The global minimum tax (Pillar 2) represents a continuation of the OECD and G20 BEPS initiative aimed at preventing the shifting of profits to low-tax jurisdictions. The initiative has been supported by more than 140 countries, including the Republic of Croatia.
The objective of the global minimum tax is to ensure that large multinational groups are subject to an effective tax rate (“ETR”) of at least 15% in every country in which they operate. If the effective tax rate in a particular country is below 15%, a top-up tax is imposed in order to bring the effective tax rate up to the prescribed minimum. In this way, the rules seek to ensure fairer taxation of profits and limit tax competition between countries based solely on low corporate income tax rates.
Who is in scope?
The global minimum tax rules apply to groups with consolidated annual revenues of at least EUR 750 million in at least two of the four fiscal years preceding the relevant fiscal year. For example, for fiscal year 2024, consolidated revenues achieved in 2020, 2021, 2022, and 2023 are taken into account.
The threshold for the application of the rules is comparable to the Country-by-Country Reporting (“CbCR”) threshold, under which groups with consolidated annual revenues of at least EUR 750 million in the preceding fiscal year are subject to reporting obligations. However, for the purposes of the global minimum tax, the threshold is assessed based on revenues achieved in at least two of the four preceding fiscal years.
The rules apply to all entities that are part of such groups, including entities resident in the Republic of Croatia, regardless of whether the ultimate parent entity is located in Croatia or abroad.
Croatian legislative framework
The Republic of Croatia implemented Council Directive (EU) 2022/2523 through the adoption of the Global Minimum Tax Act (Official Gazette No. 155/23), which entered into force on 31 December 2023 and applies to fiscal years beginning after that date. In addition, reporting obligations are regulated by the Ordinance on Automatic Exchange of Information in the Field of Taxation.
The Act introduced the global minimum tax and the Qualified Domestic Minimum Top-up Tax (“QDMTT”). The QDMTT takes precedence over the other charging mechanisms, namely the Income Inclusion Rule (“IIR”) and the Undertaxed Profits Rule (“UTPR”), making it particularly relevant for Croatian entities operating within multinational groups.
Safe harbours
In order to reduce the administrative burden in countries where entities are considered low-risk (for example, due to low levels of profit, high effective tax rates or significant economic substance), transitional safe harbour rules have been introduced for the period from 2024 to 2027.
The transitional safe harbours include the following three tests:
- De minimis test – total revenues are below EUR 10 million and profit before tax (“PBT”) is below EUR 1 million.
- Simplified effective tax rate test – the simplified effective tax rate is at least:
- 15% in 2024,
- 16% in 2025,
- 17% in 2026 and 2027.
The simplified effective tax rate is calculated as the ratio of simplified covered taxes to profit before tax.
- Routine profits test – profit before tax is lower than the amount of the substance-based income exclusion (“SBIE”). The substance-based income exclusion is calculated based on the value of tangible assets and payroll costs, applying the prescribed percentages.
Most of the data required for the application of the safe harbour tests is derived from the Country-by-Country Report (“CbCR”), including revenues, profit before tax, the value of tangible assets and part of the simplified covered taxes.
If at least one of the above tests is satisfied, a full top-up tax calculation is not required. In such case, the Qualified Domestic Minimum Top-up Tax Return must include the provision based on which the top-up tax equals zero.
If none of the tests are satisfied, a full top-up tax calculation must be performed and all relevant sections of the Qualified Domestic Minimum Top-up Tax Return must be completed.
Reporting obligations in Croatia
Entities subject to the global minimum tax in Croatia are subject to the following reporting obligations:
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Report
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Deadline
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Description
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Notification regarding the GloBE Information Return
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30 days before the deadline for filing the GloBE Information Return. 31 May 2026 for fiscal year 2024 for taxpayers with a calendar fiscal year.
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Similar to Country-by-Country Reporting (“CbCR”), entities are required to notify the Croatian Tax Administration which entity within the group files the GloBE Information Return and in which country the return is filed, if not filed in the Republic of Croatia. The notification is expected to be submitted electronically through the e-Porezna system.
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GloBE Information Return
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In the first year, within 18 months after the end of the fiscal year (15 months in subsequent years). 30 June 2026 for fiscal year 2024 for taxpayers with a calendar fiscal year.
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An annual return filed at the level of the entire group (generally in the jurisdiction of the parent entity). Filing in Croatia is not required if the return has been filed in another jurisdiction within the group.
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Qualified Domestic Minimum Top-up Tax Return
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In the first year, within 18 months after the end of the fiscal year (15 months in subsequent years). 30 June 2026 for fiscal year 2024 for taxpayers with a calendar fiscal year.
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The return includes information on the calculation of the Qualified Domestic Minimum Top-up Tax or the provision based on which the top-up tax equals zero (where transitional safe harbours apply).
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The implementation of the global minimum tax represents one of the most significant developments in international taxation in recent years and requires entities to undertake timely preparation, detailed analysis, and compliance with the new reporting and minimum tax calculation obligations. Given the complexity of the rules and their potential impact on business operations, it is recommended to assess in advance the effects that the new regulation may have on the group and its business processes.
If you have any questions regarding the application of the Pillar Two rules or require assistance with analysis, compliance and reporting obligations, the tax specialists at Grant Thornton Croatia are available to support you.