ZAGREB, Dec 20, 2020 - Croatia is entering 2021 with a fifth round of tax reform under which the two income tax rates will be reduced from 24 to 20% and from 36 to 36%, while the profit tax rate for businesses with an annual income of less than HRK 7.5 million would be cut from 12 to 10%.

The fifth round of tax reform, which will reduce the tax burden by an estimated HRK 2 billion, is governed by the amended laws on income tax, profit tax, VAT, fiscalisation in cash transactions and local government financing, which come into force on January 1.

Lower income tax rates - higher income for about 900,000 taxpayers

The amended Income Tax Act will result in higher wages or pensions as the lower rate will be reduced from 24 to 20% and the higher rate from 36 to 30%. The basic non-taxable monthly income remains at HRK 4,000, while monthly incomes of up to HRK 30,000 will be subject to the 20% tax rate instead of the 24% as has been the case so far and monthly incomes of above HRK 30,000 will be taxed at 30% instead of the present 36%.

Should employers use these lower tax rates to increase their workers' wages, that would mean an increase in net monthly pay of between several dozen kuna to up to 2,000 kuna, depending on pay rates, benefits for dependants and local tax rates.

Lower taxes for youth

The amended Income Tax Act also provides for tax relief for young people of up to 30 years old. Young people aged up to 25 years will be exempt from income tax and those aged between 26 and 30 will be entitled to an income tax cut of 50%.

Profit tax rate reduction

Under the amended Profit Tax Act, as of January 1 the profit tax will be reduced from 12 to 10% for businesses with an annual income of up to HRK 7.5 million. The lower rate will also apply to all non-profit organisations that pay a lump-sum tax rate, to dividend payments and to performances by foreign performers. 

For businesses with an annual income of more than HRK 7.5 million, the profit tax rate remains at 18%.

(€1 = HRK 7.5)