This content is from: Croatia

Croatia: Tax relief: city of Vukovar and assisted areas

Tax incentives and tax relief for special geographical areas in Croatia are regulated by myriad acts and ordinances that are constantly changing and adjusting to the demands of the acquis communautaire. Whereas previously such relief was structured and destined for free trade areas, highlands and areas of special state care, now it is being categorised as a state incentive, subject to EU standards and requirements. The entrepreneurs who are conducting their business activities in the city of Vukovar or the so-called assisted areas (classified as 'Group 1' under the development index) are thus exempt from the payment of corporate income tax or – in the case of craftsmen or self-employed free professionals – personal income tax. Details and conditions for applying for such exemptions are elaborated further in the text.

The Croatian 2017 National Reform Programme foresees many interventions into the tax system. For example, the corporate tax rate has been reduced from 20% to 18% and further lowered to 12% for entrepreneurs with an annual income lower than HRK 3 million ($500,000). In the efforts to prevent a negative impact on the collection of the revenue from this tax category, the government abolished the tax relief for reinvested earnings and the tax relief for areas of local self-governed units classified as 'Group 2'. The Regional Development Act (NN 147/14 and 123/17) defines five groups of cities and municipalities classified in accordance with the level of development as opposed to the national average, with Group 5 being the most developed group. Of these five groups, Groups 1 and 2 are classified as 'assisted areas' but only businesses in Group 1 are eligible for tax relief. The tax relief elaborated herein consists of the exemption from payment of corporate or personal income tax, depending on the entrepreneur's status, in other words, whether an entrepreneur's income is taxed through the system of corporate income tax or personal income tax. The modalities of the utilisation of such relief are regulated in detail by the new Ordinance on the method of calculation of tax relief for the city of Vukovar and assisted areas (NN 18/2018) which was enacted at the beginning of March 2018. The new Ordinance replaced the old one dated 2014 and below are some of its most important provisions.

What does the tax relief consist of?

For activities conducted in the City of Vukovar: 100% corporate/personal income tax exemption.

For activities conducted in Group 1 assisted areas: application of 50% of the applicable tax rate.

Who can apply for the tax relief?

Entrepreneurs who are either corporate or personal income taxpayers and who are conducting their business activity in the city of Vukovar and/or Group 1 assisted areas can apply. A business activity must be permanent and continuous in the form of at least a business unit, in accordance with the General Tax Act.

What is the deadline for applying for the tax relief?

For corporate income taxpayers: the deadline is March 15 of the current year to apply for tax relief for the previous year.

For personal income taxpayers: the deadline is February 28 of the current year to apply for tax relief for the previous year.

Are there any other conditions to consider?

Corporate income taxpayers must have employed more than five employees, and personal income taxpayers more than two employees under a permanent employment contract, of which more than 50% have to be resident or domiciled in the city of Vukovar or a Group 1 assisted area. The continuous employment and the residence/domiciliation in exempted areas must last at least nine months during a tax period (financial year).

Exceptionally, if a taxpayer has started conducting activities at a point in the year that causes the fiscal period to be shorter than nine months, the eligibility still exists, provided that the entrepreneur employs personnel on an indefinite-term employment contract from the start of the activities until the end of the fiscal year, and that the employees are residing/domiciled in the exempt areas for at least nine months.

Scope of application

This Ordinance applies to annual income returns for the fiscal period starting from January 1 2017.


This tax relief falls under the category of de minimis state aid, regulated by the State Aid Act (NN 47/14 and 69/17). The maximum limit of de minimis aid that can be utilised within a fiscal period of three years is as follows:

  • €200,000 ($247,000) for entrepreneurs operating in all sectors except fisheries and aquaculture and agriculture;
  • €100,000 for entrepreneurs operating in road cargo transportation;
  • €30,000 for entrepreneurs operating in the sector of fisheries and aquaculture; and
  • €15,000 for entrepreneurs operating in the agriculture sector.

In its efforts to attract investors and lift the tax burden for citizens, Croatia is carefully balancing its position in the collection of revenue from various sources. One example is the reduction of the corporate income tax rate that, however, had as a consequence the elimination of certain forms of tax relief. The new Ordinance on the method of calculation of tax relief for the city of Vukovar and assisted areas reflects such balancing. The assisted areas eligible for tax exemption were reduced from two groups to only one, and the scale of the exemption itself was cut in half. However, the city of Vukovar still maintains the 100% rate of the tax exemption, under the above elaborated conditions, open to all types of activities with some limitations in the incentive amounts for agriculture, fisheries and aquaculture. Therefore, Vukovar continues to represent an interesting venue for the set-up of operations, especially those which are not specifically tied to a particular geographic area.


Silvia Cancedda and David Jakovljevic (
Eurofast Croatia
Tel: +385 1 7980 646

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