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:

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)