Suggested Changes In The Croatian Tax System

As previously mentioned by the Minister of Finance, on October 27th 2016, the Croatian Ministry of Finance introduced to the public a proposed set of legislative changes in the tax system of Croatia.

The above mentioned reform covers majority of taxes in Croatia, and the most significant changes are expected in the system of value added tax, corporate income tax and personal income tax.

In mid-November, the proposed changes are going into the parliamentary procedure for two readings, while the final legislative proposals are expected by the end of this month.

Objectives of Proposed Changes

While presenting the proposed tax changes, Minister of Finance outlined the following objectives:

  • Reducing the overall tax burden;
  • Promoting economic competitiveness;
  • Building a socially equitable tax system;
  • A stable, simpler and more sustainable tax system;
  • Simplification of tax administration;
  • Providing greater legal certainty to taxpayers.

What is Changing?

Tax reform brings a number of changes in tax legislation, including VAT, income tax, income tax, real estate tax, the provisions of limitations etc.

The main changes include a reduction in the general corporate income tax rate to 18%, as well as the introduction of a reduced rate of 12% for small businesses up to 3 million. Further, from 01.01.2017. the eradication of the exemptions for reinvested profit is desirable all the significant investments carried out in 2016.

For the purposes of VAT, the proposal provides for a partial deduction of input tax on cars, increasing the VAT rate in tourism at 25%, as well as other less significant innovations.

With regard to income tax, personal allowances to be increased, increase of tax brackets and change of tax rates of income tax.

Due to the volume of the changes, more details on changes of tax regulations can be found in our summary attached in the PDF below.

In conclusion, we would like to note that the changes are still in the phase of proposed amendments and there is an expected public hearing in the next 15 days.

It is expected that the proposals will be passed in the Croatian Parliament during December 2016.