Amendments to tax regulations from January 1, 2024

The Croatian Parliament has adopted laws that represent the so-called mini tax reform, which will come into effect on 1 January 2024.

1. Corporate Profit Tax (“CPT”) and Withholding Tax (“WHT”) - starting from 12 October 2023

• The value of small inventory has been increased from EUR 464.53 to EUR 665.
• Tax-deductible expenses relating to donations can exceed the 2% revenue threshold, in case of donations for the purpose of financing in line with strategic projects.
• Withholding tax is abolished for market research services and business consulting services is abolished (except payments to EU non-cooperative jurisdictions – 25%). 
• Withholding tax is also abolished for dividends, profit shares, interests, and license fees paid to entrepreneurs from the European Economic Area (Norway, Iceland, Liechtenstein). 
• Exemption from withholding tax on interest and license fees between related companies from different EU member states is prescribed, even before the expiration of a 24-month holding period, with appropriate guarantee.
• The withholding tax rate for payments to EU non-cooperative jurisdictions is increased from 20% to 25%. 
• Deadline for payment of Corporate Profit Tax is 30 April.

2. Value Added Tax (“VAT”)

• Taxpayer can reduce the tax base in the following situations:
  • In case of return of goods (revocation) or various types of discounts, provided that the taxpayer to whom the goods were delivered or the service was provided is informed about the VAT correction made.
  • If the entrepreneur is unable to collect part or the whole receivable for more than one year, but within 6 months.
• All amounts in the Law are rounded, and the most significant change is the increase of the threshold for VAT registration to EUR 40,000 (current threshold=EUR 39,816.84)
• Providers of payment services are obligated to collect detailed information on cross-border payments.

3. Personal Income Tax („PIT“) and Contributions

• As of 1 January 2024, city surtax is abolished.
• PIT rates of 20% and 30% are abolished. Municipalities and cities can decide on new PIT rates in a manner that the previous lower rate of income tax (currently 20%) will range from 15% to 23.6%, and the higher rate (currently 30%) will range from 25% to 35.4%.
• The basic personal allowance will amount to EUR 560, instead of the previous EUR 530.90.
• Due to the abolition of city surtax, tax rates for final income are increased (e.g., income from interest, which was taxed at a rate of 10%, will now be taxed at a rate of 12%, and income from the alienation of real estate and property rights, which was taxed at a rate of 20%, will now be taxed at a rate of 24%).
• Absolute amounts of personal allowance for the dependent family members are increased by applying a coefficient to the basic personal allowance.
• The threshold for applying the higher personal income tax rate of 30% is increased from EUR 47,780 to EUR 50,400.
• The base for the calculation of contributions for the first pillar pension insurance is reduced. For gross salaries up to EUR 700, the fixed allowance will amount to EUR 300, while for salaries from EUR 700.01 to EUR 1300, the allowance will be gradually decreased, as shown in the table below:

• Tips: amounts exceeding non-taxable amounts (which will be specified by the Personal Income Tax Bylaw) will be taxed as final income at a rate of 20%. Employers will report collected tips on a monthly basis through the JOPPD form, linked to the employees’ Personal Identification Number (OIB).
• February 28 will be the deadline for payment of Personal Income Tax, regardless of the date of filing the tax return.
• The tax treatment of employee share plans in a limited liability company (d.o.o.) is aligned with the tax treatment of employee stock plans in joint stock companies (d.d.), treating share option allocation in d.o.o. as capital income.

4. Other regulations 

• The range for the tax on vacation homes is increased from the previous 0.66 EUR/m2 to 1.99 EUR/m2 to a new range of 0.60 EUR/m2 to 5.00 EUR/m2.