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13 January 2020

Fourth round of Croatian tax reforms takes effect l Croatia

In late November 2019 the Croatian Parliament passed a series of laws amending Croatian tax legislation. The new laws, in the most part, came into effect on 1 January 2020.

The changes form part of wider efforts of the Croatian Government to ease the tax burden on both citizens and businesses.

What changes for businesses?

The corporate tax rate has decreased for some businesses. Businesses with a yearly revenue of up to HRK 7.5 million (approx. EUR 1 million, excluded) will now be taxed at a 12 % rate, whereas previously only businesses with a revenue of up to HRK 3 million (approx. EUR 405.000) were eligible. Businesses exceeding this threshold will be taxed at 18 %.

Moreover, the VAT rate for the preparation and sale of food in and outside of establishments has decreased to 13 %. The general VAT rate remains 25 %.

The new laws also widen the responsibility of businesses with regard to issuing invoices (which will take effect in part on 1 April 2020 and on 1 January 2021) and introduce changes to the taxation of coffee and non-alcoholic beverages.

Stricter rules for "hidden employment"

So-called "hidden employment" relationships in Croatia typically feature a natural person registering a craft and performing services exclusively for one company on a contractual basis. In reality, the contractor for all intents and purposes is an employee - working at the company's premises, being integrated into the company structure etc. In the past such arrangements allowed cutting costs, as certain crafts enjoy tax benefits. While hidden employment was previously somewhat of a grey area, stricter rules are now being introduced to combat such arrangements. The employee in such situations will be liable for tax payments, while the employer will be jointly and severally liable as a guarantor. This measure is likely a reaction to the growing number of similar arrangements, e.g. in the Croatian IT sector.

The implementation of the described laws will conclude the latest round of tax reforms envisioned by the Croatian Government. Apart from this, Croatia is also working on making business more attractive through increased digitalisation and opening of the employment market.

Keywords: porezna reforma, porez na dobit, prikriveni radni odnosi

authors: Ana Marija Rupčić and Ozren Kobsa