December the 7th, 2022 - After three (very long) decades of negotiations, the representatives of Croatia and the USA in Washington are finally set to conclude the Croatia-USA double taxation agreement today. Croatia is otherwise the only nation in the EU and NATO that hasn't yet regulated this relationship.

As Poslovni Dnevnik/Marija Brnic writes, back during previous years, analysts assessed that the signing of the Croatia-USA double taxation agreement, which will finally result in the avoidance of having to pay tax on income in both nations to both nations, will not result in a sudden rush of American investors to Croatia, nor will it open up new businesses for Croatian companies on the American market. What it will primarily do is result in considerable benefits for companies that are already operating, as they will be less burdened by tax payments. It will also increase their level of competitiveness overall.

However, circumstances have changed somewhat over more recent years, and it seems that the number of those who will benefit from the settlement of fiscal relations between these two countries on each side of the Atlantic Ocean will be more significant. What will this mean exactly, and who will benefit the most from the signing of the historic Croatia-USA double taxation agreement?

Climbing the ladder

The USA was not among the major investors in Croatia for a very long time, but that has changed quite significantly in recent years. Steve Bubalo, an American entrepreneur with Croatian roots, has the longest investment experience here. He invested in the Vrana agricultural farm near Biograd in Zadar, as well as in rural tourism in Baranja, and one of his big takeovers was certainly Barr's takeover of Pliva back in 2006, which was then taken over by the Israeli company Teva.

After Croatia joined the EU back in July 2013, and especially over the last few years, more serious investments followed, such as IBM's investment in the Technical Support Centre in Zagreb, two years ago New York's One Equity Partners invested 200 million dollars in Infobip, and this summer, Goldman Sachs, together with the Japanese SoftBank, invested 500 million euros in the remarkable Rimac Group.

At the same time, in Savski Marof, the start of work on the new production facility of the American company Pfizer for the production of innovative biological drugs, in which it is investing 100 million euros, was marked. The USA is thus climbing the investment ladder, and from 1993 to the end of the second quarter of this year, more than 595 million euros had been invested in Croatia, and thanks to the latest investments successfully ticked off, it took 15th place on the list of investors in this country.

It's also interesting to note that Croatian investments over in the USA over the past three decades, in Croatian circumstances at least, aren't insignificant. They amount to more than 73 million euros, and among those Croatian companies that started production in the USA is, for example, Podravka. HS Produkt from Karlovac has also been among the main exporters for years, along with Pliva.

Trade has also been growing in recent years, especially in the last year on the back of US LNG imports. In terms of trade, Croatia is mainly focused on the market of the EU and neighbouring non-EU countries, but thanks to LNG terminal on Krk, the USA has moved up to the seventh place among the main trade partners.

In the first nine months of 2022, imports from the USA into Croatia amounted to more than 2.07 billion euros and at the annual level they increased by 703%, and goods from Croatia were exported for 349 million euros (marking a decrease of 17%).

According to AmCham's estimates, the Croatia-USA double taxation agreement will have a positive effect on the transfer of knowledge, due to the costs of withholding taxes on the provision of certain services and royalties, and the costs of labour taxation, which is particularly important for the IT sector and small and medium-sized enterprises.

Croatian companies that establish subsidiaries over in the USA are currently subject to federal and state income tax, and dividend payments are subject to a 30% tax. Since the corporate tax rate in Croatia stands at 12 or 18%, AmCham estimates that the cumulative US tax rate is very discouraging for Croatian companies.

A company in Croatia owned by a larger American company pays profit tax at the rate of 18%, and according to the parent company in the USA, it must make three payments per year, for interest and royalties, and then for dividends, it pays withholding tax at rates of 12 and 15 %, and only the net after-tax amount can be paid to the US parent company.

This Croatia-USA double taxation agreement will make it possible to get rid of these payments once and for all, and make it so that the full amount is paid to the parent company, which makes Croatia more attractive as an investment and business destination overall.

"This is a significant step for the business community both in the USA and Croatia, which for many years advocated the initiation of negotiations on the signing of such an agreement. This step is particularly important for AmCham and its members, given that it prepared the initial arguments for the conclusion of the agreement back in 2018 and brings together companies that are most involved in trade and investment flows between Croatia and the USA," said Andrea Doko Jelusic, the executive director of AmCham Croatia.

The conclusion of this historic (and long-awaited) agreement will bring a lower financial burden for companies, and here on the Croatian side, it will be especially interesting for the IT sector, as well as for the food and pharmaceutical industry, while on the American side, it will open space for cooperation with small and medium-sized companies that haven't been represented in Croatia until now.

The Croatian Chamber of Commerce (HGK) also welcomes the signing of the Agreement on the Avoidance of Double Taxation between Croatia and the USA, and points out that, although there's still some time to go before its full implementation, it is to be expected that it will have a positive impact on the overall economic relations between the two countries, mutual trade, and will especially facilitate mutual investments.

For more, make sure to check out our news section.

17 February 2022 - While retiring abroad may be a dream for some, it is not an easy decision to make especially when considering financial implications such as taxes. Depending on what country you are moving from, you may even face double taxation. Here are some useful takeaways to help you make a more informed decision before relocating to Croatia.

The information provided here is for general informational purposes only. If you require specific expertise on your current tax situation, please consult a specialized accountant or contact the Croatian Tax Administration.

Figuring out taxes can be notoriously confusing and frustrating. Image: Pexels

What is double taxation?

Briefly, double taxation is the imposition of taxes on the same income by multiple jurisdictions.

It takes on 2 forms:

1. Corporate double taxation: Taxes are imposed on both profits and dividend payouts; or
2. International double taxation: Taxing of the same income in the country where the income is derived, and by the country where the individual is now residing.

This article will focus more on the 2nd taxation form, international double taxation, and whether there are available relief mechanisms in place between Croatia and your country that mitigate this issue when it comes to your pension payouts.

All information presented in the following sections from the Croatian Ministry of Finance and Tax Administration.

Conditions for tax residency in Croatia

Tax residency status in Croatia is in line with the OECD model and is determined according to length of stay in the country annually. The conditions are as follows:

• If you reside in Croatia for 183 days or more out of the year, you are considered a tax resident
• If you own or lease property for a continuous period of 183 days in 1 or 2 calendar years, you are also considered a tax resident. It is not mandatory that you live on this property
• If you own more than 1 property in Croatia, the place where you spend the most time will be considered your place of residence

Tax treaties with Croatia

Double tax avoidance agreements. Image: Pexels

If you do qualify as a tax resident of Croatia, there may be Double Tax Avoidance Agreements (DTAAs) in place that outline your tax responsibilities. The Croatian Ministry of Finance outlines all countries that have standing agreements here.

These bilateral agreements do not completely exempt an individual from filing or paying taxes. Rather, they contain a series of articles that outline each country’s stand on income and capital taxes.

Specific articles, and thus tax conditions, differ depending on the agreement made between Croatia and the contracting country. Here are some examples from the agreements signed between Croatia-United Kingdom, and Croatia-Canada.

United Kingdom (UK) and Northern Ireland (NI)

Croatia and the UK and NI established a DTAA in 2016. As a retiree of either the UK or NI, Article 17(1) of the agreement specifically outlines that if you are a UK citizen but reside in Croatia, pensions and other similar remunerations (e.g. annuities) are only taxed in Croatia.

However, in the case of a lump sum payment derived from a UK pension scheme, this amount will be subject to taxes in the UK, and only in the UK.

If you’re unsure of whether the income you’re receiving is considered a pension, the agreement defines pensions as financial vehicles registered under Part 4 of the Finance Act 2004.

You are also obligated to declare foreign income to the Croatian Tax Administration even if you have already paid taxes abroad.

Canada

Croatia and Canada established a DTAA in 2000. According to Article 18, taxes on pensions and annuities may be levied by both Canada and Croatia, but with limitations. Article 18(2) states that the first CAD$12,000 or the equivalent amount in Croatian kuna is tax exempt. Taxes levied on the excess amount should not exceed 15%.

Canadian annuities paid out to a retiree residing in Croatia may also be subject to Canadian taxes, capped at 10% of the portion that is subject to taxes. This limitation does not apply to lump-sum payments arising on the surrender, cancellation, redemption or sale of an annuity.

Types of pensions that will either be taxed by Canada or Croatia include war pensions, social security and alimony.

Citizens of Canada who receive a pension but reside in Croatia are not obligated to report it to the Croatian Tax Administration. Due to international data exchange between the countries, the Croatian Tax Administration can obtain necessary information directly from the Canadian Revenue Agency.

What if Croatia has no double tax avoidance agreement (DTAAs) with my country?

In the countries where there is no DTAA with Croatia such as Australia and the United States (U.S.), on top of being taxed by your country Croatia will also levy taxes on global income which may include pensions and capital earnings.

The thresholds for Croatian income tax are:

• 20% for up to 360,000 kuna (€47,804) annually
• 30% for more than 360,000 kuna annually

So, what does this mean for those wishing to retire in Croatia? Let’s consider American citizens wanting to retire in Croatia.

Example

Although negotiations between the two countries have been going on for over 25 years, Croatia is still the only European Union nation that does not have a DTAA with the U.S.

This means that depending on where you receive your pension from, such as social security, 401(k)s, Roth accounts, private pension plans or even passive income, these distributions may be subject to tax from both the IRA as well as Croatian tax administration.

Bob. Image: Pexels

Let’s consider Bob. Bob is single, aged 65, and is thinking of retiring in Croatia. He has made steady pre-tax contributions to his 401(k) over the years and now has US$750,000. This is also Bob’s only source of pension. He decides to withdraw US$25,000 annually for his retirement in Croatia, which will be considered his retirement income.

Assuming as of 2022, he is filing taxes under “Single Filer”. The IRA will impose a 12% tax on Bob’s ‘income’ of US$25,000, which means Bob will pay a total of US$3,000 to the IRA. Meanwhile, the Croatian Tax Authorities will further impose a 20% ‘income’ tax on US$25,000, amounting to US$5,000 in taxes. This brings the total amount of taxes on Bob’s pension to US$8,000 annually and he ‘pockets’ US$17,000.

You can also use the IRS's Interactive Tax Assistant to help you determine whether some of your income may be eligible for the exclusion.

Although taxes may put a dent in your pension payout, do weigh the benefits of living in Croatia without necessarily having to make significant lifestyle changes. Or better yet, make full use of the 90-day visa free travel to do a “trial run”, and experience a slice of what retirement may look like here.

Check out the first part of the retiring in Croatia as a non-EU national series HERE.

December the 15th, 2021 - Are local Croatian tax rates set to alter? We'll know more later on this week given the fact that the Tax Administration has published a reminder of sorts on the obligation of the representative bodies of cities and municipalities to determine possible changes in local tax zones for next year with a deadline of today.

As Poslovni Dnevnik/Jadranka Dozan writes, this rule applies to consumption tax, taxes on holiday homes and the use of public areas, while the surtax rates for income tax are more flexible. Surtax rates, namely, can change during the year, with the provison that they come into force at the beginning of the month after the date in which the decision is published in the Official Gazette (Narodne Novine).

''Prescribing provisions governing who taxpayers are, what constitutes the tax base, what the method of calculating and paying local Croatian tax rates is, who is exempt from payment, who can be granted relief or a discount and what evidence can serve as evidence to the tax authorities in the procedure for establishing the facts relevant to taxation etc, doesn't fall within the scope of the local government, it is prescribed by regulations of higher legal force, such as the ZLP and the General Tax Law,'' they explained from the Tax Administration.

When it comes to local Croatian tax rates, meaning those at the local government level, by far the most significant are those from income taxation. According to local budgets in pre-pandemic 2019, these taxes accounted for about 40 percent of total revenues, exceeding 20 billion kuna for the first time ever. Of the total tax revenues, about 70 percent, or about 14.5 billion, were merged through income taxation.

The city and municipal authorities haven't yet announced changes in surtax rates for next year, but that doesn't mean that there will be none during the year. In addition to the eight cities that today have a zero-level rate, surcharges aren't paid at all by residents of 14 municipalities across the Republic of Croatia.

Compared to last year, all changes in the sphere of surtax introduced since this year were in the direction of reducing rates. In addition to 11 cities, they were followed by three municipalities. Among the cities, the surtaxes in Cakovec, Pleternica, Vodice and the earthquake-damaged Petrinja have been reduced to a very welcome zero.

In Pakrac and Slavonski Brod, for example, rates were halved (from 10 to 5 and 12 to 6 percent, respectively), in Novska, the local government reduced the surtax rate from 10 to 8 percent, in Vinkovci from 13 to 9, and in Zupanja from 12 down to 9 percent.

Some places abolished surtax

The highest rates are reserved for the largest cities, where it's difficult to touch the surtaxes. Behind the City of Zagreb with a maximum of 18 percent surtax are Split and Rijeka with a 15 percent rate, and 14 other cities have local Croatian tax rates which are higher than 10 percent (with most of them having found the optimal result in a 12 percent rate).

At the same time, some city (and municipal) authorities have already abolished the payment of surtaxes, and the residents of Ilok haven't had surtaxes since 2019, while Bjelovar, Valpovo and Sinj did the same last year. Among the municipalities with zero surtax rates are, for example, Dugopolje, Rugvica and Motovun.

Last week's announcement of the Tax Administration regarding local Croatian tax rates states that local self-government units are obliged to submit the decisions of their representative body (including any amendments) within eight days so that they are available to all taxpayers and employers in one place. That said, it is equally important for the Tax Administration itself to harmonise its actions.

For more, check out our lifestyle section.

July 16, 2021 - One month after the local elections in Croatia, the liberal/center Fokus party president shares with TCN reflections of his Zagreb mayor candidacy, details on political views, plans, and hope for the future of Croatia. Learn more about the Fokus party in an exclusive Davor Nađi interview conducted by TCN reporter Ivor Kruljac.

2021 local elections for Croatia concluded back in June, and as with every local election, the majority of political parties whose candidates earned some new positions in the local governments managed to taste both victories and losses are overall happy. Some parties from both left and right political wings celebrated as scientists whose work won the Nobel prize. Even election losses were interpreted as victories, drawing attention to the number of votes, that although they may not score political roles, show growing support. If there is a once in four years occasion when political parties have as much optimism as the Croatian Adriatic has drops of water, it’s the local elections. 

Currently in parliamentary opposition, Davor Nađi, president of the Fokus political party, politically declared as center-oriented, also doesn't hide his optimism following the result, but it seems he is a bit more toned down in that excitement than some of his political competitors. Satisfied to see his colleagues from the party keeping their previous positions, and some even selected for new ones, he is expecting the Fokus party to grow in the future while remaining aware of Fokus being new and young on the scene - is careful to say more than he can bargain for. Nađi ran for Zagreb mayor, but in the end, didn't manage to win neither the "main prize" nor a seat in the Zagreb Assembly. He noted, however, that his candidacy helped to attract new Fokus members in Zagreb, but again stating it without grandiose announcements, rather with mild optimism, careful not to step out of the line of realism. 

In an e-mail interview, Nađi commented what happened in the Zagreb elections, did NGOs stepped out of line in supporting current mayor Tomislav Tomašević, and what do Fokus voters find attractive in the political party best known for reforming the town of Sveta Nedelja. Are they American-styles libertarians as described by some, and what European politicians are in line with Fokus’s ideas, are just some of the things Nađi revealed in the interview.  

screenshot / N1

You are the president of the Fokus party, and candidates from your party had won in Sv. Nedelja, Samobor, Sv. Ivan Zelina and Dugo Selo. So, your party currently has four mayors. Can you list for our readers where your party had candidates for mayors, assemblies, and counties? How do you comment on „your mayor's" first-month post-election, and what moves would you point out as excellent in that time?

Except for these four cities, we also won in the municipalities of Križ and Pirovac. We ran for mayors and local and regional assemblies mostly in central Croatia (Zagreb and Zagreb county) but also in Čakovec, Slatina, Petrinja, Pirovac. We won 50 members of local and regional assemblies, including the president of assembly in Čakovec.

Most of our mayors were reelected, so they just continued working on projects. However, I would like to point out our new mayor of the city of Samobor, Petra Škrobot, who already contracted procurement of software for transparency of city budget and public procurement, which is one of the flagship policies of the Fokus party.

How would you briefly explain to our readers what your party represents and advocates politically? What politicians, foreign or Croatians are your role models, and why?

We represent the fight for lower taxes and fewer regulations for citizens and the private sector and for a more efficient public sector. That means that we want that people and companies can keep more of the money they earn for themselves and decide on what they want to spend it. For example, that is the only correct way to solve the housing problem – to make sure that people earn and keep more money. Further on, that means that the private sector gets better value for money through better service of the public sector where, in our vision, worst or/and unnecessary public servants would be let go, and the best workers would get a financial reward. We also talk and act on investments in infrastructure, which is important for preparing for future climate change challenges.

I can’t say I have some role models in politics, but I like the politics of Dutch PM regarding the economy because they have a small and efficient public sector that provides good service to their citizens. That allows them to keep their economy very competitive, which results in a better life for their people.

You express deep care for private investments, lowering taxes, and overall creating a better environment for private business and entrepreneurship. But, when talking about entrepreneurs in Croatia, people roll their eyes as many of our famous „entrepreneurs“ are associated with crime, corruption ties to politics, and unfair privatization that ended up in many people losing their job. What is your opinion on these entrepreneurs, such as Todorić or Horvatinčić? How to fix that negative perception of entrepreneurs?

Yes, the private sector is very important to us. We care about entrepreneurs but also about their employees. We also care about the best public servants too. 

I think that public opinion on entrepreneurs is changing in a good way because of a new generation of successful entrepreneurs that succeeded in the global market with no connections to the government. Todorić and Horvatinčić are the exact opposite of them and represent everything that is wrong with this country. It’s wrong to call them entrepreneurs because they are a product of crony capitalism. The only cure to fight people like them is an independent and efficient judiciary.    

New option for liberals in Croatia 

You ran for mayor in Zagreb. The polls didn't give you too much of a chance, but libertarian (classical liberal) oriented site Liberal.hr said that you could be „the biggest surprise of the Zagreb elections“. To tell you the truth, it didn't seem likely you will become a mayor, but I was very surprised you didn't win a seat in the assembly. What went wrong in Zagreb, and how is it possible that the city with the most developed business climate and entrepreneurship (and with a lot of entrepreneurs) didn't reward your entrepreneurship-oriented ideas, at least with the seat in the assembly?

Well, Fokus is a new party, and I’m relatively new in politics, so a lot of people weren’t informed about our program and achievements. Fokus party didn’t exist in Zagreb until this year, while other parties were building their organization for many years, so it was hard to catch up in just a few months period during a partial lockdown. However, even though we didn’t win a seat in the assembly, we achieved some other goals. Now we have a lot of new members, and a strong organization in Zagreb and a lot of people have heard about FOKUS for the first time. Further on, we are the strongest liberal party in Zagreb, and we had better results than a lot of old traditional parties. So I believe that in the future, our support will only grow in Zagreb.

Davor Nađi during his campaign in Zagreb © Davor Nađi

You said on your Facebook site that you didn't receive enough media attention, and indeed you weren't invited to the debates (with the explanation being that only those who earned 5% in polls will be invited). However, you had banners and posters across Zagreb where you talked about how you are experienced to be a mayor because of Sveta Nedelja, where you were a deputy mayor, and the town did receive media attention few years back for amazing changes introduced there. What was your contribution to the transparency of public servants, lowering taxes, and canceling the subtax in Sveta Nedelja as deputy mayor? 

I was the designer of those policies with the strong support of mayor Zurovec and the city council, and I was working on these policies from the beginning until the implementation. I’m very proud of that because Sveta Nedelja did the biggest tax cut in Croatia, became the most transparent city in Croatia, and received a reward for the best local economy three years in a row.   

You criticized some of the moves by the new Zagreb mayor Tomislav Tomašević. Can you repeat what do you find problematic in his governance so far, but also, is there anything positive, something you would support him in if you made it to the Zagreb assembly?

There are some things that are good, and some are not. I reacted on one occasion, but let's wait a little bit more time before I can comment general impression so far.

However, for our readers who are foreign and didn't have the chance to see your comment in Croatian, can you briefly explain what did you found problematic with Tomašević early on to the point that you had to react publicly?

He stopped most of the public procurement. Even though I understand his concern that there might be corruption problems, that is not the way to solve that problem. That problem should be solved with better process and clear guidance from the mayor to the city administration because if public procurement is stopped for too long, there will be problems for citizens. On the other hand, in a short period of time new mayor will not be able to change much if he doesn’t make the process of public procurement more transparent and efficient. 

Far from the US philosophy

 Once on N1, you said political parties in Croatia are still pretty socialistic. Since on that occasion you were a guest at N1 regarding Zagreb Reconstruction Bill, did you mean they were socialistic just in that regard or in general? Are Croatians also socialistic too?

They are socialistic in general, and that bill was just the latest example. That orientation of political parties in Croatia resulted in a situation in which an enormous part of the economy depends on the state so we actually have crony capitalism. That sends the wrong message to the people, so people lose self-confidence and think they can’t earn for themselves and their families, and instead, they rely on the state to help them in every aspect of their life. They simply don’t take into account the fact that the state is corrupt and inefficient, which may be because of inadequate financial literacy.

However, it seems to me that the tide is changing with the lead from the local level from cites like Sveta Nedelja and that people are beginning to see the benefits of liberal policies.

When you say the parties are socialistic, some could think this is the heritage of Yugoslavia. However, aside from the communist experiences of South-Eastern Europe, the overall European political culture and tradition goes along the way „yes to democracy, yes to free market, yes to the individual freedoms“ but also „yes to social care, yes to free health, yes to free education, yes to supporting cultural and artistic projects, scientific research, etc“. Many people see Fokus as being against that and wanting to dismantle that European political culture with American political culture, which seems to be notorious in Europe for its health and education system, which as people see it, „is alright if you have cash, but not for the poor“. Are you indeed into „making Croatia American rather than European?“ and if so, how would you address the mentioned sectors of health, education, culture, and science? What about HRT in that context (as the idea of a public TV financed by the state is a European invention in the media landscape)?

Of course, we are not for an American-style economy. We prefer the Dutch or Scandinavian style with high economic freedom and adequate social benefits. Some people don’t understand that “free” health care doesn’t exist. Taxpayers pay for that. And if we think a little bit more about our health care system, do we really have health care that is accessible to the poor? How long are the waiting lists? People pay taxes for health care, and when they need it, then they don’t get it. That is not free health care! Almost the same is for everything else. I believe that vouchers would solve that problem because then even poor people could afford health care service from the private sector, and the public health care system would have to be more efficient and provide better value for money. The same thing is possible with education. HRT should be significantly downsized, and subscriptions decreased with the option to opt-out from their service.

When it comes to the overall Croatian political landscape, Fokus does offer something truly different from other political options, and it seems quite right to expect that Fokus will continue to grow. But, what do you think made Fokus uprise to start in central Croatia, in Sveta Nedelja, Samobor, Dugo Selo, and Sv. Ivan Zelina? Is there something that makes the culture and society in these areas different comparing to the rest of Croatia that they were the first to recognize and give a chance to your program?

Fokus also has a mayor of Pirovac in Dalmatia and president of the city council in Čakovec, members of City council in Slatina, etc, so I wouldn’t say that our policies are only recognized in central Croatia. However, we have better support in parts of Croatia, where fewer people work in the public sector and more in the private sector. That is not surprising since we promote policies that would result in a more efficient public sector and less red tape and taxation for the private sector. 

 © Davor Nađi

 Up next: European elections and Croatian Parliament 

On the note of local success, many view local elections as a forecast for what can happen in parliamentary elections. How would you rate your chances on the next parliament elections based on local results?

I’m very optimistic. Fokus has a very good position to grow and to achieve a great result. Fokus is already a success story and we have grown in a number of members in every part of Croatia. I believe that a new government after elections will not be formed without a strong party or coalition from the political center, and if we look at the results of local elections, Fokus is the fourth party by a number of mayors in Croatia. Also, we are the strongest party of the political center in national ratings, so that gives us reason to believe that we can gain even more support from our citizens in the future.

 Back to the Zagreb elections. The two main candidates represented Gree-left values and national, conservative, sovereign values. Tomašević not only got support from some of the other European mayors but, just as with Škoro's values, there are plenty of same-minded people in Europe sharing those values. You mentioned your appreciation for the Dutch Prime Minister, but are you as well in contact with like-minded parties and politicians in the EU?  

Fokus is a new party, so we still haven’t formed significant international alliances, but we can see ourselves working with other European liberal parties. Of course, the one with the best results is Dutch VVD that is in power on the state level. 

But when we talk about the support that Tomašević or some right-wing parties and NGOs in Croatia had in recent years from abroad; I would say that there is a thin line between support and meddling into elections, and I would say that that line was crossed.

But, can we expect that Fokus will try to be in communication with them? Any plans for running on European Parliament elections as a good point to meet with other think-alike politicians in the EU?

I said that we don't have some significant alliances with them. However, we are in contact with some of them. We will see where that will take us. EP elections could be the first opportunity to test eventual cooperation.

And regarding what you said about there being a thin line between support and meddling in elections and how that line was crossed in Zagreb elections by NGOs, is there a risk of entrepreneurs doing the same thing when supporting, either financially or with public influence, certain parties? How can we prevent such meddling legally but yet with respect to the right of political expression to organizations and individuals?

I don’t see the financial support of Croatian entrepreneurs to political parties as a problem. The problem is only if they receive privileged treatment after the election in return for giving financial support. I would go one step further and say that we should welcome donations of private individuals and companies to political parties because that would mean that political parties would be less dependant on public financing. That should be a normal part of the domestic election process. However, if foreign money is included in financing political parties or their leaders, direct or through other channels, then we as a state have a problem.

To conclude, you are MA of the economy, and you talk a lot about economic solutions. Are our economy and business truly the core issues politicians need to address? Additionally, what are your views and the views of Fokus on defense policy, diplomacy, international relations, emigration policy (asylum seekers trying to enter Croatia), Croatian veterans, diaspora, and the ideological, historical disputes among Croatians, which for better or worse seem to often resolve the elections on a parliamentary level?

It would take a much longer conversation to answer all these questions, but I will try to answer in few sentences. Yes, I believe that economy is the most important issue that needs to be addressed because that is the place where value is created and which provides a better life for people and necessary funding for all government programs. Without a strong economy, the state can’t finance defense or social benefits. Unfortunately, you are right that elections are, in the biggest part, decided on other issues that target emotions rather than reason. 

When it comes to defense policies, liberals believe that the basic tasks of the state are to provide to their citizen's rule of law and protection from foreign and domestic threats. So we should have adequate defense capabilities. On the other hand, we have no problem financing social benefits to real war veterans, however almost 30 years after the war, there shouldn’t be any new users of these benefits. Regarding international relations, our position is that Croatia should remain an EU and NATO member with strong relationships with the USA and with a clear position that China can’t be our partner until they don’t behave by the same rules like everyone else with the biggest concern regarding human rights issues.

Even though we are a small country, that doesn’t mean we can’t lead by example. It is up to us if we will stay on the bottom of every European statistic table or we will start going up. We have all the resources we need to thrive.

Learn more about Croatian politics and history since 1990 on our TC page.

For more about politics in Croatia, follow TCN's dedicated page.

January the 1st, 2020 - As Index writes, in 2021, Croatia is set to introduce the national compensation for the elderly in the amount of 800 kuna, increase the Croatian minimum wage to 3400 kuna net, reduce income tax rates down to 20 and 30 percent, and also down to 10 percent for enterprises with an income up of up to 7.5 million kuna, abolish quotas for foreign (third country) workers, and regulate the temporary stay of digital nomads.

Usually, a number of new laws come into force at the beginning of any given year, or amendments to existing ones occur, such as the new National Allowance for the Elderly Act, the new Law on Foreigners, a package of laws regulating the fifth round of tax reform - amendments to the tax laws on income, profit, VAT, the fiscalisation in cash transactions, on the financing of local self-government units, as well as new laws regulating the banking sector.

At the beginning of this year, some new bylaws came into force, such as the regulation on the amount of the Croatian minimum wage.

The Croatian minimum net wage in 2021 will rise to 3400 kuna

From the beginning of 2021, the Croatian minimum wage will be 3,400 kuna, which is 150 kuna or 4.61 percent more than it was in 2020. Namely, the government prescribed, by decree, that the Croatian minimum wage this year amounts to 4,250 kuna, which is 187.49 kuna more than last year.

The minimum hourly rate for student services - 26.56 kuna

Students who work through student services will also profit slightly from the increase in the Croatian minimum wage, to whom employers must pay a minimum of 26.56 kuna per hour from the beginning of this year, which is about 4.7 percent more than the previous 25.39 kuna in 2020.

The decision on the Croatian minimum wage for students is made every year by the Minister of Science and Education.

In February, the first payment of national compensation for the elderly will take place - 800 kuna

From this year on, Croatia will start paying the national benefit for the elderly to Croatian citizens over the age of 65 who have for whatever reason not secured an old-age pensions and are not entitled to any sort of pension, in the amount of 800 kuna.

This, popularly called the national pension, is regulated by the new Law on National Compensation for the Elderly, and the Minister of Labour, Pension System, Family and Social Policy, Josip Aladrovic, expects that around 20,000 beneficiaries will receive the new payment in the first year alone.

"The national benefit for the elderly is designed as a benefit that will cover the most vulnerable part of the population. We expect that in the first year, there will be slightly less than 20,000 who will use their right to access this benefit and the approximate cost of it to the state budget will stand at 132 million kuna in 2021,'' Aladrovic said in mid-December, when the Croatian Pension Insurance Institute (HZMO) began receiving applications for these payments.

HZMO will pay this fee through commercial banks and the first payments of this fee should start in February, with backpayments from January 2021 included.

Amendments to the Income Tax Act also define the tax treatment of this benefit - it, like other social benefits, will not be considered a sum on which income tax is paid.

Lower income tax rates

Amendments to the Income Tax Act are part of the package governing the fifth round of tax reforms. These changes have reduced income tax rates down from 24 percent to 20 percent, and from 36 percent down to 30 percent.

These lower rates should result in a higher salary for working people who, considering their salaries and thus their tax bases, must pay income tax. That increase can be anywhere from ten kuna to a thousand or two or more kuna. How much the increase is exactly depends on the amount of a person's salary, any benefits they receive for their dependent members and their place of residence and its surtax rate.

An estimate made earlier on by Finance Minister Zdravko Maric says that more than 900,000 taxpayers can expect higher incomes from the reduction of income tax rates, depending on the amount of their income. Out of a total of 2.8 million employees and pensioners, 1.9 million of them, given the amount of their income or pensions, don't pay any income tax, according to the Minister of Finance.

Amendments to the Income Tax Act reduce the rate applied from 12 percent to 10 percent applicable to the taxation of annual and final declared income and the flat-rate taxation of activities (such as renters of flats or apartments). However, the tax burden for those who fail to report their income in accordance with legal regulations is increasing, and the so-called penalty rate for asset disproportion has gone up from 54 percent to 60 percent.

This is other income based on the difference between the value of assets and the amount of assets with which it was acquired. Until now, this disparity has been taxed at a rate of 36 percent.

The novelty of the legal changes is that people who rent out their apartments, and if they certify the contract with a public notary, will no longer have to go to the Tax Administration themselves, but notaries will have the obligation to send this certified contract to the tax authorities. If, on the other hand, the contract is concluded without notarisation, people will still have to bring it to the Tax Administration themselves.

The financial effect of the changes in the income tax rate is estimated at two billion kuna, and since this tax is the income of local self-government units, the state will compensate them by taking over the equalisation fund, which is further explained below.

The state has taken over the equalisation fund

Thus, in accordance with the amendments to the Law on Financing of Local Self-Government Units, the shares of municipalities and cities in the distribution of income tax have increased from 60 to 74 percent, and that of counties has increased from 17 to 20 percent.

However, the funds for the equalisation fund, which has so far held a share of 17 percent in the distribution of income tax, will be provided for by the state budget from this year.

Income tax - the rate for enterprises with an income up to 7.5 million will fall from 12 to 10 percent

At the beginning of the year, amendments to the Income Tax Act came into force, reducing this tax rate for enterprises with an annual income of up to 7.5 million kuna from 12 percent down to 10 percent.

In addition to that, the tax rate on dividends and profit sharing was reduced from 12 percent down to 10 percent, and the tax rate on performance fees for foreign performers (artists, entertainers, athletes, etc) was reduced from 15 percent down to 10 percent.

The amendments to this law also stimulate banks to try to agree on a partial or complete write-off of receivables with clients who end up running into financial difficulties. Namely, the tax-deductible expense of a credit institution would be the same amount of the write-off of receivables, based on credit placements, the value of which is adjusted in accordance with special regulations of the Croatian National Bank.

VAT - the threshold for payment according to the collected invoices has been raised to 15 million kuna

Amendments to the Law on VAT raised the threshold for the payment of VAT according to the collected fees - from 7.5 million kuna to 15 million kuna. It also expands on the possibility of applying the VAT calculation category to imports.

Although most of the provisions of this law will enter into force at the beginning of this year, one important provision will enter into force in the middle of the year - from the 1st of July 2021, all imports of goods into Croatia from third countries will have to have VAT paid on them.

Fiscalisation - the treasury maximum is going to be prescribed by the Minister of Finance, Zdravko Maric, in an ordinance

The package of the fifth round of tax reform also includes amendments to the Law on Fiscalisation in Cash Transactions, whose provisions no longer prescribe the cash maximum, but will instead be prescribed by the Minister of Finance, according to certain categories of Croatian taxpayers.

At the beginning of the year, the application of some provisions adopted back at the end of 2019 began, so from the 1st of January 2021, the obligation to carry out the procedure of the fiscalisation of sales via self-service devices begins, as does the obligation to display QR codes on each issued and fiscalised invoice/receipt.

Law on Foreigners - quotas for foreign workers are abolished

At the beginning of 2021, Croatia will abolish its previous quota model for the employment of foreigners from third countries and move over to a new model that should make it easier for employers to employ foreigners.

Until now, the government has made decisions on determining the annual quota of permits for the employment of foreigners, for which it has also determined the list of activities and occupations they can engage in, as well as the number of permits for those professions in one year.

However, the new Law on Foreigners, which also came into force today, introduces a new model based on the opinion of the Croatian Employment Service (CES) on the justification of the employment of third-country nationals and the issuance of residence and work permits for such individuals.

This means that employers will first ask the CES to conduct a labour market survey before applying for a residence and work permit for the employment of a foreigner. If it is determined that there are no unemployed persons already here in Croatia who meet the requirements for that position, employers will then be able to apply for a residence and work permit to the Ministry of the Interior (MUP). The procedure for issuing residence and work permits, including the implementation of the labour market survey will take a maximum of 30 days.

The law also prescribes exceptions to the implementation of the labour market survey related to deficient occupations such as carpenters, masons, waiters, butchers and in the case of seasonal work of up to 90 days in agriculture, forestry, catering and tourism sectors.

The Law on sending workers to the Republic of Croatia (posted workers)

On the first day of the new year, the Law on Sending Workers to the Republic of Croatia and Cross-Border Enforcement of Decisions on Fines enters into force. It regulates the fundamental issues related to the position of workers in accordance with and on the basis of European Union legal sources, and provides a framework for compensation for the work performed, as other conditions, of posted workers.

These include the rights and guaranteed amounts of compensation for work performed in Croatia, the rights to protection at work, working hours and holidays, protection against discrimination, the right to quality for accommodation and internal mobility costs to which a Croatian worker is entitled, as well as the judicial protection of these rights.

The temporary stay of digital nomads will be properly regulated

Croatia is also among the few countries that will regulate the temporary stay of digital nomads. The Law on Foreigners also defined the term digital nomad - a third-country national who is employed or performs business through communication technology for a company or for their own company that isn't registered in the Republic of Croatia and doesn't perform work or provide services to employers headquartered in Croatia.

Temporary residence can be granted to third-country nationals who intend to stay in Croatia or are staying for the purpose of remaining here as digital nomads - this will be regulated by the new law. These people are mainly highly qualified foreigners and IT experts.

The rate for calculating and paying tourist board membership fees will be reduced by 12 percent

Enterprises can count on the reduction some parafiscal levies this year. As such, they will pay a 12 percent lower membership fee to the tourist board, regulated by amendments to the law on this topic.

This also enabled the Tax Administration to change the amount of the monthly membership fee advance due to a significant drop in that activity, and the calculation of the lump sum membership fee when persons providing catering and hospitality services in households or on family farms obtain a decision on approval in the current year, considering the fact that this membership fee is calculated based on the capacities from the previous year according to the data from the eVisitor system.

Amendments to the Tourist Board Membership Act are explicitly prescribed to enter into force on the 1st of January, and although this date isn't explicitly foreseen for amendments to the Forest Act, the application of these legal provisions coincides with the beginning of the year.

Namely, on the 15th of December 2020, Croatian Parliament passed amendments to the Forest Act, which were published in the Official Gazette (145/2020) on the 24th of December, and as they enter into force eight days after their publication, this coincides with the beginning of 2021. These legal changes envision the lowering of yet another parafiscal levy.

The total relief for the domestic economy from the above moves is estimated to stand at around 33 million kuna.

The new regulation on special tax on cars - Finance Minister Zdravko Maric expects their reduction in price

At the end of last year, the Croatian Government passed a new regulation on special tax on motor vehicles, and the Minister of Finance expects that this could lead to cheaper cars.

That regulation regulates the calculation of that special tax in the light of the new system for the measuring of carbon dioxide (CO2) emissions produced by new cars. At the beginning of 2021, the full application of the so-called Globally Harmonised Light Vehicle Test Procedure (WLTP) across the EU will begin, which means that new vehicles will no longer have CO2 measurement data according to the old type-approval rules, but it will be governed by new data. As such, it was necessary to adopt a new regulation, Minister Maric explained at a government session held on December 30th.

In addition to the environmental component which is implied, this special tax on motor vehicles also has a value component, and the new regulation has raised the value threshold up to which the special tax is not paid from 150 to 200 thousand kuna.

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ZAGREB, Dec 20, 2020 - A total of HRK 15.5 billion in tax debt, including HRK 6.8 billion on account of principal and HRK 8.7 billion on account of interest, owed by 346,570 taxpayers, has been written off since 2017 because the debt became time-barred, the Vecernji List daily wrote on Sunday.

The fact that a large part of the written-off debt is on account of interest shows that these are debts for which the Tax Administration kept data in tax records but for which it was not possible to enforce debt collection due to lack of assets, it was said in response to the daily's question. The daily had asked the Tax Administration for data on the total number of time-barred tax debts, the amount that had been written off because of that, and whether there was a need for any normative or organisational intervention in the tax system.

The data submitted is from 2017 because as of 1 January that year an important systemic change has been in force. Since then the statute of limitations for the right to collect taxes has been monitored ex officio, so taxpayers no longer have to submit a request.

Any tax debt that was not collected after six years, through the taxpayer's application or a decision of the tax authority, is written off from tax records.

As of 2017, if a tax debt has not been collected using all available enforcement proceedings during six years or if the debt is not secured by a pledge or mortgage, the tax authority is obliged to write off the time-barred debt from tax records.

Based on this, the Tax Administration conducts a systemic debt write-off once a year for debts that fall under the statute of limitations on 1 January that year.

As Vecernji list writes on the 7th of August, 2020, the tax on non-recyclable plastic packaging is one of the new taxes on its way to Croatia as of 2021 that will finance the repayment of a part of the 750 billion euro loan that will finance measures to revive the economies of European Union countries affected by the coronavirus crisis.

The new tax on non-recyclable plastic will be introduced on the 1st of January 2021, it will be imposed by all European Union member states and will repay the joint debt. The tax rate is 800 euros per tonne of non-recyclable plastic packaging. Thankfully, these taxes, at least not directly, will not be borne by citizens. The revenue will go directly to the EU treasury, and not to the budgets of the member states that collect it, Glas Slavonije writes.

The European Union has been stepping up its fight against plastic waste for several years. Two years ago, in January 2018, the Strategy for Plastic Waste Management was presented, with the aim of recycling all plastic packaging by the year 2030 (in a cost-effective manner) and limiting the use of disposable plastic. And then came the idea of ​​introducing the possibility of a plastic tax becoming a new source of revenue for the European Union's budget.

Under the current proposal, member states would pay 0.80 euros per kilogram of non-recyclable plastic waste. But the details needed for the implementation of this haven't yet been worked out. What will the criteria for determining the (non) recyclability of plastic packaging actually be? Will common rules of the game be established or will each EU member state set its own rules for how to collect taxes? 

We're rational to fear a scenario in which each country sets its own national criteria for the types and quantities of non-recyclable plastic packaging, and this could have a negative effect on the common EU market and complicate business for the bloc's economy. The proposal, analysts note, has caused nervousness in some poorer EU countries, especially those that don't have a developed recycling system like richer member states do. Therefore, they would have to make higher contributions in the name of this brand new tax. Therefore, the reassuring messages of Ursula von der Leyen, President of the European Commission, and Charles Michel, President of the European Council, are that a "mechanism to avoid excessive regressive impact on national contributions" will be created for such cases.

For now, there seem to be louder critics around the topic. On the one hand, there are those who have expressed concern about the reduction in tax revenues - because the more plastic is recycled, the taxes on plastic waste will disappear over time. On the other side is the European plastics industry, whose actors warn that the tax could have the totally opposite effect. They believe that plastic tax revenues are not intended to be invested in waste and recycling infrastructure, so this will not increase plastic waste recycling within the bloc.

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ZAGREB, Aug 2, 2020 - Four-fifths of Croatian companies are bracing for an economic downturn this year, and 70% of them say that the biggest help to them would be a reduction of fiscal and parafiscal charges in the next year, shows a survey conducted by the Croatian Employers' Association (HUP), which has about 6,000 members.

Furthermore, 36% of those polled say that their priorities are better transparency, digitalisation and a smaller and more efficient state and public administration. They are also hoping for longer deferrals of tax payments during the corona crisis.

One in 12 employers expect a rise in revenues

The survey, conducted in June, shows that as many as 78% of employers expect a decline in their revenues in 2020 in comparison to 2019, and half of them expect a fall of above 20%. On the other hand, 14% of those polled expect the same level of revenues as in the previous year, while eight percent expect a rise in their revenues this year.

The HUP acting director-general, Damir Zoric, said that the findings of the survey show that the priority of employers is a further reduction of the tax burden.

Finance Minister Maric spoke for Dnevnik HRT about the budget, the economic situation in the rapidly approaching autumn, money for Croatia from the European Union and other topics.

As Poslovni Dnevnik writes on the 1st of August, 2020, the Croatian Government projected a budget deficit of 25 billion kuna and when asked what the latest data was and whether the forecasts would be in those dimensions, Minister Maric said that Croatia had achieved practically all of its financing needs with well-known programmes, reports HRT.

"Our needs, owing to the coronavirus pandemic, have increased from 30.5 billion kuna to 64 billion kuna. In circumstances such as the ones we're currently in, we can state with satisfaction that we've fulfilled all of our obligations for financing in 2020, Minister Maric emphasised. When asked how much the interest rates were in line with the expectations, Maric said that the seven-year bonds, at 0.75 percent, were on good terms.

''The two billion euros that followed in the international financial market mark one of the highest quality bonds we've issued in the international financial market on the investor interest book itself at 1.5 percent for 11 years, and these latest data refer sto maturities of 12-14 , 5 years, and the interest rates are between 0.25 and 0.50 percent. I think that these are good conditions in the given circumstances,'' Minister Maric emphasised.

A 9.4 percent drop is forecast for this year. In a month, the Croatian Government will come out with new projections based on all the information we have. Maric said that all the measures that were put into operation from the first day were aimed at preserving liquidity and preserving jobs.

"We've amortised that first wave in an adequate way, but there are still days ahead of us and the Government will follow the epidemiological picture and continue to do everything to continue the trend of preserving jobs and to start the recovery as soon as possible," said Minister Maric.

Maric said that challenges exist and that Croatia as a country must learn to deal with them, as it did in the first wave of the pandemic. 750 billion euros from EU funds is a great chance for Croatia, but also for the entire EU economy, and it is an opportunity to make a step forward for the domestic economy, but also for society as a whole, Zdravko Maric pointed out.

"Informal and formal consultations with the Commission and other relevant bodies on the programme will start in October. In April, all countries, including Croatia, are obliged to send a National Recovery Plan and in it, among other things, define both structural reforms and investment activities that should be the key determinants of spending and absorption of the part [of the money] related to the recovery plan and resilience,'' he said.

He pointed out that the basic idea at the national level is to create the necessary preconditions for the quality implementation of several strong and recognisable projects, and also not neglect balanced regional development as one of the postulates of the Republic of Croatia.

"As far as the private economy is concerned, we want to make the most of EU funds, so that they reach those who are key drivers of our economy and investments in an adequate way, either in the form of grants or in the form of quality loans," he stressed.

When asked when the minimum wage can be expected to increase and taxes to be reduced, Minister Maric said that work would begin on that after the summer break.

"As Minister of Finance, I advocate the maximum responsibility for taxpayers, which we've done in the past four years, and return to the path of a balanced budget as soon as possible," he said, adding that in parallel there will be greater absorption from the recovery fund.

He pointed out that the details will be known in autumn.

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ZAGREB, July 30, 2020 - The government on Thursday required state-owned companies to pay 60 percent of their after-tax profits for 2019 into the state budget based on the state share in their equity.

The decision applies to 15 companies, including marina chain operator ACI, power provider HEP, Croatian Lottery, the Hrvatske Sume forest management company, the INA oil company and oil pipeline operator Janaf.

The arms dealing agency Agencija Alan will have to pay 100% of profit into the budget which will be used for the modernisation and activities of the Croatian armed forces. Under the law on games of chance, Croatian Lottery is also required to pay all its profit from 2019 to the state budget.

 AKD, an IT company specialising in the manufacturing of ID cards, passports and driving licenses, will have to pay 60% of its profit into the state budget which will be used to improve the material status of police officers.