Expat Taxes in Croatia part 2 – Part one is here.
6 Types of Tax in Croatia 2021
In Croatia, there are different types of tax governing certain areas. Some common taxes include income tax and VAT (Value Added Tax). These two accounts are for the vast majority of revenue collected by the Croatian government. However, there are many other forms of taxation in Croatia that may apply to your situation. By knowing these different types of taxation, you can be sure that you meet all of your tax obligations. Without further ado, below are the 6 Different types of tax.
This is charged annually on income generated during the year. Income can include salaries, wages, royalties, dividends, pensions, and rental income, to name a few examples. This income tax helps to cover the costs of public services in Croatia.
Aside from that, it also goes towards paying for public infrastructure, education, and medical costs. And that’s why many people in Croatia are charged this tax. In fact, it is divided into three categories, depending on income levels. These categories include; up to 15,000 Kuna, between 15,001 and 50,000 Kuna, and over 50,000 Kuna.
Value Added Tax (VAT)
This tax is charged on the value of goods and services at each stage of production and distribution. The standard VAT rate in Croatia is 25%. However, there are several exemptions from this tax.
These include medication, books and newspapers, as well as exports outside of the European Union (EU). Also, the reduced VAT rate of 13% is applied to a range of goods and services, such as food, hotel accommodation, cultural and sports events.
This tax is levied on the profits of companies registered in Croatia. The rate of corporation tax is 20%. This tax is used to finance public services and infrastructure projects. Not only is that, but this tax also has benefits for companies in Croatia. This includes that making a loss can be carried forward against any profits during the next five years.
Personal Income Tax
This is similar to income tax but applies to individuals (not corporations). It is levied on certain incomes of Croatian residents. The standard rate of personal income tax in Croatia is 25%. There are also higher rates for high levels of income. These include a 35% tax rate on incomes over 150,000 Kuna and a 40% tax rate applied to incomes over 250,000 kunas.
The heirs pay this when an individual who has passed away leaves the property (or money) to them. The inheritance tax rate in Croatia is between 4% and 12%. As an expat, you are allowed to inherit certain possessions without paying this tax.
These items include personal items (clothing, furniture, etc.), some tools of the trade (e.g., a carpenter’s saw), one plot of land used for private purposes, and 2 hectares elsewhere
Real Estate Tax
This is charged on both individuals and corporations with respect to their ownership of the real estate in Croatia. The tax rates vary but are typically between 0.5% and 2%. Property used for business purposes is taxed at a higher rate than property used for residential purposes. Therefore, it is important to check the flow of tax reliefs, especially for property owners, not residents in Croatia.
7 Interesting Things to Know About Expat Tax in Croatia
In Croatia, there are no double taxation treaties, but with a tax residence certificate, Croatian citizens living in foreign countries don’t pay income tax on their income from abroad. Taxation rates in Croatia depend on your location and financial status.
A non-resident receives an income from a source outside Croatia for either a limited or unlimited period. Income earned as a non-resident is only taxed on income generated in Croatia. There are several tax rates that expats may be subject to in Croatia, and these vary depending on the income bracket you fall into. The following are the interesting things to know about expat tax.
1. National Insurance number (OIB)
Everyone who is employed in Croatia must have a national insurance number. Employers will usually apply for the Croatian national insurance number, but the individual should contact the Croatian tax office. You will need your national insurance number to file a tax return in Croatia. Also, you may need it to open a bank account or to get a residence permit.
2. Tax Residency
If you are resident in Croatia for tax purposes, you are taxed on your worldwide income. If you are not resident in Croatia for tax purposes, you are only taxed on Croatian-source income and Croatian property. Besides, you are only taxed on Croatian-source income if you have a permanent establishment or fixed base in Croatia. You can check your tax residency status with an online calculator here.
3. Personal Allowance and Tax Rates
There is no personal allowance in Croatia; everyone starts with an income of HRK 0 (HRK 1 for those born before 1949). After earning more than HRK 87,626 per year, your salary will be taxed at 16% until you reach HRK 106,356. At HRK 106,356, your salary will be taxed at 25%, and then at 35% for income between HRK 587,878 and HRK 1,076,356. Finally, any amount above that is taxed at 40%.
4. Tax Filing Deadline
The deadline to file the Croatian tax return is by 30 April each year, but if you do not have any tax payable in Croatia, you can file a return any time before the deadline. If you don’t file your Croatian income tax return by 30 April and you work for an employer who withholds taxes from your salary (like most people), then the term of limitation is three years after the end of the calendar year in which the taxes should have been paid.
5. Double Taxation Relief
If you are a Croatian tax resident, then you will qualify for double tax relief on foreign income if it is taxed in your home country too. You can claim this relief by completing the relevant section of the Croatian income tax return.
For example, if you work as an English teacher in Croatia on a Croatian work permit, you will pay tax to Croatia on your earnings. You may also have to pay income tax in your home country on your Croatian-source income. If so, you can claim relief against the foreign taxes paid, which effectively means that you do not have to pay more tax than necessary for these two taxes to be paid.
6. Currency Exchange Rate
The Croatian tax year runs from 1 January until 31 December, so you must use the average annual mid-market currency conversion rate for the whole of 2015 to convert foreign income and gains into kunas. This means that if you receive your salary in another currency, it will first need to be converted into euros. Then the euros will be converted into kunas at the average annual mid-market currency conversion rate for 2021.
7. Tax-Free Shopping
If you live in Croatia and have a valid residency card, you can shop tax-free in Croatia. This means that you do not have to pay Croatian value-added tax (VAT) on items you buy. You will need to show your residency card at the time of purchase.
Frequently Asked Questions about Expat Taxes in Croatia
What Types Of Income Are Taxable In Croatia?
Income tax in Croatia is levied on the income earned from employment, pensions, and individual capital gains. In addition, Croatian tax laws stipulate that all individuals who are residents of Croatia for tax purposes must pay taxes on their worldwide income to the Croatian Tax Administration.
Also, any income earned in Croatia by a non-resident is subject to Croatian taxation. Therefore, it is important to report all income earned in Croatia, regardless of residency.
How Is My Taxable Income In Croatia Calculated?
The taxable amount of your income in Croatia is determined by applying the progressive Croatian Personal Income Tax Law rates to your ‘Base for calculation of personal income tax,’ which is calculated according to the provisions of Section 6 of Croatian Personal Income Tax Law.
Meanwhile, your capital gains are taxed at a flat rate of 25%. But, if capital gains from your sales of shares are realized within six months from the date of purchase, 50% of that gain will be taxed as income.
Do I Have To Pay Croatian Taxes During My Stay?
All individuals who are residents of Croatia must file a tax return and pay personal income tax on their worldwide income to the Croatian Tax Administration. In fact, it is a legal obligation. In addition, expats who stay in Croatia for more than 183 days in a tax year must file a tax return and report their Croatian-sourced income.
How Are Expat Taxes In Croatia Calculated?
Many different factors affect the calculation of Croatian Expat Tax. These include your residency status, length of stay, and type of work you do. The best way to calculate this is to contact a local tax adviser who will help you understand what payments need to be made. Meanwhile, you can get more information on the Revenue Agency website.
What Is The Tax Rate In Croatia?
The tax rate in Croatia varies depending on your income level and individual circumstances. However, it is around 25 percent for most people, though some exemptions for lower-income earners.
Also, keep in mind that you may need to pay additional taxes on income earned from certain investments or activities. But, once again, it is best to speak with a tax specialist to find out more.
What Happens If I Don’t Pay?
If you do not file and/or pay your Croatian tax bill, the authorities may take legal action to collect what you owe. If that doesn’t work, they will likely start a criminal investigation against you – and we’re talking about serious prison time here.
So, be sensible and file your taxes on time every year. Also, make sure you keep your contact information updated with the tax office in case they need to get in touch with you.
Do you live in Croatia as an expat? If so, have you considered your tax situation here? Many people move to this part of Europe, but very few realize that their home country may still expect them to pay taxes. Nonetheless, this article explained the main aspects of filing and paying taxes as an expat in Croatia.