Taxation of international executives
When are tax returns due? That is, what is the tax return due date?
End of February of the following year.
What is the tax year-end?
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, calculate and pay taxes levied on the income. Reporting to the tax authorities is made via submission of a JOPPD form. An annual income summary form, the IP form, must be issued to the taxpayer by 31 January of the following year). An annual personal income tax return, if one is required to be submitted, is due end of February of the following year.
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-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.
What are the current income tax rates for residents and non-residents in Croatia?
Income tax table for 2015
|Taxable income bracket||Total tax on income below bracket||Tax rate on income in bracket|
|From HRK||To HRK||HRK||Percent|
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:
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?
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 15days 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 will exceed three months. The same rule applies to the nationals of EEA countries which have imposed restrictions for employment of Croatian nationals (i.e. Austria, Malta, Netherlands, Slovenia and UK), but only if they have the status of a posted worker. If the nationals of these five countries do not have the status of a posted worker, they cannot start working in Croatia prior to obtaining a confirmation of work (which can be issued for a period of up to 30, 60 or 90 days in a calendar year), or a work and stay permit (which can be issued for a period of up to one year).
Nationals of non-EEA countries have to obtain a confirmation of work or a work and stay permit prior to commencement of work in Croatia.
The nationals of EEA countries which have imposed restrictions on employment of Croatian nationals and nationals of non-EEA countries who enter Croatia prior to obtaining a confirmation of work or a work and stay permit, can stay in Croatia as tourists for a period not exceeding 90 days over a six-month period (commencing from the first arrival day). They have to register their address with the police authority within 15 days of arrival (EEA nationals) or within 2 days of arrival (non-EEA nationals).
Any pre-assignment days are included in the number of days when determining tax 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.
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.
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 the end of February following the departure year. Assignees can also submit a final individual personal income tax return in order to claim a tax refund.
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.
Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
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:
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).
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):
The following payments/reimbursements are not included in taxable income if paid to a local employee:
In addition, income tax is not paid on the following items:
Voluntary pension insurance premiums paid on behalf on an employee by his/her employer with the employee's consent, to a voluntary pension fund registered in Croatia pursuant to the regulations on voluntary pension insurance, up to HRK 500 per month in the tax period or the total of HRK 6,000 per annum are not subjet to individual income tax.
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.
Are there any concessions made for expatriates in Croatia?
There is no special tax regime for expatriates.
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 income 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 formal confirmation of foreign income and taxes paid.
No, in the case of Croatian non-tax residents.
Are investment income and capital gains taxed in Croatia? If so, how?
Capital income includes the following:
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 was abolished as of 1 January 2015; therefore, a non-taxable threshold applies on the personal income tax returns for 2015 that will be submitted in 2016 year.
Gains arising from the disposal of real estate and property rights if the disposal takes place after three years of the date of acquisition.
With effect from 1 January 2015, interest on saving accounts is treated as income from capital, subject to income tax at the rate of 12 percent, plus city surtax if applicable. The tax is withheld by the payor.
Interest on a positive balance on giro accounts, current accounts and foreign currency accounts up to 0.5 percent per annum, interest on investment bonds and interest due pursuant to court rulings and rulings of the bodies of regional and local authorities are exempt from tax. Loan interest received by individuals from other individuals or legal entities is generally subject to withholding tax.
Rental income from Croatian property is taxable either at the rate of 12 percent, plus city surtax if applicable, 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.
|Residency status||Taxable at:|
*If Croatian sourced
Foreign exchange gains are not taxable nor are foreign exchange losses taken into account at the individual level.
Gains on the disposal of a principal residence are not taxable nor are losses taken into account at the individual level.
Capital losses are not taken into account at the individual level.
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, plus city surtax if applicable.
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.
Are there additional capital gains tax (CGT) issues in Croatia? If so, please discuss?
As of 1 January 2016, capital gains from the disposal of financial assets, acquired after 1 January 2016 and disposed of within 3 years from the date of acquisition, will be treated as income from capital subject to tax of 12 percent, plus city surtax if applicable.
Are there capital gains tax exceptions in Croatia? If so, please discuss?
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.
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.
What are the tax reimbursement methods generally used by employers in Croatia?
Current year gross-up.
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.
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.
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:
What are the general tax credits that may be claimed in Croatia? Please list below.
There are no general tax credits in Croatia.
This calculation3 assumes a married taxpayer resident in Croatia with supported family member (spouse and two children) whose three-year assignment begins 1 January 2013 and ends 31 December 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources (from savings)||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = HRK6,716073
Calculation of Taxable Income
|Days in Croatia during year||365||365||365|
|Earned income subject to income tax|
|Moving expense reimbursement||134.321||0||134.321|
|Interest income from savings from non-local sources||0||0||40.296|
|Total earned income||1.184.470||1.083.729||1.224.766|
|Other income (such as interest)||0||0||0|
|Total gross taxable income||1.113.190||1.012.449||1.140.526|
*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
|Taxable income as above||1.113.190||1.012.449||1.140.526|
|Croatian tax thereon||502.685||455.135||506.242|
|Domestic tax rebates (dependent spouse rebate)||0||0||0|
|Foreign tax credits||0||0||0|
|Total Croatian tax||502.685||455.135||506.242|
1Certain 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.
2For 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.
3Sample calculation generated by KPMG in Croatia - based on the 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, the Decision of the Constitutional Court of Croatia 83/04 and National Gazzette 143/14 effective as of 1 January 2015.
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