CroatiaTax Obligations Detailed

As of today, February 5, 2025, employers in Croatia face several tax obligations and labor law requirements. Be aware that tax laws are subject to change.

Employer Taxes and Contributions

• Social Security Contributions: Employers contribute 16.5% of the employee's gross salary for social security. This covers pension, health insurance, and other social security benefits.
• Disabled Employee Quota: Companies with more than 20 employees must meet a quota for employing disabled individuals. Non-compliance results in a monthly penalty of 30% of the minimum salary (currently 700 HRK as of January 1, 2025) per unfilled position. It is important to factor in this obligation when planning hiring strategies.
• Chamber of Commerce Membership: Businesses in Croatia are required to be members of the Croatian Chamber of Commerce. Annual fees range from 42 HRK to 3,973 HRK depending on the company's size and revenue.

Employee Taxes and Withholding

• Personal Income Tax: Employers withhold income tax from employee salaries. Income tax rates for 2025 are progressive:
  • 20% for annual income up to 50,400 EUR.
  • 30% for income exceeding 50,400 EUR.
• Municipal Income Tax: Municipalities in Croatia now have the authority to set their own income tax rates, which range between 15% and 23% of the employee's income tax liability. This replaces the previous system of a flat surtax.
• Tips: Tips exceeding the non-taxable amount (which is yet to be specified) are considered final income and are taxed at a flat rate of 20%. Employers report and withhold tax on tips through the JOPPD form.

Payroll and Reporting

• Payroll Cycle: Payroll in Croatia is processed monthly. Salaries must be paid by the 15th of the following month.
• 13th Salary: There's no legal requirement for a 13th-month salary. Employers can decide whether to offer it as part of their compensation package.
• Tax Filing: Tax returns and payments are due monthly or more frequently, aligning with the payroll frequency. The annual income tax return (DOH form) is due by the end of February for the previous year.
• JOPPD Form: Employers use the JOPPD form to report salary payments, taxes withheld, and social security contributions. It's submitted monthly and is a crucial compliance requirement.

Other Considerations

• Minimum Wage: As of January 1, 2025 the minimum wage in Croatia is 700 HRK per month.
• Tax Relief for Returnees: Individuals returning to Croatia after working abroad for at least two years can benefit from a five-year income tax exemption if they secure employment within Croatia upon their return. This incentive aims to encourage skilled workers to return.
• Youth Employment: Young people under 25 receive a full income tax refund. Those aged 25-30 get a 50% refund. While the health insurance contribution exemption for employees under 30 was repealed for hires after December 31, 2024, there is a new one-year health insurance contribution exemption for those entering permanent employment for the first time.

In Croatia, employee tax deductions involve income tax, surtax, and social security contributions, calculated based on gross salary and various factors like personal allowances and tax reliefs.

Income Tax

• Tax Rates: Income tax is progressive, with rates of 20% for annual income up to HRK 360,000 and 30% for income above this threshold. As of 2025, the personal allowance is €600 per month. This may be increased for dependent family members, as specified in the tax card (PK form) obtained from the Tax Administration. Additional allowances exist for specific circumstances, such as childbirth or disability.
• Tax Reliefs: Various tax reliefs are applicable such as for pension contributions. Returning Croatian citizens and descendants of emigrants may be eligible for a 5-year income tax exemption under certain conditions.
• Age-Based Reliefs: Those under 25 may qualify for a full income tax refund, while those aged 25-30 may receive a 50% refund, although information regarding this matter is subject to verification for accuracy in the case of the under-25s.
• First-Time Employment Relief: A one-year exemption from health insurance contributions is available for those entering permanent employment for the first time. Note that the 5-year health insurance exemption for young permanent hires, available before December 31, 2024, is no longer offered.

Surtax

• Municipal Surtax: Municipalities levy an additional surtax ranging from 0% to 18% based on the calculated income tax. The rate depends on the employee's municipality of residence.

Social Security Contributions

• Pension contributions: These contributions make up 20% of an employee's gross income.
• Health Insurance: While specific rates are not available within the context provided, health insurance contributions are mandatory for most employees, with exemptions for specific cases, such as first-time employment.

Tax Administration and Reporting

• Tax Card (PK form): Employees must obtain a tax card and submit it to their employer. This card, available from the Tax Administration, details personal allowances, municipality affiliation, and other relevant information for tax calculation.
• JOPPD Form: Employers are responsible for calculating, withholding, and remitting taxes, reported via the JOPPD form to the Croatian Tax Authority. This electronic form, filed via the ePorezna system, must be submitted on the payment date, while non-taxable benefits are reported separately by the 15th of the following month.
• Tax Return: The annual tax return deadline is the end of February of the following year. However, not all employees are required to file. Filing is usually required for self-employed individuals or specific instances such as those earning foreign income not previously taxed in Croatia.
• Tax Residency: Tax residency applies to individuals staying in Croatia for 183 days or more within a calendar year or having continuous residence available for the same period, indicative of non-temporary presence. Tax residents are taxed on their worldwide income, whereas non-residents pay taxes only on income from Croatian sources.

This information is current as of February 5, 2025, and might be subject to change due to legislative updates. It is recommended to verify details with the Croatian Tax Authority for the most up-to-date information.

Value Added Tax (VAT), known as Porez na dodanu vrijednost (PDV) in Croatia, is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 25% (Applies to most goods and services not specifically listed under reduced or zero rates)
• Reduced Rate 1: 13% (Applies to certain foodstuffs, non-daily newspapers and periodicals, hotel accommodations, catering services, concert tickets, water supplies (excluding bottled water), and domestic electricity)
• Reduced Rate 2: 5% (Applies to specific foodstuffs like bread, milk, and infant formula, books (including e-books), medicines (prescribed by a doctor), some medical equipment, cinema tickets, daily newspapers, and scientific periodicals.
• Zero Rate: 0% (Applies to intra-community and international passenger transport excluding road and rail, and exports)
• Exempt: Certain goods and services are VAT-exempt. These goods and services include, but are not limited to: insurance, residential property rentals, granting of credits and credit guarantees, transactions related to bank accounts and interest, investment fund management, lottery and gambling winnings, and the sale of undeveloped land (excluding construction land), education, healthcare, financial services, public postal service, letting immovable property, welfare services, and certain copyrights.

VAT Registration

As of January 1, 2025, businesses based in Croatia must register for VAT if their annual turnover exceeds €60,000. Prior to January 1, 2025, the mandatory VAT registration threshold for domestic businesses is €40,000. Foreign businesses not established in Croatia but supplying goods or services within Croatia, should register for VAT irrespective of their turnover. For EU businesses engaged in distance selling to Croatia, the VAT registration threshold is €10,000. Registration is also required if you store goods in Croatia or utilize fulfillment programs like Fulfilled-by-Amazon (FBA) involving Croatia. Applications for VAT registration should be submitted to the Croatian Tax Administration.

Voluntary VAT Registration: Businesses operating below the threshold may voluntarily register for VAT. If a business under the mandatory registration threshold exceeds it within the calendar year, VAT registration is required starting from the month following the month of reaching the threshold. This provision isn't applicable to specific sectors, such as agriculture, property rentals, and certain transport businesses. Once voluntarily registered, VAT payer status is mandatory for the remainder of that calendar year, plus the following year.

VAT Filing and Payments

• Filing Frequency: Monthly VAT returns are generally required. Businesses with annual turnover below €105,000 and no intra-community acquisitions can file quarterly.
• Filing Deadline: The 20th day of the month following the reporting period.
• Payment Deadline: VAT payments must be made by the last day of the reporting period's month.
• Filing Method: VAT returns must be filed electronically via the e-Porezna portal.

Penalties

• Late Filing: Penalties for late VAT returns range from €265 to €66,400.
• Late Payment: Interest of 5.89% is applied to late VAT payments.

VAT Refund for Non-EU Businesses

Taxpayers without a registered office, permanent establishment, or usual residence in the EU are eligible for a VAT refund.

SME Special Scheme

As of 2025, the EU's new SME Special Scheme introduces a VAT threshold of €100,000, allowing Croatian traders to sell VAT-exempt across other EU member states. This involves a new quarterly sales report and obtaining an EX number for invoicing, available only to resident businesses.

Croatia's 2025 tax reforms focus on boosting incomes, attracting skilled workers back to the country, and supporting young employees. These changes include adjustments to personal allowances, income tax thresholds, and new incentives for returnees and young professionals. Additionally, local governments now have increased flexibility in setting income tax rates.

Personal Income Tax

• Increased Personal Allowance: The personal allowance has been raised from €560 to €600. This increase will result in slightly higher net salaries for workers and pensioners.

• Adjusted Income Tax Thresholds: The threshold for the higher income tax rate has been raised from €50,400 to €60,000. This means that the higher tax rate will apply to annual earnings above €60,000.

• Local Government Tax Rate Flexibility: Local governments can now set their income tax rates, leading to variations across municipalities. These rates can range from 15% to 23% for the lower rate and from 25% to 33% for the higher rate, depending on the municipality size and decision-making process.

Incentives for Returnees

• Income Tax Exemption: Croatian citizens who have lived and worked abroad for at least two years will be exempt from income tax for five years upon their return to Croatia and securing employment. This incentive is designed to attract skilled workers and reverse brain drain.

Support for Young Employees

• Income Tax Refunds: Employees under 25 will receive a full refund of their income tax. Those aged 25 to 30 will qualify for a 50% refund. This measure aims to improve the financial standing of young professionals.

Additional Tax Information

• Investment Income Tax: Investment income is generally taxed at a flat rate of 10%, but certain exemptions apply, like interest on savings accounts.

• Capital Gains Tax: Capital gains are also subject to the 10% flat rate, with exemptions for real estate held for over two years and the sale of primary residences.

• Digital Nomad Visa: Croatia offers a digital nomad visa, allowing remote workers to live in Croatia for up to a year without paying Croatian income tax on foreign-sourced income.

• Property Tax: A new property tax, replacing the vacation home tax, is effective from January 1, 2025, applying to all residential properties with certain exemptions such as primary residences and long-term rentals. Local governments determine the tax rates, ranging from 0.6 to 8 EUR/m².

• Corporate Income Tax Deductions: Businesses can benefit from corporate income tax deductions based on investment amounts, enterprise size, and the number of new jobs created. These deductions can range from 50% to 100%.

• Investment Incentives: Incentives are available for various investments, especially in fixed assets, subject to specific criteria like minimum investment amounts and job creation. These incentives aim to stimulate economic activity and promote innovation.

It's crucial to note that tax regulations can be complex and change periodically. This information is current as of February 5, 2025, and it's always recommended to consult with tax professionals for personalized guidance.