January the 1st, 2020 – As Index writes, in 2021, Croatia is set to introduce the national compensation for the elderly in the amount of 800 kuna, increase the Croatian minimum wage to 3400 kuna net, reduce income tax rates down to 20 and 30 percent, and also down to 10 percent for enterprises with an income up of up to 7.5 million kuna, abolish quotas for foreign (third country) workers, and regulate the temporary stay of digital nomads.
Usually, a number of new laws come into force at the beginning of any given year, or amendments to existing ones occur, such as the new National Allowance for the Elderly Act, the new Law on Foreigners, a package of laws regulating the fifth round of tax reform – amendments to the tax laws on income, profit, VAT, the fiscalisation in cash transactions, on the financing of local self-government units, as well as new laws regulating the banking sector.
At the beginning of this year, some new bylaws came into force, such as the regulation on the amount of the Croatian minimum wage.
The Croatian minimum net wage in 2021 will rise to 3400 kuna
From the beginning of 2021, the Croatian minimum wage will be 3,400 kuna, which is 150 kuna or 4.61 percent more than it was in 2020. Namely, the government prescribed, by decree, that the Croatian minimum wage this year amounts to 4,250 kuna, which is 187.49 kuna more than last year.
The minimum hourly rate for student services – 26.56 kuna
Students who work through student services will also profit slightly from the increase in the Croatian minimum wage, to whom employers must pay a minimum of 26.56 kuna per hour from the beginning of this year, which is about 4.7 percent more than the previous 25.39 kuna in 2020.
The decision on the Croatian minimum wage for students is made every year by the Minister of Science and Education.
In February, the first payment of national compensation for the elderly will take place – 800 kuna
From this year on, Croatia will start paying the national benefit for the elderly to Croatian citizens over the age of 65 who have for whatever reason not secured an old-age pensions and are not entitled to any sort of pension, in the amount of 800 kuna.
This, popularly called the national pension, is regulated by the new Law on National Compensation for the Elderly, and the Minister of Labour, Pension System, Family and Social Policy, Josip Aladrovic, expects that around 20,000 beneficiaries will receive the new payment in the first year alone.
“The national benefit for the elderly is designed as a benefit that will cover the most vulnerable part of the population. We expect that in the first year, there will be slightly less than 20,000 who will use their right to access this benefit and the approximate cost of it to the state budget will stand at 132 million kuna in 2021,” Aladrovic said in mid-December, when the Croatian Pension Insurance Institute (HZMO) began receiving applications for these payments.
HZMO will pay this fee through commercial banks and the first payments of this fee should start in February, with backpayments from January 2021 included.
Amendments to the Income Tax Act also define the tax treatment of this benefit – it, like other social benefits, will not be considered a sum on which income tax is paid.
Lower income tax rates
Amendments to the Income Tax Act are part of the package governing the fifth round of tax reforms. These changes have reduced income tax rates down from 24 percent to 20 percent, and from 36 percent down to 30 percent.
These lower rates should result in a higher salary for working people who, considering their salaries and thus their tax bases, must pay income tax. That increase can be anywhere from ten kuna to a thousand or two or more kuna. How much the increase is exactly depends on the amount of a person’s salary, any benefits they receive for their dependent members and their place of residence and its surtax rate.
An estimate made earlier on by Finance Minister Zdravko Maric says that more than 900,000 taxpayers can expect higher incomes from the reduction of income tax rates, depending on the amount of their income. Out of a total of 2.8 million employees and pensioners, 1.9 million of them, given the amount of their income or pensions, don’t pay any income tax, according to the Minister of Finance.
Amendments to the Income Tax Act reduce the rate applied from 12 percent to 10 percent applicable to the taxation of annual and final declared income and the flat-rate taxation of activities (such as renters of flats or apartments). However, the tax burden for those who fail to report their income in accordance with legal regulations is increasing, and the so-called penalty rate for asset disproportion has gone up from 54 percent to 60 percent.
This is other income based on the difference between the value of assets and the amount of assets with which it was acquired. Until now, this disparity has been taxed at a rate of 36 percent.
The novelty of the legal changes is that people who rent out their apartments, and if they certify the contract with a public notary, will no longer have to go to the Tax Administration themselves, but notaries will have the obligation to send this certified contract to the tax authorities. If, on the other hand, the contract is concluded without notarisation, people will still have to bring it to the Tax Administration themselves.
The financial effect of the changes in the income tax rate is estimated at two billion kuna, and since this tax is the income of local self-government units, the state will compensate them by taking over the equalisation fund, which is further explained below.
The state has taken over the equalisation fund
Thus, in accordance with the amendments to the Law on Financing of Local Self-Government Units, the shares of municipalities and cities in the distribution of income tax have increased from 60 to 74 percent, and that of counties has increased from 17 to 20 percent.
However, the funds for the equalisation fund, which has so far held a share of 17 percent in the distribution of income tax, will be provided for by the state budget from this year.
Income tax – the rate for enterprises with an income up to 7.5 million will fall from 12 to 10 percent
At the beginning of the year, amendments to the Income Tax Act came into force, reducing this tax rate for enterprises with an annual income of up to 7.5 million kuna from 12 percent down to 10 percent.
In addition to that, the tax rate on dividends and profit sharing was reduced from 12 percent down to 10 percent, and the tax rate on performance fees for foreign performers (artists, entertainers, athletes, etc) was reduced from 15 percent down to 10 percent.
The amendments to this law also stimulate banks to try to agree on a partial or complete write-off of receivables with clients who end up running into financial difficulties. Namely, the tax-deductible expense of a credit institution would be the same amount of the write-off of receivables, based on credit placements, the value of which is adjusted in accordance with special regulations of the Croatian National Bank.
VAT – the threshold for payment according to the collected invoices has been raised to 15 million kuna
Amendments to the Law on VAT raised the threshold for the payment of VAT according to the collected fees – from 7.5 million kuna to 15 million kuna. It also expands on the possibility of applying the VAT calculation category to imports.
Although most of the provisions of this law will enter into force at the beginning of this year, one important provision will enter into force in the middle of the year – from the 1st of July 2021, all imports of goods into Croatia from third countries will have to have VAT paid on them.
Fiscalisation – the treasury maximum is going to be prescribed by the Minister of Finance, Zdravko Maric, in an ordinance
The package of the fifth round of tax reform also includes amendments to the Law on Fiscalisation in Cash Transactions, whose provisions no longer prescribe the cash maximum, but will instead be prescribed by the Minister of Finance, according to certain categories of Croatian taxpayers.
At the beginning of the year, the application of some provisions adopted back at the end of 2019 began, so from the 1st of January 2021, the obligation to carry out the procedure of the fiscalisation of sales via self-service devices begins, as does the obligation to display QR codes on each issued and fiscalised invoice/receipt.
Law on Foreigners – quotas for foreign workers are abolished
At the beginning of 2021, Croatia will abolish its previous quota model for the employment of foreigners from third countries and move over to a new model that should make it easier for employers to employ foreigners.
Until now, the government has made decisions on determining the annual quota of permits for the employment of foreigners, for which it has also determined the list of activities and occupations they can engage in, as well as the number of permits for those professions in one year.
However, the new Law on Foreigners, which also came into force today, introduces a new model based on the opinion of the Croatian Employment Service (CES) on the justification of the employment of third-country nationals and the issuance of residence and work permits for such individuals.
This means that employers will first ask the CES to conduct a labour market survey before applying for a residence and work permit for the employment of a foreigner. If it is determined that there are no unemployed persons already here in Croatia who meet the requirements for that position, employers will then be able to apply for a residence and work permit to the Ministry of the Interior (MUP). The procedure for issuing residence and work permits, including the implementation of the labour market survey will take a maximum of 30 days.
The law also prescribes exceptions to the implementation of the labour market survey related to deficient occupations such as carpenters, masons, waiters, butchers and in the case of seasonal work of up to 90 days in agriculture, forestry, catering and tourism sectors.
The Law on sending workers to the Republic of Croatia (posted workers)
On the first day of the new year, the Law on Sending Workers to the Republic of Croatia and Cross-Border Enforcement of Decisions on Fines enters into force. It regulates the fundamental issues related to the position of workers in accordance with and on the basis of European Union legal sources, and provides a framework for compensation for the work performed, as other conditions, of posted workers.
These include the rights and guaranteed amounts of compensation for work performed in Croatia, the rights to protection at work, working hours and holidays, protection against discrimination, the right to quality for accommodation and internal mobility costs to which a Croatian worker is entitled, as well as the judicial protection of these rights.
The temporary stay of digital nomads will be properly regulated
Croatia is also among the few countries that will regulate the temporary stay of digital nomads. The Law on Foreigners also defined the term digital nomad – a third-country national who is employed or performs business through communication technology for a company or for their own company that isn’t registered in the Republic of Croatia and doesn’t perform work or provide services to employers headquartered in Croatia.
Temporary residence can be granted to third-country nationals who intend to stay in Croatia or are staying for the purpose of remaining here as digital nomads – this will be regulated by the new law. These people are mainly highly qualified foreigners and IT experts.
The rate for calculating and paying tourist board membership fees will be reduced by 12 percent
Enterprises can count on the reduction some parafiscal levies this year. As such, they will pay a 12 percent lower membership fee to the tourist board, regulated by amendments to the law on this topic.
This also enabled the Tax Administration to change the amount of the monthly membership fee advance due to a significant drop in that activity, and the calculation of the lump sum membership fee when persons providing catering and hospitality services in households or on family farms obtain a decision on approval in the current year, considering the fact that this membership fee is calculated based on the capacities from the previous year according to the data from the eVisitor system.
Amendments to the Tourist Board Membership Act are explicitly prescribed to enter into force on the 1st of January, and although this date isn’t explicitly foreseen for amendments to the Forest Act, the application of these legal provisions coincides with the beginning of the year.
Namely, on the 15th of December 2020, Croatian Parliament passed amendments to the Forest Act, which were published in the Official Gazette (145/2020) on the 24th of December, and as they enter into force eight days after their publication, this coincides with the beginning of 2021. These legal changes envision the lowering of yet another parafiscal levy.
The total relief for the domestic economy from the above moves is estimated to stand at around 33 million kuna.
The new regulation on special tax on cars – Finance Minister Zdravko Maric expects their reduction in price
At the end of last year, the Croatian Government passed a new regulation on special tax on motor vehicles, and the Minister of Finance expects that this could lead to cheaper cars.
That regulation regulates the calculation of that special tax in the light of the new system for the measuring of carbon dioxide (CO2) emissions produced by new cars. At the beginning of 2021, the full application of the so-called Globally Harmonised Light Vehicle Test Procedure (WLTP) across the EU will begin, which means that new vehicles will no longer have CO2 measurement data according to the old type-approval rules, but it will be governed by new data. As such, it was necessary to adopt a new regulation, Minister Maric explained at a government session held on December 30th.
In addition to the environmental component which is implied, this special tax on motor vehicles also has a value component, and the new regulation has raised the value threshold up to which the special tax is not paid from 150 to 200 thousand kuna.