Croatia

Employment income (annual income)

Employment income includes all remuneration such as salaries and other payments in cash or in kind (except non-taxable payments up to the prescribed amounts) and pensions paid on the basis of the employment relationship.

Employers may give employees certain benefits that qualify as non-taxable. The following are the most common:

• Reimbursement of travel expenses for coming to work (determined in the amount of the actual cost incurred by public transportation, i.e. monthly public transportation ticket).
• Daily allowance for business trips in Croatia (up to EUR 30 per diem), plus travel and accommodation expenses.
• Daily allowance for business trips abroad (the allowed sums are defined by a special decision and depend on the country), plus travel and accommodation expenses.
• Payment for new-born babies (up to EUR 1,400).
• Reimbursement for use of the employee’s personal car for business purposes (up to EUR 0.50 per kilometre).
• Work performance awards and other forms of additional rewards for workers (additional wages, supplement to monthly wages, etc.) (up to EUR 1,120).
• Cash granted to employees upon retirement (up to EUR 1,400).
• Disability grant (up to EUR 560 per year), death benefit upon the death of an employee (up to EUR 1,120), and death benefit upon the death of the employee’s close family members (up to EUR 560).
• Occasional awards paid at Christmas, Easter, for vacation, etc. (up to EUR 700 per year).
• Awards to children until the age of 15 (up to EUR 140 per year).
• Awards to employees for 10, 15, 20, 25, 30, 35, 40, etc. years of service (up to prescribed amounts).
• Severance payments paid under certain conditions (up to prescribed amounts).
• Premiums for voluntary pension paid and borne by the Croatian employer into a Croatian voluntary pension fund for its employees are tax free up to EUR 67 per month (i.e. a total of EUR 804 per year).
• Reimbursement of meal expenses if invoices are provided as proof (up to EUR 800 per year; up to EUR 1,200 per year if invoices are not provided).
• Reimbursement of actual accommodation expense.
• Reimbursement of actual employee's children pre-school education expense.
• Premiums for supplementary and additional health insurance paid and born by the employer (up to EUR 500 per year).
• Lump-sum benefits for workers for work at a separate workplace (i.e. EUR 4 per day, no more than EUR 70 per month).

If any of these benefits exceed the prescribed limits, the difference is considered to be salary and is subject to PIT and employer’s and employee’s social security contributions.

The taxable base for employment income is equal to total remuneration less expenditures (i.e. employee’s social security contributions) and applicable personal allowances (see the Deductions section).

Tax rates applicable to the annual taxable base for employment income are provided in the Taxes on personal income section. Monthly tax brackets are provided in the table below.

Generally, tax calculation, withholding, and prepayments’ obligations, as well as all reporting obligations arising in respect to the realised income, lie with the income payer. However, there are cases (e.g. when income is realised directly from abroad) when this general rule is not applicable.

Self-employment income (annual income)

Taxable self-employment income includes income from:

• small business (craft) and activities equivalent thereto
• independent professions (e.g. doctors, lawyers, consultants, artists, and similar) under certain circumstances
• agriculture and forestry activities as defined by the PIT regulations, and
• activity of electricity production.

Individuals realising self-employment activity are obligated to keep business books and evidences.

The taxable base for self-employment income is equal to business receipts less tax allowable business expenditures and applicable personal allowances (see the Deductions section). Note that the relevant regulation specifically prescribes what is to be regarded as business receipts and business expenditures.

Taxpayers who earn self-employment income make monthly tax prepayments in accordance with annual tax returns that they are required to file after the year-end.

Tax rates applicable to the taxable base for self-employment income are provided in the Taxes on personal income section. 

A tax loss may be determined in respect of self-employment activities as well as other activities for which income is determined on the basis of business books. It can only be deducted from the income on the basis of which it has been determined. Tax loss can be carried forward for up to five successive years.

Derogations from the described tax compliance process are possible in case of a taxpayer realising self-employment activity who is not subject to VAT pursuant to the VAT Act and whose annual receipts from this activity do not exceed the amount prescribed by the VAT Act for the mandatory registration in the VAT system (EUR 40,000). The tax will be paid as a lump sum on the basis of the Tax Administration's assessment. Such taxpayer is not obligated to file an annual tax return in respect of this income.

Self-employed individuals are subject to social security contributions in accordance with special rules.

Other income (annual income)

There are two categories of other income: (i) annual other income and (ii) final other income.

Annual other income is considered to be realised on the basis of the following:

• Income received by the members of the supervisory, management, or other similar bodies of legal entities.
• Royalties paid pursuant to a special act governing copyright and related rights.
• Income arising from the activities of athletes.
• Income received by travelling salesman, agents, referees and sports delegates, interpreters, translators, tourist workers, consultants, expert witnesses, and similar activities.
• Income in kind, the use of buildings, means of transportation, favourable interest rates on credits, and other similar privileges granted by the payers of this income to individuals other than their employees.
• Rewards to pupils during practical work and apprenticeship, as well as income of pupils during dual model education above tax-free amount.
• Income of pupils and students in full-time education for the work via pupil and student associations, pursuant to special regulations above tax-free amount.
• Scholarships to pupils and students for full-time education at secondary, two-year post-secondary, and higher schools and universities above tax-free amount.
• Scholarships paid to athletes pursuant to special regulations for the improvement of their sport skills above tax-free amount.
• Cash rewards for sport achievements and compensations to athletes pursuant to special regulations above tax-free amount.
• Other unspecified income paid or given to individuals by legal entities and individuals (liable to profit tax or income tax based on self-employment activity) and other payers.

The taxable base for other income is equal to income less expenditures. Additional expenditures shall be recognised in the amount of 30% of the income acquired on the basis of:

• Royalties paid pursuant to a special act governing copyright and related rights, including considerations for delivered works of art paid to the persons engaged in artistic or cultural activities. Please note that in case of royalties received for the delivered work of art, 25% of the amount is considered non-taxable, i.e. total income is decreased by 55% (30%+25%).
• The work of professional journalists, artists, and athletes who are insured on that basis and pay compulsory insurance contributions pursuant to a ruling.
• The income of non-residents arising from artistic, entertainment, sport, literary and visual art-related activities, and the activities connected with the press, radio, and television shows.

Tax levied on other income is withheld by a payer of income at the lower tax rate (ranging between 15% and 23.60%, depending on the individual's place of residence or habitual abode in Croatia) without provision for taxpayers to claim personal allowances.

Normally, other income is subject to social security contributions from received income, levied at 10%, and on top of income, levied at 7.5%.

Note that a taxpayer realising other income may, upon request, determine one’s income in the manner prescribed for self-employment activities.

Income from property and property rights (final income)

Taxable income from property and property rights includes income from the following:

• Rentals and leases.
• Property rights.
• Disposal of property and property rights.
• Disposal of specific property categories (i.e. of waste) as in accordance with specific regulations.

Income from property and property rights is generally not subject to social security contributions. In specific circumstances, individuals realising income from property and property rights may be subject to social security contributions in accordance with special rules (e.g. if the income realised on this basis is taxed as self-employment income).

Rentals and leases

The taxable base for income from property on the basis of rental or lease of movables and immovables can be decreased by 30% for expenditures (lump-sum deduction). Tax payments are made according to the assessment issued by the Tax Administration.

The tax rate is 12%, and no personal allowance is allowed.

Property rights

The taxable base for income from property rights can be decreased by the amount of expenditures actually incurred, for which the taxpayer has proper and credible documentation. The expenditures are recognised based on a report that the taxpayer needs to file with the Tax Administration within 15 days as of year-end of the year for which the report is filed. The taxpayer needs to pay tax liability within 15 days of receiving the assessment. The tax rate is 24%, and no personal allowance is allowed. 

Disposal of property and property rights

The taxable base for income from disposal of property and property rights can be decreased by the procurement value (increased by a rise in producer prices of industrial products) and disposal costs. Tax payments are made according to the assessment issued by the Tax Administration. The tax rate is 24%, and no personal allowance is allowed. 

Disposal of waste

The taxable base for income from disposal of waste can be decreased in accordance with specific regulations. Tax payments are withheld by the income payer. The tax rate is 12%, and no personal allowance is allowed. 

Income from capital (final income)

Income from capital includes the following:

• Interest income (excluding: late payment interest; interest realised on the basis of court assessments and assessments issued by bodies of local and regional government; interest realised on the basis of positive balance on giro, current and foreign currency account realised from banks, savings institutions and other financial institutions up to the level of interest such payers pay for a vista deposits assuming such interest is lower than the lowest level of interest paid for fixed-term deposits and assuming it is not higher than 0.5% per year; interest from bonds [irrespective of the type of bond or bond issuer]; interest paid by debt securities and money market instruments issued by the Republic of Croatia and local and regional self-government units [e.g. treasury bills]; income realised on the basis of yield from life insurance with savings element and yield from voluntary pension insurance).
• Withdrawal of assets and use of services by the members of legal entities for their private purposes at the expense of the current year's profit (note that this is also applicable in case of individuals who earn self-employment income that is subject to corporate income tax/profit tax).
• Capital gains income realised from disposal of acquired financial assets and alienated within two years as of the date of acquisition when such alienation is not done between spouses, immediate family members, divorced spouses who are disposing of the assets in connection with the divorce, or when disposal is not in connection with financial assets' inheritance.
• Income realised by board members and employees from grant of public and private limited liability company’s own shares or stock options for purchase of own shares at a favourable price. This also applies to shares and options for purchase of related public and private limited liability company's shares at a favourable price.
• Dividends and shares of profit (and other corresponding distributions of profit) when paid out of profits realised in the period from 1 January 2001 through 31 December 2004 and as of 1 March 2012 onwards; there are certain exemptions (e.g. if dividends and shares of profit have been used for the purpose of increasing the company’s registered capital, if income is realised from investments into the Croatian Homeland War Veterans’ Fund).

The taxable base depends on the type of income from capital. No personal allowance is allowed when calculating tax prepayments at the rates stated below.

Tax calculation, withholding, and prepayments’ obligations, as well as all reporting obligations arising in respect to the capital income, lie with the income payer (unless income is realised directly from abroad) except for capital gains income.

The tax rates applicable to the taxable base are the following:

• Income from interest, dividends, capital gains: 12%.
• Income from grant of own shares or stock option based on purchase of own stock at a favourable price: 24%.
• Income from withdrawals of assets and use of services: 36%.

Capital losses can be deducted only from capital gains realised in the same tax year. Capital losses in relation to the disposal of financial assets that would, in case disposal resulted in capital gains, be exempt from taxation cannot be offset against the capital gains.

When it comes to capital gains income, obligation of keeping records, determining income from capital gains, tax calculation, tax prepayments, and reporting obligations lie with the financial assets holder, who may arrange it with the company/individual/Central Depository & Clearing Company Inc. to take over all obligations except for tax payment obligation. In case of capital gains realised on the basis of disposal of participation in capital of limited liability companies, a taxpayer is obligated to report the disposal to the Tax Administration and shall be obligated to pay tax on the basis of the tax assessment issued by the Tax Administration.

Income from capital is not subject to social security contributions.

Other income (final income)

As already mentioned, there are two categories of other income: (i) annual other income and (ii) final other income.

Final other income is:

• income received on the basis of the repayment of first pillar pension contributions paid over the annual cap, where tax is levied at the rate of 36%, or
• income determined as a difference between taxpayer’s assets and reported sources of assets, where tax is levied at the rate of 36%; total tax liability is additionally increased by 100%, or
• other income in relation to temporary and occasional seasonal work in agriculture, where tax is levied at 10%, and
• other income on the basis of gratuity, paid above tax-free amount, where tax is levied at 20%.

No personal allowance is allowed.

Note that this type of other income is determined by the Tax Administration (with the exception of income in relation to temporary and occasional seasonal work in agriculture and income on the basis of gratuity).

Final other income (with the exception of income in relation to temporary and occasional seasonal work in agriculture and income on the basis of gratuity) is not subject to social security contributions.