A number of tax laws have been changed from 1 January 2025. The changes have been introduced with the aim of strengthening tax discipline, increasing the number of available residential properties, reducing the taxation of active income and encouraging the repatriation of Croatian citizens. Here is a summary of the most significant changes.
A. PROPERTY TAX INTRODUCED IN ALL PARTS OF CROATIA
Due to a shortfall of residential properties on the market, heavier taxation of unoccupied properties and properties currently used for short-term rent has been introduced. The previous optional Tax on Holiday Homes has been replaced by a mandatory Property Tax. All cities and municipalities in Croatia therefore need to introduce this annual tax, even if they have not imposed Tax on Holiday Homes in the past.
In principle, the Property Tax is payable by property owners (individuals and legal entities) on each residential property located in Croatia which is either not used for permanent dwelling or not rented on a long-term basis. In addition to properties that are used for dwelling, exemption from payment of this tax is also prescribed for certain other properties, for example: homes which their owners use for generating income from tourism, significantly damaged properties or properties recorded as an asset held for sale or acquired in a debt collection process (if less than six months lapsed between the recording/acquisition and 31 March of the year for which the tax is determined).
The tax burden will depend on the size of the property and the tax rate prescribed by the respective city or municipality (can be assessed in range of EUR 0.60 to EUR 8.00 per m2). Note that maximal Tax on Holiday Homes was EUR 5.00 per m2.
The same city or municipality may set different tax rates (within the prescribed range) taking into account the micro location of the property (street, settlement or zone) and other criteria (year of construction or certain amenities that increase the property value).
B. PERSONAL INCOME TAX AND CONTRIBUTIONS
Incentives for the repatriation of Croatian citizens
Croatian emigrants and their descendants, as well as their family members, who return / come to live in Croatia, are exempt from paying personal income tax on salaries for a period of 5 years. Certain conditions apply; for example, Croatian emigrants must have lived abroad continuously for at least two years or that family members must be granted temporary or permanent residence in Croatia.
Reduced taxation of active income
The annual tax base for the application of the higher personal income tax rate has been increased from EUR 50,400 to EUR 60,000 per year and from EUR 4,200 to EUR 5,000 per month, resulting in more income subject to lower tax rate.
The maximum amounts of the lower and higher personal income tax rates have been reduced for additional potential reduction of tax burden. Cities and municipalities can set the lower tax rate between 15% and 22% (before: 23%) and the higher tax rate between 25% and 32% (previously: 34.5%). City of Zagreb can prescribe lower tax rate between 15% and 23% (previously: 23.6%) and higher rate between 25% and 33% (previously: 35.4%).
The basic personal allowance has been increased from EUR 560 to EUR 600 and consequently additional personal allowances for dependent family members have increased. This change will also result in higher amounts of certain tax-free payments, such as bonus or severance payments.
Changes in exemptions from paying health insurance contributions
The 5-year exemption from payment of health insurance contributions for employees who are under 30 years of age at the time of commencement of employment contracts concluded on indefinite period has been abolished. This will result in higher employee costs. However, the exemption will continue to apply in relation to current employees (employed before 1 January 2025) until the end of the 5-year period.
The one-year exemption from payment of health insurance contributions in relation to first-time employees has been amended. This measure can now be used in relation to persons who are for the first time employed based on a contract concluded on indefinite period, regardless of previous work experience.
Taxation of tourist (short-term) rentals
After a long period of noticeably low tax burden on short-term rent, flat rate tax is increased: new range is between EUR 20 and EUR 300 per bed or accommodation unit. Different tax brackets are prescribed for four categories, according to the index of tourism development of the area.
C. CHANGES TO THE VAT LEGISLATION
Refund of Croatian VAT now available to businesses from all countries
Non-EU businesses now have much easier access to refund of Croatian VAT incurred on purchases of goods and services and on imports in Croatia. Based on the old rules (still applicable to refund requests raised in connection to VAT incurred in 2024), only businesses from the United Kingdom, Turkey, Switzerland, Serbia and North Macedonia could obtain the refund. This is because only these countries also grant VAT refunds to Croatian businesses (the reciprocity condition). This reciprocity condition has now been removed, meaning that businesses from all countries will be able to obtain a refund of the Croatian VAT (as long as other requirements are met).
VAT registration threshold increased
The threshold for obligatory registration of businesses as VAT payers has been raised from EUR 40,000 to 60,000. Small businesses which became VAT payers in the past due to inflationary pressures (as a result of which their annual revenue exceeded the old VAT registration threshold) are therefore able to exit the VAT system provided their annual supplies do not exceed EUR 60,000. A business which is not registered as a VAT payer applies a special scheme for small taxpayers under which such business does not charge VAT on its outgoing supplies (exemption from VAT) but cannot deduct VAT on incoming supplies.
Extension of the special scheme for small taxpayers to cross-border transactions
Under certain conditions, Croatian businesses using the special scheme for small taxpayers are from 1 January 2025 able to apply the exemption also on their supplies made in other Member States. Also, small taxpayers established in another Member State are able to apply the VAT exemption on their supplies made in Croatia (transposition of the EU Directive 2020/285).
D. STRENGTHENING TAX DISCIPLINE
Shareholders to act as guarantors for the payment of tax if the company fails to file tax returns
In order to facilitate the collection of taxes, if companies fail to submit the monthly and annual tax returns, the shareholders can be held liable for payment of the company’s tax liability (as determined by the Tax Authorities).
Extension of the period for initiating tax inspections
The exception that allows tax inspections to commence within a period of six years (instead of regular three years) from the beginning of the statute of limitation period has been extended to cover cases in which a taxpayer is involved in cross-border transactions or performs business abroad and where there is reasonable suspicion of certain criminal offences (relating to the bribery and trading in influence).
E. OTHER CHANGES
- The statute of limitation on payment of taxes does not run in cases where the Tax Authority was not able to initiate the payment procedure.
- The obligation to communicate with the Tax Authorities and to submit and receive documents exclusively by electronic means has been extended to all corporate profit taxpayers, self-employed individuals, individuals receiving income from the rental of real estate for tourism purposes and crew members of ships in international navigation.
- The Minister of Finance has published the market interest rate relevant for recognition of interest and expenses arising on related party loans. For 2025, the market interest rate is set at 4.38%.
