The tax status of legal and physical persons in the cultural system is defined by the general and special tax laws as well as numerous rules and regulations that prescribe the procedures and manner of taxation. The application of tax regulations is also linked to specific laws in the field of culture and cultural and artistic activities (e.g. the Law on Museums, the Law on Theatres, the Law on Associations, the Law on Institutions, Foundations).The Law on the Rights of Freelance Artists and Encouraging Cultural Creativity determines the rights of freelance artists, establishment and operation of artistic organisations and measures to encourage cultural and artistic creativity (see chapter 2.3).
Freelance artists have the right to receive specific tax benefits. Donations of less than 20 000 HRK a year are not taxed (approximately 2 740 EUR). Compensation for per diems and travel expenses is not considered part of income for tax purposes. In 2020, a reduced tax rate of 13 percent was introduced for services and related authors’ rights of writers, composers and artists (the tax rate until 2020 was 25 percent).
Value Added Tax prescribes a number of exemptions from the VAT system. Institutions that perform cultural activities, legal entities with public authority, or artistic organisations exercise such exemptions if they perform their activities in accordance with special regulations. In addition to the exemptions related to cultural services, exemptions are also envisaged for related deliveries of goods. The regular VAT rate in Croatia is 25%. The VAT tax rate on books (and since changes in the Law on VAT in 2020 including e-books), cinema tickets and newspapers that have valid media statutes are taxed at 5% while for cultural and artistic magazines and concert tickets it is 13%. For cinema tickets, the taxation differs in connection to who provides the service: if a cinema ticket is sold by a cinema, the rate of 5% is applied, if it is by an institution or legal entity in culture that has a right to exemption of VAT then a rate of 0% is applied. If another type of institution is showing films, then the regular rate of VAT is applied to tickets. A similar situation refers to concert tickets where another rate of VAT is applied as noted above.
Non-profit legal entities in Croatia, including ones in the cultural sector that do not perform any economic activity are not obliged to pay profit tax nor are they obliged to fiscalisation, which is a considerable advantage in comparison to those taxpayers who are obliged to pay profit tax.
Donations made for cultural purposes to associations and other legal entities engaged in cultural activities are not taxed. Donations of up to 2% of the donor’s total annual income are recognised as such by law, while donations exceeding this sum must have a certificate issued by the Ministry of Culture and Media. Thus, although legal incentives exist to encourage private support for culture, it can still be considered marginal compared to the funding provided by the public sector. The same is true for foundations and funds, despite the Law on Foundations and Funds that was passed in 1995, and amended in 2001.