TAX TREATMENT OF

RESEARCH &

DEDEVELOPMENT AND

TRAINING 3rd Meeting of the

SEE Working Group on Tax Policy Analysis

10-11 June 2010, Sofia

Dubravka Sekulic Grgic

Croatian Tax Administration

Overview of the tax treatment of R&D and training

Tax treatment of R&D-legal entities

Tax treatment of R&D-natural persons

Tax treatment of intangible (“knowledge” capital)

Tax treatment of training

Content

General – State Aid System in Croatia is harmonized with a EU rules and it includes State Aid for R&D and training.

Legal framework: Special regulations which for State Aid System, special

regulations for State Aid for science and education Investment in R&D projects and training are stimulated with tax relief's as

additional deduction of tax base for the project expenses R&D tax incentives for:

legal entities (corporations) - paying 20% of profit tax/investing in R&D projects authorized by the official Ministry of science.

Natural persons – performing entrepreneur activities – paying income tax (15%, 25%, 35% i 45%/ new proposal, 12%, 25% i 40%)

Overview of the tax treatment of R&D end training

Tax treatment of R&D-legal entities

Tax base deduction for

R&D

Up to 150%

justified costs for basic research

Up to 125 % justified costs

For implementation Of research

Up to 100 % justified costs

for development

What are justified costs for R&D? Employers salaries and fees Material costs for R&D (energy, raw materials) Services cost (Intellectual services and others.) Depreciation cost, real estate, facility and

equipment cost for R&D projects Depreciation cost for acquired patents and

licenses General costs (example: insurance premium of

process)

R&D

Natural persons/entrepreneurs which are solely performing businesses and investing in R&D

Tax relief R&D = deduction of tax base additionally for 100% justified costs for R&D

Result– lower of tax liability for income tax

COSTS / TAX RELIEFS for R&D

salaries

Material and services costs

Depreciation cost of tangible assets

Depreciation cost of intangible assets

General expenditures

Research and Development- natural persons

/entrepenours

No special tax treatment for intangible assets (patents, licenses)

Tax-justified cost for intangible asset –

Depreciation annual rate (4 year) 25% cost

Note : Depreciation cost of patents and licenses for R&D can be additionally deducted from the tax base for 150%

Intangible (“knowlege”capital)

TAX TREATMENT OF ROYALTIES ON INTELECTUAL PROPERTY RIGHTS

Royalty payment to non-residents – withholding tax15%

Croatia is applying 47 double tax treaties

EU rules – no taxation of royalties payments if associated enterprises – Croatia will start to implement it by the day of accession

Intangible

Tax incentives for training = additional deduction of profit tax base for training costs

It refers on investment in general education and education of employees

Tax incentives for: income taxpayers: small, medium and large enterprises

Special treatment for small and medium enterprises

Result = lower profit tax liability

Education and Training

Education Training

LARGE COMPANIES

Tax base deduction for 50% expense/general education

Tax base deduction for 25% expense/special education

SMALL AND MEDIUM COMPANIES

Tax base deduction

for 70% expense/general education

Tax base deduction for 35% expense/special education

Education and Training

General Education – Eligible costs

Scholarship fees

Seminars, courses and congresses

Lectures and instructors

Literature

Depreciation costs of assets for general education

Special education –Eligible costs

- Seminars, courses and congresses

- Education specialization

- Lectures and instructors

- Profession literature

- Amortization of devices and accessories

Education and Training - VAT

VAT EXEMPTIONS IN CROATIA:

Education of children and youth, services and deliveries of pre-school , elementary, secondary and tertiary institutions and student and pupil standard of living institutions, professional education and adult prequalification, including related deliveries of goods and performed services which are rendered by public authorities

Classes performed by private teachers (education in pre-school , elementary, secondary and tertiary institutions )

VAT- INTANGIBLE CAPITAL

VAT TAX EXEMPTIONS ON IMPORTS

Import of goods intended for research, analysis and testing, which are destroyed after use under conditions prescribed by customs regulation

Import of imprint, brand names, patents, models and accompanying documents and forms for the acknowledgement of patents or inventions that are sent to organizations for the protection of authors and individual property , in conjunction with conditions prescribed by the customs regulations

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