Extended business travellers are likely to be subject to PIT on employment income relating to their Croatian work days (unless the individual qualifies for relief under the dependent personal services article of an applicable double tax treaty).
Liability for income tax
An individual can be a tax resident or a tax nonresident. All resident taxpayers are taxable in Croatia on their worldwide income while nonresidents are taxable on income from Croatian sources only. A resident taxpayer is an individual who has, in Croatia, his or her:
- residence (if an individual owns/rents accommodation without interruption for at least 183 days over two consecutive calendar years; staying permanently in the accommodation, however, is not necessary)
- habitual abode (if the circumstances suggest that an individual permanently resides in that place or region for a period of at least 183 days over two consecutive calendar years).
A resident taxpayer is also an individual who does not have a residence or habitual abode in Croatia, but is employed with a government service and receives a salary based on this appointment.
A non-resident taxpayer is an individual who has neither a residence nor habitual abode in Croatia but earns income from Croatian sources, which are subject to Croatian PIT.
Extended business travellers are likely to be considered non-residents of Croatia for tax purposes unless they enter Croatia with the intention to remain for more than 183 days over a period of two consecutive years.
Tax trigger points
There is no threshold/minimum number of days that exempts an employee from the requirements to file and pay PIT in Croatia. If the individual qualifies for relief pursuant to the dependent personal services article of an applicable double tax treaty, there will be no PIT liability.
Types of taxable income
For extended business travellers, the types of income that are generally subject to PIT are employment income (encompassing benefits-in-kind) and other types of income that they might earn in Croatia.
Taxable income of both residents and nonresidents is taxed at progressive rates of 12 percent, 25 percent and 40 percent. City surtax may also be applicable and it is calculated on the amount of PIT payable, applying the relevant city surtax rate. The highest city surtax rate is in Zagreb, at 18 percent.
Liability to social security
A business traveller from an EU member state will be exempt from paying Croatian social security contributions provided an A1 form has been obtained from the relevant authorities.
If a business traveller comes from a country with which Croatia has concluded a totalization agreement, and the relevant exemption forms are obtained to confirm the payment of obligatory insurance abroad, no Croatian obligatory social security contributions are required. Otherwise, depending on the case, the foreigner would need to at least pay health insurance contributions, where the amount of contributions is assessed directly by the tax authorities. The health insurance contributions base is the average Croatian national monthly gross salary (a prescribed, fixed amount, for the whole year) multiplied by 35 percent and then by the health insurance contribution rate of 15 percent.
Employee compliance obligations
Individuals receiving income directly from abroad must report such income to the tax authorities within eight days of receipt of the income via submission of a monthly JOPPD form. An annual income summary form, the IP form (summarizing the previous years’ JOPPD forms), must be submitted by 31 January of the following year. An annual PIT return, if one is required to be submitted, is due 28 February of the following year. Residents are obliged to submit an annual PIT return for income received from abroad only if during the year PIT advances were not paid or were paid in an amount lower than the amount prescribed by the PIT legislation.
Extensions are granted only in exceptional circumstances.
Employer reporting and withholding requirements
There are no compliance obligations for foreign employers for business travellers coming to Croatia.
If a business traveller travels abroad from Croatia and remains subject to PIT in Croatia, his/her Croatian employer is required to withhold obligatory employee social security contributions and to pay employer social security contributions at rates specifically prescribed for business travellers. The employer is also required to ensure appropriate PIT withholding.
Work permit/visa requirements
Most foreign nationals who intend to work/perform business activities in Croatia are required to obtain either a confirmation of work or a work and stay permit.
Confirmation of work can be issued for a period of up to 30, 60 or 90 days in calendar year, depending on the type of work that will be performed by the foreign national.
Work and stay permits can be issued for a period of up to one year and can be separated into two categories: those that are issued within annual quota (i.e. each year Croatian government publishes a decision on the number of such permits per certain job positions), and those issued outside of annual quota. The issuance of the latter is possible only in cases explicitly set out in the Croatian Foreigners Law and with the fulfilment of the prescribed requirements.
Stay and work of EEA nationals
As a result of Croatian accession to the EU on 1 July 2013, a difference between European Economic Area (“EEA”) nationals and nationals of other countries was made. In general, EEA nationals can work in Croatia without obtaining a confirmation of work or a work and stay permit. Their only obligation is to register their address within 2 days of entering Croatia, and to register their temporary residence (by submitting appropriate documents to the relevant police station) if the duration of their stay in Croatia exceeds three months.
However, as some of the EEA countries have introduced restrictions for employment of Croatian workers, on the principle of reciprocity Croatia has also imposed such restrictions for their nationals. Consequentially, certain EEA nationals still need to obtain a confirmation of work or a work and stay permit in order to work in Croatia, as well as the nationals of non-EEA countries.
Double taxation treaties
Croatia has currently entered into double taxation treaties with more than 50 countries.
Permanent establishment implications
A permanent establishment could be created as a result of extended business travel in Croatia if the travel lasts for more than three months in any 12-month period, unless the traveler is assigned to a Croatian entity and is subject to Croatian PIT.
The standard value-added tax (VAT) rate is 25 percent and applies to most products and services.
A reduced VAT rate of 13 percent applies to:
- tourist accommodation services and related agency fees
- newspapers and magazines issued on a daily or periodical basis, with the exception of newspapers and magazines that consist mainly or entirely of advertisements, or whose main purpose is advertising
- edible oils and fats, baby food, the supply of water (except bottled or otherwise packaged drinking water) and refined (white) sugar
the services of preparation and serving food, nonalcoholic drinks, wine and beer in registered hospitality facilities
A VAT rate of 5 percent applies to:
- bread and milk
- educational literature (specified)
- certain (specified) medical supplies
- scientific magazines and film projection services,
A VAT exemption (no input VAT recovery) applies to health and welfare services, education services, supplies by charitable organizations, supplies by museums, libraries, theatres, orchestras and other cultural services, financial and insurance services, betting and gambling, rental of residential property, postal services supplied by the Croatian National Post, public radio and television broadcasting and private use of personal motor vehicles, yachts, airplanes etc., when no input VAT was claimed.
Croatia has a transfer pricing regime that applies to any transaction between a Croatian company and a foreign-related company, inclusive of any charges made to the Croatian company in respect of business travelers.
The transfer pricing provisions also apply to transactions undertaken between two domestic related entities if one of them has a preferential tax position (e.g. entitlement to a reduced corporate profit tax rate, exemption from corporate profit tax, or tax losses available for utilization).
Local data privacy requirements
Croatia has data privacy laws.
There are no limitations for foreign and domestic currency brought into Croatia (for either residents or nonresidents). However, amounts in excess of 10,000 euros (EUR) must be reported to the Croatian Customs Authorities. The Croatian Customs Authorities must report amounts in excess of EUR10,000 to the Office for the Prevention of Money Laundering.
Nondeductible costs for assignees
Nonresidents can deduct from gross income only the basic personal allowance (currently 2,200 Croatian kuna (HRK) per month) and any obligatory foreign country insurance contributions paid by the individual where a totalization agreement with the respective foreign country applies. Any other costs or expenses are nondeductible.
Residents can deduct from gross income the basic personal allowance (currently HRK2,200 per month), as well as additional personal allowances for dependent family members, any Croatian employee social security contributions, and any obligatory foreign country insurance contributions paid by the individual, where a totalization agreement with the respective foreign country applies.
Additional deductions are available for both nonresident and residents for the following:
- donations up to 2 percent of their previous year’s income as evidenced in the previous year’s annual PIT return
- As of 1 July 2010, payments made by Croatian employers to Croatian voluntary pension funds (pillar III pension insurance) on behalf of Croatian employees up to a maximum amount of HRK500 per month per employee.
If both spouses are tax residents and pay PIT, it is possible to share additional allowances for children and other dependents of the immediate family.
Croatian domestic tax law indicates that foreign-sourced income, which is subject to PIT abroad, is also subject to PIT in Croatia, but a tax credit for PIT paid abroad may be applied to reduce PIT otherwise payable in Croatia; the amount of PIT credited may not, however, exceed the amount of Croatian PIT payable on that foreign income.