Tax benefits for foreigners Croatia

by Welcome Center Croatia | Last updated Jan 30, 2022 | Published on Jan 30, 2022

Taxation in Croatia? Oh, some would say it is a rather complicated job, but no need to fall into despair. Croatia has a serious taxation system and there are several taxes to pay - but on the bright side - if you are a foreigner there are also a lot of benefits for you!

Croatian taxes shouldn’t affect you any differently unless your income comes from sources within the country - or you become a tax resident. Tax residents in Croatia are taxed based on their worldwide income. And your taxation will depend on your presence in Croatia.

So, let’s find out on what conditions you become a resident in Croatia, what are the benefits of starting a business here and what happens if you are an expat wondering about Croatia.

What does it mean to be a tax resident in Croatia?

You are considered a tax resident in Croatia if you stay within the country for at least 183 days under circumstances that indicate your visit is not temporary. The 183-day visit may overlap calendar years.

In the case that you own or rent a home in Croatia, you are a tax resident if you have a place to live at your continuous disposal for at least 183 days. Keep in mind, that this needs to be under circumstances that indicate your intention of keeping and using that accommodation. 183 days that we mentioned may overlap with calendar years and your length of stay is not relevant, and it is not important if the accommodation is owned or rented.

Taxation benefits for foreigners in Croatia

This may seem surprising, but if you do not receive a salary, consultancy fees, or a similar income in Croatia, then the tax situation is much more favorable. So, if you are an expat wondering about staying in Croatia but working for a foreign company – and paying 0% taxes – welcome!

How is that possible? Well, at the beginning of 2021 Croatia started offering special visas to digital workers from outside the European Union, allowing them to stay for up to a year and exempting them from income tax.

What are digital workers or digital nomads? The law defines a digital nomad as someone whose work can be done electronically (over the internet). But, one important condition to fulfill is that your citizenship must be outside the EU.

Moreover, the digital nomad visa lasts one year to start, and you can reapply after a six-month period has passed. The first big benefit of Croatia’s digital nomad visa is that digital nomads are exempt from income tax in the country. 

How to apply? It only takes a few steps:

• Complete the application form
• Have a valid passport
• You need proof of income or proof you are a digital nomad
• Get your OIB identification number (required to sign a rental contract)
• Pay the health insurance
• Obtain a rental contract for your home in Croatia
• Have proof of funds 
• Make 2 passport photos
• Pay the application fee (around $75)

And that’s it - you are ready to start living your life as a digital nomad in Croatia!

Tax reliefs if you plan to start a business in Croatia

What if you don’t want to be just a digital nomad in Croatia and you want to set up a business here? Well, we’ve got good news for you - it is very simple & fairly easy to start a business in Croatia.

Most paperwork can be completed within a few days and there is now the tendency to transfer all the procedures to digital platforms.

After you’ve established your business in Croatia there are some key next steps:

1. Keep business books
2. Submit reports to the Tax Administration.

Speaking about tax, what are the tax reliefs for opening a business in Croatia?

The Croatian tax system has no bigger differences than in all other European countries with a few pluses - the tax rates have been decreasing over the past years and, as we already mentioned, many government services are available online and there are new solutions offered every few months.

All national and foreign companies are seen as taxpayers in Croatia, therefore, the registration for the value-added tax is mandatory, especially if the products and services offered on the market generate incomes of more than HRK 230,000 (approximately EUR 32,000). 

The standard VAT rate in Croatia is set at 25% but there are also lower rates of 13% and 5% for certain categories of services and goods. 
For instance, the VAT of 13% rate applies to services in restaurants, hotels and accommodations, entertainment services, sugary products, and water supply in Croatia. 

As for the VAT rate of 5%, this is imposed on dairy products, medicines, medical equipment, and newspapers.

The fundamental distribution of taxes in Croatia is the one that regards personal and corporate taxes.

In Croatia, the profit tax rate amounts to 12% for companies with a turnover of up to 3.000.000,00 HRK (approximately 400.000,00 EUR) per year and 18% for companies with a turnover exceeding that amount.

The government is giving many incentives to the foreign businesses - first of all, there is no difference between local businesses and foreign ones, and secondly, and not less important, foreign companies in Croatia are protected by the double taxation agreements signed with countries worldwide for avoiding the payment of taxes twice.

Keep in mind that there are additional contributions for pensions and health insurance - their rates are 20% for pension funds, and 16.5% for mandatory health insurance. 
But, businesses can get bonuses via tax deductionsfor additional health insurance policies paid for their employees.

The conclusion? Croatia is a beautiful country that has great geolocation, several modern ports on the shores of the Adriatic Sea, and great connections to the Western but also Eastern Europe. More than that, Croatia offers admired business culture and a relaxed and prosperous tax system that allows business owners and expats to set up companies in various business areas. All we can say is – welcome to Croatia!