ZAGREB, September 18, 2019 – The Croatian Finance Ministry on Tuesday put to month-long public consultation nine bills from a fourth round of tax reform, which, among other things, envisage tax breaks for young people, a lower, 13% VAT rate for the hospitality sector, etc.
The latest round of tax changes was outlined in late July by Prime Minister Andrej Plenković and Finance Minister Zdravko Marić, who then said that the fourth tax reform round was expected to reduce the tax burden by 3.75 billion kuna.
Amendments to the Income Tax Act propose the income tax on people under 25 years should be scrapped and on those aged 26-30 cut by half.
Under these proposals, these tax deductions would apply to an annual income of up to 360,000 kuna.
This would result in an increase in the net salaries of young people and contribute to putting a stop to the emigration of young and highly educated people to work abroad.
The Finance Ministry estimates that these tax breaks will result in a drop in the revenue of local government units of 800 million kuna.
These changes would also enable employers to make non-taxable payments for their employees’ supplementary and additional health insurance up to a certain amount and based on credible documentation.
The standard VAT rate of 25% will be reduced to 24% as of next year, and the latest amendments to the VAT Act envisage also the entry into force, as of 2020, of a lower, 13% VAT rate on food preparation and serving in the hospitality industry.
The lowering of the VAT rate in the hospitality industry is expected to reduce the budget revenue by around 900 million kuna annually.
As for profit tax, the government has proposed that businesses with an annual revenue of less than 7.5 million kuna be subject to a 12% rate, up from the present 3 million kuna.
The profit tax rate of 18% will stay in force for those who earn more than 7.5 million kuna annually.
The amendments also raise the threshold from which physical persons who are small business owners and are subject to income tax have to pay profit tax and keep business records according to accounting rules, from HRK 3 million to 7.5 million in receipts annually.
Amendments to special taxes on coffee and non-alcoholic drinks introduce taxes on non-alcoholic drinks, depending on sugar content, as well as additional taxation of energy drinks.
Instead of the current definition of fruit syrups, the amendments introduce a definition of added sugars (monosaccharides and disaccharides) and preparations that contain sugar, except for juices that do not contain added sugar or sweeteners.
Under the amendments, the special tax on coffee and non-alcoholic drinks would be paid depending on product weight or volume, sugar content, and the content of caffeine, methylxanthine and taurine.
More news about taxes in Croatia can be found in the Business section.
