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.
For personalized advice or more information, reach out to our Eurofast office in Croatia at [email protected].