If you are planning to sell your ownership stake in a company (d.o.o. or j.d.o.o.), it is crucial to understand your tax obligations in advance to avoid unpleasant surprises. Under Croatian regulations, the sale of a business share is subject to taxation, but only under certain conditions and exclusively on the realized price difference. Below is a detailed guide through the current regulations, tax rates, and statutory tax exemptions when no tax is due.

  1. What Exactly Is Taxed? (The Tax Base)

The first and most important misconception to clear up is that tax is paid on the entire amount you receive from the buyer. This is not correct. Pursuant to Article 67 of the Income Tax Act, only capital gains are taxed.

  • Capital gain represents the positive difference between the sale price of the share and its acquisition value (the value of the capital contribution with which you entered the company or at which you previously bought the share).
  • If you sell the share at the same price you acquired it (or if the sale price is lower than the acquisition value), there is no capital gain, meaning the tax base is zero and no tax applies.
  1. What Is the Tax Rate?

Income tax on capital gains is paid at a flat rate of 12%, as prescribed by Article 70 of the Income Tax Act.
Additionally, according to Article 40, Paragraph 1 of the Value Added Tax Act (the VAT Act), the transfer and sale of business shares are fully exempt from VAT.

  1. The Golden 2-Year Rule and Other Tax Exemptions

Article 67, Paragraph 8 of the Income Tax Act provides for exceptionally favorable situations in which capital gains tax is not paid at all, even if you have made a significant profit. You will not pay tax if you meet one of the following conditions:

  1. The 2-year holding rule (Most common case): If more than two years have passed from the date of acquisition (registration of ownership in the court register) to the date of disposal/sale of the share, the realized gain is completely tax-exempt.
  2. Transfers within the immediate family: Tax is not paid if the share is transferred or sold between spouses and lineal relatives (parents-children), as well as in cases of inheritance or divorce.
  1. The EUR 0 Sale Trap: How Does the Tax Administration View Low Prices?

Many entrepreneurs assume that by selling a share for EUR 0.0 or at a symbolic price below nominal value in the contract, they can automatically avoid paying tax. However, this carries a serious tax risk.
The Tax Administration has the legal right to reject the agreed value if it does not correspond to the economic reality of the company. According to Article 67, Paragraph 5 of the Income Tax Act, if the agreed sale price is lower than the market price, the tax base will be determined based on the market value of the financial assets being transferred.
Tax authorities analyze the company’s balance sheet, retained earnings, and the value of its assets (such as real estate or equipment). If the company operates successfully or owns valuable assets, the Tax Administration will independently assess the real value of the share and levy a 12% tax on the profit determined this way, regardless of the EUR 0.0 amount stated in the contract.
A sale for EUR 0.0 is justified and tax-acceptable only if the company is generating losses, its account is blocked, or if its debts exceed the total value of its assets.

  1. What Are Your Obligations if You Sell the Share Within 2 Years?

If you decide to sell your share less than 2 years after acquisition and make a profit, you are required to go through the procedure prescribed by the Companies Act and the Income Tax Regulations:

  • Form of the agreement: According to the Companies Act (ZTD), the sale agreement and the transfer of shares must be solemnized or drawn up in the form of a notary public deed.
  • Reporting to the Tax Administration: You have a statutory deadline of 8 days from the date of signing the agreement (disposal) to report the transaction to the competent branch of the Tax Administration. The transfer agreement and proof of the acquisition value of the share must be attached to the report.
  • Payment: Based on the report, the Tax Administration will issue an official tax assessment, and the deadline for tax payment is 15 days from the date of delivery of that assessment.

The transfer of business shares in companies certainly requires a more detailed analysis along with knowledge of tax regulations and the legislative framework in order to execute the transaction correctly. It is crucial to determine the exact moment of asset acquisition and its acquisition value, and to ensure that the agreed price faithfully reflects the economic reality and financial position of the company. Any deviation from market principles, especially when setting unrealistically low prices, carries the risk of a subsequent assessment of the tax base by the competent authorities. Timely analysis of all legally defined parameters and transparent reporting to the Tax Administration are the only guarantee for a lawful and successful execution of the transaction.

This article is for informational purposes only and does not constitute official tax or legal advice. Given that each transaction may have specific nuances (such as successive acquisitions of shares or subsequent capital injections), consulting with a certified tax advisor or an attorney is recommended before signing the contract.

Author, Admin