EY
Radnička cesta 50 (Green Gold) 10000 Zagreb Croatia
Executive and immigration contacts
Maša Šarić
Marta Glasnović
A. Income tax
+385 (1) 5800-935
Fax: +385 (1) 5800-888 Email: masa.saric@hr.ey.com
+385 (1) 5800-923
Fax: +385 (1) 5800-888 Email: marta.glasnovic@hr.ey.com
Who is liable. Residents are subject to income tax in Croatia on their worldwide income. Nonresidents are subject to income tax on their Croatian-source income only.
A resident taxpayer is an individual who has a permanent or temporary place of residence in Croatia. A nonresident taxpayer is an individual who does not have a permanent or temporary place of residence in Croatia but derives Croatian-source income that is subject to tax in Croatia.
An individual is considered to have a place of permanent resi dency if he or she owns a place of abode or has one at his or her disposal for an uninterrupted period of 183 days. An individual does not need to stay in the place of abode to meet the 183-day threshold. If an individual stays in Croatia for at least 183 days, he or she is considered to have a temporary place of residence in Croatia. In both cases, the 183-day period may span more than one calendar year.
An individual who is single and has permanent residence in Croatia and abroad is deemed to have permanent residence in the country from which he or she mostly travels to his or her place of work. For an individual who has family, Croatian local law pre scribes that he or she has permanent residence in the country where his or her family has permanent residence.
Income subject to tax. Residents are subject to income tax on the following types of income:
• Income from employment
• Income from self-employment
• Income from capital
• Income from property and property rights
• Other income
Nonresidents are subject to tax on the same types of income as residents. However, they are taxed only on income sourced in Croatia. Nonresident performers (artists, entertainers, athletes) are not required to pay personal income tax if the fee for their
performance is paid to a foreign legal entity and subject to with holding tax in line with the corporate income tax law.
The taxation of various types of income is described below.
Employment income. Employment income includes receipts in cash or in kind provided by employers under current, past and future employment relationships. Employers may make certain types of payments that are free of tax to employees. These in clude voluntary pension insurance premiums, reimbursements of business trip expenses, daily allowances, Christmas bonuses, severance payments, accommodation, meal allowances and simi lar payments, all up to certain prescribed amounts. Employment income is subject to tax at the rates set forth in Rates
Digital nomad income. Personal income tax is not payable on the salary generated by natural persons who have obtained the digital nomad status. For further details regarding digital nomads’ status, see Section G.
Self-employment and business income. Individuals performing small business activities (sole trader activities) in their own name and at their own risk are subject to income tax on income derived from these activities, which is known as income from selfemployment. Business income is subject to tax at the rates set forth in Rates
Under certain conditions, self-employment and business income can be taxed under the rules applicable for corporate taxation (at the corporate tax rate of 10% or 18%, depending on the circum stances).
In principle, all income attributable to business, including gains from the sale of property used in a business, is subject to income tax.
Capital income Interest income received from bank savings, securities, investment funds and loans is subject to a 10% with holding tax (plus city tax). The following types of interest are exempt from tax:
• Penalty interest
• Interest based on court rulings and resolutions rendered by local or regional authorities
• Interest derived from positive balance on giro, current and foreign-currency accounts
• Bank interest up to 0.5% per year
• Bond interest
• Yields from life insurance and voluntary pension funds
Dividends (and profit shares) are subject to a 10% withholding tax (plus city tax). Dividends paid out from profits realized in the period from 1 January 2001 through 31 December 2004 and from 1 March 2012 onward are taxable. Dividends that are used to increase share capital are not taxable.
Income from property and property rights Income from leasing of immovable and movable property is taxed at a rate of 10% (plus city tax), after a deduction of 30%, representing notional expenses.
Income from property rights and the disposal of property is taxed at a rate of 24% (plus city tax). However, capital gains derived from the sale of real estate are not taxable if the real estate meets either of the following conditions:
• It was held more than two years.
• It was used by the owner or dependent family members for lodging.
If a person sells more than three real estate or property rights in a five-year period, income from sale of real estate or property rights is taxed at a rate of 20% (plus city tax). The expenses incurred are deductible for tax purposes.
Other income Other income includes all types of income that cannot be included in one of the above categories, such as direc tors’ fees. Other income is taxed at a prepayment rate of 20% (plus city tax), without the right to deduct personal allowances. Exceptionally, other income tax will be increased by a rate of 100% (plus city tax) in the event of tax audit findings of unreported income and 30% (plus city tax) in the event of the claim ing back of pension contributions paid in excess of the annual limit.
Capital gains and losses. Capital gains derived from the sale of financial property acquired in or after 2016 are subject to tax at a rate of 10% (plus city tax). Realized capital losses may offset realized capital gains in the same year. Certain exceptions apply (for example, capital gains are not subject to tax if the financial property is held for at least two years).
Deductions
Deductible expenses
Compulsory social contributions payable by an individual on a specified type of income are deductible in determining taxable income. Personal expenses incurred to pro duce income from employment are not deductible.
Personal allowances
Resident and nonresident taxpayers may claim a basic personal allowance of HRK4,000 per month. Resident taxpayers may also increase personal allowances by the following:
• HRK1,750 for a dependent spouse and ascendants
• HRK1,750 for the first dependent child, HRK2,500 for the second, HRK3,500 for the third, HRK4,750 for the fourth, and HRK6,250 for the fifth
• HRK1,000 or HRK3,750 (depending on circumstances) for a dependent invalid child or other family member or for an invalid taxpayer
Nonresident taxpayers who are residents of the European Union (EU) can claim increased personal allowances in the same man ner as residents if their total Croatian-source income accounts for at least 90% of their total annual income.
To be considered a dependent family member, the individual’s annual earnings may not exceed HRK15,000. A dependent fam ily member is not required to live in the same household as the taxpayer.
Resident taxpayers may also claim deductions for donations made in Croatia up to the amount of 2% of income earned in the preceding year.
Business deductions. All business-related expenses are deduct ible from gross income for self-employed taxpayers who keep business books. Living or personal expenses are not deductible. Fifty percent of business entertainment costs and 50% of busi ness car costs are not deductible. Per diem allowances and travel costs are not taxable up to certain amounts specified by the tax regulations.
Rates. Personal income tax on employment income is levied at the following progressive rates (however, see the next paragraph).
Taxable income Tax rate Tax due Cumulative tax due HRK
HRK HRK
The above rates apply to employment income and other income that is included by default in the annual tax return. Income tax is increased by municipal surcharges (city taxes) ranging from 0% to 18%, which are levied on personal income tax by local governments. The highest rate of 18% applies in Zagreb.
Relief for losses. Tax losses may be carried forward for five years. Nonresidents may carry forward only losses incurred in Croatia. Losses may not be carried back.
B. Other taxes
Wealth tax. Croatia does not levy wealth tax on net property. However, tax is levied on certain types of property, including vaca tion houses (up to a maximum tax of HRK15 per square meter per year), cars (up to a maximum tax of HRK1,500 per year), motor bikes (up to a maximum tax of HRK1,200 per year), and boats and yachts (up to a maximum tax of HRK5,000 per year).
Estate and gift taxes. A tax is imposed on movable and immov able property, including cash, monetary claims and securities received by inheritance or donation at a rate of 4% on the fair market value of the property transferred. Certain transfers of property are tax-exempt, depending on the relationship between the transferee and the transferor and on the type of property. In addition, transfers of movable property are exempt if the fair market value of the property is less than HRK50,000 or if the transfer is subject to value-added tax (VAT).
C. Social security
Contributions. Employment income is subject to health and social security contributions at rates of 16.5% for employers (uncapped) and 20% for employees (partially capped).
Social security contributions consist of the following elements.
Employer rate Employee rate
Old-age pension 20
Health insurance
Other income is subject to a health care contribution at a rate of 7.5% for payers and 10% for recipients.
Capital income, income from insurance and income from prop erty and property rights are generally not subject to health and social security contributions.
Coverage. An employee who pays social security contributions in Croatia is entitled to benefits, such as health insurance for the employee and dependent family members, disability and professional illness insurance, unemployment allowances, retirement benefits and other benefits.
Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Croatia has entered into totalization agreements with the following jurisdictions.
Australia Korea (South) Quebec Bosnia and Montenegro Serbia Herzegovina North Macedonia Turkey Canada
In the EU, special rules contained in the regulation on the coordination of social security systems apply (EU Regulation 883/2004). These rules also apply to Iceland, Lichtenstein, Norway and Switzerland.
D. Tax filing and payment procedures
Personal income taxes are generally payable through withhold ing. However, for income received directly from abroad, the tax reporting and tax payment obligation arises within 30 days of receiving the income and rests with the individual taxpayer.
Croatian annual tax returns are generally filed by the end of February of the year following the year in which the income is earned. Under new rules introduced in 2017, annual taxes are assessed only with respect to employment income and other income. The tax authorities normally issue the annual assessment based on data on income and taxes reported in their IT tool during the year. This simplified procedure may not apply to indi viduals in a complex tax position or in cross-border arrangements.
Individuals who earn self-employment income from ongoing business activities must pay advance tax monthly in an amount determined by the tax authorities. The balance of tax due is pay able or refundable after the official assessment of annual per sonal income tax. The payer of self-employment income must withhold and pay personal income tax and contributions with respect to such income.
Nonresidents receiving Croatian-source income may need to regis ter with the tax office. For nonresidents employed by resident employers, the employer is responsible for tax withholding and reporting requirements. Residents and nonresidents who work in Croatia for a nonresident employer and are being paid from abroad must file monthly tax returns and pay advances of per sonal income tax within 30 days after the income is received. The same rule applies to any other income received directly from abroad (dividends, foreign pensions and other income).
E. Tax treaties
Croatia has entered into double tax treaties with the following jurisdictions.
Albania Indonesia Oman
Armenia Iran Poland
Austria Ireland Portugal
Azerbaijan Israel Qatar
Belarus Italy Romania
Belgium Japan Russian
Bosnia and Jordan Federation
Herzegovina Kazakhstan San Marino
Bulgaria Korea (South) Serbia
Canada Kosovo Slovak Republic
Chile Kuwait Slovenia
China Mainland Latvia South Africa
Czech Republic Lithuania Spain Denmark Luxembourg Switzerland Estonia Malaysia Syria
France Malta Turkey Georgia Mauritius Turkmenistan Germany Moldova Ukraine Greece Montenegro United Arab Hungary Morocco Emirates Iceland Netherlands United Kingdom India North Macedonia Vietnam
Croatia has adopted double tax treaties entered into by the former Yugoslavia with the following jurisdictions.
Finland Norway Sweden
F. Travel visas
Whether a foreign national must have a travel visa to enter Croatia depends on the individual’s country of origin. Travel visas are issued for tourist, business, personal or other purposes. The period of the stay of a foreign national with a travel visa varies according to the type of visa.
G. Permits for stay and work
Under the Act on Foreign Nationals, a foreign national must obtain a permit for stay and work if he or she enters into an employment relationship with a Croatian employer or if he or she is assigned to a Croatian company that is related to the individu al’s foreign employer.
In general, permits for stay and work for employment with Croatian employers are subject to a labor market test. Croatian employers must request a labor market test to confirm there is no available Croatian individual who can perform the required work. If the employer receives a positive test, it can then apply for the work permit for a foreign individual. Intercompany transfers, employment of “key personnel” or EU Blue Card work permits are not subject to a labor market test. Specific requirements are prescribed for employment of non-EU citizens under a “key per sonnel” function (share capital exceeding HRK200,000, employ ment of at least three Croatian citizens and gross salary above the
average). Specific requirements are also prescribed for the EU Blue Card (only for individuals with higher education [meaning they have a bachelor’s degree or a master’s diploma] and gross salary above the average).
The Ministry of Internal Affairs issues permits for stay and work, which are usually granted for a period of one or two years. However, foreigners who have obtained permanent residence in Croatia do not need to obtain a permit for work. Employers are fined if their foreign employees do not possess valid permits for stay and work.
The new Foreigners Act introduced a novel concept in the Croatian immigration system, which is the approval of a temporary stay for digital nomads. Digital nomads are thirdcountry nationals who are employed or performing work through communication technology for a company (including their own company) that is not registered in Croatia and who do not perform work or provide services to employers in the Croatian territory. The application for the approval of a temporary stay is submitted to the diplomatic mission or consular office of Croatia. If a third-country national does not need a visa to enter Croatia, the respective application can be submitted to the competent police department. The approval of a temporary stay is issued for one year.
Because Croatia joined the EU on 1 July 2013, EU nationals and individuals with permanent stay in EU countries are no longer required to obtain a work permit in Croatia. They are required only to register their stay in Croatia.
H. Residence permits
Under the Act on Foreign Nationals, foreign nationals must obtain residence permits for temporary residence or permanent residence. EU citizens may obtain a residence card, but it is not required.
Registration. Foreign nationals who stay in Croatia up to 90 days (with a travel visa, or without one if not required) must register at the local police station within 48 hours after their arrival in Croatia. This period is increased to eight days for EU nationals. If the foreign national stays in a hotel, the hotel must complete the registration. Each change of residence must also be regis tered.
Foreign nationals with temporary residence in Croatia must register their place of residence or change of address at the local police station within three days after their arrival in Croatia or their change of address.
Foreign nationals with permanent residence in Croatia must reg ister their place of residence or their change of address at the local police station within eight days.
Temporary residence. The temporary residence permit is issued for purposes of work, education, joining the family or other purposes determined by law. It must be obtained if the foreign national intends to stay in Croatia for a period longer than 90 days or for the purposes mentioned above.
Temporary residence is limited to stays of up to one or two years, with the possibility of extension, depending on specific circumstances.
Temporary residence permits are issued by Croatian diplomatic missions or consulates or by the Croatian Ministry of Internal Affairs for foreign nationals who do not need a travel visa to enter Croatia.
Permanent residence. Permanent residence is granted to foreigners who held temporary residence permits for five years without interruption before filing the request for permanent residence. Knowledge of the Croatian language is one of the requirements for non-EU nationals.
The Ministry of Internal Affairs must approve permanent residence.
I. Family and personal considerations
Family members of foreign nationals working in Croatia must apply separately for permits for stay and work (if they intend to work in Croatia). If they are EU citizens, only a stay permit needs to be obtained. A temporary residence permit for the purpose of joining the family is approved for a foreign national who is a close family member with respect to the following individuals:
• A Croatian national
• A foreign national who has been granted permanent residency
• A foreign national who has a temporary residence permit