Thinking beyond borders
Extended business travelers are likely to be subject to PIT on employment income relating to their Croatian workdays (unless the individual qualifies for relief under the dependent personal services article of an applicable double tax treaty).
An individual can be a tax resident taxpayer or a tax non-resident taxpayer. A resident taxpayer is taxable in Croatia on their worldwide income while a non-resident taxpayer is taxable on income from Croatian sources only. A resident taxpayer is an individual who has, in Croatia, their:
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 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.
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.
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 work performed in Croatia.
Taxable income of both a resident taxpayer and a non-resident taxpayer is taxed at progressive rates of 24 percent and 36 percent. City surtax may also be applicable, and it is calculated based on total PIT payable, applying the relevant city surtax rate. The highest city surtax rate is in Zagreb, at 18 percent.
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 of that member state.
If a business traveler comes from a country/jurisdiction 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 level 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 individual’s income received.
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 PIT return, if one is required to be submitted, is due at the end of February of the following year. Resident taxpayers 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.
There are no compliance obligations for foreign employers for business travelers coming to Croatia unless the business travelers 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.
Provided that a third country/jurisdiction national does not have the status of a posted worker, the third country/jurisdiction 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.
A work and stay permit 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 a confirmation of work or a work and stay permit, some third country/jurisdiction nationals also require an entry visa, which is merely an approval for entering the Croatian territory. An entry visa does not entitle the third country/jurisdiction national to perform any work in Croatia.
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.
Croatia has currently entered into double taxation treaties with more than 60 countries/jurisdictions.
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.
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:
A reduced VAT rate of 5 percent applies to:
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.
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).
Croatia has data privacy laws.
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.
Non-residents taxpayers are able to deduct from gross income only the basic personal allowance (currently 4,000 Croatian kuna (HRK) per month) and any obligatory foreign country/jurisdiction insurance contributions paid by the individual where an EU Regulation or a totalization agreement on social insurance with the respective foreign country/jurisdiction applies, or any Croatian employee social security contributions, if the individual is subject to Croatian social insurance. Any other costs or expenses are nondeductible.
Resident taxpayers are able to deduct from gross income the basic personal allowance (currently HRK4,000 per month), as well as additional personal allowances for dependent family members, any Croatian employee social security contributions, or any obligatory foreign country/jurisdiction insurance contributions paid by the individual, where an EU Regulation or a totalization agreement or on social insurance with the respective foreign country/jurisdiction applies.
Additional deductions are available for both non-resident taxpayers and resident taxpayers for the following:
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 PIT credited may not, however, exceed of Croatian PIT payable on that foreign income.
All information contained in this publication is summarized by KPMG Croatia d.o.o. za reviziju, 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. The information contained in this publication is based on the Croatian Personal Income Tax Law (Official Gazette 115/16, 106/18, 121/19 and 32/20) 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).
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms 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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