Croatia has successfully joined all treaties relating to double taxation and has also signed a number of new agreements of this kind; a new agreement on the avoidance of double taxation with the Czech Republic came into force in 1999. In 2017 a tax reform was carried out, comprising a package of 15 tax acts. Its aim was to simplify the tax system and reduce the tax burden on individuals and companies, as well as to increase the competitiveness of the Croatian economy, with a clear shift away from taxing income towards taxing consumption. The reform therefore cut the number of tax bands from three (12%, 25%, 40%) to two (24%, 36%), while significantly raising the threshold for moving into the higher band.

A tax-free allowance for children and employees was approved. Corporate profit tax was reduced from 20% to 12% for craftsmen and small businesses with annual turnover of up to HRK 3 million (approx. €404,665), and is 18% for all others. The greatest controversy arose from moving catering from the previous 13% VAT rate to the 25% rate, which led to price rises for food and drink served in restaurants, patisseries, cafés and catering establishments.

Conversely, the lower 13% rate is applied to electricity bills. Ultimately, the tax reform in Croatia should bring employees higher wages and businesses a lower tax burden.

Categories of Tax

All available information on the new tax system and taxes can be found on the website www.porezna-uprava.hr under the “porezni sustav” tab. The classification of taxes changes from time to time, so we recommend consulting that website.

Basic Classification of Taxes

  • Profit tax – this category covers commercial companies and legal entities that carry out economic activity on a permanent and independent basis for profit, whether through production, the provision of services or sales.
  • VAT (value added tax, known in Croatia as PDV) – since 2013, VAT has been charged at 25% on all categories of goods and services, except for the 5% rate on milk, medicines, bread, books and specialist journals, medical aids and other items. The 13% rate applies to magazines, oils and edible fats, tourist services, baby food and other items. The 25% rate applies to food and drink served in restaurants.
  • Special taxes and excise duties – these cover items such as coffee, tobacco products, beer, alcohol, passenger cars and luxury goods. They also include county taxes, gift and inheritance tax, tax on motor vehicles, tax on gaming machines and games of chance, and tax on vessels
  • Shared taxes – these include property transfer tax and income tax
  • Municipal taxes and charges – the surtax, i.e. an additional income tax introduced by cities with more than 40,000 inhabitants, consumption tax, tax on a company or business name, tax on holiday homes and tax on the use of public spaces.

Taxes introduced by certain local government bodies may also apply