Gifts to Business Partners

Business partners are persons with whom exists a certain business relationship or persons who are expected to establish such a relationship. Occasional gifts from business partners are a common practice in the business of entrepreneurs. These expenses are not fully tax-deductible, although they are expenses incurred for business purposes to establish the best possible business cooperation. In tax terms, this type of gift is considered representation.


According to the Ordinance on Value Added Tax, entertainment costs can appear as catering, donation of goods, payment for holidays, sports, recreation, leisure, car rental, use of boats or aircraft, use of holiday homes, concert tickets, theater, sporting events, tourist trips and the like.

As far as the deduction of input tax is concerned, it cannot be deducted based on Article 61, paragraph 1 of the Value Added Tax Act on incoming invoices if it refers to representation.

Thus, the entrepreneur cannot deduct input tax calculated:

  • When importing goods (used for representation),
    • For deliveries of goods and services in the country,
    • When acquiring goods within the EU and receiving services from the other Member States.

Since it is a cost of representation, input tax cannot be deducted, but in the case of deliveries of goods for resale where input tax is deducted in the regular procedure, then a tax liability is calculated on delivery, which increases the cost of representation.

Gifts of small value

Article 136 of the Ordinance on VAT states that occasional gifts of individual value up to HRK 160.00 without VAT, within the scope of economic activity, are not considered delivery of goods for a fee, which means that they are not subject to VAT. The condition that must be met is that the gifts are not given to the same persons and that there is no legal obligation of counter-delivery or counter-service of the recipient of the goods.

If it is a benefit for which there is a certain counter-service, then it is a delivery with compensation, by the provisions of Art. 4 para. 1 of the VAT Act. This giving is not considered a delivery if no more than one gift is given to the same person in one quarter.

Gifts for promotional purposes

If business partners are given products with an individual value of more than HRK 160.00, and they are marked “not for sale” and are specially adapted for these purposes, the costs of these products are considered advertising costs.

Profit Tax Act, Article 7, paragraph 6, defines that such gifts are not considered representation and there is no increase in the base of profit tax on them.


According to Article 11 of the Ordinance on VAT, the free supply of samples to customers or potential customers is not considered a supply of goods for a fee:

  • if those goods are marked as such and represent a type of goods that is the result of the taxpayer’s business or is related to the performance of his activity, and
    • if they are given in reasonable quantities.

Reasonable quantities are considered to be the quantity needed to estimate the sample given for a potential buyer to be able to procure such goods.

Please note that this provision does not limit the value of samples and the cost of samples will always be exempt from VAT on their delivery, regardless of value.

Article 7, paragraph 6 of the Profit Tax Law defines that products and goods from the taxpayer’s range adapted for these purposes with the label “not for sale”, and other advertising items with the name of the company, product, and other forms of advertising (glasses, ashtrays, tablecloths, coasters, pens, diaries, lighters, pendants, etc.) given for use in the customer’s sales area are not considered representation. If such products and goods are given to consumers, they are not considered representation provided that their value is up to HRK 160.00 (excluding VAT).

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