Croatia – Amendments to Personal Income Tax Regulations

Croatia – Amendments to Personal Income Tax Regulations

In the last few years, significant amendments to Croatia’s personal income tax legislation have resulted in a reduction of the tax burden of many individuals. Continuing this trend, as of 1 September 2019, the range of “receipts” that can be provided to employees as non-taxable has been extended, and includes such things as employee meal costs, accommodation expenses, child-care costs, etc.

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In the last few years, significant amendments to Croatia’s personal income tax legislation have resulted in a reduction of the tax burden of many individuals.1  This trend, yielding a steady reduction in the once-heavy tax burden faced by Croatian taxpayers, continues.  As of 1 September 2019, the range of “receipts” that can be provided to employees as non-taxable has been extended.  

WHY THIS MATTERS

The changes could help to provide:

  • additional possibilities for employers to (re)structure remuneration packages;
  • a reduction in the tax burden for those employers that already provide their employees with reimbursements as noted in the table below;
  • a positive impact on labour mobility and labour retention in Croatia;
  • an enhanced competitiveness for Croatian employers; and
  • a boost to foreign investment into Croatia, given that the costs of seconding foreign workers to work on projects in Croatia will be reduced.  

Amendments in Effect from 1 September 2019

Additional non-taxable payments2 Amount Additional requirements
Employee meal costs based on supporting documentation Up to HRK 12,000 annually
  • Invoices must be issued in the employer’s name;
  • Invoices must be settled through a non-cash means of payment directly to the provider of the service;
  • It must be clear that a continuous service is provided by employees during work-days. 
Cash lump-sum payment covering the costs of an employee’s meals  Up to HRK 5,000 annually
  • Payment directly to the bank account of the employee;
  • The cash lump sum up to HRK 5,000 and meal cost per invoice up to HRK 12,000 are mutually exclusive.
Accommodation expenses  Up to the amount of actual expenses
  • Supporting documentation is required;
  • If an employer has signed a contract with a lessor, the fee must be settled through a non-cash means of payment;
  • If an employee has signed a contract, the fee must be transferred to the account of the employee.
Reimbursements of regular child-care costs (pre-school) Up to the amount of actual expenses
  • Supporting documentation (invoices) is required;
  • Excludes additional programs that are additionally payable.
Reimbursements for tourism, catering, and other service expenses for an employees’ holiday* Up to HRK 2,500 annually
  • These conditions will be regulated by the Croatian Ministry of Tourism.

An increase of the amount of the non-taxable daily allowances for business trips within Croatia

> 12 hours

HRK 200 (instead of previous HRK 170)
  • Travel expenses incurred at the business trip destination (e.g., taxi costs, use of public transport, etc.) cannot be reimbursed as non-taxable as they are included in the daily allowance for business trips;
  • However, the costs of public transport that relate to the first arrival in the business trip destination and departure from the business trip destination can be reimbursed as non-taxable.

> 8 to 12 hours

HRK 100 (instead of previous HRK 85)

*  Personal income tax regulation provisions that relate to reimbursements for tourism, catering, and other service expenses for an employees’ holiday are not effective as of 1 September 2019. It will be possible to provide respective reimbursements as non-taxable, once regulated by the Croatian Ministry of Tourism.

FOOTNOTES

1  For prior coverage, see GMS Flash Alert 2019-020 (6 February 2019).

2  To see the Amendments on personal income tax bylaw (Official Gazette (Narodne Novine) 80/19) (in Croatian), click here.

 

HRK 1 = EUR 0.135 

HRK 1 – USD 0.148 

HRK 1 = GBP 0.1195  

The information contained in this newsletter was submitted by the KPMG International member firm in Croatia.

© 2022 KPMG Croatia d.o.o., a Croatian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


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GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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