What we need to think about when choosing a legal form:
costs and complexity of establishment and closure
taking responsibility as an owner
way of keeping business books (accounting)
tax and contribution rates
Below are the basic differences between the most common form of natural person (trade) and legal entity (d.o.o. / j.d.o.o.)
| # | Trade | J.d.o.o. | D.o.o |
|---|---|---|---|
| Manner of establishment | in person or by e-Obrt | Notary public and HITRO.hr | Notary public and HITRO.hr |
| Share capital | Nema | 10,00 | 20 000,00 |
| Establishment fee (with notary public) | 0,00 | cca 900,00 * | cca 3 200,00 * |
| Closing cost | cca 150,00 | cca 900,00 | cca 3 200,00 |
* Includes the cost of a notary public and a court fee which is HRK 400.00 for a d.o.o. and HRK 60.00 for j.d.o.o.
The simplest and cheapest form to open and close Trade
You can open a TRADE:
by coming to the county office
online via the system
Amendments to the Tariff of Administrative Fees abolished the fee for registration of trades from September 1, 2021., which made the opening of trades COMPLETELY FREE.
You can start the opening of the COMPANY:
with the help of a notary public and HITRO.hr
What about closing costs?
You can easily close a trade via e-Obrt with a court fee of HRK 150.00. The same cost if you close the trade by going to the county office, depending on the seat of the trade.
To close a d.o.o or j.d.o.o. you have to use the services of a notary public which requires higher costs.
What about the cost of enrolling changes?
You can make any change in the trade (eg adding a new activity) via e-trade free of charge. The same cost if you add changes by going to the appropriate office.
If you add new activities in d.o.o or j.d.o.o. you will have to pay a notary public who will register the changes in the Commercial Court, so in this case
doo / j.d.o.o. more expensive option than trades. Therefore, we advise that if you open a d.o.o. or j.d.o.o., to think carefully about what all activities they might perform in the future
because the price of registration of activities at the time of establishment is always the same, while each subsequent one is paid. You can view the activities at the
Share capital
Share capital is a founding investment that exists in a company (d.o.o. / j.d.o.o.) and does not exist in a trade. The amount of share capital for d.o.o. is 20,000.00 kn and for j.d.o.o. 10.00 kn. This difference is the main reason why a lot of entrepreneurs opt for jd.o.o. in relation to d.o.o. Is this reason enough to choose a j.d.o.o. ?
Apart from share capital, what are the differences between d.o.o. and j.d.o.o. ?
There are a couple of differences, for example j.d.o.o. may be established by a maximum of three persons, and only one person may be a member of the board (director). Code d.o.o. there are no such restrictions.
Also, j.d.o.o. cannot pay the owner the full profit as with d.o.o. already each year it must set aside 25% of the profits in legal reserves. Legal reserves can be used only to increase share capital and to cover the company's losses that cannot be covered from the profit for the current period. The rest of the profit of the business year in the amount of 75% of the year can be paid to the owners.
Beyond this, in j.d.o.o. keep the same business books as in d.o.o. and you have the same obligations to the state.
When HRK 20,000.00 is accumulated in legal reserves, j.d.o.o. can be transformed into a d.o.o by converting the accumulated reserves into share capital. When he moves to d.o.o., there is no further need to allocate part of the profits to legal reserves.
However, for the transformation of reserves into share capital and the change of j.d.o.o. to d.o.o. you should, first of all, pay audit of business books. Costs audits can be up to HRK 10,000.00.
If we do not wish to use revision, we may reshape the j.d.o.o. in d.o.o. recapitalization , ie payment of the difference between the originally paid-in capital (min. HRK 10.00) and HRK 20,000.00.
In both cases, the services of a notary public are paid extra, who will certify all the documentation necessary to submit the application to the commercial court. Also, you must take into account that all company documents (e.g. employee applications) up to the time of the transformation read on j.d.o.o., thus creating the need after the redesign to change all the papers to change the j.d.o.o to d.o.o.
So consider, if you are serious about starting a business and intend to do business in this form for a long time, so that you it was easier to pay the share capital of HRK 20,000.00 and open a d.o.o. right at the beginning. You can use those 20,000.00 kn to cover initial costs and investments (e.g. purchase of fixed assets or payments). If it turns out that you fail to earn enough from your customers, with a larger share capital you know you have to cover the initial costs without having to make loans to the company.
It is also important to stress that there is no law obliging you to change the j.d.o.o. in d.o.o .; already such a possibility opens up after the legal reserves reach HRK 20,000.00 (or regardless, if you use the recapitalization procedure). If you decide to continue to operate as a j.d.o.o., you must continue to allocate 25% of your profits to reserves, regardless of accumulated amount.
| # | Trade | J.d.o.o. | D.o.o |
|---|---|---|---|
| Responsibility | All property of tradesmen | Up to the amount of share capital | Up to the amount of share capital |
There is less owner responsability in D.o.o. and j.d.o.o.
The tradesman is liable for all obligations of the craft with his property while the owners of the company (d.o.o. / jd.o.o.) are liable up to the amount invested share capital.
It is important to emphasize here that the person authorized to represent the company, or the director / board member (who is often the owner of the company) can financially responsible for the company's problems outside the amount of share capital. What are these situations?
For example, FINA has not received financial statements for a particular business year for your company (the report was not sent by the director or possibly the accountant). The company will be fined, but the director will also be fined as a natural person and will have to pay a fine from personal funds (for example HRK 5,000.00). The reason for this is that the director is responsible for the operation of the company in accordance with the law and the attention of a good and conscientious businessman.
Also, the company's creditors (your suppliers) can make a direct claim for damages to members of the company's management. In this case, the creditor must prove that the company would be able to meet its obligations through regular operations and that the harmful actions of the members of the management caused a bad financial situation. that is, the inability to meet obligations. Examples of harmful actions of members of the management board can be considered the conclusion of a contract at the time of a blocked account and the failure to initiate bankruptcy proceedings when there are bankruptcy reasons.
Thus, although we say that the owner of the company is liable for the obligations of the company up to the amount of share capital, it may happen that he pays the bad practices of the company and larger amounts. However, for entrepreneurs who are responsible in running the business and work in accordance with the Act, such things should not be intimidating. It is recommended, however, that everyone check their main responsibilities with regard to annual reporting, as it is the members of the management board who are considered responsible for sending the financial statements (regardless of the fact that only sending on their behalf can be done by someone else, or an accountant).
| # | Sum lump trade | Trade | J.d.o.o. / D.o.o |
|---|---|---|---|
| Contributions (HRK) | 1.392,40 | 2.262,65 | 2.262,65 |
| Chamber (of trade / of commerce) | 76,00 | 76,00 | 42,00 |
Contributions are the lowest at Lump sum trade
The contributions in the table refer to tradesmen and entrepreneurs who are employed only in their trade or company.
The smallest contributions are in the case of a lump-sum turnover, where the amounts of contributions are equal regardless of which tax class you belong to. If you open a d.o.o. or j.d.o.o. and you are a member of the management board, ie the director of your own company, you are obliged to pay the minimum contributions that are legally prescribed, and for 2022. amount to HRK 2.262,65.
In a company, you pay contributions when you pay a salary, which you are required to do every month. You don't pay yourself a salary in a trade, you are you are only obliged to pay the contributions and you dispose of the rest of the funds in the account of the trade as you wish.
This is one of the reasons why people choose a trade instead of a company. Namely, given that in you have to pay the company both the net salary and the contributions every month (and income tax if income is greater than the amount of personal deduction), you need to plan each month to see if you have enough in your account to pay your salary (or salaries if you have additional employees).
This includes closely monitoring the cash flow table (download the cash flow table here). You will be faced with this in crafts as well, if you have employees, because you have to do them every month, just like in the company pay the total salary (together with all associated contributions and taxes). However, if only you work in the trade, you are obliged to pay your own operating liabilities (which includes monthly contributions, taxes according to the annual income tax return, and other operating expenses that include trade payables, potential loan installments, etc.). Once you have paid off all business obligations, the funds in the account belong to you and you can spend them as you wish, including for private use.
With a company, you cannot spend money on personal accounts because it is not your money, but company money, regardless of whether you own it. If you want to pay yourself money from the company's account to your personal account, you can do so in two ways: a salary or a profit payment.
Salary
Salary is contracted by the employment contract. If you are a board member of the company, then you pay the minimum contributions on gross salary in the amount of HRK 5,967.65. The net salary on the stated gross salary amounts to HRK 4,596.07. There is a certain amount of annual non-taxable receipts which you can pay yourself without paying any additional taxes or contributions. The most important are:
| Non-taxable fees | Annually |
|---|---|
| occasional prize (Christmas, Easter, regress) | up to 3,000.00 |
| work bonus | up to 5,000.00 |
| food supplement (without invoices) | up to 5,000.00 |
| food supplement (with authentic documentation) | up to 12,000.00 |
| rent refund | actual cost |
| per diems for business trips | up to HRK 200.00 per day |
| transport fee (where own car is used) | up to 2 kn per kilometer |
| Supplementary and supplementary health premiums insurance based on credible documentation | up to HRK 2,500 |
Profit payment
When paying the profit, you pay capital income tax at the rate of 10% (tax rate from 2022.) and the corresponding surtax depending on the place of residence of the recipient. This rate is paid on profit after income tax. Companies with an annual income of up to HRK 7.5 million pay income tax at a rate of 10%, and those with income above that limit at a rate of 18%.
Take the example of profit before tax (income less expenses) in the amount of HRK 100,000.00. You must first pay income tax on the stated amount at a rate of 10%. The owner can pay the rest of the money to himself, but before that the capital income tax must be paid at the rate of 10% and an additional surtax (eg 15% for Split).
| # | Description | Amount (in kn) |
|---|---|---|
| 1 | Profit before tax | 100,000.00 |
| 2 | Income tax (10% * Profit before tax) | 10,000.00 |
| 3 | Profit after tax (profit before tax - Income tax) | 90,000.00 |
| 4 | Capital gains tax (10% * Profit after tax) | 9,000.00 |
| 5 | Surtax (eg for Split 15% * Income tax) | 1,350.00 |
| 6 | Net amount paid to the owner (Profit after tax - Tax and Surtax) | 79,650.00 |
| # | Sum lump trade | Trade | J.d.o.o. / D.o.o |
|---|---|---|---|
| Tax (percentage) | see table below | Income tax (20%) | Company tax (10%) |
Taxes in a sum lump trade
If you want to open a trade and you plan to earn less than 300.000,00 kn a year, you can opt out to pay your taxes in flat amounts. This means you don't calculate your taxes based on the rate of 20% as suggested in the table above. How taxes work in this case you can read in the following paragraph.
Annual receipts are divided into 5 earning grades, as indicated in the table below. You pay the tax depending on which class you belong to. Additionally you pay the city tax which is calculated depending on the municipality of your residence. An example is given in the table below for the city of Zagreb, which has a city tax rate of 18%, or the highest city tax rate, so for any other municipality, you will pay less city tax.
| Annual Receipts | Annual basis | Monthly income tax (excluding city tax) |
Annual income tax (excluding city tax) |
Annual surtax tax (eg Zagreb) |
|---|---|---|---|---|
| Od 0,00 do 85.000,00 | 12.750,00 | 106,25 | 1.275,00 | 1.504,5 |
| Od 85.000,01 do 115.000,00 | 17.250,00 | 143,75 | 1.725,00 | 2.035,50 |
| Od 115.000.01 do 149.500,00 | 22.425,00 | 186,88 | 2.242,50 | 2.646,15 |
| Od 149.500,01 do 230.000,00 | 34.500,00 | 287,5 | 3.450,00 | 4071,00 |
| Od 230.000,01 do 300.000,00 | 45.000,00 | 375,00 | 4.500,00 | 5.310,00 |
Taxes in a trade according to business books
In a trade where you pay tax according to business books, not but, the tax depends on the relationship between operating receipts and expenditures. Which means there is a possibility that we are not liable to pay income tax if we are at a loss, ie if the tax base is negative due to an excessive amount of expenses (operating costs).
In the table below, see how much tax is paid by the tradesman who keeps business books and how much by the tradesman ac, assuming that in the observed year achieved an equal amount of receipts and expenditures. OK no. 7 you can read the total annual amounts of taxes and surtaxes, namely HRK 2,268.19 or HRK 2,578.88 for tradesmen. The code of a Tradesman who keeps business books, tax is calculated according to the difference between receipts and expenditures. This difference is reduced by a personal deduction (basic annual deduction is HRK 48,000.00) and can be further modified, e.g. if you have, you receive tax relief because you had training costs, etc. In this trade, the tax is calculated depending on the ratio receipts and expenditures, but only on the amount of receipts. The tax brackets are shown in the table above. In our case, due to the realization of receipts in the amount of 120,000.00, we are classified in tax class 3 and we pay HRK 2,242.50 for the tax, which we must additionally increase for surtax (in our case, a surtax rate of 15% was used, which is valid for Split).
See below how much tax you pay depending on the amount of total annual receipts. For example, if you earned an annual income of from HRK 120,000.00.
| # | Description | Tradesman - Business Books | Tradesman - |
|---|---|---|---|
| 1. | Receipts | 120,000.00 | 120,000.00 |
| 2. | Expenditures (including contributions) | - 62,138.31 | 62,138.31 |
| 3. | Basic deduction | - 48,000.00 | - |
| 4. | Tax base (1.- 2.- 3.) | = 9,861.69 | - |
| 5. | Income tax | 1,972.34 (20% * 4) | 2,242.50 (3rd tax bracket) |
| 6. | Surtax e.g. Split (15% * 5.) | 295.85 | 336.38 |
| 7. | Total tax and surtax | 2,268.19 | 2,578.88 |
Taxes in a trade according to business books
The company pays income tax at a rate of 10% on the difference between income and expenses (reduced or increased by certain costs).
In addition to income tax, you can also pay income tax if you pay wages to workers where the income is greater than the amount of personal deduction.
In the table below we give an example of the difference in the payment of contributions and taxes on the example of a Tradesman who pays tax according to the business books, a Tradesman who pays taxes but an entrepreneur who has an open d.o.o. or j.d.o.o. (taxes and contributions are paid in the same way).
We put the same amount of income and expenses for all, namely the amount of 120,000.00 kn of receipts / income and 36,000.00 expenses / expenses (e.g. rent, bookkeeping, utilities, office supplies, consumables, etc.). Expenses usually include contributions and salaries that you pay, but in in this table I have listed them separately, in order to see the exact amounts for each form of business.
So with tradesmen who keep business books and entrepreneurs you can see equal to the amount of annual contributions (26,138.16 per year, which amounts to 2.262,65 HRK per month ). These contributions represent mandatory minimum contributions for tradesmen and members of the management or directors of the company. These contributions are calculated according to the annual base, which changes every year by a certain amount because it is calculated according to the average salaries in the Republic of Croatia from the previous year.
For tradesmen, the same annual amounts of contributions are significantly lower and that is the main reason why crafts are so much more favorable compared to other forms of business. Thus, the annual contributions for the same amounts amount to HRK 16.708,80; which turns out to be 1.392,40 kn per month .
The stated contributions for all 3 forms of business refer to situations in which tradesmen and entrepreneurs work exclusively in their crafts or in their companies.
Furthermore, you will see that in the line Amount of net salary only the field valid for d.o.o./j.d.o.o is filled in because in the trade, as a rule, salaries are not paid, but the Tradesman, after settling all business obligations, disposes of the funds in the account as he wishes.
| # ANNUAL AMOUNTS | TRADER keeps business books |
TRADER sum lump tax |
D.o.o. / j.d.o.o. |
|---|---|---|---|
| 1. Receipts / Revenues | 130.000,00 | 130.000,00 | 130.000,00 |
| 2. Expenditures / Expenditures (without contributions) | 36.000,00 | 36.000,00 | 36.000,00 |
| 3. Total contributions | 27.151,80 | 16.708,80 | 27.151,80 |
| 4. Income tax and city tax (eg Split) | 4.335,09 | 2.578,88 | 3.044,69 |
| 5. The amount of net salary | - | - | 56.863,32 |
| 6. How much is left to the TRADE | 62.513,11 | 74.712,33 | - |
| 7. Company's gain | - | - | 6.940,19 |
| 8. Company tax (10%) | - | - | 694,02 |
| 9. Company profit after tax | - | - | 6.246,17 |
| 10. Capital gain tax (10% + city tax) | - | - | 718,31 |
| 11. Profit paid out to the owner | - | - | 5.527,86 |
How much is left to the Tradesman or how much does the entrepreneur get ?
As we mentioned earlier, a Tradesman does not pay his salary (although he can) but has the funds at his disposal after paying business costs. Unlike a Tradesman, an entrepreneur pays himself for his work. In this case, the entrepreneur pays himself a net salary of HRK 4.738,61 (in table 56.863,32 - annual amount). As you can see, the difference between what is left for a Tradesman who keeps business books (HRK 62.513,11) and an entrepreneur (56.863,32 (net salary) + 5.527,86 (profit) = 62.391,18 kn) is not large. Also, the profit that is the rest of the company can be paid to the owner of the company (10% of income and capital taxes and the corresponding surtax must be paid).
What we can quickly see is that the Tradesman who pays taxes in sum lumps ("paušalni obrt") , has the most money left in his account - 74.712,33 kn.
The only form of entrepreneurship in which you do not have to have an accountant is a trade with taxation, which means that the cost of doing business in other forms increases by the monthly cost of accounting.
Accounting and Trade Advice:
Although many of them do everything themselves, a number of trades still use the services of accountants. This is especially evident in the same companies that opened businesses with incentives for self-employment, thus financing accounting services from the incentives themselves.
Why is this useful to them? Although a lot of information is available on the Internet, you can often find yourself in a situation where you need information specific to your business and you don't want to spend time looking for information on the internet but dedicate yourself to your work. Also, a good accountant will advise you, or warn you to things you may not have even thought of. Either way, having someone you can call and quickly ask something is worth having, especially at the start of a business when you are not yet well versed in the specifics of tax laws in Croatia.
Also, it should be borne in mind that certain accountants monitor tenders for financing entrepreneurs and can direct you to sources of funding when the opportunity arises.