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Personal vehicles costs and representation costs – the dearest business expenses of Croatian entrepreneurs (Part II)

In the previous post, we looked at the costs of personal vehicles.

As we announced in this Blog, we are dealing with representation, i.e. by giving gifts and hosting business partners.

Beware – business partners, not relatives, friends and employees!

Representation expenses include:

  • hosting costs (business lunch, accommodation, etc.),
  • vacation, sports, recreation and leisure expenses,
  • costs of renting cars, boats, planes, vacation homes, etc.,
  • business gifts, with or without imprinted company or product logo.

The profit tax base is increasing from the beginning of 2017. year for 50% of the representation costs (previously 70%), which means that 50% of the costs arising from the business relationship with the business partner is a tax-acceptable cost. Business partners are considered persons with whom there is a business relationship or it is expected that such a relationship will be established.

VAT calculated on the invoices for delivered goods or services rendered, i.e. tax calculated during the importation of goods, which are used for representation in connection with hosting and giving gifts to business partners, cannot be deducted as input tax.

Occasional giving of gifts with an individual value of up to HRK 160.00 without VAT is not considered a delivery of goods for consideration, which means that it is not subject to VAT, provided that the gifts are not given to the same persons and that there is no legal obligation or obligation to counter-delivery or counter-services of the recipient of the good. In order for this kind of gift not to be considered a delivery, the same person can be given a maximum of one gift in one quarter. Therefore, giving gifts worth up to HRK 160.00 (excluding VAT) is not considered representation, provided that they are given occasionally and not to the same persons.

Gifts with or without an imprinted company or product logo given to a business partner worth more than HRK 160.00 are considered entertainment expenses. Input tax (VAT) cannot be deducted for the purchase of goods and services for the needs of the representation.

Considering that the deduction of input tax on input invoices related to representation costs is not allowed at all, the total amount of the invoice (including VAT) represents the cost of the entrepreneur. Therefore, the non-taxable part of the representation expenses, set at 50% (including VAT), permanently increases the income tax base.

When it comes to corporate income tax payers who have chosen to determine the tax base according to the monetary principle, they increase the tax base for unrecognized representation expenses with the application of the monetary principle, i.e. they will increase the tax base by 50% of the representation costs only if these expenses are actually realized, i.e. paid. So, in the period in which the representation costs are paid, these taxpayers can recognize 50% of the representation costs as tax-allowable expenditure, and in the same period they should increase the tax base by 50% of the realized representation costs.

And from now on, the next time you take your company vehicle on a trip with your family and treat yourself to a delicious lunch or just a drink and coffee at the company’s expense, remember the regulations we warned you about…

….. or contact us with confidence so that we can look at your situation together and propose the optimal variant.