Introduction
Croatia is preparing for significant tax reforms, effective January
1, 2025, that aim to boost incomes, attract returnees, and support
young employees. These changes also grant local governments more
flexibility in setting tax rates. Here is a detailed look at the
updates and their implications.
Key Salary Tax Changes
The reforms include notable adjustments to personal allowances and
income tax thresholds. The personal allowance will increase from
€560 to €600, leading to modest salary increases for
workers and pensioners. Employees may see an additional €8 in
their monthly salaries, while pensions above €600 may rise by
about €4. Workers with dependents will benefit from
proportional increases in child allowances, with families having
two children potentially gaining an extra €15 to €20 per
month.
Income tax thresholds will also shift, with the higher tax rate now applying to earnings above €60,000 instead of €50,400. This adjustment is expected to provide approximately €200 in additional annual income for many taxpayers. Local governments can also set income tax rates within specified ranges, from 20% in smaller towns to up to 23% in Zagreb.
Incentives for Returnees
To attract skilled workers back to Croatia, returnees who have
lived and worked abroad for at least two years will be exempt from
income tax for five years if they secure employment upon their
return. This initiative seeks to reverse brain drain and strengthen
the local workforce.
Support for Young Employees
Young people will continue to enjoy favorable tax treatment.
Employees under 25 will receive a full refund of their income tax,
while those aged 25 to 30 will qualify for a 50% refund.
Additionally, individuals entering the workforce for the first time
will benefit from a one-year exemption from healthcare
contributions. Existing five-year exemptions for healthcare
contributions for young permanent employees will no longer be
offered after December 31, 2024, although current beneficiaries
will retain their exemptions.
Business-Friendly Measures
Small businesses will benefit from an increased VAT entry
threshold, which will rise to €60,000. This change aims to
support entrepreneurship and reduce administrative burdens for
smaller enterprises.
Eurofast's Take
These reforms highlight Croatia's efforts to modernize its tax
system and stimulate economic development. Eurofast is ready to
guide businesses and individuals through these changes, ensuring
compliance and optimizing tax planning strategies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
