Croatia 2016 Tax Reform
Income Tax Thresholds
Photo: Screenshot TV news
Croatia’s PM Andrej Plenkovic and finance minister Zdravko Maric unveiled Thursday 27 October 2016 the new government’s tax reforms they’ve been keeping under wraps for weeks. They say that the new tax system, encompassing tax reforms, the government is bringing in from 1 January 2017, will be simple and transparent and fairer. Well, as far as the issue of transparency is concerned there’s no need to raise it simply because in these cash-poor days savvy and “street-wise” consumers suss out any hidden taxes pretty quickly – taxes can never be non-transparent for too long.
From a bird’s eye view having a drink at a bar in Croatia is just about to hit your pocket by a whole 12% of extra VAT (PDV in Croatia) and the sugar you add to your coffee or make a cake with is going to do the same. Perhaps the only cheering squad for these increases will be the health costs for the bodies of those vulnerable to or on the verge of contracting liver cirrhosis or diabetes…Going to the movies will slug you an extra 10% VAT so you’ll be choosing the movies to go and watch at the movie theatre much more carefully as you reluctantly find less and less difficulties in waiting a year or so for the movie to show on TV.
But there are mercies in this tax reform, too: your seeds, seedlings, fertilizer and pesticide will cost less as VAT/PDV for these products slides downward from 25 to 13%. The VAT on electricity supply, baby car seats, rubbish removal, coffins and ash-urns is also going down by the same 12%.
Come 1 January 2018, as VAT/PDV goes down to two brackets only – 25% and 12% – and the 5% bracket vanishes from the VAT formula – 5% VAT on milk, bread, orthopedic aids, medicines, newspapers and books jumps to the magical new flat rate of 12%.
When it comes to income tax the current 3 brackets: 12%, 25% and 40% will disappear and be replaced by 2 brackets as one becomes a tax-free bracket from 1 January 2017. So this is how you will or will not be paying income taxes in Croatia from 1 January 2017:
Income per month:
0-3,800 kuna (506.5 Euro) – No income tax
to 17,500 kuna (2,331,00 Euro)- 24% income tax
17501 kuna + – 36% income tax
These income tax rates, of course, do not include tax surcharges or surtax that are imposed on wages in many towns and cities in Croatia. Some surcharges can climb up to 12% and one can come across two people doing the same job in the same workplace but be receiving a different net wage.
Prime Minister Andrej Plenkovic
Photo: Patrik Macek/Pixsell
“The current tax system in Croatia has certain negative characteristics which have led to its lack of competitiveness. It is too complicated in comparison with other countries around us. The high tax burden, a large number of exemptions, and frequent changes are the reasons why the tax reform has featured as one of the most important reforms to be implemented during the term of this government”, said PM Plenkovic, that frequent changes in tax laws have created a climate of mistrust and uncertainty for businesses and investors.
“This tax reform is complete and comprehensive. It shall seek to achieve the following goals: economic growth and employment, strengthening of competitiveness of Croatian economy, encouragement of demographic renewal, social justice, promotion of small and medium enterprises and agriculture”, said Plenkovic.
Croatian Finance Minister
Zdravko Maric
Photo: Patrik Macek/Pixsell
Finance Minister Zdravko Marić noted that the general corporate tax rate would be reduced from 20 to 18%, while corporate tax rate for farmers and businesses with revenues of less than 3 million kuna per year would be 12%. He also announced the abolition of tax relief for reinvested profits due to relative lack of use of this tax relief.
“In the current system, about 900,000 people do not pay any income tax, and with the proposed changes that number will increase by another 560,000 people, so ultimately, in the new system, about 1.5 million people will not pay any income tax”, said the Finance Minister.
Well, that’s about as many people as there are in employment. About 1,660,000 people work in Croatia. With the minimal wage hovering over about 3,200 kuna there are some 10% of the employed earning a minimum wage, not paying income tax; then a few percent more on low wage between minimal and 3,800 kuna. There are about 1,320,000 pensioners in Croatia and probably half of those have the pension that falls within the income tax-free bracket. All in all it seems that there are quite a lot of people on income not paying income tax, which cannot be good for the country in economic dumps. It can’t be good for the individual either because being in tax-free bracket means your income is barely enough to survive on. Soon the tax paying won’t be able to sustain the pensioner incomes and trouble rises fast. Social catastrophe everywhere as minimum or low wage earners find it harder and harder to have ends meet, regularly needing to make hard choices even between eating a meal or going without some other necessity of life.
Property tax has finally been overhauled in Croatia and is reportedly to be ushered in with the New Year. “First home buyers of established/used home/property are now free from property acquisition tax, but not so the buyers of new homes…we are suggesting the general reduction of those taxes, ” said minister Maric.
Croatian Government Meeting
27 October 2016
Photo: Patrik Macek/Pixsell
According to finance minister Maric the entire tax reform is worth 2 billion kuna (266 million euro) and the money will be circulating and turning around from year to year so that there is more money around and the bigger the personal expenditure the better it is for the GDP.
The high unemployment and low labour participation rates highlight the need for further reforms of the labour market and benefit systems, said a 2015 IMF report. This in essence means that there needs to be serious reforms to public administration, including employment, pension and benefits regulations – all these would increase labour participation in the economy, including tax revenue. To have notable effect on the sinking economy, to lift it up, these reforms need to occur at the same time as the tax reforms and yet there are no significant public administration reforms in sight yet. In fact, public administration machinery seems to have increased under this new government despite its announcement some weeks back that it would reduce it, so, without significant public administration reforms it will certainly be interesting to see what benefit, or damage, the tax reforms will wage upon the ordinary battler battling to survive, nothing extravagant, just decently. Ina Vukic, Prof. (Zgb); B.A., M.A. Ps. (Syd)
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For me it’s very, very strange to see a decrease in VAT for pesticides etc.!!!
For me too, Martina – there are a few illogical items in this lot of reforms but even that can be digested if we saw some strong public administration reforms too
The original tax laws of born again Croatia was a copy paste of the Australian income tax system. Since then minor everrrrr changes with no admin structural changes and very very few upheld laws on all the investment everyone flips real estate and business for 0 kuna on capital gains. Structural doesn’t mean less ppl, put a systems buster in every premises completely overhauling the double handling of admin and the putting the right ppl in the correct possy. Ultimately a strong financial judiciary, but with Pravosud Poglavlje being let in the EU without ever being properly overturned.. we have everything from financial to criminal law still on the old systems of ‘who’s friend are you, as to whether the law applies to you or not. Ina complete touchdown on your take of the ‘short term visions.. Lasting systems are made with a 20 to preferably 50 year projection, not hard to do with a population of only less then 4mil. You can tweek these systems and evolve them to suit, but the base must be simple and understandable so that every Joe blow in an organisation is empowered to Act on the organisations behalf at their given place. Right now all workers are scared because of the every changing laws with each government and not knowing and not being sold on the long term Vision. Someone with outside experience would have to oversee this, but we all know how that went
Well spotted, MM
I didn’t see any incentives for Croats like myself for startup ideas… where local graduates are used and pushed to stay and not leave…. that gap will take another life time to fill with the rate there leaving….why cant they see there will be no tax payers left if they keep this crap up…
Yup, those things that should mean progress markers No 1 are tragically lagging behind, SteveK
Tax reforms are a farce.. several months ago the president (Kolinda Grabar Kitarović) gave amnesty to several citizens.. the majority were imprisoned for tax fraud and open theft worth millions of euros.. money was never recovered but the crooks received amnesty. Several days ago Josip Klemm was relieved of some 600,000 kuna tax debt, he is just one small fish as many others are not mentioned such as Todorić that constantly receives rulings wiping out their Tax debts. It seems that Tax laws apply only to the average person and if any debt is recorded your bank accounts are frozen meaning you can not live nor repay debts leading to evictions and confiscation of property. There are many other examples where the average person is being forced of his land and his family home, the newest for this winter is that there is a shortage of fire wood that the average person in rural areas uses for heating and cooking.. forests have been taken over and sold to private individuals without transparence nor people knowledge.. croatia is now facing the upcoming winter with no firewood for cooking and heating. Croatians are being driven off their land and out of their homes.
Shocker to say the least, DarkoDaryl
I’m just speaking as an American living in a New York City suburb…now, in terms of income tax we have a federal income tax as well as a State income tax and there is also if you live in NYC and the city I live in, you also pay a 1.5% income tax, though that tax is up to the town, village, or city you live in and most of them don’t charge that income tax. State income tax is a States right issue…so, for example, Texas, Nevada, Florida and a few other States do not charge a State income tax. If you live in Florida, for example, the only income tax you pay is the federal income tax.
Now, we also have property taxes, so if you own a home you will pay tax on the property you own. This tax is charged by the local government so, for example, my property tax is lower than the town that I border and that tax is set on the size of the house and property. If you have a separate structure for your garage, there is a property tax on that which is included in your bill. Where I live, I pay $12,000 US per year in property taxes…a buddy of mine lives in the bordering town (smaller population) and he owns a smaller house with less property than I do and he’s paying $20,000 US each year in property taxes. Mind you. none of us are rich people, just middle class. In some well to do area’s property taxes range from $35K all the way up to $100K US per year (and more)…but that’s the cost of living in Southern NY State near NY City. The bulk of the money on your property tax goes to the local schools which pay the teachers (and they get paid very well here).
Now, when it comes to a sales tax (VAT Tax everywhere else) in NY State each municipality can set its own tax. Where I am, its 8.375% of your purchases, its roughly the same in NY City but you go further north of where I live, its only around 6.5% of whatever you purchase. There is no federal VAT tax (other than when you purchase gasoline or use your telephone) on consumer goods. In New Jersey for example, if you buy cloths and the item you’re buying is less than $150 US then you don’t pay a sales tax. When it comes to food, milk, eggs, and meat are not taxed so long as they are not prepared, for example, if you go to the supermarket and buy chicken its not taxed but if you buy that same chicken at the grocery store and its cooked, then you pay a tax on it. The sales taxes in each area pay for the police, fire department, and sanitation (as does a small portion of your property tax).
Let’s on even start on the “hidden taxes” which are tolls for bridges, tunnels, and using some of the roads….these tolls are responsible for maintaining the roads….
That being said, just like in Croatia, 47% of the US paid no federal income taxes (and contrary to popular theory most of these people aren’t the rich who pay a whole lot of income taxes). Every citizen when filing their income tax returns has a right to deductions and you get back some of that money after you file.
Up in Canada its a bit different so, if someone who lives up there can correct me, their VAT tax consists of a federal and Provincial tax…which totals up to 15% in a Province like Ontario and they tax everything including milk, eggs, and meat (though I am not sure if its the higher rate of 15% which is the combined VAT tax of the federal and provincial governments).
Good lesson for us, Stevie 🙂
Thanks Ina. If you can please write about the following when you can….
Attacks against former HVO defenders in Bosnia. http://kamenjar.com/128351-2/
People who fought to preserve Bosnia from Serbian aggression are now being hauled into jail to face prosecution in front of communist cronies. Shocking. It’s 1945 all over again. They can’t slaughter all of us but they can drive veterans to suicide, prosecute them and jail them.
And the attacks against Croatians, specifically the Franciscans, in Kraljeva Sutjeska in Bosnia. Historically Bosnia was Croatian territory and sadly over the last centuries, esp. in the last one, Croatians have been forced from their centuries old homes by Muslim and Serb extremists.
http://kamenjar.com/kraljeva-sutjeska-pred-teroristickim-napadom/
Thanks a lot Ina.
Have been beside myself because of the arrests and attacks, Veronika, of course I will write about it, simply awful and Croatia must wake up!
Taxes are always such a vexing issue. I am not sure that any country has worked out a nearly perfect system.
I think no country has worked out a perfect tax system Gallivanta but many have worked good ways out as to how to make it all a bit fairer or at least to make it pay for public resources to a good extent. I reckon there’s no joy or prosperity in any country that has too many income earners being below the income tax paying bracket…Personally, I think people should be proud to pay taxes because if they do it all means they also earn money for themselves, the more taxes the more money…:)
Yes, I remember when I worked I was very happy to pay taxes.
😀
To add to the previous poster about sales tax in the US, states have different sale tax percentages. What does or doesn’t get taxed varies too.
Speaking of income taxes. If you commute to work in Washington, DC from Maryland or Virginia, you pay state income tax to where you live not where you work. Washington, DC isn’t a “state” however residents pay income tax to the city as well as the federal government. Complicated stuff indeed!
Complicated indeed, Elisa, but still mean if you pay taxes means you have income so that’s good 🙂
I love it! The cost of contracting disease from pesticides and such is lower which means more people will be buying coffins and ash urns which will reduce their cost as well – supply and demand!
:))))) exactly my thoughts, Helena 🙂
Please don’t exaggerate the ridiculous nonsense like pesticide taxation – that might be regulated, but I agree, it must be laughed at, if not denounced! In DE we pay 19% on mineral water, which is food (normally 7%). Nonsense as well.
Our income tax limit is at 45% at about 250TEUR. Start is at 14% at about 8500EUR a year. you reach 42% at about 50000EUR,
which is an affordable salary for a Senior Software Developer in Croatia. And there he will only pay 36%. A gain, isn’t it?
So, it’s a good approach to try to keep people in the country.
Now there must be much more support for investments.
We founded a software development company in Croatia. It’s a PITA finding well educated AND motivated software developers.
And no support by government. To get some EU or local sponsorship you will have to invest weeks of investigation of the administrative procedures or seek for a bloodsucking vampire who already knows …
So agree stefan – more effective incentives needed to keep professionals from leaving Croatia and getting outsiders in. Cheers