If you intend to move to Croatia or already reside there, it’s important to know how the country’s tax system works. Croatia is a member of both the European Union and the Eurozone, hence its tax system follows European standards while also following its own rules. The Croatian tax system isn’t too hard to understand, but those who aren’t acquainted with it should be careful when they use it. If you work, are self-employed, run a business, or merely live on money from abroad, knowing how taxes work in Croatia may help you avoid penalties and manage your money wisely.
Residency and tax responsibility
In Croatia, taxes are dependent on where you live. Tax residents are those who live in Croatia for more than 183 days in a calendar year or who have a permanent house or significant business interests in the country. Tax residents have to pay taxes on all of their income, whereas non-residents only have to pay taxes on income obtained in Croatia. This distinction is quite important for those who earn money, pensions, or have businesses outside of the US since it affects how much tax they have to pay. Croatia has agreements with other nations over taxes so that people don’t have to pay them twice. If you fill out the right documents, these agreements generally let you avoid paying Croatian taxes on certain types of overseas income or pay a lesser rate. To avoid paying taxes twice on the same income, expats should talk to a tax expert.
Personal income tax
Croatia’s personal income tax is based on a number of income levels and is progressive. After certain changes, the rates are usually 20% for income up to a certain threshold and 30% for income beyond that level. Local taxes, which differ from city to city, are also added to income tariff and may be anywhere from 0% to 18%. This means that the actual rate you pay may be higher depending on where you live. Wages, freelance income, rental income, capital gains, and pensions are all subject to personal income tax. Employers are responsible for withholding taxes and social security payments at the source, which makes things simpler for salaried workers. But those who work for themselves or as freelancers have to prepare their own tax returns and pay their taxes in advance all year.
Corporate and business taxes
Corporate tax is an essential thing for expats who run a company or invest in one. Croatia has a corporate profit tax, and the rates depend on how much money the company makes each year. Businesses that make less than a certain amount of money (around €1 million presently) pay a 10% tax rate. Bigger businesses pay 18%. Along with corporation tax, several levies may apply depending on the kind of business, such tourism or financial services. Businesses must also pay VAT, which is a tax on the sale of goods and services. The normal VAT rate is 25%, which is one of the highest in Europe. However, several goods and services, such food, newspapers, and pharmaceuticals, have reduced rates of 13% and 5%. If an expat’s business or freelance work makes more money than the legal limit, they should make sure they are properly registered for VAT.
Social security contributions and other taxes
Both employers and employees must pay social security taxes, which go towards health insurance, pensions, and unemployment benefits. These gifts are essential and should be included as part of net income. People who work for themselves also have to pay, and they usually pay more since they pay both the employer and the employee shares. The property taxes in Croatia are fairly modest and are set by the local government every year. But when you buy a house, you have to pay a 3% real estate transfer tax, and rental income is also taxed. Expats who own property should know the rules and reporting obligations in their area.
The most important thing is to know what your resident status is, what taxes apply to your income and activities, and when to file and pay them. Croatia has a tax system that is well-organised yet pays attention to the details. With the right planning, expats may have a smooth financial experience while living and working in the country.
You can also view these posts:
Understanding the impact of criminal records on immigration to Croatia
Getting a job as an expat in Croatia
Preparing for the immigration interview in Croatia
