July the 5th, 2022 - The American Chamber of Commerce in Croatia (AmCham) organised a business breakfast called "Tax Policies during Challenging Times".
AmCham has been working for years and is actively involved in recommendations for the reform of the tax system. Through five rounds of tax changes, AmCham actively participated with proposals, a significant part of which was accepted.
At the event, the Deputy Prime Minister and Minister of Finance Zdravko Maric referred to the role of tax policies in contemporary economic events, the effects of the previous 5 rounds of tax reform and the Government's plans for further tax relief.
"After we implemented significant tax changes, the goal of which was to simplify the tax system and relieve both companies and citizens, we're now in the final phase of the process of introducing the euro in Croatia, so Croatia will, after a number of years, have numerous implemented measures and fulfilled obligations. On January the 1st, 2023, the country will become the twentieth member state in which the euro will be the official currency.
Conducting a responsible fiscal policy allowed us to start this entire process in the first place, and its finalisation, along with the further control of expenditures, the implementation of the National Recovery and Resilience Plan, which also includes numerous reforms of the public sector, efforts aimed at creating a positive business environment and, ultimately, an internationally competitive economy will make Croatia even more desirable for work, life and new business ventures," said Minister Maric.
Despite significant progress related to the tax relief of labour, in the Business Climate Survey presented by AmCham at the beginning of 2022, labour taxation is still among the three limiting factors of doing business in Croatia. Therefore, AmCham believes that there is still room for further tax relief for labour in order to make it more competitive compared to other countries in Central and Eastern Europe and aimed at retaining the workforce in Croatia.
This year, the American Chamber of Commerce in Croatia also published "Recommendations for the reform of the tax system in 2022", which was also presented at the event. The opinion proposes a series of recommendations for further tax relief aimed at even stronger investment attraction and the greater competitiveness of Croatian employers in attracting and retaining the domestic workforce.
AmCham proposes three key measures:
- An increase of non-taxable personal deduction to 4,900 kuna (650 euros);
- The reduction of the tax rate from 20% down to 10% for income tax and the tax rate from 30% down to 25%;
- The application of the maximum monthly and maximum annual base when calculating health insurance contributions
The aforementioned measures would ensure that with the same cost to employers, employees receive higher net incomes, which increases their economic power and consumption capacity, which increases the standard of living, and which indirectly has a positive impact on economic growth in Croatia.
In addition to three key measures, AmCham advocates the implementation of option plans in limited liability companies ('d.o.o.').
AmCham's proposal is an amendment to the Law on Income Tax, in which it would be prescribed that, in addition to the allocation or purchase of own shares, the allocation and acquisition of shares in a limited liability company would be considered income from capital. If the legal framework were to be adjusted in this sense, it would help the development of small and medium-sized companies, as well as start-ups in Croatia.
AmCham also proposes a non-taxable allowance for working from home of 360 kuna (50 euros) per month, as well as an increase in monetary benefits and awards, such as an increase in the non-taxable amount of compensation for the use of a private car for official purposes, per diems for business trips both within the country and abroad, occasional awards, a flat-rate allowance for a meal in money, a gift in kind, a gift for a child, benefits in case of death, etc.
AmCham's "Recommendations for the reform of the tax system in 2022" were presented by Hrvoje Jelic, partner, PwC Croatia (Tax authorities as partners of the business community), Paul Suchar, partner and Petra Megla, director, KPMG Croatia (How to retain and reward employees) and Kresimir Lipovscak, partner, Crowe Croatia (Added value for employees).
The presentation of AmCham's Recommendations was followed by a panel discussion attended by Bozidar Kutlesa, director of the Tax Administration; Josip Funda, Chief Economist, World Bank; Stanko Krslovic, member of the Management Board, Philip Morris Zagreb and Bojan Poljicak, director, Adcubum.
"In the short term, it's difficult to expect any additional tax relief, especially if we take into account the growing uncertainty surrounding economic developments towards the end of the year. In the medium term, however, we should go in the direction of more uniform taxation of income from different sources, the reduction of the tax burden on labour, especially higher incomes, and the stronger tax stimulation of investment in research and in the development and innovation of companies," concluded Josip Funda, Chief Economist, World Bank.
