Croatia - Income Tax

Croatia - Income Tax

Taxation of international executives

Related content

Tax returns and compliance

Tax rates

Residence rules

Termination of residence

Economic employer approach

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Additional capital gains tax (CGT) issues and exceptions

General deductions from income

Tax reimbursement methods

Calculation of estimates/prepayments/withholding

Relief for foreign taxes

General tax credits

Sample tax calculation

PIT Law, published in National Gazette 177/04 dated 15 December 2004, effective as of 1 January 2005, amendments of PIT Law published in National Gazette 73/08 dated 19 July 2008, effective as of 1 July 2008, National Gazette 80/10 dated 18 June 2010, effective as of 1 July 2010, National Gazette 22/12 dated 17 February 2012 effective as of 1 March 2012, National Gazette 144/12 effective as of 1 January 2013, the Decision of the Constitutional Court of Croatia 120/13, National Gazzette 125/13 dated 27 November 2013, effective as of 5 October 2013 and National Gazzette 148/13 effective as of 17 December 2013.

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date? 

28 February.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Croatia? 

The annual personal income tax return is due by the end of February following the year for which tax is being assessed. Extensions are only granted in exceptional circumstances. Income tax assessed must be paid within 15 days from the day the taxpayer is served with the demand for payment. 

Generally, tax assessments are issued starting from April of the following year and up to the end of the following year. 

Individuals receiving income directly from abroad should within eight days from the receipt of the income report the income, and calculate and pay taxes levied on the income. Reporting to the taxation authorities is made via submission of a monthly JOPPD (as of 1 January 2014) form for Personal income tax purposes. An annual income summary form, the IP form (summarizing that years ID forms – which were submitted on a monhtly basis for the year 2013), must be submitted by 31 January of the following year year – applicable for the year 2013 (i.e. IP form should be submitted by 31 January 2014). An annual personal income tax return, if one is required to be submitted, is due 28 February of the following year. 

Residents

All resident taxpayers who source any type of income from abroad may be required to submit an annual personal income tax return, if such income is subject to tax in Croatia and if advance tax was not paid in Croatia and/or was paid in Croatia in an amount less than the amount which would be calculated pursuant to the provisions of the personal income tax Law.

Non-residents

Non-resident taxpayers may be required to submit an annual personal income tax return. Only Croatian sourced income of non-residents is subject to personal income tax in Croatia.

Tax rates

What are the current income tax rates for residents and non-residents in Croatia? 

Residents and non-residents

Income tax table for 2014

Taxable income bracket  Total tax on income below bracket Tax rate on income in bracket
From HRK To HRK HRK Percent
0 26,400 3,168 12
26,401 105,600 19,800 25
105,601 Over   40

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Croatia? 

A resident taxpayer is an individual who has in Croatia his/her:

  • residence (if an individual owns/rents accommodation without interruption for at least 183 days over two consecutive calendar years; however, permanent stay in the accommodation is not necessary) or
  • habitual abode (if the circumstances suggest that an individual permanently resides in that place or region for a period of at least 183 days over two consecutive calendar years).

A resident taxpayer is also an individual who does not have residence or habitual abode in Croatia, but is employed with the government service and receives a salary based on this appointment. 

A non-resident taxpayer is an individual who has neither residence nor habitual abode in Croatia, but sources income subject to Croatian personal income tax.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate. 
There is no de minimus number of days rule.
What if the assignee enters the country before their assignment begins? 
If the assignee enters Croatia before the assignment, and does not need a visa for Croatia, he/she may stay in Croatia as a tourist for a period not exceeding 90 days over a six-month period (commencing from the first arrival day), with the obligation to register his address with the police authority within 2 days of arrival. The assignee is not allowed to work during his pre-assignment. Any pre-assignment days are included in the number of days when determining tax residence. 
Foreigners who are nationals of a non-EEA country or an EEA country which has imposed restrictions for employment of Croatian nationals need to obtain either a confirmation of work or a work and stay permit prior to commencing with work in Croatia. If prescribed requirements are met, confirmation of work can be issued for a period of up to 30, 60 or 90 days in calendar year, while the work and stay permit can be issued for a period up to one year. 
Nationals of EEA countries which have not introduced restrictions for employment of Croatian nationals can start working in Croatia without obtaining a confirmation of work or a work and stay permit. Their only obligation is to register their address within 2 days of entering Croatia, and to register their temporary residence by submitting appropriate documents to the relevant police station if the duration of their stay in Croatia exceeds three months. 

Termination of residence

Are there any tax compliance requirements when leaving Croatia? 

If leaving Croatia permanently, an individual should inform the Ministry of Internal Affairs and his/her local tax office of his/her departure and make sure that any outstanding personal income tax is settled prior to leaving Croatia.

There is no need to submit a departure tax return at the time of departure. However, an individual can submit a final annual personal income tax return if he/she is entitled to a tax refund.

What if the assignee comes back for a trip after residency has terminated? 

Any post-assignment days are included in the number of days when determining tax residence.

Communication between immigration and taxation authorities

Do the immigration authorities in Croatia provide information to the local taxation authorities regarding when a person enters or leaves Croatia? 

Yes. The Croatian Ministry of Internal Affairs is required to ensure the delivery of all issued stay and work permits and confirmation of work certificates to the local office of the Croatian Tax Authorities.

 

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate? 

Assignees may be required to file a final individual personal income tax return (depending on their tax residence status and whether all personal income tax liabilities were settled correctly and timely) by 28 February following the departure year. Assignees can also submit a final individual personal income tax return in order to claim a tax refund.

Economic employer approach

Do the taxation authorities in Croatia adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Croatia considering the adoption of this interpretation of economic employer in the future? 

No. The taxation authorities are considering the adoption of this approach, but no formal guidelines (or non-binding opinions) have been issued to date.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days2

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations? 

As a rule, it can be stated that all types of remuneration and benefits-in-kind received by an employee for services rendered constitute taxable income. These include, but are not limited to, the following:

  • reimbursements of foreign and/or home country taxes
  • school tuition reimbursements
  • home-leave reimbursements
  • cost-of-living allowances
  • expatriation premiumsinterest-free or below-market-rate loans provided by the employer
  • housing allowances and the imputed value of housing provided directly by the employer
  • private use of a company car.
All benefits-in-kind are deemed taxable income. The fair market value is the amount chargeable to tax.
The value of benefits-in-kind provided should be grossed up to include personal income tax, city surtax (if applicable), and social security contributions (if applicable).

Tax-exempt income

Are there any areas of income that are exempt from taxation in Croatia? If so, please provide a general definition of these areas. 

The following payments/reimbursements are not included in taxable income (whether paid to a local employee or an expatriate assigned to a Croatian entity but only if the expatriate is sent on a business trip to perform services on behalf of the Croatian entity to which the expatriate has been assigned):

  • reimbursement of accommodation expenses on a business trip, up to the amount of actual expenses
  • reimbursement of travel expenses on a business trip, up to the amount of actual expenses
  • reimbursement of travel expenses to and from work by local public transport, up to the amount of actual expenses according to the price of single or monthly tickets
  • reimbursement of travel expenses to and from work by inter-city public transport, up to the amount of actual expenses according to the price of monthly or single tickets
  • daily allowances for business trips within Croatia, up to HRK170 (in addition to actual travel and accommodation costs)
  • daily allowances for business trips abroad, up to specified amounts (varies by country; in addition to actual travel and accommodation costs)
  • allowances for the use of a private car for business purposes, up to HRK2 per kilometer driven

The following payments/reimbursements are not included in taxable income if paid to a local employee:

  • annual awards cumulatively to HRK2,500 (usually paid for Christmas, during holidays, and so on)
  • jubilee payments from HRK1,500 (able to be paid for 10 years of service) to HRK5,000 (able to be paid for 40 years of service)
  • other payments up to prescribed amounts
  • different kinds of education provided by the company and connected with the company’s activity or necessary for making income of the company
  • specific work outfits labeled with the name or employer’s (or income payer’s) logo
  • compulsory health checks and general health checks, if provided to all employees
  • Croatian compulsory social security contributions provided by the employer.

In addition, income tax is not paid on the following items:

  • interest on Kuna and foreign currency savings on giro accounts, current accounts, and foreign currency accounts
  • interest on securities
  • gains realized in the sale of a financial property, if not considered the individual's main activity; and
  • Dividends and profit shares if:
    • Those were earned up to and including 31 December 2000; and in the period from 1 January 2005 to 28 February 2012
    • Those receipts were generated pursuant to an ESOP program (that is, based on employee shareholding)
    • The dividends and profit shares are used to increase the share capital of the company. 
  • Receipts from non-refundable EU funds and programmes for the purpose of education and professional training, up to the prescribed amounts. 

Partially tax-exempt income

A range of payments, benefits, and allowances are not taxable, up to prescribed amounts, when paid to individuals employed by a Croatian legal entity and up to a certain scale when paid to expatriates.

Expatriate concessions

Are there any concessions made for expatriates in Croatia? 

There is no special tax regime for expatriates.

Salary earned from working abroad

Is salary earned from working abroad taxed in Croatia? If so, how? 

Yes, in the case of Croatian tax residents. Residents must report all their worldwide income. If a tax resident individual works in Croatia and in addition during the same calendar year earns a salary and pays foreign taxes for work performed abroad, such foreign sourced income and foreign taxes paid must be reported in the individual's annual personal income tax return, supported with a salary confirmation and formal evidence of the foreign taxes paid.

No, in the case of Croatian non-tax residents.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Croatia? If so, how? 

Capital income includes the following:

  • Interest income on loans provided by physical persons (taxed at the rate of 40 percent).
  • Withdrawals of assets and usage of services by an entrepreneur (taxed at the rate of 40 percent).
  • Shares granted to or purchased by management board members and employees of a Croatian joint stock company via a stock option scheme (taxed at the rate of 25 percent, provided certain requirements are met).
  • Dividends and profit shares (taxed at the rate of 12 percent).
Tax on capital income is withheld at source without a right for the individual to claim expenses or personal allowances. An obligation to submit an annual personal income tax return does not arise.
A non taxable threshold for dividends and profit shares of HRK 12,000 per annum is able to be claimed upon submission of an annual tax return.
Capital gains arising on the disposal of property and intangible assets are subject to tax. Exclusions are the following:
  • gains arising on the sale of financial assets, being shares or other interests in a company which itself is a taxpayer
  • gains arising from the sale of other financial assets
  • gains arising from the sale of the taxpayer’s main residence.

Gains arising from the disposal of real estate and property rights if the disposal takes place after three years of the date of acquisition.

Interest and Rental Income

Interest earned from Kuna and foreign currency savings on giro accounts, current accounts, and foreign currency accounts are not taxable in Croatia.

Rental income from Croatian property is taxable either at the rate of 12 percent after a fixed deduction of 30 percent of the gross income or if the individual keeps business books, based on the actual income and expenses reported via the annual personal income tax return. The same approach should be taken for rental income sourced from abroad .

Gains from stock option exercises

Residency status Taxable at: 
  Grant Vest Exercise
Resident N N Y
Non-resident N N

Y*

*If Croatian sourced

 

Foreign exchange gains and losses

Foreign exchange gains are not taxable nor are foreign exchange losses taken into account at the individual level.

Principal residence gains and losses

Gains on the disposal of a principal residence are not taxable nor are losses taken into account at the individual level.

Capital losses

Capital losses are not taken into account at the individual level.

Personal use items

Any item taken from the Croatian entity to which the assignee was assigned for the personal use of the assignee should be treated as a benefit-in-kind for the assignee. Withdrawals of assets and usage of services for personal use of an entrepreneur or the shareholders of companies are taxed at the rate of 40 percent.

Gifts

Employees of Croatian companies may receive gifts or services tax free in the equivalent amount of HRK400 annually. Amounts above this annual limit are considered to be a benefit-in-kind.

Gifts provided to assignees should be treated in total as a benefit-in-kind.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Croatia? If so, please discuss? 

No.

Are there capital gains tax exceptions in Croatia? If so, please discuss?

Pre-CGT assets

No.

Deemed disposal and acquisition

No.

General deductions from income

What are the general deductions from income allowed in Croatia? 

In calculating taxable income, every resident taxpayer is entitled to deduct the following from his/her monthly gross salary.

  • A basic monthly personal allowance of HRK2,200 for each month for which tax is being assessed.
  • Additional allowances if the taxpayer supports qualifying family members; to be a supported family member the individual cannot earn or receive more than HRK11,000 of receipts per year, including receipts which are not subject to taxation.
  • Employee compulsory social security contributions (if paid in Croatia based on a valid employment agreement with a local company or if paid abroad in a country with which Croatia has concluded a totalization agreement based on a valid employment agreement with a foreign employer (provided the relevant totalization agreement forms for exemption from Croatian social security contributions are obtained) or EU social security contributions (paid in the Member State in which the taxpayer has remained socially insured).
  • Additional deductions are available for all taxpayers for donations up to 2 percent of their previous year’s income as evidenced in the previous year's annual personal income tax return.
If both spouses pay personal income tax, it is possible to share additional allowances for children and other dependents of the immediate family.
Croatian domestic tax law indicates that foreign earned income, which is taxed abroad, is also taxable in Croatia but a tax credit for taxes paid abroad may be applied to reduce tax otherwise payable in Croatia; however, the amount of tax credit may not exceed the amount of Croatian tax payable on that foreign income.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Croatia? 

Current year gross-up.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Croatia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on. 

Pay-As-You-Earn (PAYE) in the case of individuals employed by Croatian employers.

A similar principle is used in the case of assignees. Assignees must report the receipt of income and they are liable to pay tax within eight days from the date the income was received.

PAYG installments

When are estimates/prepayments/withholding of tax due in Croatia? For example: monthly, annually, both, and so on. 

In the case of individuals employed by Croatian employers, tax is due monthly or more often if payments are made more frequently.

In the case of assignees, tax is due monthly or more often if payments are received more frequently.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Croatia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on? 

To avoid double taxation, under Croatian domestic tax law and in accordance with tax treaties which Croatia has concluded with a number of countries, the credit method applies to foreign earned income and either the credit method or the exemption method applies to other forms of foreign income. If the credit system applies, the credit for tax paid abroad may not exceed the amount of taxes due in Croatia on that foreign income.

Croatia currently has a treaty for the avoidance of double taxation of income and property ratified and in effect with the following countries: 

  • Albania
  • Armenia
  • Austria
  • Azerbaijan
  • Belarus
  • Belgium
  • Bosnia and Herzegovina
  • Bulgaria
  • Canada
  • Chile
  • China
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Georgia
  • Germany
  • Greece
  • Hungary
  • Iceland
  • Iran
  • Ireland
  • Italy
  • Israel
  • Jordan
  • Korea
  • Kuwait
  • Latvia
  • Lithuania
  • Macedonia
  • Malaysia
  • Malta
  • Mauritius
  • Moldova
  • Montenegro
  • Netherlands
  • Norway
  • Oman
  • Poland
  • Portugal
  • Qatar
  • Romania
  • Russia
  • San Marino
  • Serbia
  • Slovakia
  • Slovenia
  • South Africa
  • Spain
  • Sweden
  • Switzerland
  • Syria
  • Turkey
  • Ukraine
  • United Kingdom

General tax credits

What are the general tax credits that may be claimed in Croatia? Please list below. 

There are no general tax credits in Croatia.

Sample tax calculation

This calculation3 assumes a married taxpayer resident in Croatia with supported family member (spouse) and two children whose three-year assignment begins 1 January 2011 and ends 31 December 2013. The taxpayer’s base salary is USD100,000 and the calculation covers three years. 

 

2013

USD

2014

USD

2015

USD

Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car* 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = HRK5,575922 

Other assumptions

  • All earned income is attributable to local sources.
  • All income indicated represents gross income (cash allowances are gross and the car benefit is treated as net and grossed up separately for Croatian tax purposes).
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is -earned on foreign bank accounts.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed tax resident throughout the assignment.
  • The employee lives in Zagreb (city surtax of 18 percent applied).
  • l Tax treaties and social security liabilities, including the potential impact of totalization agreements, are ignored for the purpose of this calculation. Accordingly, all employment income is subject to Croatian personal income tax and no local or foreign social security contributions are calculated / claimed as deductions.

Calculation of taxable income

Year-ended 2013 2014 2015
Days in Croatia During year 365 365 365
  HRK HRK HRK
Earned income subject to income      
Salary 557,599

557,599

557,599

Bonus 111,520

111,520

111,520

Cost-of-living allowance 55,760

55,760

55,760

Housing allowance 66,912 66,912 66,912
Company car* 65,775 65,775 65,775
Moving expense reimbursement 111,520 0 111,520
Home leave 0 27,880 0
Education allowance 16,728 16,728 16,728
Total earned income 985,814 985,814 985,814
Other income (such as interest) 0 0 0
Total income 985,814 985,814 985,814
Deductions 71,280 71,280 71,280
Total gross taxable income 914,534 914,534 914,534

*Value of the company car benefit, for the purpose of this calculation, is calculated as 1 percent of the purchase price of the car, USD 500 per month (that is, USD 6,000 per year). This amount is grossed up by 40 percent of Croatian personal income tax and 18 percent of Zagreb city surtax.

Calculation of tax liability

 

2013

HRK

2014

HRK

2015

HRK

Taxable income as above 914,534 830,894 914,534
Croatian tax thereon 408,919 369,441 425,447
Less 0 0 0
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Croatian tax 408,919 369,441 425,447

 

Footnotes

1 Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

Sample calculation generated by KPMG in Croatia - based on the New PIT Law, published in National Gazette 177/04 dated 15 December 2004, effective as of 1 January 2005, amendments of PIT Law published in National Gazette 73/08 dated 19 July 2008, effective as of 1 July 2008 , National Gazette 80/10 dated 18 June 2010, effective as of 1 July 2010, National Gazette 22/12 dated 17 February 2012, effective as of 1 March 2012, National Gazette 144/12 dated 21 December 2012, effective as of 1 January 2013, the Decision of the Constitutional Court of Croatia 120/13, National Gazzette 125/13 dated 27 November 2013, effective as of 5 October 2013 and National Gazzette 148/13 effective as of 17 December 2013.

© 2016 KPMG Croatia d.o.o., a Croatian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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