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From 1 January 2018: Most Important Changes in Croatian Law

By 28 December 2017

What can we expect from 2018's maiden day onwards?

As of the beginning of next year, the minimum wage in Croatia will amount to 3,439 kuna gross, meaning the net amount will be 2,752 kuna.

As Poslovni Dnevnik writes on the 28th of December, 2017, as of the beginning of 2018, employees earning minimum wage will receive 131 kuna more, citizens will pay smaller amounts of money to the state when they buy used cars, and more. Some of the new laws will become effective in early 2018, and the Ministry of Finance has announced further tax breaks in the total amount of 1.2 billion kuna.

Amendments to the law on minimum wage, new laws on local and regional self-government financing, revision, on working against money laundering and terrorist financing, tourism services, as well as a number of subordinate regulations will be in place as of the 1st of January next year.

At the end of last week, the Ministry of Finance announced that in 2018, further tax breaks for citizens and entrepreneurs in the total amount of between 1.1 and 1.2 billion kuna are on the cards. Thus, the VAT change system expects tax deduction of about half a billion kuna, from changes in the income tax system about 266 million kuna, and from changes in the taxation of car purchases - about 450 million kuna.

Minimum wage increase:

At the beginning of next year, the minimum wage in Croatia will amount to 3,439 kuna in its gross amount, with a net amount of 2,752 kuna. This is an increase of five percent, i.e, 163 kuna gross and 131 kuna net.

Accounting experts note that the new minimum wage will start come into force as of January, which means it will be paid in February.

Legislative changes also made it clear that minimum wage will not increase for overtime, night and work on Sundays, holidays, or on other days on which the law will not be applied.

According to Ministry data, in 2016, 76,400 workers received minimum salaries, this generally consisted of employees in labour intensive positions such as textiles, leather and similar industries.

Income tax revenue entirely to local units:

Income tax revenue will go to local units in full as of 2018.

If a local unit is in a disadvantaged position due to the new legal regulations, or if its revenues become smaller than they are now, the state will compensate for that reduction. The envisaged period for compensatory measures is five years - directly from the state budget deficit, to be compensated in 2018, 2019 and 2020, 2021.

Further tax deduction:

According to announcements from the Ministry of Finance, earlier legislative amendments to the VAT system, the by-laws related to income tax and the change in the car tax system in 2018 will bring citizens and entrepreneurs further tax breaks.

Namely, by the end of 2016, amendments to the law on VAT provided that by the beginning of 2018, the threshold for entry into the VAT system would rise from 230 to 300 thousand kuna.

In addition, entrepreneurs will also be able to enjoy additional benefits when purchasing or renting a car. In the VAT system, entrepreneurs will have the possibility to reject 50 percent of the prepayment for the purchase or rental of a personal car and other means of transport for personal transportation up to 400,000 kuna per car.

In line with raising the threshold for entry into the VAT system as of the beginning of 2018, the threshold will be raised to enable craftsmen/artisans and those engaged in similar lines of work to choose a flat-rate income tax, and that threshold will be raised from 230 to 300 thousand kuna.

The conditions for lump sum taxation are already used by around 27,000 people, mostly craftsmen, and raising the threshold for that system could see a huge 30,000 more.

Lower payment to the state when purchasing used cars:

With changes to the VAT system that will enable entrepreneurs to make car purchases easier, citizens will also pay less to the state when purchasing second-hand cars next year, it has also been announced that the same rule will apply to the purchase of new cars.

In December, Parliament amended a law on the matter which replaced the excise tax on the purchase of second-hand cars with a mere administrative fee.

To date, when purchasing used cars, excise duty at five percent of the value of the vehicle was paid, while from the beginning of 2018, only an administrative fee that will depend on engine power (in kilos or cubic centimeters) and age of the vehicle, will be paid.

The amount of this compensation was determined by the Cabinet last week by a regulation, ranging from one kuna per kilowatt (KW) on cars aged 21 to 30 years to 50 KW per car of up to one year of age.

According to data from the Ministry of Finance, in 2016 about 210 thousand solutions were issued in regard to excise duty on used vehicles, which amounted to 194 million kuna in the budget, while in the next year, the introduction of the payment of an administrative fee instead, is expected to see only half of that income, equalling about one hundred million kuna less.

On top of that, ownership transfer when purchasing second-hand vehicles as of next year will become much more simple. Currently, ownership change overs involve three to four steps, but from next year, the whole procedure will be much more straight forward and will be able to be done in one place - the registration authority where the aforementioned administrative fee will be paid.

Last week, the Ministry of Finance announced that the realisation of changes in the taxation of new cars would be possible in mid-January next year, which would involve the adoption of a decree on exempting vehicles with a retail price lower than 150 thousand kuna (anout 65% of all new vehicles sold) from value-added tax.

Auditors will be supervised by the Ministry of Finance:

At the beginning of 2018, a new Audit Act will be enacted, which stipulates that the supervision of auditing companies and authorised auditors will be carried out by the Ministry of Finance, while the Croatian Chamber of Auditors will remain in charge of other powers.

The new law also stipulates that the obligation to identify subjects of public interest as subjects of systematic importance must have a legal audit from at least two mutually independent auditing companies. This commitment will have to be made by companies employing more than 5,000 employees during the business year and having assets exceeding 5 billion kuna on the last day of the business year.

Auditing companies carrying out audits of public interest entities will have at least three full-time auditors, as opposed to the current two.

A company will have the same auditor for a maximum of seven years, and the Ministry will carry out the supervision of auditing companies carrying out audits of systemically important companies at least once every three years, while the oversight of other auditing companies will be carried out at least once in six years.

Prevention of money laundering and the financing of terrorism:

The new law on the prevention of money laundering and the financing of terrorism is set to introduce a number of new preventive measures, including the restriction of cash operations. Thus, persons carrying out a registered activity in Croatia will not be allowed to charge or make a cash payment of 75,000 kuna, while up to now it has been a considerably higher 105,000 kuna.

Banks and other financial institutions will be obliged to collect cash and stock exchange information in the amount of 200,000 kuna each time they receive cash.

Further implementation of national and supranational risk assessments of money laundering and terrorist financing will also begin in 2018. This will include both national and foreign persons, including their family members and their close associates.

News for the tourism sector:

The new year will bring changes and legal regulations of tourist services, and after fifteen whole years, the sojourn tax will see an increase.

As of the 1st of January, 2018, the new law on tourism services will come into force, with a six-month delay foreseen for the alignment with the EU Package Package Directive, which will enter into force on the 1st of July, 2018.

The government has altered the sojourn tax rate starting in 2018, and this fee has been increased for the first time in more than 15 years.

In 2018, sojourn tax will be charged in the range of 2.5 to 8 kuna per person and per night, depending on the class of the tourist resort and the period of use. Thus, a minimum of 2.5 kuna will be paid out of season in resorts classed as ''D'' and other classes of tourist resorts, while the highest amount of 8 kuna, instead of the previous 7 kuna, will be paid in the tourist class ''A'' during the height of the tourist season.

Free passage through the Sv. Ilija tunnel, and no property tax:

In mid-December, the government decided that on January the 1st, 2018, the decision to introduce toll collection for the use of the Sveti Ilija tunnel would be terminated, the fee has otherwise been 20 kuna since 2013.

To the relief of almost everyone in the country, a dreaded tax that was expected to come into force on the 1st of January 2018 - property tax - has been postponed.

Although the introduction of this tax was expected, heated debate and severe complaints began across the country, as well as protests in several cities and the signing of a petition against its introduction.

Announcing the postponement, Prime Minister Andrej Plenković, in what has become his typical style, assessed that the Croatian public is simply ''not well acquainted with all the aspects of property tax''.

As such, the tax, the proposal of which aroused an incredibly negative response from everyone, was indefintely postponed.

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