Changes to Croatia’s tax laws (Effective starting 2021)

Each year, Croatia tweaks and adjusts their tax laws. There were a host of changes to the various tax codes that went into effect at the start of 2021.

In this post, we will review the different tax codes and the major changes that were implemented for 2021:

• Changes to the Income Tax Act
• Changes to the Profit Tax Act
• Changes to the Value Added Tax Act
• Changes to the Law on Fiscalization in Cash Transactions
• Other tax changes

Changes to Croatia’s tax laws (Effective starting 2021)

Changes to the Income Tax Act (Zakon o porezu na dohodak)

The Income Tax Act was modified and these changes are valid from January 1, 2021.

• View the updated law here.
• View the amendments here.

Tax rates for all types of incomes are reduced:

• From 24% to 20% on annual incomes of up to 360.000 kuna per year (30.000 per month)
• From 36% to 30% on annual incomes higher than 360.000 kuna per year (30.000 per month)
• From 12% to 10% on annual and final incomes and flat-rate taxation of business activities such as renting apartments

This applies to the tax on labor, capital, and property.

Additional changes include:

• Taxation of annual income is now simpler. All annual incomes are going to be taxed based on the threshold of 360.000 kuna. The new rate for annual incomes lower than this threshold is 20%, and for those higher than the threshold 30%.
• New “permanent” tax-deductible expense for an employer that is not considered a worker’s salary is prescribed
• Rental/lease agreements signed in front of a public notary must be delivered to the Tax Administration by the notary
• If the Tax Administration determines that the sources for the assets/property of a physical person have not been proven, the “criminal” tax is increased by 100%
• Realization of income from capital in-kind by members of the management board, employees and other persons through the allotment or optional purchase of own shares, regardless of whether they are realized on the basis of profit sharing or not is now easier
• Two new non-taxable income types are defined:
  • National benefits for the elderly
  • Receipts from the work or activity of a “digital nomad“

This is stated in Article 9 of the law:

(1) Porez na dohodak ne plaća se na:

25. Nacionalnu naknadu za starije osobe prema posebnim propisima

26. Primitke fizičkih osoba ostvarene po osnovi obavljanja nesamostalnog rada ili djelatnosti za poslodavca koji nije registriran u Republici Hrvatskoj temeljem stečenog statusa digitalnog nomada sukladno posebnom propisu.

Which translates to:

(1) Income tax is not paid on:

25. National compensation for the elderly according to special regulations

26. Receipts of persons acquired on the basis of performing non-independent work or activities for an employer who is not registered in the Republic of Croatia on the basis of the acquired status of digital nomad due to special regulation.

Changes to the Profit Tax Act (Zakon o porezu na dobit)

The Profit Tax Act was modified and these changes are valid from January 1, 2021.

• View the updated law here.
• View the amendments here.

Here are the implemented changes:

• Corporate profit tax rate decreased from 12% to 10% for taxpayers who earn incomes up to 7.500.000 kuna
• Tax rate on dividends and profit sharing decreased from 12% to 10%
• Withholding tax rate on performances of foreign performers (artists, entertainers, athletes) decreased from 15% to 10%, when the fee is paid under a contract with a foreign legal entity
• Credit institutions can now deduct write-offs of receivables (principal and interest) from unrelated natural or legal persons which were previously reduced and reserved in accordance with HNB regulations regardless of the type of loan
• Obligation for the taxpayer to make the necessary adjustments to the tax base in relation to transfer pricing is prescribed

Changes to the Value Added Tax Act (Zakon o porezu na dodanu vrijednost)

The Value Added Tax Act was modified and these changes vary in their start dates, as noted below.

• View the updated law here.
• View the amendments here.

These changes are valid from January 1, 2021:

• Threshold for the application of the taxation procedure according to the collected fees increased from 7.500.000 kuna to 15.000.000 kuna
• The possibility of applying the accounting category of VAT on import to all taxpayers entered in the VAT register who exercise the right to deduct input tax in full extended

These changes are valid from July 1, 2021:

• Deliveries which are considered as distance-selling of goods defined and the place of delivery at distance-selling of goods determined
• A new delivery threshold in the Republic of Croatia for the distance-sale of goods and electronically-performed services to persons who are not taxpayers from other EU Member States is defined and an old one abolished
• The existing special taxation procedure for telecommunications services, radio and television broadcasting services, electronically performed services and application of new special taxation procedures for taxpayers who provide services to non-taxpayers or sell goods at a distance or perform certain deliveries on the domestic market extended

These changes are valid from July 1, 2022:

• Application of VAT exemption to supplies for the armed forces within the framework of the EU common security and defense policy

Changes to the Law on Fiscalization in Cash Transactions (Zakon o fiskalizaciji u prometu gotovinom)

The Law on Fiscalization in Cash Transactions was modified and these changes are valid from January 1, 2021.

• View the updated law here.
• View the amendments here.

Changes in the Law on Fiscalization in Cash Transactions define the amounts for the cashier’s maximum. Categories of taxpayers who are considered fiscalization obligors are defined. Each category has a different amount of the cashier’s maximum.

Categories of taxpayers are:

• Natural person who is a taxpayer of the income tax on the basis of self-employment according to the Income Tax Act
• Legal and natural person who are taxpayers of profit tax according to the Profit Tax Act

Other tax changes

In addition to the above mentioned changes, some changes brought in previous years will be implemented in 2021.

These changes are:

• Implementation of the procedure of fiscalization of sales through self-service devices (due to changes from 2018)
• Presentation of QR code on the account collected in cash (due to changes from 2019)

You can learn more about Croatia’s tax system here.

Sources:
Izmjene poreznih zakona od 1.1.2021. by TEB
Nova godina donosi porezna rasterećenja i priprema nas za dolazak digitalnih nomada by HGK
POREZNA REFORMA 2021. – PROMJENE PROPISA U PRIMJENI OD 01.01.2021. by Kagor