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Setting up payroll in Croatia
Income tax and social security in Croatia
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Croatia’s tax system has undergone some major changes in 2018 and 2021. While rules for determining taxable income have remained unaffected, corporate and personal income tax rates have been reduced and employers should make sure to incorporate the new rates in their payroll processes. Payroll reporting in Croatia is unified through the JOPPD form which summarizes information on income, taxes and social security contributions.
There is no legal obligation for foreign employers to establish a local legal entity in order to hire employees in Croatia, but they are subject to the same obligations and registration requirements as resident employers. This includes:
Registration with the Croatian Tax Administration for tax purposes
Registration for health insurance and pension contributions, which is done with the Croatian Health Insurance Fund (using form T1) and the Croatian Pension Fund Institute (within 24 hours using form M-11p)
New employees must be registered with the social security authorities. Companies with more than three employees must submit information regarding their new hires online via the e-HZMO system - this requires a special digital certificate. The registration procedure must be completed 8 days before the actual starting date of the employee.
The registration confirmation must be provided to the employee within 15 days. In order to receive the confirmation for registration with the health insurance fund, employers further need to create an account for the e-HZZO portal.
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Croatia’s income tax and social security system is quite simple when compared to Western European countries. There are only two social security funds which receive payments and contribution rates are clearly defined.
Croatia’s personal income tax system consists of two different rates. The standard rate (applicable on annual income of up to HRK 360,000) is 20%. Higher income (i.e. above HRK 360,000) is subject to a 30% tax rate. On top of this, individuals may be subject to additional local taxes levied by the respective municipality. Municipal taxes in Croatia may be as high as 18% and are calculated based on the employee’s income tax liability.
There is a personal allowance of HRK 4,000 (per month), which increases if the employee has dependent family members. Pension contributions and donations are deductible from an employee’s taxable income which includes wages and salaries as well as other payments provided by the employer either in cash or in kind - except for certain non-taxable benefits such as special awards given to employees on occasions such as Christmas or Easter (capped at HRK 3,000 per year). Further deductions are available to employees with special personal circumstances.
Residents are taxed on their worldwide income. Non-residents only pay tax on income earned in Croatia and/or from Croatian sources. Employees are considered tax residents if they have a permanent residence in Croatia, if their usual place of abode is there or if they spend more than 183 days in Croatia during one or two calendar years. There is no special tax regime for expatriates coming to work in Croatia.
2022 Tax Bands
Corresponding Tax Rates *
* Please note that some municipalities levy a local surtax of up to 18%.
Employers are responsible for calculating, withholding and remitting income tax on behalf of their employees. Withheld income tax is reported to the Croatian Tax Authority together with the monthly social security contributions. This report is known as JOPPD and must be filed electronically via the ePorezna system on the same day as the payment is issued. Benefits in kind and non-taxable payments must be reported separately by the 15th of the following month. Tax payments must be made monthly - or even more often, depending on the payroll frequency.
The tax year is the calendar year. Employed individuals are generally not required to submit a personal tax return - unless they receive income from abroad in which case the amounts earned must be reported to the tax authorities in the beginning of the following year.
Croatia’s social security system consists of health insurance (administered by the Croatian Health Insurance Fund - HZZO) and pension insurance (administered by the Croatian Pension Fund Institute - HZMO). The latter consists of a two-pillar system, with contributions being split between the different pillars. The first pillar consists of a general pension fund which is based on a solidarity funding system. The second pillar consists of a personal pension account for each contributing taxpayer.
Health insurance contributions amount to 16.5% of the employee’s salary and are borne by the employer. Mandatory pension contributions amount to 20% - either 20% to the first pillar or split into 15% and 5% between pillar one and two, depending on employee age - and are entirely borne by the employee, but withheld and remitted to the competent authorities by the employer.
Pension contributions are calculated based on the employee’s gross salary, but capped at HRK 57,222 per month (i.e. HRK 686,664 per year). Employer health insurance contributions are uncapped. There is no separate reporting obligation as social security contributions are part of the monthly JOPPD report.
Employees in Croatia are entitled to various benefits. These include:
Annual leave and public holidays: four weeks, plus 7 days of additional personal leave, plus 14 public holidays
Maternity leave: 98 days of mandatory maternity leave on full pay (i.e. 28 days before and 70 days after birth), plus additional maternity leave until the child is 6 months old
Paternity leave: not applicable
Parental leave: 8 months shared between parents; can be taken from when the child is 6 months old to the child’s 8th birthday; fully paid up to certain limits
Sick leave: 42 days paid by the employer; thereafter, employees receive sick pay from the Croatian Health Insurance Fund
For more information on employee benefits and other employment requirements in Croatia (including severance pay and termination procedures), check out our Global Hiring Guide.
In 2022, the Croatian national minimum wage rose to HRK 3,750 per month - was HRK 3,400 in 2021. This equals a gross minimum wage of HRK 4,687.50. Employees who are required to work overtime are entitled to overtime pay. However, the law does not stipulate a precise overtime pay rate. It is therefore up to the employer to work out an overtime compensation strategy and/or to include overtime pay in the employee’s employment contract.
Nighttime work, work on Sundays and work on public holidays is also subject to additional pay. In some sectors, overtime pay is regulated by collective bargaining agreement. There are no legal provisions for an annual bonus, but most white-collar employees receive bonus payments.
It is common practice to pay employees in Croatia once a month. The Croatian Labor Act mandates that wages and salaries must be paid no later than the 15th of the month following the pay period. Payments must be made via bank transfer as cash payments to employees are not allowed. Payslips are mandatory and must be provided within 15 days after the employee’s pay date. Both digital and paper payslips are accepted.
Learn about tax reporting, compensation laws, registration requirements and more in our free Payroll Guide for Croatia.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
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