Croatian foreign pension tax law: de jure and de facto discrimination

Foreign pensions were excluded from income tax prior to March 2012 but now, anyone from the U.S.A., Australia, New Zealand etc., in receipt of pension wanting to live in Croatia can only do so as targets of extreme discrimination and material losses.

An article written 27 October by Croatian Journalist Jadranka Juresko-Kero of Vecernji List regarding Croatia’s new Income tax law (enforced March 2012) clearly shows that when the current government changed its approach to taxation of foreign pensions it paid no attention to ensuring equality and avoiding discrimination.

This is an alarming state of the affairs because it demonstrates that the Croatian government went about changing its taxation laws without due regard for equality among this category of taxpayers. The rush to collect as much taxes as possible, the rush to sort out its various legislation, as per EU monitoring requirements so that it may qualify for EU membership on 1 July 2013 seem to have influenced an unacceptable level of discrimination in tax law (de jure) and in fact (de facto/in reality).

Furthermore, the new tax law directly discourages the return to Croatia of pensioners from U.S.A., Australia, New Zealand … the countries where a large number of Croatian expats have earned their pensions and who may want to spend their “twilight” years in Croatia, not only for personal satisfaction but for the good of the Croatian economy where their foreign pension would be spent.

With the new law pension income received from abroad is now taxable at the same progressive tax rates as employment income unless Croatia has signed an “Avoidance of Double Tax Agreement” with the country the particular foreign pension comes from.

Countries with which Croatia has signed Avoidance of Double Tax Agreement as at March 2012 and which list has not changed to date.

The former president of Croatian World Congress Josip Ante Sovulj (living in U.S.A.) states, in the above article by Juresko-Kero that Croatia’s new income tax on foreign pensions discriminates and creates three unequal groups of foreign pension taxpayers in Croatia:

  • Those foreign pensioners who pay income taxes only in the country from which they came to live in Croatia – Belgium, Denmark, Finland, South African Republic, Canada, China, Mauritius, Macedonia, Netherlands, Germany, Oman, Poland, Romania, San Marino and Sweden;
  • Those foreign pensioners whose pensions Croatia has a right to tax (in some circumstances) – Albania,  Armenia, Austria, Belarus, Bosnia and Herzegovina, Bulgaria, Montenegro, Czech Republic, Estonia, France, Greece, Iran, Ireland, Iceland, Italy, Israel, Jordan, Korea, Kuwait, Latvia, Lithuania, Hungary, Malaysia, Malta, Moldova, Norway, Russia, Syria, Slovakia, Slovenia, Serbia, Spain, Sweden, Turkey, United Kingdom and Ukraine;
  • Those foreign pensioners who pay income tax according to the Croatian law.

The third group above applies to all the foreign pensions from countries with which Croatia has not signed the relevant agreement regarding avoidance of double taxation. For them the following applies:

Tax free threshold can be achieved between 26,400 and 38,400 HRK/ 3,500 – 5,090 EUR (a year’s worth of minimum to maximum age pension sum allowable in individual cases).

New tax brackets apply on employment income (generally 12 times the monthly brackets/set income) to which foreign pensions from countries with which Croatia does not have Avoidance of Double Tax Agreement:

Lower in HRK/EUR: UPPER in HRK/EUR: Tax rates:
0/0 2,200/293 12.0%
2,200/293 8,800/1,173 25.0%
8,800/1,173 above 40.0%

The consequence for those returning to live in Croatia after earning and receiving a basic Age pension in U.S.A., Australia, New Zealand, South American countries etc. is that while their pension income falls under taxable income in those countries their tax-free or exclusion thresholds are much higher than if they decided to spend their “twilight” years in Croatia. With the new tax laws in Croatia they’re lumbered in with Croatian employment income brackets for tax purposes while their counterparts who come from some other country are not.

If Croatian government is serious about enacting and enforcing laws that do not discriminate between classes of citizens and residents then it must quickly rectify this blatant practice and ensure agreements of avoiding double taxes are signed with all countries. Indeed it should have done that as a prerequisite to enforcing in March 2012 the new income tax law.

This way not only are a large number of foreign pensions discriminated against but this also leaves one speechless when it comes to realising how brutal and insensitive this Croatian government is towards many Croatians who have spent a lifetime (first, second, third generation) working and living abroad (from various reasons but mainly economic hardships under all versions of “Yugoslavia” and/or Austro-Hungarian Empire).

It is morally and legally corrupt to discriminate against and penalise so harshly those who have spent a lifetime away from their homeland and who want to return to Croatia, enjoying their hard earned pensions. The same goes for anyone wishing to spend retirement years living in Croatia who comes from countries with which Croatia has omitted to organise the necessary tax agreements so that all enjoy the same standards and obligations. It’s high time Croatian government picks up on this and rectifies this shockingly repulsive practice of discrimination. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. It is so like the former communists to penalize the Croatians living abroad who helped most with humanitarian aid and fundraising during the war in Croatia. They should be ashamed of themselves – this government stinks in Croatia. They were the ones who didn’t want independent Croatia. And now they target with vengeance those from abroad who helped Croatia and who already have or may want to return to Croatia to live out the rest of their lives as pensioners.

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  2. Shame, shame, shame! Only idiots could come up with such a law. Why in the world couldn’t they have ensured that there was no discrimination among the foreign pensioners BEFORE they passed that law! Idiots.

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  3. Now all the Croatians living in those countries with which Croatia has not signed that Avoidance of double taxing agreement need to organize themselves and approach their respective congressmen, members of parliament etc about this. Push for the signing of this agreement with Croatia since Croatia hasn’t

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  4. Steven Kosh says:

    Kukuriku/Chicken coop government in Croatia once again shows they’re nothing but a bunch of headless chicken jumping around, trying to stay alive as long as possible.

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  5. Nila Oreb says:

    Great article Ina, this will impact on many Croatians planning to return & retire in their home land of birth

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  6. So, tell me why would I want to go and live in Croatia? In Australia I have $18,200 tax free income a year from my pension. If I go to Croatia this would come down to about $6,000 and then the taxman slugs me for the rest at a rate much higher than in Australia. It’s probably the same for those coming from USA or New Zealand etc. How stupid is the Croatian government to shoot itself in the foot and discourage so many pensioners from coming there and spend their money there.

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  7. Wilkinson says:

    Croatians in USA, in Australia, in New Zealand and anywhere where Croatia has not signed that avoidance of double taxation agreement go to your local government representative and submit requests for such an agreement to be signed.

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  8. Marica B. says:

    Croatian diplomats and consular representatives in USA, Australia, New Zealand etc. go around Croatian clubs and events to get free feeds and be treated like dignitaries (Yeah right!) and yet they do nothing for these people when it comes to creating fair conditions for the eventual return to Croatia.

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  9. Maurice Ciko says:

    Well Steven Kosh I agree with you but the Croatian Democratic Union/HDZ as opposition isn’t jumping up and down trying to change this and it was through them that millions upon millions of dollars of help during Croatia’s war of independence reached Croatia. HDZ is sleeping and sitting on its hands. All they’re doing is trying to spin out some new image – enough of that new image HDZ: GET TO WORK and give something back to those who helped you when the going was tough in 1990’s

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  10. Reblogged this on HDZ 2012..

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  11. This is the same as human rights discrimination in equal pay; for the same job some people get more money that others. Here for the same pension – foreign pension – some people get to keep it all and others don’t. If you’re going to impose taxes on foreign pensions then do it equally for all i.e. make sure that you (Croatia) align all foreign countries’ pension tax base at an even keel. Just terrible.

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  12. Miso Sorbel says:

    Normal people don’t have anything against paying taxes but when you see such blatant discrimination and incompetence by a government then it’s open season!

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  13. Texasranger says:

    So let me see if I got this right. If you come from Germany to retire in Croatia bringing your German pension with you, you remain like a German when it comes to keeping up with the standard of living you had in Germany; if you come from USA to retire in Croatia bringing your US pension with you, you must blend into less than average Croatian income which is much lower than what you have deserved in US and your living standard drops dramatically from the one you had in US where you earned your pension.
    How did the Croatian government come up with this doozy? Oh, I forgot, it’s the cock-a-doodle-doo and such creatures cock-up all the time. Is there no one to teach them different?

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  14. Just another in line of measures which shows Socialists’ social insensitivity. Republic of Croatia would benefit if people who earned their pensions abroad were exempt from taxes because that’s practically something like export. People have exported their knowledge over decades. Now if someone wants to return and spend their money in the homeland the State demotivates him.

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  15. Michael Silovic says:

    Another error in the rush to join the EU. Taxation has never done anything for any country other then make the rich richer and the poor poorer. I think it is high time that the diaspora create a political action committee and start fundraising for new leadership in our country. It is time to find a Croat that resides outside of Croatia to run for public office to help the affairs back home. The tax laws need to be overhauled soon enough. Our goverment has no clue what it is doing. It is proven fact that countries with less tax burdens create the largest investments.

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    • Great stuff re political action committee. Michael.

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      • Hi Ina, my parents are effected by this new law. they have moved back to Croatia from australa. what is the best way of getting the ‘double ax avoidance’ signed and this discrimination stopped?

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      • My view is that we in Australia need to contact and write to the Australian (Commonwealth) Minister for Human Services, Senator the Hon Kim Carr as well as to the federal parliamentary representative in your electorate both government and opposition, alerting them of this situation and seeking information as to whether Avoidance of Double Taxation Agreement is under consideration to be signed with Croatia, if not then asking that the process be put into motion as it’s not fair that Australians are discriminated against in this way.You may print of copy of my article and attach it if you have no other information from other sources to provide. The more people do this the better. I also think that the Croatian community, i.e. groups, associations, clubs etc should do the same. I have not been successful in obtaining any information as to whether Croatia has initiated signing this agreement with Australia and therefore believe that the best lobby is from here to our parliamentary representatives. Cheers Ana, and spread the word among those you know. It is truly not fair for pensioners from Australia to have to endure that.

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  16. Reading all this political engineering coming from Croatia one can only conclude that there is NO effective opposition in Parliament or in the press. This is not only a sad state of affairs but a dangerous state of affairs. Political maturity in a democracy means an effective opposition to ‘check’ the power of the government. Hopefully, the opposition wakes up soon.

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  17. Since moving here in 2008 I have seen at least 50% increase in the number of betting stores Super Sport,Stanley Bet,Fortuna….etc.Where is taxes on the winnings of anything over 500 kunas shouldnt it be reported with oib numbers.Croatia is letting them open basically within spitting distances of schools where is the logic.I say overturn taxation on retirement salaries and start to tax all casinos and betting sites.We will see an improvement in the tax situation and hopefully deter people from gambling which has become an epidemic event in Croatia.

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    • Well Natalie your thinking is good only winnings on betting are rarely taxed anywhere, what’s taxed is any any bank interest from winnings one deposits in the bank. The fact that gambling is so much on the rise is a sad reflection because that sort of rise in gambling happens when people are desperate and then they become more desperate due to losses in gambling. Something should be done to deter people from such prolific gambling as chronic gambling of money one really cannot afford to gamble away destroys lives of whole families and leads to crime

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  18. NY Croatian says:

    Apsurd Law with the intention of having less Croatian nationals coming to spend their pensions in Croatia.It’s like saying to Croatian pensioners stay out of the country or if you still have this redicolous idea to come back, you will regret it.Who in their right mind and Croatian interest at heart would make or pass such a law?

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  19. Thanks for sharing! This is a lot like what a canadian tax lawyer was showing me. Do you think they’ll ever get this all settled?

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    • They will get it settled I think, not because the government might hurry up and sort out its agreements with countries they don’t have an agreement re double taxes with but because the people whom it concerns may rise to the task and place pressure on various government. Discrimination cannot be tolerated

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  20. Jadranka Matesic says:

    Thanks Ina for this bulletin. I am a returnee from Australia as are my parents. I would like addresses of who to lobby in Australia. Can you help with these? Can you pull together a petition in Australia through Croatian Australian newspaper and Croatian clubs.

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    • Jadranka, have already started contacting people about it – mustering support etc – but individuals should also write letters to the Federal Minister of Human Services and Shadow Minister for Families,Housing and Human Services (copy of that letter with accompanying letter to their local Federal representatives as well). Especially if people have friends and relatives living in Australia then as them to write about their concern, make them aware that AU pensioners, who have worked and earned their pensions in Au and returned to Croatia to spend their twilight years there are now affected by discrimination in Croatia in taxes because Au has not agreement with Croatia etc..

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      • Hi Ina, wrote a letter to social security admin in Australia … here is the response I received. Follow the email thread from the bottom.

        Croatia is taxing Australian Pensions as of 1 March 2012 [SEC=UNCLASSIFIED]‏

        Actions

        INTERNATIO​NAL.HELPDES​K.T (international.helpdesk.t@humanservices.gov.au)
        Add to contacts
        1/30/13
        [Keep this message at the top of your inbox]
        To: adrianna matesic
        Picture of INTERNATIONAL.HELPDESK.T
        Hi Adriana

        The following link will take you to the contact page for the Department of Families, Housing, Community Services and Indigenous Affairs.

        http://www.fahcsia.gov.au/contact/contact-the-department

        regards

        Leigh

        Program Officer
        International Program Help Desk
        Older Australians and International Branch
        Disability, Carers and Older Australians Division
        Hobart
        Actions

        adrianna matesic
        1/30/13
        To: INTERNATIONAL.HELPDESK.T
        Picture of adrianna matesic

        Dear Leigh,

        Can you provide an email address for the department of families, housing, community services and Indigenous Affairs to whom an enquiry as to what they are doing to update the Australian social security agreement with Croatia given this new tax law on pensions.

        This is very important to the Croatian community living in Australia and those living here from Australia. Other countries such as Canada have changed their agreements with Croatia so that Canadian pensions cannot be taxed in Croatia as income.

        Just trying to get some answers as to what Australia is doing about this. Croatian authorities say it is up to us (pensioners who lived most of their lives in Australia and receiving Australian pension) to lobby our foreign pension countries to amend the social security agreement they have with Croatia.

        Thanks,

        Adrianna
        Actions

        INTERNATIO​NAL.HELPDES​K.T (international.helpdesk.t@humanservices.gov.au)
        Add to contacts
        1/28/13
        [Keep this message at the top of your inbox]
        To: adriannamatesic
        Cc: INTERNATIONAL.SERVICES
        Picture of INTERNATIONAL.HELPDESK.T
        Hi Adrianna

        The Department of Human Services administers the Australian social security law and cannot provide advice in respect of other matters for which it is not an authority. Any queries on such changes to Croatian law, policy and procedures should be directed to the relevant competent authority in Croatia.

        The Department of Families, Housing, Community Services and Indigenous Affairs has portfolio responsibility for Australia’s social security agreements and can be contacted for further information.

        regards

        Leigh Wakefield

        Program Officer
        International Program Help Desk
        Older Australians and International Branch
        Disability, Carers and Older Australians Division
        Hobart
        From: INTERNATIONAL.SERVICES
        Sent: Friday, 18 January 2013 1:40 PM
        To: INTERNATIONAL.HELPDESK.T
        Subject: FW: Croatia is taxing Australian Pensions as of 1 March 2012 [DLM=Sensitive]

        Hi,

        Please see below email – please advise if any further action is required by WTW.

        Regards,
        Department of Human Services:
        International Services.
        Phone (Australia) 131 673
        (International) 61 3 62 223 455
        Fax (Australia) 03 62 222 799
        (International) 61 3 62 222 799
        From: adrianna matesic [adriannamatesic@hotmail.com]
        Sent: Monday, 24 December 2012 9:37 PM
        To: INTERNATIONAL.SERVICES
        Cc: Natalie Darville; Bianca Darville
        Subject: Croatia is taxing Australian Pensions as of 1 March 2012

        Dear Customer Service Agent,

        I would like to know whether Australia is changing the social security agreement between Croatia and Australia given the new law on foreign pensions that came into effect as of 1 March 2012. The Australian pension is not exempt from this law because Australia supposedly does not tax its pensions and therefore there is no double tax. Is the International Services arm of Human Service in Australia:

        1. Notifying their Croatian pensions of what they need to do as many do not know and will have problems someday in the future (end of tax year or later),
        2. Doing anything to change the social security agreement between Croatia and Australia to help Croatian Australians retiring to Croatia due to cost of living reasons.
        3. Does this new law apply to disability pensions (or other types) as well as the age pension?

        See the following articles: (in Croatian) (could not find English copies on the websites)

        http://www.profitiraj.hr/novosti/od-1-ozujka-placa-se-porez-i-prirez-na-inozemne-mirovine/

        http://knjigovodstveni-servis.actarius.hr/act/knjigovodstvo/doku.php?id=oporezivanje_inozemnih_mirovina

        http://www.deloitte.com/view/hr_hr/hr/6898302df0276310VgnVCM3000001c56f00aRCRD.htm?lgtog=lgtog

        Yours sincerely

        Jadranka Matesic

        Like

  21. Yikes …. you may have to edit the above to have it make sense to people.

    Like

  22. Dear Ina,
    So if your US pension is 1,200 euros, how much will croaria take out in income tax if you live there?
    Are you saying 40% which would be 480 euros?

    Like

    • Hi Ana, I will need to check the current income tax brackets for Croatia, unless Croatia ha a signed agreement with US regarding double taxation avoidance…will get back to you on that 🙂

      Like

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  2. […] reaches its true potential. An example can be given in the current discriminatory practices of taxing foreign pensions in […]

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