Permanent Establishment Forms
A branch and a representative office of foreign individuals are two specific forms of a permanent establishment.
A trading company as well as a sole trader can open a branch ("Podružnica") outside of its/his headquarters. Branches are not legal entities. Their rights and obligations are attributed to the parent company. Contrary to national companies, foreign legal entities are forced to found a branch in Croatia to carry out business activities.
However, opening a representative office by foreign persons is only possible for Market research purposes in preparation for concluding specific contracts, as well as for marketing and information purposes. The permanent establishment term in most of the double taxation agreements between Croatia and other countries is mostly consistent with the permanent establishment term in Croatian law. Basically, the double taxation agreement applies the exemption method on foreign (active) permanent establishment revenues. With this method, double taxation is balanced by the fact that in the agreement it is specified which country has the full taxation right, while the other country is obligated to exempt the revenues from taxation.
Depending on whether the permanent establishment is founded by a natural or a legal entity located in a foreign country, different revenue tax consequences will result.