The Republic of Croatia, like most countries in the world, carries out regular activities based on the data received from the international exchange, where the tax obligations of citizens are determined, as we have already written about in one of our articles.
Income of a resident of the Republic of Croatia
Like most countries in the world, the Republic of Croatia applies the principle of world income. What does that mean? This means that all income of residents generated in the Republic of Croatia and abroad must be reported, regardless of the fact in which country it was generated. Also, it is important to emphasize that the above does not mean that the obligation to pay tax for foreign income will be determined since that would depend on the application of the double taxation avoidance agreement with a certain country.
International data exchange
Due to the above-mentioned application of the principle of world income, the Member States of the European Union have agreed on the international exchange of data. The goal is for each country to have certain information about the receipts of its residents. The Republic of Croatia, as a member of the European Union, joined the international data exchange community by its very accession.
Voluntary application
Croatian residents are invited by the Tax Administration to report realized receipts and thus participate in the process of determining receipts and possible tax liabilities. The possibility of voluntary reporting was introduced where residents can report data, thereby exempting them from the obligation to calculate interest and possibly initiating misdemeanor proceedings. The obligation to report receipts applies only to Croatian residents, and not to all Croatian citizens who live and work abroad. Therefore, the Tax Administration invited Croatian citizens who changed their residency in the last 6 years to report it without legal consequences. About 20,000 voluntary applications have been received so far.
A significant part of Croatian residents’ income earned from abroad, according to data from the Tax Administration received from other countries, refers to income from dividends, interest, property, and property rights.
Benefits related to voluntary application
The Tax Administration offers certain benefits related to voluntary application, other than default interest and misdemeanor fines will not be calculated. Everyone who submits a voluntary declaration has the convenience of calculating tax liabilities in one of two possible ways, which will result in a more favorable tax liability. One refers to the application of tax rates, brackets, and regulations in 2022, and the second applies the tax rates, brackets, and regulations that were in effect for each year in which the income was generated.
Voluntary registration has advantages and disadvantages. Namely, in 2022, lower tax rates and wider tax brackets are in effect than in previous years. Therefore, the Tax Administration can add up the total income at once, which means that the use of personal deductions for previous years will not be possible. Also, total income automatically implies that more income enters the higher tax rate.
Considering all of the above, we recommend that you consult with experts to reach the most favorable solution!
