Global Minimum Tax Act (Pillar Two)

By publishing the Global Minimum Tax Act, as of 2024, Croatia introduced the Pillar Two rules, as part of the rules relating to profit shifting.

What you need to know

By publishing the Global Minimum Tax Act (the “Act”), as of 2024 Croatia introduced the Pillar Two rules, as part of the rules relating to profit shifting. The provisions of the Council Directive (EU) 2022/2523 of 14 December 2022 (the so-called "Pillar Two" Directive) were fully transposed into the Act.
Pillar 2 prescribes a global minimum level of taxation of 15% for multinational enterprise groups and large-scale domestic groups with total revenues exceeding EUR 750 million generated in any two of the previous four years. Therefore, this Act may be relevant for those Croatian taxpayers whose ultimate parents realised the specified revenue threshold in at least two years during the period 2020 to 2023.

Although the first tax return will have to be submitted by mid-2026, companies subject to these legislative rules will already in 2024 financial statements need to declare the Pillar 2 impact on their businesses.

The Act promptly adopted both the optional and mandatory rules of the Directive, and it is especially important for domestic companies which are part of large multinational groups that the Act also introduced the qualified domestic minimum top-up tax (“QDMTT”). QDMTT requires Pillar 2 assessment for any domestic entity which is part of a large group, regardless of whether the group simultaneously performs a calculation at the parent entity level. It is important to note that the rules for the so-called de minimis exclusion and safe harbour rules should minimise the Pillar 2 impact on administrative obligations, at least in the first years of application.
By introducing the Act, the Republic of Croatia adopted income inclusion rules and the undertaxed profits rule, as well as all exemptions provided for by the Directive which refer to governmental, international and non-profit organisations, pension and investment funds and the system of international maritime transport.

As the Act applies to taxpayers with consolidated revenues exceeding EUR 750 million, all groups headquartered in Croatia, as well as all companies established in Croatia that are members of such groups, will have to prepare an analysis to determine their reporting requirements or whether they are subject to an additional tax payment obligation in Croatia.
Pillar 2 will for some companies result in significant administrative requirements, especially as the calculation is technically complex, and the methodology of determining firstly the effective tax rate and then additional tax payment obligation based on this Act is different from the principle of calculating the corporate income tax liability.

To avoid detailed calculations according to Pillar 2 rules and to reduce the administrative burden of multinational groups in the transition period, the OECD issued in December 2022 the document Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two). The safe harbour rule is a legally enabled simplification of the procedure, according to which taxpayers are protected from additional tax obligations if they follow the prescribed rules and meet certain conditions.
The safe harbour would allow multinational groups to avoid performing detailed calculations in relation to the jurisdiction if, on the basis of their qualifying Country-by-Country Reports (CbCR) and financial accounting data, they can prove that in a certain jurisdiction their revenues and profits are below the de minimis threshold (the so-called De minimis test), an effective tax rate ("ETR") that is 15% or higher (the so-called ETR test), or that they profit before tax is below Substance - based Income Exclusion amount (the so-called Routine Profits Test). It is enough that only one of the above three tests is satisfied for the jurisdiction to qualify for the safe harbours and then there is no obligation to calculate the top-up tax for that year.
A transition period during which the safe harbours rules can be applied has been introduced, covering all fiscal years beginning on or before December 31, 2026, but not including fiscal years ending after June 30, 2028.

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Director, Tax Services Department, PwC Croatia

Menadžer u timu za savjetovanje o tržištima kapitala i računovodstvu, PwC Croatia

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