million kuna and 18 per cent if revenues are equal or higher than 3 million kuna.

Foreign individual investors

  • Capital gains are subject to a withholding tax of 12 per cent; and
  • dividends are subject to withholding tax of 12 per cent.

Capital gains and dividends of non-residents are generally considered to have been obtained in Croatia for tax purposes and consequently are subject to taxation in Croatia, unless there is a double tax treaty in force.

Foreign corporate investors

  • Dividends are subject to withholding tax of 12 per cent with the exemption for foreign investors that are corporations resident in an EU member state and subject to double tax treaties in force.
Local taxation of non-resident investors

Would non-resident investors in a private equity fund be subject to taxation or return-filing requirements in your jurisdiction?

See question 17.

Local tax authority ruling

Is it necessary or desirable to obtain a ruling from local tax authorities with respect to the tax treatment of a private equity fund vehicle formed in your jurisdiction? Are there any special tax rules relating to investors that are residents of your jurisdiction?

Under the Croatian tax regime it is not necessary to confirm a ruling that a Croatian PE fund will be treated as such for tax purposes. This arises from the opinion of the Croatian tax authorities, which treat only an OIFRC as a tax-transparent vehicle and consider a ZIFRC as an ordinary corporate entity.

Investors that are Croatian residents are subject to ordinary income taxes as described in question 17.

Organisational taxes

Must any significant organisational taxes be paid with respect to private equity funds organised in your jurisdiction?

No. See question 2 regarding the registration fees prescribed by the Regulator.

Special tax considerations

Please describe briefly what special tax considerations, if any, apply with respect to a private equity fund’s sponsor.

A UAIF is liable to corporate income tax on its overall income, regardless of its source. Management fees, the depositary bank fee and the Regulator prescribed fees are VAT-exempt. If received, carried interest would be subject to standard corporate income tax.

Tax treaties

Please list any relevant tax treaties to which your jurisdiction is a party and how such treaties apply to the fund vehicle.

Croatia currently has double tax treaties in force with the following countries: Albania, Armenia, Austria, Azerbaijan, Belgium, Belarus, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China, the Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jordan, Korea, Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Morocco, the Netherlands, Norway, Oman, Poland, Portugal, Qatar, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Syria, Turkey, Turkmenistan, Ukraine and the United Kingdom.

Other significant tax issues

Are there any other significant tax issues relating to private equity funds organised in your jurisdiction?

No.