Employers in Croatia make significant contributions to the social security system. These contributions cover pension insurance, health insurance, employment injury and occupational disease insurance, and unemployment insurance. The rates for these contributions vary, with pension insurance being 15% of the employee's gross salary, health insurance 16.5%, and unemployment insurance 1.7%. The rate for employment injury and occupational disease insurance varies based on the employer's industry and risk assessment.

Optional Contributions

Employers may choose to contribute to the second pillar of the pension system on behalf of employees. Businesses may also be required to pay membership fees to relevant professional chambers or associations.

Employer Responsibilities

Employers must register with the Croatian tax authorities (Porezna Uprava) and relevant social security funds. They must accurately calculate all social security contributions and additional taxes along with employee income tax, and remit them to the responsible authorities. This is usually done on a monthly basis. Employers must also maintain detailed records of employee salaries, contributions paid, and submissions made to the relevant institutions.

Important Considerations

The occupational risk assessment for employment injury insurance can affect the specific rate applicable to individual employers. Croatia uses the JOPPD form, which combines income tax and social security reporting into a single form. For companies setting up in Croatia, it's advisable to consult with local accountants and tax advisors who specialize in payroll and labor regulations for additional assistance.

In Croatia, a progressive income tax system is in place, which means that individuals with higher incomes pay a higher percentage in tax.

Progressive Tax System

The progressive tax system ensures that the tax rate increases as the taxable amount increases. The latest income tax brackets can be found on the Porezna Uprava, the Croatian Tax Authority's website.

Social Security Contributions

As an employee in Croatia, you are required to make contributions to various social security funds. These include:

Pension Insurance

This is 5% of your gross salary for the first pillar of the pension system. There is a cap on the maximum salary on which contributions are calculated. For 2023, this cap is HRK 57,222 per month.

Health Insurance

This is 16.5% of your gross salary. There is no cap on this.

Unemployment Insurance

This is 1.7% of your gross salary.

Other Possible Deductions

There are other possible deductions that you may authorize your employer to deduct from your salary. These include:

Union Dues

If you are a member of a union, you may authorize your employer to deduct union dues from your salary.

Supplementary Pension Insurance

You can choose to make contributions to the second pillar of the pension system. These contributions are typically deducted at the source from your pay.

Responsibilities of Employees

As an employee, you have certain responsibilities. These include:

Providing Information

You must provide your employer with accurate personal information for tax and social security calculations.

Annual Tax Filing

Even though income tax is withheld, you might need to file an annual tax return for adjustments, depending on your circumstances.

Important Notes

The pension insurance contribution has a monthly cap on the amount of salary subject to the deduction. Croatia uses the JOPPD form, which combines income tax and social security reporting.

In Croatia, businesses with an annual turnover of 300,000 HRK (Croatian kuna) or more in taxable supplies are required to register for VAT. However, businesses below this threshold can also voluntarily register for VAT.

VAT Rates for Services

The standard VAT rate in Croatia is 25%. However, there are also reduced VAT rates:

• 13%: This rate applies to accommodation services, catering services, admission to cultural and sporting events, books and periodicals, and water supply.
• 5%: This rate applies to medicines and medical devices, some food items, and passenger transport.

Exports of goods and services, international transport services, and some financial and insurance services are zero-rated for VAT.

VAT Registration for Foreign Businesses

Foreign businesses that provide services in Croatia may need to register for VAT, even if they do not have a physical presence in the country. The requirement for VAT registration depends on the type of services provided, the value of these services, and the location of the customers.

VAT Compliance for Businesses

Businesses that are registered for VAT must charge VAT on taxable supplies, issue VAT invoices, file VAT returns, and pay the VAT due to the Croatian Tax Administration.

VAT Deductions

Businesses registered for VAT can deduct the VAT paid on business expenses. These eligible expenses include goods and services purchased for business purposes and capital goods.

VAT Refunds for Foreign Businesses

Foreign businesses that are not VAT-registered in Croatia may be eligible for VAT refunds on certain expenses incurred in the country.

Companies investing in new assets and creating jobs may be eligible for reductions in their Corporate Income Tax (CIT) rate. The scale of the reduction depends on the size of the investment and the number of jobs created. Additionally, businesses investing in less-developed areas of Croatia might receive additional tax benefits or state aid, potentially including exemptions.

Incentives for Research and Development (R&D)

Costs associated with R&D activities can be deducted twice from taxable income, effectively incentivizing innovation investments. Eligible companies can also claim tax credits for a portion of their R&D expenses, lowering their tax burden.

Incentives for Specific Sectors

Companies operating in designated technology parks might benefit from CIT reductions and exemptions from certain local taxes. Croatia also offers tax incentives for foreign movie productions filmed within the country, making it attractive for the film industry.

Other Incentives

Companies that hire individuals from specific target groups (e.g., long-term unemployed, young people, those with disabilities) may receive tax reductions or wage subsidies.

Applying for Incentives

Various agencies are involved in providing tax incentives, including The Ministry of Finance and The Croatian Agency for SMEs, Innovations and Investments. To apply, businesses typically submit proposals outlining their investment, job creation plans, and their eligibility for specific incentives.

Important Notes

Seek professional advice from tax advisors and legal experts in Croatia to fully understand the eligibility criteria, application processes, and requirements for maintaining incentives. Tax incentives are subject to periodic reviews and changes by the Croatian government. Staying informed about any changes is essential.