Prospera MundiGuides · Transitions and legal form
Sole trade to d.o.o.: what transfers and what stays behind
A sole trade does not transform into a company. A new company is incorporated and the operating business is then transferred, with different rules for assets, tax, contracts, licences and employees.
Start with the economic unit
An economic unit is not merely a list of equipment. It is a combination of assets, inventory, receivables, rights and obligations capable of continuing the activity. If the qualifying unit is transferred to another taxable person, the transfer can fall outside a VAT supply, with the recipient treated as tax successor for that VAT purpose. The income-tax continuation rules likewise depend on taking the relevant business items into the successor’s records.
That special tax treatment is not proof that every contract and liability transfers automatically. Each legal relationship still needs its own transfer rule.
What requires separate work
- Debt: assuming a debt normally requires creditor consent. An internal agreement does not by itself move a bank loan or leasing obligation.
- Contracts: transferring a contract normally requires the other party’s consent or an effective prior consent and notice.
- Licences: sector licences are issued to a particular holder and may require a new application.
- Property and vehicles: the route—sale, contribution or qualifying business transfer—changes the tax and registration result.
- Employees: when a qualifying economic unit retains its identity, employment contracts transfer under the Labour Act, preserving rights and requiring prior written information.
Contributing assets at incorporation
A d.o.o. may be incorporated with contributions in things and rights under the prescribed documentation and valuation rules. A j.d.o.o. is different at incorporation: its business interests are paid only in cash. This distinction changes the order of steps when valuable equipment, vehicles or property are involved.
The acquiring company may also become a tax guarantor for specified liabilities connected with the transferred unit, limited under the statutory rule by the value of acquired assets. Tax due diligence therefore belongs before the transfer.
A complete service business
Equipment, customer contracts, receivables, supplier obligations, employees and operating records move together to the new d.o.o. The package can be analysed as an economic unit instead of a collection of unrelated asset sales.
Only the van is moved
The owner sells one vehicle to the new company while customers, debts and operations remain in the trade. Moving one asset is not the transfer of an operating economic unit, so the special whole-business treatment cannot simply be assumed.
Trade and company overlap
Both entities operate for a transition period and invoice each other. Transactions between related parties must use defensible market terms; the owner cannot choose an arbitrary internal price.
Frequently asked questions
Can a sole trade simply be converted into a d.o.o.?
Not by changing the name on the same legal person. The company is a separate person, so assets, contracts, employees and tax positions require a structured transfer.
Is VAT charged on transferring assets to the company?
The answer depends on whether assets are sold individually or an economic unit is transferred under the statutory conditions. The facts must support the chosen treatment.
May I contribute equipment and vehicles to a j.d.o.o.?
A j.d.o.o. has specific capital and contribution restrictions. Equipment can still be transferred through another lawful transaction, with valuation and tax consequences.
Is real-estate transfer tax due when property enters the company?
The legal form of the transfer and any statutory exemption determine the result. Ownership registration and valuation must match the transaction.
Do loans and contracts move automatically?
No. Assignment, assumption, novation or counterparty consent may be required, depending on the contract and the transfer structure.
What happens to employees?
If an undertaking or economic unit is transferred, the Labour Act can transfer employment relationships by operation of law. Otherwise the ordinary employment rules apply.
Does the new d.o.o. inherit the sole trade's tax liabilities?
Not merely because the owner is the same. Liability depends on the transaction, succession rules and any specific statutory basis.
Verified primary legal sources
Open verified primary sources (12)
The links open the primary legal texts used in the mechanical verification of this guide.
- Croatian General Tax Act35. para. 1.
- Pravilnik o provedbi Općeg poreznog zakona17. para. 1.
- Croatian Income Tax Rulebook40.
- Croatian Companies Act388. para. 1. and 3.
- Croatian Corporate Income Tax Act13.
- Croatian Real Estate Transfer Tax Act5. para. 2. and 14.
- Croatian Civil Obligations Act96.
- Croatian Labour Act137.
- Zakon o trgovini13. para. 3. and 9.
- Croatian Court Register Act53. para. 1.
- Pravilnik o privremenoj javnobilježničkoj tarifi12., 13., 16. and 40.
- Zakon o Hrvatskoj gospodarskoj komori29. and 32. para. 1.
Status date: 30 July 2026. This guide is general information, not tax or legal advice for a specific case. Croatian rules and annual amounts can change; the date above is part of the information.
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