Running Payroll in Croatia

Croatia’s labor and tax regulations are shaped both by domestic reform and EU directives, making it important for employers to stay current with frequent legislative updates. The country’s tax system has undergone significant changes in 2018, 2021, and most recently in 2025. While the rules for determining taxable income have remained largely unaffected, both corporate and personal income tax rates have been adjusted. Employers should ensure that these new rates are accurately reflected in their payroll processes. Payroll reporting in Croatia continues to be unified through the JOPPD form, which summarizes information on income, taxes, and social security contributions.

Foreign employers are not legally required to establish a local legal entity to hire employees in Croatia. However, they must comply with the same obligations and registration requirements as resident employers. This includes:

• Application for a Personal Identification Number (PIN) from the Croatian Tax Administration (Porezna uprava) which identifies the employer for all tax, social security, and administrative purposes in Croatia,

• Tax Administration registration for employer tax obligations, and

• Registration for health insurance and pension contributions, which involves submitting Form T1 to the Croatian Health Insurance Fund (HZZO) and Form M-11P to the Croatian Pension Insurance Institute (HZMO) within 24 hours of the employee's start date.

New employees must be registered with the social security authorities. Employers with more than three employees are required to submit information regarding new hires online via the e-HZMO system, which necessitates obtaining a special digital certificate.

The registration procedure must be completed at least 8 days before the employee's actual start date. Employers must provide the registration confirmation to the employee within 15 days. To receive the confirmation for registration with the health insurance fund, employers need to create an account on the e-HZZO portal.

Croatia offers a relatively straightforward approach to income tax and social security. With just two primary social security funds and clearly established contribution rates, the system is more streamlined than in many Western European countries, making it easier for employers and employees to navigate.

Tax Considerations

Croatia's personal income tax (PIT) system employs a progressive rate structure, with rates and thresholds determined by local self-government units (municipalities and cities). As of January 1, 2025, the tax rates are as follows:

• Municipalities: lower rate of 15%–22% and higher rate of 25%–33%,

• Towns with < 30,000 inhabitants: lower rate of 15%–22.4% and higher rate of 25%–33.6%,

• Towns with > 30,000 inhabitants: lower rate of 15%–23% and higher rate of 25%–34.5%, and

• City of Zagreb: lower rate of 15%–23.6% and higher rate of 25%–35.4%.

The higher tax rate applies to annual income exceeding EUR 60,000. Local self-government units must decide on their applicable tax rates by November 30 of the current year, effective January 1 of the following year. If no decision is made, default rates of 20% (lower) and 30% (higher) apply.

The basic personal allowance is EUR 560 per month. Additional allowances are available for dependent family members, with specific amounts depending on the number and type of dependents.

Pension contributions and certain donations are deductible from an employee's taxable income, which includes wages, salaries, and other payments provided by the employer, either in cash or in kind. Certain non-taxable benefits, such as special awards given to employees on occasions like Christmas or Easter, are exempt up to a capped amount of EUR 700 per year. Further deductions are available to employees with specific personal circumstances.

Residents are taxed on their worldwide income. Non-residents are taxed only on income earned in Croatia or from Croatian sources. An individual is considered a tax resident if they have a permanent residence in Croatia, their usual place of abode is in Croatia, or if they spend more than 183 days in Croatia during one or two consecutive calendar years.

A new tax incentive has been introduced for Croatian citizens who have spent at least two years abroad. Eligible returnees are granted a 100% tax relief on employment income for a period of five years.

Tax Withholding and Reporting

Employers are responsible for calculating, withholding, and remitting income tax on behalf of their employees. Tax payments, including income tax and social security contributions, must be made monthly, aligning with the payroll frequency. Withheld income tax is reported to the Croatian Tax Authority together with the monthly social security contributions. This report is known as the JOPPD form and must be filed electronically via the ePorezna system. The JOPPD form should be submitted by the 15th day of the month following the month in which the payment was made or was due.

The tax year in Croatia is the calendar year. Employed individuals are generally not required to submit a personal tax return unless they receive income from abroad. In such cases, the amounts earned must be reported to the tax authorities by the end of February of the following year.

Social Security Contributions

Croatia’s social security system comprises health insurance (administered by the Croatian Health Insurance Fund - HZZO) and pension insurance (administered by the Croatian Pension Insurance Institute - HZMO). The pension system operates on a two-pillar basis:

• First Pillar: A mandatory pay-as-you-go system funded by current workers' contributions.

• Second Pillar: A mandatory individual capitalized savings system, where contributions are directed to personal accounts managed by pension funds.

Health insurance contributions amount to 16.5% of the employee’s gross salary and are borne entirely by the employer. Mandatory pension contributions total 20% of the employee’s gross salary. For individuals insured under both pillars, contributions are split as 15% to the first pillar and 5% to the second pillar. These contributions are borne entirely by the employee but are withheld and remitted to the competent authorities by the employer.

Pension contributions are calculated based on the employee’s gross salary, but capped at EUR 10,788 per month. Employer health insurance contributions are not subject to a cap. There is no separate reporting obligation for social security contributions, as they are included in the monthly JOPPD report submitted to the Croatian Tax Administration.

Employees in Croatia are entitled to various benefits. These include:

• Annual leave and public holidays: Minimum four weeks of paid leave, plus 14 public holidays. Additional personal leave may be granted by employer or collective agreement.

• Maternity leave: 98 days of paid leave (28 days before and 70 after birth), followed by optional parental leave until the child is 8 years old.

• Paternity leave: No statutory entitlement.

• Parental leave: Up to 8 months shared between parents (i.e., 120 days for each parent); can be used from child’s 6th month to 8th birthday; paid by the state up to prescribed limits.

• Sick leave: First 42 days paid by employer; from day 43, covered by 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.

As of January 1, 2025, the national minimum gross wage in Croatia is set at EUR 970 per month. Employees required to work overtime are entitled to additional compensation. The law mandates a minimum overtime pay rate of 50% above the employee's regular hourly rate. Higher rates may apply based on collective agreements, internal rules, or individual employment contracts. While there are no legal provisions mandating an annual bonus in Croatia, it is a common practice in certain industries and companies to offer bonuses as part of their employee compensation packages.

In Croatia, it is customary to pay employees once a month. The Croatian Labour Act mandates that wages and salaries must be paid no later than the 15th day of the month following the pay period. Payments must be made via bank transfer, as cash payments to employees are not permitted. Employers are required to provide payslips to employees, detailing the calculation of wages and deductions. Both digital and paper payslips are acceptable.