Non-taxable receipts will increase up to HRK 7,500

At the Government session, Minister of finance Zdravko Marić presented tax changes for 2019. From December 1st 2018, according to a new provision, the non-taxable part for Christmas, recourse and other bonuses and compensations will be increased from HRK 2,500 to HRK 7,500.

More than four fifths of employees in Croatia are receiving net salary of up to HRK 7,500. This year’s increase of the non-taxable part of such “awards” is five thousand kuna, and about 40 percent of employees in Croatia receive the net salary to this amount.

Minister Marić said that their suggestion was to correct the total amount of non-taxable annual receipts. These were usually Christmas bonuses, Easter bonuses and recourse. He said they expanded not only the amount but also the scope.

Source: Government of the Republic of Croatia

 

SALARY FOR EXECUTIVE DIRECTOR/MEMBER OF THE BOARD FROM 01.01.2019.

With draft bill of amendments concerning Act on Contributions, it is proposed that two base-added contributions, contributions to compulsory insurance in case of unemployment – calculated at a rate of 1.7% and contribution to occupational health care – calculated at a rate of 0.5%, be abolished from January 1st, 2019.

At the same time, the contribution for health insurance will increase from 15% to 16.5%, which aims to contribute to dealing with financial difficulties in the health system. It is proposed to stipulate the minimum annual basis for calculating contributions in the product of average salary, coefficient 0.65 and figure 12 in proportion to the period during which the duties of a member of the board and/or the executive director and/or director of a cooperative has been performed.

In case you have been a member of the board, executive director or director of a cooperative in a way that you are:

  1. part-time employee with the calculation of income proportionate to the minimum base for directors/members of the board
  2. full-time employee in another company with the calculation of income below the minimum base for directors/members of the board
  3. part-time employee in another company with the calculation of income below the minimum base for the directors/members of the board
  4. full-time employee with the calculation of income to the minimum base for directors/members of the board
  5. part-time employee with the calculation of income to the minimum base for directors/members of the board
  6. full-time employee in another company with the calculation of income to the minimum base for directors/members of the board
  7. full-time employee in another company with the calculation of income above the minimum base for directors/members of the board
  8. part-time employee in another company with the calculation of income above the minimum base for directors/members of the board

make sure you find out what your obligations are from January 1, 2019.

For the option listed as number 1, it is necessary to begin with the calculation of contributions to the minimum base for directors/members of the board from January 1st 2019, while the amount of salary is not prescribed.

For the options listed as number 2 and 3, the annual calculations will determine possible differences in contributions according to a decision made by the Tax Administration. The person liable to pay the difference of contributions determined by the decision of the Tax Administration is a member of the board or executive director of the company.

The proposed change will not affect those members of the board who are currently calculating contributions on the base, calculated by applying the coefficient of 0.65 to the average gross salary registered for full-time employment or earning gross salary above the mentioned base, which refers to options listed from number 4 to number 8.

An example of the situation for the option listed as number 1.

The director of the company is employed for one hour per week with the calculation of income proportionate to the minimum base for the directors/members of the board.

Calculation of employment income:

year 2018 year 2019 in HRK
Direktor – one hour per week Director – one hour per week with the obligation to calculate contributions DIFFERENCE
1. Gross I salary 130,33 137,26 6,94
2. Contrubutions from salary 20% 26,07 1.098,11 1.072,04
a) I pillar 15% 19,55 823,58 804,03
b) II pilar 5% 6,52 274,53 268,01
3. Gross less retirement benefits (1-2) 104,26    
4. Untaxable part 104,26 137,26 33,01
5. Taxable part – tax base (3-4) 0,00 0,00 0,00
a) 24% 0,00 0,00 0,00
b) 36% 0,00 0,00 0,00
6. Total tax (a+b) 0,00 0,00 0,00
7. Local income tax 0,00 0,00 0,00
8. Net salary to be paid 104,26 137,26 33,00
a) Health insurance contribution 19,55 905,94 886,39
b) Employment contribution 2,22 0,00 -2,22
c) Health insurance in case of workplace accident and professional illness 0,65 0,00 -0,65
11. Total contribuitons on salary (a+b+c) 22,42 905,94 883,52
  TOTAL COMPANY COST FOR EMPLOYEE 152,75 2.141,31 1.988,56

Note:

  • In 2018, the minimum base for the directors/members of the board is HRK 5,213.00 per month and this amount is the product of the average gross salary for the period from January 2017 to August 2017 (HRK 8,020.00) and prescribed coefficients (0,65).
  • In 2019, the minimum base for directors/members of the board will be HRK 5,490.55 per month (data on gross wages are taken from the Central Bureau of Statistics according to the first results and the prescribed coefficients (0.65)).

We expect the final confirmation of these changes, after which we will inform our clients about all the latest news.

 

With confidence, contact us at: ponuda@sapientia.hr or call us at +385 1 619 42 00. Please inform us about your problem or dilemma about salary and contribution calculation. We will consider your case and give you feedback with our opinion or call for a meeting for further elaboration.

Amendments to Tax Laws – What to expect?!

Draft bill of amendments concerning Value Added Tax Act, Income Tax Act, Act on Contributions and Real Estate Transfer Act was presented on September 20th 2018 during a Government session.

 

Value Added Tax Act (VAT)

Amendments to the VAT Act foresee expanding the application of a lower 13% VAT rate as of 2019 on  baby diapers, fresh meat, fish and crabs, vegetables, fruit and nuts, and eggs as well as reducing the general value added tax (VAT) rate to 24 percent from the year 2020.

Proposition was made to change of the provisions on the use of company cars for private purposes, for which 50 percent of the tax deduction was made. It is necessary to coordinate the legislation with the requirements of the European Commission regarding to the abolition of the threshold for car tax and the right to prepaid goods for vessels and aircraft. Now, the entrepreneurs have the possibility to deduct 50 percent of their subscription for the purchase or rental of cars and other personal transport vehicles whose value does not exceed 400,000 kuna. It is now proposed to cancel this value threshold.

Due to tax collection efficiency and reduction of various types of abuse, it is proposed that taxpayers will enter the VAT system as soon as the conditions for entry (entry threshold are currently 300 thousand kuna) are fulfilled. Current standard for entry to the VAT system is at the beginning of the next calendar year.

Changes in the application of the reverse charge are also proposed: in the case of foreign taxpayers who have a Croatian VAT identification number, they will no longer be able to apply the reverse charge to the domestic recipient. The application is introduced on the transfer of the tax liability in the country of delivery of concrete steel and iron and products made of concrete steel and iron (armature).

 

Profit Tax Act

The draft proposal to amendment of the profit tax act stipulates a new interest rate limitation rule, according to which the taxpayer, as a taxable expense can determine the overdue borrowing costs (the difference between income and interest expense) to only 30 percent of EBITDA or up to EUR 3 million if it comes to a larger amount.

It also regulates a rule on controlled foreign companies, under which a foreign subsidiary that does not pay tax in the country of residence or is paid at a low rate will be taxed, if it generates income (passively) from interests, copyrights, licenses, financing, insurance, etc.

This rule will not include companies that carry out significant economic activity, but only more “fictitious” companies that are established with the intention of transferring profits.

Existing 20% rate of​​ withholding tax is extended to interests, dividends, copyrights and other benefits if they are paid to persons from non-cooperative countries (Tax oasis).

 

Income Tax Act

With the draft proposal to amendment of the Income Tax Act, an extension of the tax bracket for the application rate of 24 percent is proposed. According to the current income tax regulations on the monthly tax base of up to 17,500 kuna, the advance of income tax on employment is paid at a rate of 24 percent (up to HRK 210,000.00), while if the monthly tax bracket exceeds 17,500 kuna the advance of income tax on employment is 36 percent. The Government now proposes that salaries of up to 30,000 kuna are taxed at a rate of 24%, or up to an annual amount of 360,000 kuna and for exceeding that amount at a rate of 36%.

Also, the Government proposes to tax on benefits in kind based on the awarding or optionally purchasing own shares that employers and payers receive or pay, to employees or other related persons as income from capital at a rate of 36 percent, receipts made on temporary basis or occasional transactions in agriculture at the rate of 12 percent as the final other income. The proposed amendments stipulate that when determining the right to a personal allowance for supported members, due to serious injury and recognized disability, they do not take into question the damages paid by the insurance. The possible circle of people who can be considered as supported members is also expanded.

According to the Proposal, scholarships of over 15 thousand kuna per year mean that a scholar can no longer be a supported member. “We eliminate this limit now, which means that parents will be able to count on tax relief for their children,” said the Minister of Finance.

The government suggests that local self-government units (JLS) decide on managing the lump sum income tax for private renters in tourism per bed or accommodation unit in the camp, whereby this lump sum can not be less than 150 or more than 1,500 kuna.

Now the lump sum of income tax to private renters in tourism is the same as the amount of the accommodation tax, whose rate depended on the type or class of the tourist resort and the season, and ranged from 150 to 300 kuna until this year.

 

Act on Contributions

With the draft proposal to amendment of the Act on Contributions, it is proposed to abolish employment contribution of 1.7 percent and occupational health contribution by 0.5 percent while increasing the health insurance contribution from 15 to 16.5 percent, respectively the remuneration of entrepreneurs is reduced by 0.7 percentage points.

It is also proposed to regulate the minimum annual basis for calculating contributions in the amount of average salary, coefficient 0.65 and figure 12 in proportion to the period in which the duties of a member of the management company and / or executive director of the company and / or the co-manager are performed. This will be achieved by annual calculation, which will determine the possible difference in the contribution for payment in the decision of Tax Administration.

 

Real Estate Transfer Tax Act

Amendments to the Real Estate Transfer Tax Act are planned to further reduce real estate transfer tax rates from 4 to 3 percent, applying from 1st January 2019.

 

Fiscalisation Act

By implementing amendments to the Fiscalisation Act, all taxpayers are the parties obligated to implement fiscalisation, while a separate provision determines who is considered obligated to implement fiscalisation for invoicing and non- invoicing according to a special regulation. An amendment is necessary to prescribe the obligation of the fiscalisation of self-payment devices. Among the important changes are the cancellation of the exemption from the obligation to implement the fiscalisation procedure and sales of goods or services from vending machines; the introduction of a fiscalisation obligation of sales when selling goods or services through self-payment devices.

It also extends the deadline for setting up the cash registers with full termination of work from 2 days to 5 days, a new obligation to accompany the supporting documents is introduced, if it is stated on the payment information, it is obligatory to write “this is not a fiscalised invoice”. Taxpayers have an adjustment period of 2 years for fulfilling the obligations of the sale fiscalistion.

 

General Tax Act

The draft of General Tax Act clearly defines excises as taxes, the penal procedure is regulated as an exception to the preservation of the tax secret, the topics that have so far been defined for binding opinions are being cancelled, and thus the more frequent use of this institute is sought.

Amendments on the suspension of enforcement of financial assets, on the write-off of due tax (on which the claims will be written-off as uncollectible if it comes to a settlement or an appropriate solution during legal action) and seizure for the purpose of securing payment. Procedure that regulates statue on limitation in case of ongoing legal action concerning determination of taxes and interests, or payment of taxes, interests and enforcement costs has been cancelled.

 

Source: Government of the Republic of Croatia

 

One click to open a company?

The project entitled “Establishing the basis for a modern business startup system in Croatia”, conducted by the World Bank and the Ministry of Economy, Entrepreneurship and Crafts, with the support of EC and a number of Croatian institutions conducting processes for starting a business and registering companies, represents an important reform in the meaning of creating a better business environment in the Republic of Croatia.

At the beginning of August 2018, the Government of the Republic of Croatia adopted the Regulation which represents the legal framework for the electronic start up of business. In January next year, through an online system called START, it will be possible to establish a company in one electronic procedure. This new system will be operationally established and maintained by the Financial Agency.

According to current expectations, the Government of the Republic of Croatia will technically specify the system in October, and in January 2019 the system is expected to be launched.

Source: Ministry of Economy, Entrepreneurship and Crafts

Report “Doing Business in the European Union”

Doing Business in the European Union 2018: Croatia, Czech Republic, Portugal and Slovakia

The report entitled “Doing Business in the European Union” published by the European Commission and the World Bank compares the legal regulation of domestic  companies in 25 cities in Croatia, the Czech Republic, Portugal and Slovakia with 186 other economies.
These four countries share a significant growth potential, a strong interest in convergence with the rest of the EU and a focus on improving the investment  climate and encouraging private sector growth. The focus of the report is on indicator sets that measure the complexity and cost of regulatory processes,  as well as the strength of legal institutions, affecting five stages in the life of a small to medium-size domestic firm: starting a business, dealing with  construction permits, getting electricity, registering property and enforcing contracts through a local court.

For report click here.

 

Thank you!!!

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ESIF Growth and Expansion Loans

„ESIF Growth and Expansion Loansis a financial instrument funded by European Structural and Investment Funds (ESIF) and business banks, at 50:50 percent, and from which new long-term investments of small and medium-sized enterprises are funded.

Investment loans at low interest rates and without regular fees that are charged on the occasion of loan approval and disbursement are approved via Erste & Steiermärkische Bank d.d., Privredna banka Zagreb d.d. and Zagrebačka banka d.d.

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New minimum wage for 2018

For the year 2018 a new minimum gross wage will apply. The Government of the Republic of Croatia has determined the minimum wage for the period from 1 January to 31 December 2018 in the gross amount of HRK 3,439.80 and it refers to full-time working time. The new minimum wage will be calculated for the month of January, and will normally be paid in February. The lowest pay for part-time work is determined in proportion to the minimum wage for full-time and hours worked for which the worker is reported. Thus, a minimum wage of no less than 1,719.90 kn per month is payable to a part-time employee (half-time) of 20 hours per week.

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PERSONNEL INCOME TAX APPLICATION

Citizens are considered natural persons who may be taxpayers of:

  • Income Tax from employment based on wage and retirement (workers and retirees), both at home and abroad
  • Income tax on other incomes (authors, artists, students, members of the Supervisory Board or Board of Directors, and merchant travelers including agents, acquirers, interpreters, translators, travel agents, consultants, court attorneys and other similar activities when income earnings are not paid as salaries, income is not determined on the basis of prescribed business books and is not insured on the basis of performance of those activities)

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