Changes in Croatian Legislation: Third Chapter of the Tax Reform

Silvia Cancedda

David Jakovljevic

The Croatian government is working relentlessly on the recovery of the Croatian economy. Two rounds of tax reforms already took place in 2017 and 2018 respectively, with a third chapter being opened currently. As of 01 January 2019, a total of 80 laws and bylaws have been amended, most of them related to tax issues. We are hereby summarising an overview of selected legislation that has so far raised most interest.

Closely abiding by the National Reform Programme issued in 2016, the Croatian Government continues with its efforts to alleviate tax burdens for citizens and entrepreneurs and to promote healthy recovery of the Croatian economy. Croatia is facing a substantial issue with workforce deficit, due to heavy emigration of Croatians to countries with more attractive tax structures and better-paid salaries. Many laws and regulations have therefore been amended in the area of taxes, contributions, fiscalisation, island economy, energy sector and real estate.


Personal Income Taxes and Contributions

2019 brings certain changes regarding salaries:

  • The highest employment-tax rate of 36% will now apply to annual taxable base higher than HRK 360,000 (HRK 30,000 monthly), instead of the previously applicable 210,000 annually (17,500 monthly). This change is effective for all payments made after 01 January 2019, and also applies for December 2018 salaries paid in January 2019.
  • Employers can now pay an additional annual HRK 5,000 of non-taxable award to their employees. The purpose of the award is not directly specified, and it can be paid out in monthly payments. This change entered into force as of 01 December 2018 and many employers have taken advantage to pay higher Christmas allowances.
  • The amount of the minimum net salary has been increased from HRK 2,751 to 3,000 and the new Act on minimum net salary has been issued.
  • Contributions paid on top of the gross salary (the so-called Gross II) are decreased by 0.7%. The contributions for unemployment (1.7%) and safety at work (0.5%) have been abolished, whereas the contribution for health insurance has been increased by 1.5%. These changes, as well as new minimum salary, are effective for all salary calculations after 01 January 2019.
  • Scholarships will no longer represent an obstacle to children qualifying as supported family members for tax deduction purposes.


Value Added Tax

  • As of 01 January 2020, the general VAT rate shall be decreased from 25% to 24%.
  • Reduced rates of 13% and 5% have had their application extended: certain food (meat, fish, eggs, fruits and vegetables) as well as baby diapers are, from 01 January, taxed at 13% instead of 25%, whereas medicine, books, newspapers and magazines, regardless of their format (e.g. electronic) are reduced to 5%.
  • The amount of HRK 300,000 of delivered goods or rendered services within a year remains unchanged as a threshold for the mandatory registration as a VAT payer. However, the obligation to register shall occur during the year in which a threshold has been reached (previously the obligation was to register in the following year).
  • VAT payers are now obliged to submit an incoming invoices ledger along with the VAT return, in electronic format.
  • Fifty percent of input VAT on purchase of vehicles for personal use can be deducted, regardless of the purchasing value. Previously, the value limit was set to HRK 400,000.
  • Foreign entrepreneurs in possession of a Croatian VAT ID number, and those who invoice goods or services to a Croatian taxpayer, will no longer be able to transfer the tax obligation, but will have to charge the Croatian VAT to the Croatian customer.


Other changes

  • The Real Estate Transfer Tax has been further decreased to 3%. The government hopes that this will result in less avoidance of property transfer registration and that land registries across country will reflect the actual figures.
  • A withholding tax of 20% for transactions not subject to a Double Tax Treaty or similar agreement and paid to persons resident in the so-called tax havens, has been extended to apply to interests, dividends and royalties. A 15% WHHT is now due on fees paid to foreign performers (sportsmen and sportswomen, artists etc.)
  • Accounting records in paper format can now be converted to electronic form, for tax and audit purposes, maintaining the requirements of readability and integrity of their origin and content.
  • OPZ-STAT reporting is now due once per year as opposed to the quarterly reporting in force before 2019.
  • The licencing of accountants, which was supposed to take effect as of January 2019, has been abolished, in accordance with the EU recommendations for ensuring quality of standards and services through voluntary certifications rather than formally imposed licencing.


The above list is not a comprehensive overview of all changes introduced in 2019 but a mere selection of what we consider to be the most interesting and important amendments.

We recommend Croatian businesses seek professional assistance with an in-depth survey of the legislation changes affecting them.


XLNC MAGAZINE | No. 03 | May  2019

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