Are you an American considering relocation to Croatia for work or retirement? If so, you may liable for taxes on your income or other assets while in the country. In this article, we’ll outline some of the tax issues facing expats in Croatia and the major categories of taxation in Croatia.
Overview of Taxes in Croatia
Croatia is one of the newest members of the European Union, entering into the transnational union in 2013. The years since the dissolution of Yugoslavia have brought many reforms to the newly-independent country, and taxes in Croatia compared to US and Western European taxation are now much more similar. As of 2013, total tax revenues in Croatia were 26.6 percent of the country’s GDP.
Expat Tax Issues in Croatia
Non-citizens living in the Republic of Croatia may be subject to taxation on both their income earned within Croatia and income from abroad. However, Croatia has double-taxation agreements with many other countries, so you may be able to reduce taxes in in Croatia for expats by taking advantage of these rules.
Tax residency status is determined according to yearly length of stay in the country. If you reside in Croatia for 183 days or more out of the year, you are considered a resident for taxation purposes. You will also be considered a resident if you own or lease a home for your own exclusive use in the country, regardless of your actual length of stay.
You will generally only be taxed on income earned in Croatia, although there are exceptions to this rule. For example, business that are considered resident in Croatia are taxed on their entire worldwide income, regardless of whether the business is owned by a foreigner or not. Non-resident companies will only be taxed on their income made within the country. You may also owe a foreign pension tax in Croatia, depending on the retirement benefits you receive within the United States.
Croatia’s Tax System
Croatia maintains most of the familiar taxation categories. However, there are a few differences and details that expats should take note of before paying taxes in the country.
Croatia’s Income Tax
Croatia has a progressive income tax, divided into only three tax brackets. These are based on annual income. The three brackets are:
- 12 percent on income between 0 HRK and 26,400 HRK
- 25 percent on income between 26,400 HRK and 105,600 HRK
- 40 percent on income above 105,600 HRK
Income is also subject to social security taxes, with 20 percent paid by the employer and 15.2 percent paid by the employee. These taxes pay for various public services and also apply to foreigners working in the country.
Croatian Real Estate Taxes
Whenever a property in Croatia is sold, given or inherited, it is subject to taxation, regardless of the residency status of the parties. Both parties must pay taxes, generally at a rate of 5 percent of the property’s market value.
Vacation or other part-time homes are also subject to annual taxation. Any property not used for permanent living is considered a holiday home for tax purposes and is subject to taxation based on a certain amount per square meter. Rental income is also taxed at a rate of fifteen percent. However, there are a number of deductions that may reduce costs in both of these categories.
Sales Taxes and Departure Tax Croatia
Croatia maintains a “value-added tax” or VAT with three different rates. The normal rate is 25 percent. Reduced rates of 13 and five percent apply to certain kinds of publications, medication, and foods.
Most hotels and other residences charge a tourist tax in Croatia, often around one euro per day. While this is referred to as a “tax,” it is really a kind of additional service fee imposed by businesses and tourist agencies to offset their own fees.
Inheritance, Wealth, Capital Gains
The basic corporate tax rate is 20 percent. This is a flat tax. Companies can deduct various expenses, including personal vehicles and other costs of doing business. Croatia capital gains tax rate is now a flat 25 percent.
Unlike many countries, Croatia has no tax on inheritance in the first generation. The exact determination of tax liability for cases of foreigners inheriting in Croatia can be complicated, so it may be worthwhile to consult a professional to ensure that your inheritance is really exempt from taxation.
Paying Taxes in Croatia
The Croatian tax authorities issue income assessments for the year by Jan. 31 of the following year. Tax returns are generally due by the end of February. The Croatian equivalent of the 1040 and related forms is called the JOPPD. Payment of taxes owed and receipt of tax refund in Croatia is not currently possible via the internet, although this may soon change.
A number of personal exemptions are available, similar those found in other countries. In particular, your total tax liability will be altered by the amount of time you spent in the country, and whether your income is earned within Croatia or abroad. Consider consulting an expert on the Croatian tax system to maximize your savings and exemptions!