Grant Thornton provides an overview of the announced key changes in the Tax Reform, which will largely come into effect on 1 January 2025. A new round of tax changes has been announced, and the changes are comprehensive, from real estate tax to VAT. The personal allowance is increasing from 560 to 600 euros, which automatically results in an increase in deductions for dependents. The threshold for paying a higher income tax rate is increasing from the current 50,400.00 euros per year to 60,000.00 euros.

 

Real estate tax

• Change of tax name - "holiday home tax" becomes "real estate tax"
• Clarification of the subject of taxation - residential real estate, residential building or part, apartment and any other functional space intended for housing
• Clarification of the taxpayer - owner, domestic and foreign/legal and natural person, and exceptionally, user according to the regulation on communal economy
• Prescribing real estate exempt from taxation - real estate used for agriculture and for carrying out production and non-production activities (according to the decision on communal fees)
• Range for determining the amount of tax on holiday homes - from 0.6 to 8 euros per m2. If the municipality or city does not make a decision on the amount of real estate  tax, the amount of tax on holiday homes for 2024 will be applied or the lowest amount of 0.6 euros per m2 will be applied if the municipality or city has not decided to introduce a tax on holiday homes for 2024

 

Income tax – change in the amount of tax burden

• the amount of the flat-rate tax on renting out apartments, rooms and beds to travellers and tourists and organising campsites will be determined according to the level of the tourist development index of the municipality or city determined by the regulation on tourism
• the index is determined based on the number of tourist arrivals, number of overnight stays, number of beds, number of employees in tourism-related activities.
• municipalities and cities decide on the amount of the "flat-rate tax" within the prescribed limits

 

Tax relief for salaries and pensions – income tax

• the basic personal allowance is increased from 560 to 600 euros, the personal allowance for dependents and disability is increased
• the amount of certain non-taxable receipts calculated using the basic personal allowance coefficient is increased (severance pay, separation allowance, performance bonus, etc.)

• the threshold for applying a higher income tax rate is raised from 50,400 to 60,000 euros

 

Income tax rates

The maximum amount of the lower and higher rates is being reduced

Municipality or city	Until the end of  2023		From 1.1.2024		Proposal from 1.1.2025
Personnel allowance	530,90€		560€		600€
	Income tax	CITY TAX	Lower income tax rate	Higher income tax rate	Lower income tax rate	Higher income tax rate
Municipalities	20% i 30%	Do 10%	15-22%	25-33%	15-20%	25-30%
Cities		Do 12%	15-22,4%	25-33,6%	15-21%	25-31%
Large cities and county seats		Do 15%	15-23%	25-34,5%	15-22%	25-32%
City of Zagreb		Do 18%	15-23,6%	25-35,4%	15-23%	25-33%

 

Encouraging the return of Croatian citizens

Croatian citizens who are returnees or descendants of Croatian emigrants from overseas and European countries are exempt from income tax (in accordance with a special law).

• Exemption from paying income tax based on salary for a period of 5 years for taxpayers who have continuously resided abroad for at least 2 years
• Exemption from 1 January following the year in which the conditions are met – through the annual income tax calculation (as in the case of tax exemption for young employed persons)
• Tax refunds will generally be made without submitting a special request
• The right to a refund is determined based on data from the Ministry of the Interior's database on permanent residence and temporary residence

 

Proposals for changes to salary contributions

The exemption for employers from the obligation to pay health insurance contributions for young employees is abolished.

Employers who use the exemption retain their acquired rights until the expiration of a period of 5 years.

 

Raising the threshold for entering the VAT system

• the threshold for entering the VAT system is raised from 40,000 to 60,000 euros (+50%) due to inflationary effects

 

Changes in the General Tax Law:

• Expansion of provisions on e-communication

• Introduction of the obligation to issue invoices for kiosks
• Expansion of provisions on prohibitive measures against illegal activities
• Harmonization of provisions with OECD recommendations
• Creation of preconditions for facilitating the implementation of the procedure for concluding an administrative contract

 

For more information about the new Tax Reform, contact our local experts, and find more information in the Official Gazette or on the link.