November the 23rd, 2022 - Croatian Finance Minister Marko Primorac has revealed more about the highly unpopular recently introduced tax on profit. Many in the business world consider this new tax, which some are calling a ''tax on tax'' to be deeply detrimental to the success of larger companies.

As Poslovni Dnevnik writes, Finance Minister Marko Primorac pointed out the face that the Republic of Croatia is planning to introduce (yet another new) tax on all companies that enjoyed extra profit because it is a ''solidarity tax'' considering that we're in difficult times and that people should be helped as much as possible.

According to the proposal of the Ministry of Finance, the additional profit tax should be collected during the declaration of profit tax - at the end of April 2023. It would be a one-time payment, without the obligation to pay any advances, 24sata writes.

''The additional tax would only apply to the year 2022. It would be an extraordinary and one-time measure. The Law on Special Profit Tax is expected to enter into force by December the 31st, 2022 by urgent procedure. We expect 2.1 billion kuna in revenue to flow in from the introduction of this additional tax and that estimate is based on data for 2021,'' said Minister Marko Primorac.

The additional profit tax would include, he says, all economic activities. All companies headquartered in Croatia would need to pay this tax if their profit increased by more than 20 percent compared to the average of the last four years. It is also important to note the fact that only the amount that exceeds 20 percent will be taxed with this additional tax.

It's worth noting that many companies have complained that they simply don't have any ''extra'' profit to enjoy and that all earnings they have achieved since the end of the restrictive measures and economic downturn caused by the coronavirus pandemic have been spent on patching up the issues experienced back during that time. Others, including the Croatian Employers' Association (HUP) deem the introduction of this new profit tax a ''punishment'' to companies doing well and yet another obstacle to any boost to the already enfeebled domestic economy during difficult times dominated by spiralling inflationary pressures.

For more, make sure to keep up with our news section. For all you need to know about any other new laws and taxes which affect businesses in Croatia, follow our dedicated business section.

September the 20th, 2022 - Could larger Croatian Christmas bonuses, gifts for children and other such benefits be on the horizon? The Ministry of Finance has a proposal which will interest many, especially during these difficult economic times fuelled by spiralling inflation and the fear of energy crises.

As Poslovni Dnevnik writes, last week, the Ministry of Finance submitted a proposal to amend the Income Tax Ordinance to increase the payment thresholds for six non-taxable items with which Croatian employers, in addition to paying out regular monthly wages, can further stimulate their staff, as tportal reports.

The limit for non-taxable occassional items, which include Croatian Christmas bonuses, holiday allowance and other such benefits, is being increased from 3,000 kuna to 5,000 kuna per year. The maximum amount of monetary rewards for work results and other forms of additional rewards for workers has also been increased from 5,000 kuna to 7,500 kuna per year.

For a gift to a child of an employee up to the age of fifteen, Croatian employers will be able to pay out 1,000 kuna per year tax free, whereas until now, the threshold stood at a considerably less 600 kuna.

The maximum non-taxable amount of monetary flat-rate compensation for meeting the costs of food for workers will rise from 5,000 kuna to 6,000 kuna per year, and the fee for using a private car for official purposes will rise from 2 kuna per kilometre to 3 kuna.

Future retirees can also expect higher net severance pay because the non-taxable portion of severance pay is now set to increase from 8,000 kuna to 10,000 kuna for each completed year of service.

For more, make sure to check out our dedicated politics section.

ZAGREB, 28 July 2022 - The government adopted a decision to accept a letter expressing interest in submitting a request for Croatia's membership of the European Stability Mechanism (ESM), which Croatia should join in Q1 next year.

The ESM is an intergovernmental organisation established by the euro area member states in 2012. Its mission is to enable the countries of the euro area to avoid and overcome financial crises and to maintain long-term financial stability and prosperity.

The ESM provides loans and other types of financial assistance to member states in a difficult financial situations.

ESM shareholders are exclusively countries of the euro area. Croatia will join the euro area on 1 January 2023, and it is expected it will join the ESM in Q1 2023.

Finance Minister Marko Primorac said after a government session that the ESM had a total capital of nearly €705 billion, which consists of more than €80 billion of paid-in capital ensured by ESM members and nearly €624 billion of callable capital.

Every member contributes to ESM capital based on its share in the total EU population and GDP. Since Croatia's GDP per capita is below 75% of the EU average, we will have the possibility of a temporary correction of the capital contribution key for a period of 12 years, until 2035, said the minister.

Croatia will, pay in a contribution of €419 million.

The ESM provides us with additional insurance in case of financial crises, inability to access the capital markets, or financial difficulties, so that is a long-term benefit and has a positive effect on our credit rating, Primorac said.

As for the government's decision made today, which established criteria for the allocation of assistance to local units for functional and real consolidation, he said that the money granted for functional consolidation depends on the number of functions that would be common and the number of local units involved in the agreement. The assistance will be provided for financing employees in charge of those functions.

According to him, the package for real consolidation is "generous", and it provides assistance for settling outstanding credit and financial obligations on 30 June 2022. It also includes additional assistance in the form of current and capital transfers and aid totalling double the amount the smaller local unit received under the fiscal equalisation programme, as well as capital aid of HRK 7.5 million.

For more, check out our politics section.

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.

For more, check out our politics and business sections.

ZAGREB, 6 June 2022 - Finance Minister Zdravko Marić said on Monday that everything will be done so that the introduction of the euro as legal tender does not trigger a price hike.

"We will do absolutely everything, regardless of inflationary pressure and our efforts to relieve it, to prevent euro introduction from becoming an additional trigger (of price hikes) for individual market stakeholders," Marić said, adding that this was why the dual display of prices would start on 5 September.

Addressing the conference "Croatia in a New Economic Environment", organized by the 24sata daily, Marić recalled that the law on the introduction of the euro foresees 12 institutions that are responsible for the implementation of the law, including the Croatian Financial Services Supervisory Agency (HANFA), State Inspectorate, Croatian National Bank and the Finance Ministry.

These institutions will monitor the situation closely, and civil society organizations will join in the process as well so that any unfair conduct is reduced to a minimum, said Marić.

Marić recalled the recent European Commission Convergence Report, which said that Croatia was the only candidate country that had fulfilled all the accession criteria and was prepared to introduce the euro on 1 January 2023.

If Croatia joins the euro area on that date it will have spent the least time in the European Exchange Rate Mechanism (ERM II) of all member states, added Marić.

He said the final decision on Croatia's accession to the euro area will be adopted by the Council of Finance Ministers in Brussels on 12 July.

"If everything goes as we expect... and Croatia's entry to the euro area is formally announced for 1 January next year, the rate of conversion will be defined," he said but could not say whether the exchange rate would be the same as when Croatia entered the ERM II.

He underscored, however, that in the majority of cases it stayed the same, and if there were to be any change that will not be significant.

In July 2020, when Croatia joined the ERMII, the exchange rate was €1 = 7.53450.

Marić added that joining the Schengen area of passport-free movement was also very important for Croatia.

Croatia meets all the criteria to join the Schengen area, however, its admission depends on a number of other factors, including the political will of the member states, he said.

"Croatia has proven that it knows how to protect EU borders," he said, expressing the belief that the country would achieve the goal of Schengen area membership as well.

For more, check out our politics section.

ZAGREB, 26 May 2022 - A new package of measures to help Croatians to address inflationary pressure is very likely to be prepared, we are working on it, Finance Minister Zdravko Marić said on Thursday after a meeting of coalition partners, however, he stopped short of saying when those measures could enter into force.

The new package of anti-inflationary measures is being discussed in the government and in the coalition, Marić said.

"We will see when it is ready, we are working on it," he said.

According to Marić, the new package "is very likely given the development of events," and it will include state aid in the form of guarantees to gas suppliers, primarily the HEP national power supplier, in order to facilitate the provision of gas supplies for the next season.

The priority is to cushion the effects of inflation and ensure energy supplies and food products, said Marić.

Asked whether the price hikes in stores were justified, Marić said that it is difficult to make general assessments because prices are impacted by a series of elements.

Commenting on complaints by the hospitality sector related to the recent "tax massacre," Marić said that these were regular activities by the Tax Administration that "protects the interest of taxpayers who meet all their tax liabilities in an orderly manner."

During the pandemic, the state showed solidarity with the services sector, primarily in hospitality and now it "expects the same at least from the other side."

He said that supervision revealed certain irregularities with a smaller number of hospitality providers. He warned that increased turnover was recorded where supervision was stepped up and significant disproportion was identified with entry (supplies) compared with exit data. As such the Tax Administration can react and that is what it is doing. Marić underscored that this is a regular activity conducted by the Tax Administration.

For more, check out our politics section.

ZAGREB, 24 May 2022 - The ministry of finance on Tuesday dismissed the accusations made by the Franak association about the authorities having betrayed Croatian consumers.

Over the past few years, the government has continued, both on its own and in cooperation with the State Attorney's Office (DORH), to dismiss all attempts aimed at the questioning of the constitutionality of so-called laws on the conversion of CHF-pegged loans and their adjustment with the EU acquis, the ministry said in a press release.

First and foremost, this government is committed to protecting consumers, and to this end, it has provided arguments proving that the above-mentioned laws are in line with the Croatian Constitution and also in accordance with the EU acquis communautaire, which was conducive to efforts to keep those laws in effect, with an emphasis on their being adopted to redress imbalances in the rights and responsibilities of the parties to the relevant contracts, said the ministry.

The ministry states that after the Court of the European Union delegated rulings on the consumers' rights to national courts and given that several relevant trials are ongoing in Croatia, the government will refrain from any further comment that can amount to interference in those processes for the time being.

For more, check out our politics section.

ZAGREB, 20 May 2022 - Finance Minister Zdravko Marić said on Friday that in addition to all the measures to buffer the impact of inflation, we must not neglect and need to maintain economic growth and do everything for that growth to be 3% this year and higher if possible.

Addressing the 25th Financial Market conference in Pula, Marić said that he cannot comment on the question of possibly freezing prices, recalling the package of measures to ease inflationary pressure on citizens' standards, saying that it would be adapted.

The minister added that there is a lot of uncertainty and it is difficult to forecast price trends, adding that the most vulnerable groups were the most threatened because the price of food and energy is the most prevalent in their shopping basket.

Asked what the monetary policy can do in the fight against inflation, Marić said that the measures until now were exclusively fiscal policy.

Asked if kuna currency appreciation would be worthwhile, Marić said there was room to maneuver in that regard but that is up to the Croatian National Bank (HNB).

The HNB's main task is to maintain price stability and it should have something to say in these circumstances.

It is more than likely that this year will we have a higher inflation rate than the increase in wages, he said, adding that in the past few years wages increased faster than inflation.

Inflationary alarm already sounding

Asked about the inflation threshold that would signal a "red alert" to the government, Marić said the alarm has already sounded. We have the highest inflation rate and we have already reacted. The measures will be adapted but it isn't possible to completely remove the pressure.

He added that an additional HRK 3.5 billion has been allocated to repay the debt to drug wholesalers, however, that is not the solution because new debts are occurring. The healthcare system needs an overall overhaul.

He confirmed that a new international bond matures at the end of May and in July he plans to issue new domestic bonds.

For more, check out our politics section.

May the 4th, 2022 - If Croatian inflation continues and becomes worse, posing more issues for the pockets of the country's already struggling residents following coronavirus-induced lockdowns and restrictions, just what does the government have up its sleeve to combat it? Finance Minister Zdravko Maric has claimed that there is still ''munition'' to be released in this sense.

As Poslovni Dnevnik writes, Finance Minister Zdravko Maric also answered the question as to whether the Croatian inflation rate will end up reaching double-digit figures: "I wouldn't go that far. Lithuania, Latvia, Estonia, the Netherlands and the Czech Republic all recorded double-digit rates back in March. Some of them even nearly 16 percent. Croatia hasn't done so yet,'' he said.

Maric spoke on Dnevnik Nova TV about problematic fuel prices, the situation on the gas market, Croatian inflation, the impact the current situation is having on the Eurozone, which Croatia is on schedule to join in 2023, as well as the current state of the Croatian budget.

Minister Maric first commented on whether the acceleration of Croatian inflation is going to continue to pose a very serious threat to the country because of everything that is unfolding globally, with the ongoing Ukraine war included.

"According to the latest projections, the average rate this year is 7.8 percent. Considering that the last published data said it would be 7.3, and before that the inflation rates were slightly lower, unfortunately my answer to your question is yes," he stated, before going on to discuss the aforementioned topic of potential of double-digit Croatian inflation.

Inflation has suddenly become a key variable on Croatia's path to the Eurozone, which it is due to enter early next year.

"We've been talking about the budget for years, and in the end, neither the public debt nor the budget deficit is a topic. Croatia has been exactly between the Eurozone and the EU average for the last 12 months," he said.

"In the middle of this month, we'll have the data for April, both for Croatia and for all EU countries. This will be the last input that enters the convergence report. At the beginning of June, the European Central Bank and the European Commission will publish this report separately. I really believe we'll get a positive outcome. The official decision should come in early July,'' added the minister. He also said that he wasn't in favour of delaying Croatia's entry into the Eurozone, which some are calling for owing to this dire situation. He believes that the Eurozone shows the best benefits during times of crisis. VAT for certain product categories was planned to be reduced when Croatia switches to the Euro, but the government slashed it beforehand anyway.

"If necessary, we have more ammunition to help people out in this situation," said the minister, before speaking about the healthcare system and whether he sees any room for much needed reforms there."Drugstores write to us periodically, both to my colleague Health Minister Vili Beros and to me. We have a fair relationship. Unfortunately, the payment deadlines for both hospitals and pharmacies have risen again. They've reached a level of over 180 days, and for some hospitals, that level is now over 200 days,'' said the Minister, and when asked how much the healthcare system's debt is and whether he knows how many ''holes'' there are when it comes to that, he answered: ''Unfortunately, I do know because every month that hole increases, meaning obligations grow, and it's been between 400 and 500 million over the last few months.'' he stated.

For more on Croatian inflation, make sure to check out our dedicated politics section.

ZAGREB, 3 May 2022 - The Finance Ministry on Tuesday sold €1.04 billion worth of treasury bills at 0.1% interest, which is more than last year when treasury bills were issued at negative interest rates, when financial institutions actually paid the state treasury to hold treasury bills.

Ahead of the maturity of €1.2 billion worth of treasury bills, issued before the previous financial crisis, the ministry today offered €1.2 billion worth of bills for subscription and financial institutions offered €1.39 billion in total. The ministry then accepted the offers totalling  €1.04 billion.

The new treasury bill has a maturity of one year.

The balance of subscribed treasury bills has now been reduced by € 164.65 million to 1.05 billion euro.

(€1 = HRK 7.564582)