Croatia: Direct and indirect tax law amendments effective 1 January 2024

The Croatian Parliament on 28 September 2023 passed the following direct and indirect tax law amendments, generally effective 1 January 2024:

• City surtax on all types of income is repealed.
• The tax rates on income that is not taxed as final (employment income and other income) will be determined by cities/municipalities. Tax rates can be determined within the following ranges: a lower rate from 15% to 23.6% and a higher rate from 25% to 34.5%.
• The basic individual allowance is increased from €530.90 to €560. Consequently, the allowance for the dependent family members and disability is also increased.
• The threshold for applying the higher rate of individual income tax is increased from €47,780 to €50,400.
• The base for the first pillar of pension insurance for gross wages up to €1,300 is reduced. Individuals with a gross salary of up to €700 will benefit from the largest reduction of €300, and for individuals with a gross salary ranging between €700 and €1,300 the amount of benefit will be gradually reduced as the amount of the gross salary increases. The relief will not result with the reduction of pension insurance entitlements upon retirement.
• The tax rate on rental income is increased from 10% to 12%, and for income from property rights and alienation of real estate and property rights, the tax rate is increased from 20% to 24%.
• The general capital income tax rate is increased from 10% to 12%. The tax rate on income on the basis of share incentives is increased from 20% to 24%, and for income from capital based on withdrawal of assets and utilization of services by its members (so-called "hidden profit payments") from 30% to 36%.

• The treatment of joint-stock companies (d.d.) and limited liability companies (d.o.o.) is equalized in the case of share incentives.

• Withholding tax on market research and business consulting services (auditing, tax consulting) is repealed.
• The application of withholding tax exemption on dividends, interest and royalties is extended to companies that are tax residents in the European Economic Area (EEA). In addition to EU member states, the exemption is extended to Iceland, Liechtenstein and Norway.
• For payments made to non-cooperative jurisdictions the withholding tax rate is increased from 20% to 25%.

• Taxpayers can reduce their output VAT based on performed supplies in cases of inability of partial or full collection of receivables, when more than one year has passed since the receivable due date (subject to certain conditions, such as suing the debtors or initiating enforcement procedures, informing the tax authority of the performed corrections, etc.).

• Tips recorded in the fiscalization system are exempt from tax up to €3,360 per year. Tips above that amount are taxed as final other income at a rate of 20%.
• The date of payment of the annual tax liabilities has been fixed according to the deadline for submitting the tax returns: for personal income tax on 28 February, and for corporate profit tax on 30 April. This rule applies as of annual tax returns for the year 2023.
• Euro amounts are rounded in favor of taxpayers.
   

Read an October 2023 report [PDF 1.2 MB] prepared by the KPMG member firm in Croatia