Amendments to the Profit Tax Law: 8 Things Worth Knowing
Year-end profit tax computations often raise the same questions – documentation, filling methods, and how specific items should be treated for tax purposes. That’s why it’s important to understand the key profit tax amendments that apply from the beginning of 2026.
Filing a profit tax return is not just a formality. When preparing the annual settlement, it is useful to check whether all expenses have been recorded correctly, whether there is scope for lawful reductions of the tax base, and whether any new documentation and administrative requirements have been met.
In practice, it is also useful to keep deadlines in mind: the profit tax return must be filed within four months after the end of the tax period (for taxpayers whose tax period is the calendar year, the deadline is April 30).
To help you navigate the changes quickly, below we highlight 8 key amendments to the profit tax law applicable from January 1, 2026.
1. Documentation on temporary differences: easier tracking and substantiation over time
An obligation is introduced to maintain documentation on the prior tax treatment in situations where certain data from the accounting records are temporarily excluded from the tax base (through upward or downward adjustments) and may be included in future tax periods, as well as where income and expenses related to a single business event are recognised across multiple tax periods.
This documentation is particularly important in the context of tax audits and in cases where the treatment changes over time due to changing circumstances, reorganisations, or corporate/status changes.
2. E-filing of the profit tax return: mandatory for all taxpayers
The profit tax returns must be submitted exclusively electronically, and this applies to all taxpayers.
3. Tax paid abroad: clearer rules on when it can be credited and when it only reduces the tax base
More precise conditions are introduced for crediting tax paid abroad in relation to a foreign permanent establishment (profit tax or a comparable tax), so it can be used to reduce the domestic profit tax liability.
The amendments also clarify what qualifies as profit tax (a tax on the difference between income and expenses), and what is expected from a foreign permanent establishment (taxpayer status, keeping accounting records, filing returns, and paying tax).
It should be noted that losses of a foreign permanent establishment are not recognized domestically (as they are recognized abroad).
The procedure is applied through the tax return, without changing accounting rules on recognizing income and expenses. The foreign tax credit is limited: it may not exceed the domestic tax attributable to that income, nor may it exceed the tax actually paid abroad. The applicable rate is 10% or 18%, depending on the taxpayer’s status. If there is a double taxation avoidance agreement, the rules of the agreement apply. When there is no agreement (or the tax is not determined by the agreement), in certain cases reduction of the tax base is possible (but not crediting).
Taxes that are not profit tax (e.g., withholding tax) generally only reduce the tax base but are not credited against domestic tax.
(Foto: Pexels)
4. Bankruptcy and HSFI 18: equity differences arising from valuation are not automatically taxable
The Law is aligned with HSFI 18 – Going Concern, the standard that prescribes how the initial bankruptcy balance sheet is prepared in bankruptcy and how assets and liabilities are valued on that date.
In bankruptcy, the assumption is that the business is no longer a going concern, so assets are valued in the context of the bankruptcy procedure – i.e., based on realistic recoverability.
5. State aid and limitation periods: special rules apply
For granted state aid, limitation periods for collection rights or for correcting tax returns are governed by the specific regulations under which the aid was approved. In that part, limitation rules under the General Tax Act do not apply.
6. Sports sponsorships: an option to reduce the tax base
A possibility is introduced to reduce the tax base for sports sponsorship expenses paid to legal entities within the sports system where the activities support socially beneficial sports programs – if everything is properly covered by a sponsorship agreement.
It should also be noted that the list of eligible legal entities and conditions is determined by the minister responsible for sport, with the consent of the minister of finance, by a special decision.
7. Related parties and transfer pricing: a wider choice of methods (but not “anyhow”)
When assessing whether prices between related parties are at arm’s length, additional pricing methods may be used alongside the prescribed methods – but only if:
- the result complies with the arm’s length principle, and
- the other prescribed methods are not appropriate for the specific case.
This aligns the Law with OECD guidelines and is particularly relevant for group pricing policies and specific transaction types.
8. Payment deadline for a shortened tax period or cessation of business
If you have a shortened tax period or are ceasing business operations, the tax payment deadline is the last day of the deadline for filing the final tax return.
The amendments to the Profit Tax Law introduce several important changes: clearer treatment of tax paid abroad, more flexibility in selecting transfer pricing methods when standard methods are not suitable, and alignment with HSFI 18 in the context of bankruptcy and the opening bankruptcy balance sheet. In addition, new documentation requirements are introduced (tracking previous tax treatment of temporary differences), electronic filing becomes mandatory for all taxpayers, and special limitation rules apply in relation to state aid.
Disclaimer: This text is provided only for general information purposes and does not constitute tax or legal advice for any particular case. For professional interpretation and application to your specific business, please contact us at iaudit@iaudit.hr.
