Starting from 1st January, the plan is to put third round of tax reform into effect. A crucial part of this tax reform are changes to existing income tax Law (Nar. Nov, no. 115/16; in continuation: Law) which has been put into effect on 1st January 2017. Further alleviation of work and business related tax burden, as well as continuing simplification of the tax system are being listed as the main goals of this Law. An overview of suggested changes to the Law published on the official website of Croatian government is presented in continuation of this article.
According to the suggested changes to wages, a change being proposed to first tax category is to expand the category from existing 17.500,00 kn to 30.000,00 kn. Tax rates wouldn’t change, which means that tax base up to 30.000,00 kn would be subject to tax rate of 24%, and every amount over 30.000,00 kn would be subject to tax rate of 36%.
Governments intention with these changes is to alleviate the tax burden on wages of highly educated young employees and to stop their outflow from the country. On a yearly level, income tax rate of 24% would be paid on tax base up to 360.000,00 kn, and tax rate of 36% would be paid on every amount over 360.000,00 kn.
Proposed changes also include elimination of contributions for insurance in case of unemployment (1,7%) and contributions for workplace safety (0,5%), and raising contributions for health insurance from 15% to 16,5%. According to the suggested changes, total cost of contributions on wages would decrease because total contributions on wages are currently 17,2% and they would be lowered by 0,7%.
Furthermore, directives about supported family members are being expanded. A return of the possibility to use personal tax deduction for foster children supported by stepfathers and stepmothers, as well as the possibility to use personal tax deduction for stepfathers and stepmothers supported by a foster child of legal age. Also, scolarships and some other types of income wouldn’t be taken into account in the yearly total amount of allowed income for supported members (15.000,00 kn).