According to Corporate profit tax Act, the interest rate on loans between related parties relate to loans between profit tax resident and non-resident as well as on loans between two related Croatian tax residents if one of them is in a favourable tax position. Favourable tax position shall be considered if one of the related parties in the current tax period:
– pays profit tax at rates lower than the prescribed rate or is exempt from paying profit tax, or
– has the right to transfer tax losses from previous tax periods.
Review of interest rates on loans between related persons
|from 31 October to 31 December 2015||3%|
|from 1 July 2011 to 30 October 2015||7%|
|From 1 January 2008 to 30 June 2011||9%|
If such interest rates are not charged at all or charged at a lower rate then the difference will increase the annual profit tax base. Likewise, if interest is paid at a rate higher than the prescribed rate, the difference above the prescribed rate will increase the annual profit tax base.
We remind you that starting from 1 January 2017 it is possible to determine the interest rate on loans between related parties by applying one of the transfer pricing methods. In case the company decides to apply one of the methods, it is necessary to compile documentation confirming that the chosen interest rate is in accordance with the market principles and that method must be applied to all contracts.