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Croatia – Thinking Beyond Borders

Thinking beyond borders


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An individual’s liability to Croatian personal income tax (PIT) is determined by their tax residence status and the source of their income. PIT is levied at progressive rates on an individual’s taxable income for the year.

Key message

Extended business travelers are likely to be subject to PIT on employment income relating to their Croatian work days (unless the individual qualifies for relief under the dependent personal services article of an applicable double tax treaty).

Income tax

Liability for income tax

An individual can be a tax resident or a tax non-resident. All resident taxpayers are taxable in Croatia on their worldwide income while non-residents are taxable on income from Croatian sources only. A resident taxpayer is an individual who has, in Croatia, their:

  • residence (if an individual owns/rents accommodation without interruption for at least 183 days over 2 consecutive calendar years; staying permanently in the accommodation, however, is not necessary)
  • 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 2 consecutive calendar years).
  • If an individual simultaneously has residence in Croatia and abroad (owns/rents accommodation without interruption for at least 183 days over two consecutive calendar years in a Croatia and a second state), their residence will be in the state where their family resides. If an individual is single, it is considered that the individual has permanent residence (and accordingly tax residence) in the state from which they mostly go to work or in which they mostly stay.

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

A non-resident taxpayer is an individual who has neither a residence nor habitual abode in Croatia but earns income from Croatian sources, which are subject to Croatian PIT.

Extended business travelers are likely to be considered non-residents of Croatia for tax purposes unless they enter Croatia with the intention to remain for more than 183 days over a period of 2 consecutive years.

Tax trigger points

There is no threshold/minimum number of days that exempts an employee from the requirements to file and pay PIT in Croatia. If an individual qualifies for relief pursuant to the dependent personal services article of an applicable double tax treaty, no PIT liability arises.

Types of taxable income

For extended business travelers, the types of income that are generally subject to PIT are employment income (encompassing benefits-in-kind) and other types of income that they might earn referable to the work performed in Croatia.

Tax rates

Taxable income of both residents and non-residents is taxed at progressive rates of 24 percent and 36 percent. City surtax may also be applicable and it is calculated on the amount of PIT payable, applying the relevant city surtax rate. The highest city surtax rate is in Zagreb, at 18 percent.

Social security

Liability to social security

A business traveler from a European Union (EU) member state is exempt from paying Croatian social security contributions provided an A1 form has been obtained from the relevant authorities.

If a business traveler comes from a country/territory with which Croatia has concluded a totalization agreement, and the relevant exemption forms are obtained to confirm the payment of obligatory insurance abroad, no Croatian obligatory social security contributions are required. Otherwise, depending on the case, the foreigner would need to at least pay health insurance contributions, where the amount of contributions is assessed directly by the tax authorities. The fixed health insurance contribution liability as assessed by the tax authorities amounts to approximately 70 Euros (EUR) per month irrespective of the amount of income received.

Employee compliance obligations

Individuals receiving income directly from abroad must report such income to the tax authorities within 30 days of receipt of the income via submission of a JOPPD form. An annual income summary form, the IP form - must be prepared - to support the annual PIT return. An annual PIT return, if one is required to be submitted, is due at the end of February of the following year. Residents are obliged to submit an annual PIT return for income received from abroad only if during the year PIT advances were not paid or were paid in an amount lower than the amount prescribed by the PIT legislation.

Extensions are granted only in exceptional circumstances.

Compliance obligations

Employer reporting and withholding requirements

There are no compliance obligations for foreign employers for business travelers coming to Croatia unless they are EU citizens who become subject to Croatian social security contributions.

If a business traveler travels abroad from Croatia and remains subject to PIT in Croatia, their Croatian employer is required to withhold obligatory employee social security contributions and to pay employer social security contributions at rates specifically prescribed for business travelers. The employer is also required to ensure appropriate PIT withholding.

Other issues

Work permit/visa requirements

Provided that a third country/territory national does not have the status of a posted worker, such third country/territory national will be required to obtain either a confirmation of work, or a work and stay permit prior to commencement of work in Croatia.

A confirmation of work can be issued for a period of up to 30, 60 or 90 days in a calendar year, depending on the type of work that will be performed by the foreign national.

Work and stay permits can be issued for a period of up to 1 year and can be separated into two categories: those that are issued within the annual quota (i.e. each year the Croatian government publishes a decision on the number of such permits per certain job positions), and those issued outside of the annual quota. The issuance of the latter is possible only in cases explicitly set out in the Croatian Foreigners Law and with the fulfilment of prescribed requirements.

In addition to the work and stay permit or a confirmation of work, some third country/territory nationals also require an entry visa, which is merely an approval for entering the Croatian territory. A visa does not entitle the third country/territory national to perform any work in Croatia.

Stay and work of EEA nationals

As a result of Croatian accession to the EU on 1 July 2013, a difference between European Economic Area (EEA) nationals and nationals of other countries/territories (third country/territory nationals) was made. In general, EEA nationals can work in Croatia without obtaining a confirmation of work or a work and stay permit. If the intended duration of their stay exceeds 3 months in a consecutive 180 days, they are required to register their temporary stay in Croatia before a relevant police station in Croatia.

Please note that different rules apply to Austrian nationals. Considering that Austria has extended the restrictions for employment of Croatian nationals until 30 June 2020, Austrian nationals are treated as third country/territory nationals, meaning that they need to obtain a work and stay permit, or a confirmation of work before commencing any work in Croatia.

Double taxation treaties

Croatia has currently entered into double taxation treaties with more than 60 countries/territories.

Permanent establishment implications

A permanent establishment could be created as a result of extended business travel in Croatia if the travel lasts for more than 3 months in any 12-month period, unless the traveler is assigned to a Croatian entity and is subject to Croatian PIT.

Indirect taxes

The standard value-added tax (VAT) rate is 25 percent and applies to most products and services.

A reduced VAT rate of 13 percent applies to:

  • tourist accommodation services
  • full or half board services and the rent of campsites
  • certain newspapers and magazines, with the exception of newspapers and magazines that consist mainly or entirely of advertisements, or whose main purpose is advertising
  • edible oils and fats, baby food, (public) supply of water (except bottled or otherwise packaged drinking water) and refined (white) sugar
  • tickets for concerts
  • supply of electricity and public service of waste collection
  • urns and coffins
  • seedlings, seeds, fertilizers, pesticides and other agrochemical products
  • animal food except pet food
  • child diapers, child car seats and child food
  • live animals, raw or chilled meat, sausages and other butcher’s products
  • live and fresh fish, crabs, mollusks and other water invertebrates
  • fresh and dried fruit and vegetables and nuts
  • fresh poultry eggs; and
  • services and related copyrights of authors, composers and other artists.

A reduced VAT rate of 5 percent applies to:

  • bread and milk
  • educational literature (specified)
  • scientific magazines
  • cinema tickets
  • certain medicines
  • certain medical implants and orthopedic devices
  • books of professional, scientific, artistic, cultural and educational contents
  • certain daily newspapers.

A VAT exemption (with no input VAT recovery) applies to health and welfare services, education services, supplies by charitable organizations, supplies by museums, libraries, theatres, orchestras and other cultural services, financial and insurance services, betting and gambling, rental of residential property, postal services supplied by the Croatian National Post, public radio and television broadcasting and private use of personal motor vehicles, yachts, airplanes etc. when no input VAT was claimed.

Transfer pricing

Croatia has a transfer pricing regime that applies to any transaction between a Croatian company and a foreign related company, inclusive of any charges made to the Croatian company in respect of business travelers.

The transfer pricing provisions also apply to transactions undertaken between two domestic related entities if one of them has a preferential tax position (e.g. entitlement to a reduced corporate profit tax rate, exemption from corporate profit tax, or tax losses available for utilization).

Local data privacy requirements

Croatia has data privacy laws.

Exchange control

There are no limitations for foreign and domestic currency brought into Croatia (for either residents or non-residents). However, amounts in excess of EUR10,000 must be reported to the Croatian Customs Authorities. The Croatian Customs Authorities must report amounts in excess of EUR10,000 to the Office for the Prevention of Money Laundering.

Nondeductible costs for assignees

Non-residents can deduct from gross income only the basic personal allowance (currently 3,800 Croatian kuna (HRK) per month) and any obligatory foreign country/territory insurance contributions paid by the individual where a totalization agreement or EU Regulation on social insurance with the respective foreign country/territory applies. Any other costs or expenses are nondeductible.

Residents can deduct from gross income the basic personal allowance (currently HRK3,800 per month), as well as additional personal allowances for dependent family members, any Croatian employee social security contributions, and any obligatory foreign country/territory insurance contributions paid by the individual, where a totalization agreement or EU Regulation on social insurance with the respective foreign country/territory applies.

Additional deductions are available for both non-resident and residents for the following:

  • donations up to the amount of 2 percent of the receipts for which, in the current year, the annual tax return has been made and annual income tax has been determined or a special procedure took place establishing the annual income tax and income tax surtax
  • payments made by Croatian employers to Croatian voluntary pension funds (pillar III pension insurance) on behalf of Croatian employees up to a maximum amount of HRK500 per month per employee. 

If both spouses are tax residents and pay PIT, it is possible to share additional allowances for children and other dependents of the immediate family.

Croatian domestic tax law indicates that foreign-sourced income, which is subject to PIT abroad, is also subject to PIT in Croatia, but a tax credit for PIT paid abroad may be applied to reduce PIT otherwise payable in Croatia; the amount of PIT credited may not, however, exceed the amount of Croatian PIT payable on that foreign income.

All information contained in this document is summarized by KPMG Croatia d.o.o. za reviziju, a Croatia 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, based on the Croatian personal Income Tax Law (Official Gazette 115/16 and 106/18) and Croatian Social Security Contributions Act (Official Gazette 84/08, 152/08, 94/09, 18/11, 22/12, 144/12, 148/13, 41/14, 143/14, 115/16 and 106/18). 

© 2019 KPMG Croatia d.o.o. za reviziju, a Croatia 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.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. 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.

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