March 7, 2022 - The Croatian Tax Administration (TA) announced recently that it will collect income tax on all Croatian workers abroad if they do not file a tax return themselves.
The TA sent an invitation to Croatian citizens resident in Croatia, to voluntarily report foreign income, given that it was noticed that a number of citizens did not fulfil this obligation. The TA’s announcement, originally published on their website in December, read: “Citizens resident in the Republic of Croatia who have earned foreign income (eg. salaries, pensions, other income, interest on savings, dividends, etc.) in this year or previous years are called to, but have not yet reported them to the Tax Administration to do so before receiving an official invitation”.
The supposed reason behind this is the number of Croatian residents leaving the country for work opportunities abroad. The 2021 Census saw a decline in Croatian inhabitants from 4.3 to 3.9 million. “If we compare the data with the final results of the 2011 census, we see that the population decreased by 9.25 percent, or 396,360 inhabitants,” as stated by Lidija Brkovic, director of the Central Bureau of Statistics. The issue lies within Croats working abroad who are still considered residents of Croatia, who have not applied beforehand to be eliminated from the Croatia Register of Taxpayers.
The TA pointed out that it is obligatory to declare foreign income in Croatia, regardless of whether the tax has already been paid abroad and regardless of whether there will be an obligation to pay tax in Croatia. And for all those who remained residents of Croatia even though they left Croatia to work in other countries, they may be facing a taxation liability calculated in the difference in income tax paid abroad in relation to the tax liability they would pay on that income in Croatia. This calculation includes not only salaries and pensions, but also interest on savings, capital investments, real estate rentals, and even investments in cryptocurrencies.
Croatian citizens abroad who have “written themselves off” from the Croatian Tax Register and become tax residents of another country no longer have Croatian tax obligations. For those who have moved abroad to work but who have remained Croatian tax residents, obligations vary depending on which country they moved to, where taxation rates of salaries and pensions differ. In countries such as Germany, Sweden, Estonia, Latvia, Lithuania, Norway, Belgium, and Canada, the method of exemption from income tax liability to Croatia applies when it comes to pensions and salaries, i.e. income from non-self-employment work, due to the reciprocal arrangements between countries. Whereas in countries such as Argentina, Australia, New Zealand, South Africa, and the USA, there is no such exemption due to no reciprocal agreements arranged between countries, meaning Croatian tax residents are required to submit details of their income to the TA and are therefore subject to taxation.
For instance, if a Croatian citizen moves to Germany and deregisters their residence from Croatia, working in Germany most of the year and coming to Croatia for holidays, they pay all their taxes in Germany. Or in my case, a Croatian resident moving to the UK to study, returning to my family residence in Croatia during the holidays but legally living and working in the UK the remainder of the year. Prior to moving, I had to deregister myself from my residence, applying for temporary leave from Croatia that can be applied for a duration of up to 5 years. In the UK, all income up to £12,500 is called Personal Allowance and as such is not taxable. Most students' income falls under that threshold and we do not need to pay any tax to HMRC (UK tax governing body).
It is an idea worth considering for anyone leaving Croatia for work abroad to deregister their residence not only at the Ministry of Interior (MUP) but also from the tax office. There are a number of qualifying factors one must fulfil, which can be found at this link.
I can't help but think that this move by the Croatian TA may have further negative effects on the country’s demographics. As a result, more Croatians could simply choose the option of further severing their ties with Croatia. A worrying trend in a decreasing population!
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