Saturday, 3 December 2022

New Croatian Profit Tax to Undo Effects of Important Reforms

December the 3rd, 2022 - The highly unpopular new Croatian profit tax has already been raked over the coals by many, but it seems that it will go as far as to undo all of the very important reforms that have been successfully implemented so far.

As Poslovni Dnevnik/Marija Brnic writes, over the weekend, Finance Minister Marko Primorac will have the opportunity to study a number of proposals that came up in the public debate on his, controversial to many, legal proposal for a new additional income tax.

 Even before that, Primorac repeated to journalists that he wouldn't give up on the introduction of this new Croatian proft tax, which is in fact tax on extra profit, as well as that there should be no exemption of certain sectors from paying this new tax.

Proposals were submitted by numerous large Croatian employers, as well as some smaller ones, consulting firms, banks, associations, and even economic analysts. Marijana Ivanov, a professor at the Faculty of Economics in Zagreb, was among the most active individuals in this debate, and among others, she has been calling for the application of this new Croatian profit tax to be moved to 2023.

Although, it seems, the minister isn't remotely inclined to single out and ''show mercy'' to certain sectors, part of the proposal regards precisely those appeals for him to do so. Along with the Viktor Lenac shipyard, which has warned that it will be the only one in the entire EU to will be burdened with this, a similar cry comes from the Croatian association of shipowners - Mare Nostrum.

With this new Croatian profit tax, they warn, shippers who have chosen to participate in the tonnage tax system will be imposed such a tax incompatible with the tonnage tax system, thus putting them in an unequal position compared to competing EU shippers.

For the Medjimurje-based company Muraplast, an important correction would be to exempt companies using the Investment Promotion Act from paying additional tax, or to propose that, otherwise, the requested amount of additional tax be taxed as normal profit tax, which can be reduced by a certain amount through the Investment Promotion Act . They're also standing up for the protection of energy-intensive companies, which did manage to make somewhat of a profit this year.

The Croatian Chamber of Commerce (HGK) is also active in this regard. In their proposal, they present the case of a member from the automotive industry, which, after coping with some bad times, is already having to deal with a 20 percent drop in orders for next year.

AmCham also joined the debate that literally erupted recently, warning that the announcement of this new Croatian profit tax actually goes against the positive results achieved by the Republic of Croatia through several rounds of tax reform, as well as the efforts the government has made so far to achieve tax stability and predictability. They fear the move will do nothing but call the positioning of Croatia as an investment destination into question once again.

For more, make sure to check out our dedicated news section.

Wednesday, 23 November 2022

Minister Marko Primorac Reveals More About Unpopular New Profit Tax

November the 23rd, 2022 - Croatian Finance Minister Marko Primorac has revealed more about the highly unpopular recently introduced tax on profit. Many in the business world consider this new tax, which some are calling a ''tax on tax'' to be deeply detrimental to the success of larger companies.

As Poslovni Dnevnik writes, Finance Minister Marko Primorac pointed out the face that the Republic of Croatia is planning to introduce (yet another new) tax on all companies that enjoyed extra profit because it is a ''solidarity tax'' considering that we're in difficult times and that people should be helped as much as possible.

According to the proposal of the Ministry of Finance, the additional profit tax should be collected during the declaration of profit tax - at the end of April 2023. It would be a one-time payment, without the obligation to pay any advances, 24sata writes.

''The additional tax would only apply to the year 2022. It would be an extraordinary and one-time measure. The Law on Special Profit Tax is expected to enter into force by December the 31st, 2022 by urgent procedure. We expect 2.1 billion kuna in revenue to flow in from the introduction of this additional tax and that estimate is based on data for 2021,'' said Minister Marko Primorac.

The additional profit tax would include, he says, all economic activities. All companies headquartered in Croatia would need to pay this tax if their profit increased by more than 20 percent compared to the average of the last four years. It is also important to note the fact that only the amount that exceeds 20 percent will be taxed with this additional tax.

It's worth noting that many companies have complained that they simply don't have any ''extra'' profit to enjoy and that all earnings they have achieved since the end of the restrictive measures and economic downturn caused by the coronavirus pandemic have been spent on patching up the issues experienced back during that time. Others, including the Croatian Employers' Association (HUP) deem the introduction of this new profit tax a ''punishment'' to companies doing well and yet another obstacle to any boost to the already enfeebled domestic economy during difficult times dominated by spiralling inflationary pressures.

For more, make sure to keep up with our news section. For all you need to know about any other new laws and taxes which affect businesses in Croatia, follow our dedicated business section.

Tuesday, 5 July 2022

AmCham Proposes Further Tax Relief in Croatia

July the 5th, 2022 - The American Chamber of Commerce in Croatia (AmCham) organised a business breakfast called "Tax Policies during Challenging Times".

AmCham has been working for years and is actively involved in recommendations for the reform of the tax system. Through five rounds of tax changes, AmCham actively participated with proposals, a significant part of which was accepted.

At the event, the Deputy Prime Minister and Minister of Finance Zdravko Maric referred to the role of tax policies in contemporary economic events, the effects of the previous 5 rounds of tax reform and the Government's plans for further tax relief.

"After we implemented significant tax changes, the goal of which was to simplify the tax system and relieve both companies and citizens, we're now in the final phase of the process of introducing the euro in Croatia, so Croatia will, after a number of years, have numerous implemented measures and fulfilled obligations. On January the 1st, 2023, the country will become the twentieth member state in which the euro will be the official currency.

Conducting a responsible fiscal policy allowed us to start this entire process in the first place, and its finalisation, along with the further control of expenditures, the implementation of the National Recovery and Resilience Plan, which also includes numerous reforms of the public sector, efforts aimed at creating a positive business environment and, ultimately, an internationally competitive economy will make Croatia even more desirable for work, life and new business ventures," said Minister Maric.

Despite significant progress related to the tax relief of labour, in the Business Climate Survey presented by AmCham at the beginning of 2022, labour taxation is still among the three limiting factors of doing business in Croatia. Therefore, AmCham believes that there is still room for further tax relief for labour in order to make it more competitive compared to other countries in Central and Eastern Europe and aimed at retaining the workforce in Croatia.

This year, the American Chamber of Commerce in Croatia also published "Recommendations for the reform of the tax system in 2022", which was also presented at the event. The opinion proposes a series of recommendations for further tax relief aimed at even stronger investment attraction and the greater competitiveness of Croatian employers in attracting and retaining the domestic workforce.

AmCham proposes three key measures:

- An increase of non-taxable personal deduction to 4,900 kuna (650 euros);

- The reduction of the tax rate from 20% down to 10% for income tax and the tax rate from 30% down to 25%;

- The application of the maximum monthly and maximum annual base when calculating health insurance contributions

The aforementioned measures would ensure that with the same cost to employers, employees receive higher net incomes, which increases their economic power and consumption capacity, which increases the standard of living, and which indirectly has a positive impact on economic growth in Croatia.

In addition to three key measures, AmCham advocates the implementation of option plans in limited liability companies ('d.o.o.').

AmCham's proposal is an amendment to the Law on Income Tax, in which it would be prescribed that, in addition to the allocation or purchase of own shares, the allocation and acquisition of shares in a limited liability company would be considered income from capital. If the legal framework were to be adjusted in this sense, it would help the development of small and medium-sized companies, as well as start-ups in Croatia.

AmCham also proposes a non-taxable allowance for working from home of 360 kuna (50 euros) per month, as well as an increase in monetary benefits and awards, such as an increase in the non-taxable amount of compensation for the use of a private car for official purposes, per diems for business trips both within the country and abroad, occasional awards, a flat-rate allowance for a meal in money, a gift in kind, a gift for a child, benefits in case of death, etc.

AmCham's "Recommendations for the reform of the tax system in 2022" were presented by Hrvoje Jelic, partner, PwC Croatia (Tax authorities as partners of the business community), Paul Suchar, partner and Petra Megla, director, KPMG Croatia (How to retain and reward employees) and Kresimir Lipovscak, partner, Crowe Croatia (Added value for employees).

The presentation of AmCham's Recommendations was followed by a panel discussion attended by Bozidar Kutlesa, director of the Tax Administration; Josip Funda, Chief Economist, World Bank; Stanko Krslovic, member of the Management Board, Philip Morris Zagreb and Bojan Poljicak, director, Adcubum.

"In the short term, it's difficult to expect any additional tax relief, especially if we take into account the growing uncertainty surrounding economic developments towards the end of the year. In the medium term, however, we should go in the direction of more uniform taxation of income from different sources, the reduction of the tax burden on labour, especially higher incomes, and the stronger tax stimulation of investment in research and in the development and innovation of companies," concluded Josip Funda, Chief Economist, World Bank.

For more, check out our politics and business sections.

Friday, 25 March 2022

Croatia Reduces Value Added Tax Rate on a Series of Products

ZAGREB, 25 March  (2022) - The Croatian parliament on Friday adopted the amendments to the Value Added Tax (VAT) Act unanimously with 123 votes in an effort to buffer the price hikes.

Under the amended law, the standard VAT rate of 25% is lowered to 13% on children's food, edible oils and fats, butter and margarine, live animals, fresh meat and small goods, live and fresh fish, crabs, vegetables, fruit, eggs, seedlings and seeds, fertiliser and pesticides, animal fodder and tickets for concerts, sports and cultural events.

The reduced 13% VAT is also imposed on natural gas, heating from heating stations, firewood, pellets, briquettes and cuttings as well as menstrual products.

VAT on natural gas will additionally be temporarily reduced to 5% for the period from 1 April to 31 March 2023.

The Sabor also adopted the Law on Settlements which improves and harmonises the way boundaries between settlements are determined and how the names of settlements, streets, squares and house numbers are to be marked.

The national legislature adopted a Law on State Measurements and the Cadastre which abolishes the majority of real costs for the use of data from excerpts, printouts, transcripts and certificates.

A bill on the consolidation of farmland will receive a second reading. The bill aims at implementing the consolidation of land by 2026 and HRK 313 million has been earmarked for this purpose.

 For more, check out our politics section.

Friday, 16 July 2021

Davor Nađi Interview: "Fokus Party Not for American-style Economy, Dutch or Scandinavian Preferred"

July 16, 2021 - One month after the local elections in Croatia, the liberal/center Fokus party president shares with TCN reflections of his Zagreb mayor candidacy, details on political views, plans, and hope for the future of Croatia. Learn more about the Fokus party in an exclusive Davor Nađi interview conducted by TCN reporter Ivor Kruljac.

2021 local elections for Croatia concluded back in June, and as with every local election, the majority of political parties whose candidates earned some new positions in the local governments managed to taste both victories and losses are overall happy. Some parties from both left and right political wings celebrated as scientists whose work won the Nobel prize. Even election losses were interpreted as victories, drawing attention to the number of votes, that although they may not score political roles, show growing support. If there is a once in four years occasion when political parties have as much optimism as the Croatian Adriatic has drops of water, it’s the local elections. 

Currently in parliamentary opposition, Davor Nađi, president of the Fokus political party, politically declared as center-oriented, also doesn't hide his optimism following the result, but it seems he is a bit more toned down in that excitement than some of his political competitors. Satisfied to see his colleagues from the party keeping their previous positions, and some even selected for new ones, he is expecting the Fokus party to grow in the future while remaining aware of Fokus being new and young on the scene - is careful to say more than he can bargain for. Nađi ran for Zagreb mayor, but in the end, didn't manage to win neither the "main prize" nor a seat in the Zagreb Assembly. He noted, however, that his candidacy helped to attract new Fokus members in Zagreb, but again stating it without grandiose announcements, rather with mild optimism, careful not to step out of the line of realism. 

In an e-mail interview, Nađi commented what happened in the Zagreb elections, did NGOs stepped out of line in supporting current mayor Tomislav Tomašević, and what do Fokus voters find attractive in the political party best known for reforming the town of Sveta Nedelja. Are they American-styles libertarians as described by some, and what European politicians are in line with Fokus’s ideas, are just some of the things Nađi revealed in the interview.  

davor_nađi_n1_cut.jpg

screenshot / N1

You are the president of the Fokus party, and candidates from your party had won in Sv. Nedelja, Samobor, Sv. Ivan Zelina and Dugo Selo. So, your party currently has four mayors. Can you list for our readers where your party had candidates for mayors, assemblies, and counties? How do you comment on „your mayor's" first-month post-election, and what moves would you point out as excellent in that time?

Except for these four cities, we also won in the municipalities of Križ and Pirovac. We ran for mayors and local and regional assemblies mostly in central Croatia (Zagreb and Zagreb county) but also in Čakovec, Slatina, Petrinja, Pirovac. We won 50 members of local and regional assemblies, including the president of assembly in Čakovec.

Most of our mayors were reelected, so they just continued working on projects. However, I would like to point out our new mayor of the city of Samobor, Petra Škrobot, who already contracted procurement of software for transparency of city budget and public procurement, which is one of the flagship policies of the Fokus party.

How would you briefly explain to our readers what your party represents and advocates politically? What politicians, foreign or Croatians are your role models, and why?

We represent the fight for lower taxes and fewer regulations for citizens and the private sector and for a more efficient public sector. That means that we want that people and companies can keep more of the money they earn for themselves and decide on what they want to spend it. For example, that is the only correct way to solve the housing problem – to make sure that people earn and keep more money. Further on, that means that the private sector gets better value for money through better service of the public sector where, in our vision, worst or/and unnecessary public servants would be let go, and the best workers would get a financial reward. We also talk and act on investments in infrastructure, which is important for preparing for future climate change challenges.

I can’t say I have some role models in politics, but I like the politics of Dutch PM regarding the economy because they have a small and efficient public sector that provides good service to their citizens. That allows them to keep their economy very competitive, which results in a better life for their people.

You express deep care for private investments, lowering taxes, and overall creating a better environment for private business and entrepreneurship. But, when talking about entrepreneurs in Croatia, people roll their eyes as many of our famous „entrepreneurs“ are associated with crime, corruption ties to politics, and unfair privatization that ended up in many people losing their job. What is your opinion on these entrepreneurs, such as Todorić or Horvatinčić? How to fix that negative perception of entrepreneurs?

Yes, the private sector is very important to us. We care about entrepreneurs but also about their employees. We also care about the best public servants too. 

I think that public opinion on entrepreneurs is changing in a good way because of a new generation of successful entrepreneurs that succeeded in the global market with no connections to the government. Todorić and Horvatinčić are the exact opposite of them and represent everything that is wrong with this country. It’s wrong to call them entrepreneurs because they are a product of crony capitalism. The only cure to fight people like them is an independent and efficient judiciary.    

New option for liberals in Croatia 

You ran for mayor in Zagreb. The polls didn't give you too much of a chance, but libertarian (classical liberal) oriented site Liberal.hr said that you could be „the biggest surprise of the Zagreb elections“. To tell you the truth, it didn't seem likely you will become a mayor, but I was very surprised you didn't win a seat in the assembly. What went wrong in Zagreb, and how is it possible that the city with the most developed business climate and entrepreneurship (and with a lot of entrepreneurs) didn't reward your entrepreneurship-oriented ideas, at least with the seat in the assembly?

Well, Fokus is a new party, and I’m relatively new in politics, so a lot of people weren’t informed about our program and achievements. Fokus party didn’t exist in Zagreb until this year, while other parties were building their organization for many years, so it was hard to catch up in just a few months period during a partial lockdown. However, even though we didn’t win a seat in the assembly, we achieved some other goals. Now we have a lot of new members, and a strong organization in Zagreb and a lot of people have heard about FOKUS for the first time. Further on, we are the strongest liberal party in Zagreb, and we had better results than a lot of old traditional parties. So I believe that in the future, our support will only grow in Zagreb.

Davor_during_his_campaing_in_Zagreb_23.jpg

Davor Nađi during his campaign in Zagreb © Davor Nađi

You said on your Facebook site that you didn't receive enough media attention, and indeed you weren't invited to the debates (with the explanation being that only those who earned 5% in polls will be invited). However, you had banners and posters across Zagreb where you talked about how you are experienced to be a mayor because of Sveta Nedelja, where you were a deputy mayor, and the town did receive media attention few years back for amazing changes introduced there. What was your contribution to the transparency of public servants, lowering taxes, and canceling the subtax in Sveta Nedelja as deputy mayor? 

I was the designer of those policies with the strong support of mayor Zurovec and the city council, and I was working on these policies from the beginning until the implementation. I’m very proud of that because Sveta Nedelja did the biggest tax cut in Croatia, became the most transparent city in Croatia, and received a reward for the best local economy three years in a row.   

You criticized some of the moves by the new Zagreb mayor Tomislav Tomašević. Can you repeat what do you find problematic in his governance so far, but also, is there anything positive, something you would support him in if you made it to the Zagreb assembly?

There are some things that are good, and some are not. I reacted on one occasion, but let's wait a little bit more time before I can comment general impression so far.

However, for our readers who are foreign and didn't have the chance to see your comment in Croatian, can you briefly explain what did you found problematic with Tomašević early on to the point that you had to react publicly?

He stopped most of the public procurement. Even though I understand his concern that there might be corruption problems, that is not the way to solve that problem. That problem should be solved with better process and clear guidance from the mayor to the city administration because if public procurement is stopped for too long, there will be problems for citizens. On the other hand, in a short period of time new mayor will not be able to change much if he doesn’t make the process of public procurement more transparent and efficient. 

Far from the US philosophy

 Once on N1, you said political parties in Croatia are still pretty socialistic. Since on that occasion you were a guest at N1 regarding Zagreb Reconstruction Bill, did you mean they were socialistic just in that regard or in general? Are Croatians also socialistic too?

They are socialistic in general, and that bill was just the latest example. That orientation of political parties in Croatia resulted in a situation in which an enormous part of the economy depends on the state so we actually have crony capitalism. That sends the wrong message to the people, so people lose self-confidence and think they can’t earn for themselves and their families, and instead, they rely on the state to help them in every aspect of their life. They simply don’t take into account the fact that the state is corrupt and inefficient, which may be because of inadequate financial literacy.

However, it seems to me that the tide is changing with the lead from the local level from cites like Sveta Nedelja and that people are beginning to see the benefits of liberal policies.

When you say the parties are socialistic, some could think this is the heritage of Yugoslavia. However, aside from the communist experiences of South-Eastern Europe, the overall European political culture and tradition goes along the way „yes to democracy, yes to free market, yes to the individual freedoms“ but also „yes to social care, yes to free health, yes to free education, yes to supporting cultural and artistic projects, scientific research, etc“. Many people see Fokus as being against that and wanting to dismantle that European political culture with American political culture, which seems to be notorious in Europe for its health and education system, which as people see it, „is alright if you have cash, but not for the poor“. Are you indeed into „making Croatia American rather than European?“ and if so, how would you address the mentioned sectors of health, education, culture, and science? What about HRT in that context (as the idea of a public TV financed by the state is a European invention in the media landscape)?

Of course, we are not for an American-style economy. We prefer the Dutch or Scandinavian style with high economic freedom and adequate social benefits. Some people don’t understand that “free” health care doesn’t exist. Taxpayers pay for that. And if we think a little bit more about our health care system, do we really have health care that is accessible to the poor? How long are the waiting lists? People pay taxes for health care, and when they need it, then they don’t get it. That is not free health care! Almost the same is for everything else. I believe that vouchers would solve that problem because then even poor people could afford health care service from the private sector, and the public health care system would have to be more efficient and provide better value for money. The same thing is possible with education. HRT should be significantly downsized, and subscriptions decreased with the option to opt-out from their service.

When it comes to the overall Croatian political landscape, Fokus does offer something truly different from other political options, and it seems quite right to expect that Fokus will continue to grow. But, what do you think made Fokus uprise to start in central Croatia, in Sveta Nedelja, Samobor, Dugo Selo, and Sv. Ivan Zelina? Is there something that makes the culture and society in these areas different comparing to the rest of Croatia that they were the first to recognize and give a chance to your program?

Fokus also has a mayor of Pirovac in Dalmatia and president of the city council in Čakovec, members of City council in Slatina, etc, so I wouldn’t say that our policies are only recognized in central Croatia. However, we have better support in parts of Croatia, where fewer people work in the public sector and more in the private sector. That is not surprising since we promote policies that would result in a more efficient public sector and less red tape and taxation for the private sector. 

 Davor_during_his_campaing_in_Zagreb.jpg© Davor Nađi

 Up next: European elections and Croatian Parliament 

On the note of local success, many view local elections as a forecast for what can happen in parliamentary elections. How would you rate your chances on the next parliament elections based on local results?

I’m very optimistic. Fokus has a very good position to grow and to achieve a great result. Fokus is already a success story and we have grown in a number of members in every part of Croatia. I believe that a new government after elections will not be formed without a strong party or coalition from the political center, and if we look at the results of local elections, Fokus is the fourth party by a number of mayors in Croatia. Also, we are the strongest party of the political center in national ratings, so that gives us reason to believe that we can gain even more support from our citizens in the future.

 Back to the Zagreb elections. The two main candidates represented Gree-left values and national, conservative, sovereign values. Tomašević not only got support from some of the other European mayors but, just as with Škoro's values, there are plenty of same-minded people in Europe sharing those values. You mentioned your appreciation for the Dutch Prime Minister, but are you as well in contact with like-minded parties and politicians in the EU?  

Fokus is a new party, so we still haven’t formed significant international alliances, but we can see ourselves working with other European liberal parties. Of course, the one with the best results is Dutch VVD that is in power on the state level. 

But when we talk about the support that Tomašević or some right-wing parties and NGOs in Croatia had in recent years from abroad; I would say that there is a thin line between support and meddling into elections, and I would say that that line was crossed.

But, can we expect that Fokus will try to be in communication with them? Any plans for running on European Parliament elections as a good point to meet with other think-alike politicians in the EU?

I said that we don't have some significant alliances with them. However, we are in contact with some of them. We will see where that will take us. EP elections could be the first opportunity to test eventual cooperation.

And regarding what you said about there being a thin line between support and meddling in elections and how that line was crossed in Zagreb elections by NGOs, is there a risk of entrepreneurs doing the same thing when supporting, either financially or with public influence, certain parties? How can we prevent such meddling legally but yet with respect to the right of political expression to organizations and individuals?

I don’t see the financial support of Croatian entrepreneurs to political parties as a problem. The problem is only if they receive privileged treatment after the election in return for giving financial support. I would go one step further and say that we should welcome donations of private individuals and companies to political parties because that would mean that political parties would be less dependant on public financing. That should be a normal part of the domestic election process. However, if foreign money is included in financing political parties or their leaders, direct or through other channels, then we as a state have a problem.

To conclude, you are MA of the economy, and you talk a lot about economic solutions. Are our economy and business truly the core issues politicians need to address? Additionally, what are your views and the views of Fokus on defense policy, diplomacy, international relations, emigration policy (asylum seekers trying to enter Croatia), Croatian veterans, diaspora, and the ideological, historical disputes among Croatians, which for better or worse seem to often resolve the elections on a parliamentary level?

It would take a much longer conversation to answer all these questions, but I will try to answer in few sentences. Yes, I believe that economy is the most important issue that needs to be addressed because that is the place where value is created and which provides a better life for people and necessary funding for all government programs. Without a strong economy, the state can’t finance defense or social benefits. Unfortunately, you are right that elections are, in the biggest part, decided on other issues that target emotions rather than reason. 

When it comes to defense policies, liberals believe that the basic tasks of the state are to provide to their citizen's rule of law and protection from foreign and domestic threats. So we should have adequate defense capabilities. On the other hand, we have no problem financing social benefits to real war veterans, however almost 30 years after the war, there shouldn’t be any new users of these benefits. Regarding international relations, our position is that Croatia should remain an EU and NATO member with strong relationships with the USA and with a clear position that China can’t be our partner until they don’t behave by the same rules like everyone else with the biggest concern regarding human rights issues.

Even though we are a small country, that doesn’t mean we can’t lead by example. It is up to us if we will stay on the bottom of every European statistic table or we will start going up. We have all the resources we need to thrive.

Learn more about Croatian politics and history since 1990 on our TC page.

For more about politics in Croatia, follow TCN's dedicated page.

Sunday, 8 November 2020

What Kind of Croatian Tax Relief Awaits Us in 2021?

As Poslovni Dnevnik/Jadranka Dozan writes on the 8th of November, 2020, the Croatian Government has sent proposals to Parliament to amend four laws that provide legal bases for the fifth round of interventions in the tax system. What sort of Croatian tax relief can we expect next year?

The main points of the new round of Croatian tax relief were presented before the second wave of the coronavirus pandemic. In the autumn economic forecasts presented yesterday, the European Commission revised the expectations for respective EU economies and now estimates that a return to pre-pandemic levels by the year 2022 isn't very likely. For Croatia, instead of predicting this year's 9.1 percent GDP decline, it is now counting on a decline of 9.6 percent (a larger decline is expected only in Italy and Spain), with the fact that next year, according to the EC, France should lead the rate growth (5.7%). When drafting the budget, the Croatian Government remained firm in its projection of an 8 percent drop this year, with a 5 percent increase next year.

The deterioration of the epidemiological situation, however, didn't affect the initially announced content of the tax package, nor did it significantly change the public consultation process which was conducted in the meantime, for which various stakeholders submitted about 40 proposals and/or remarks for alterations to the Income Tax Act.

In addition, the Croatian Government only took note of, but didn't take into account the position of the Fiscal Policy Commission, which, due to the uncertainty and risks associated with the pandemic, suggested to the government to postpone the implementation of the planned income and profit tax reduction. We'll be proceeding with the introduction of this Croatian tax relief, therefore, only at the beginning of 2021.

According to the government's calculations, this means that next year's income taxation will be reduced by around HRK 2 billion.

In contrast, after the previously extended plan for a reduced VAT rate for all food, budget concessions have been reduced to a more flexible taxation process for enterprises, while the end consumers, in mid-2021, will mostly face price increases for small online purchases from abroad. From the second half of the year onward, namely, the import of small value goods (up to HRK 160) will no longer be spared the payment of VAT, ie Croatian VAT will need to be paid on these deliveries, in accordance with the corresponding EU directive. Thus, VAT will be calculated next year with a positive fiscal effect of around HRK 250 million.

Upon presenting the new tax package, the government recalled that the effects of the past four rounds of Croatian tax relief (since 2017) exceed 8.2 billion kuna, and for 2021 they carry an additional HRK 1.9 billion. "The government is thus continuing the policy of relieving both citizens and enterprises, and with this new wave, we'll be at over HRK 10 billion of relief," stated Prime Minister Andrej Plenkovic. When everything is added up, Minister of Finance Zdravko Maric says that the relief for citizens reaches almost HRK 11 billion.

Howeverm some economists share the Fiscal Commission's reservations about the plan to cut income tax rates from 36 down to 30 and from 24 down to 20 percent from January the 1st, 2021. Although the tax burden in Croatia should generally be reduced, they warn that other countries, due to the circumstances surrounding the pandemic, mostly aren't reducing their room for maneuver in this way. Circumstances have changed significantly compared to the time before the elections and during the drafting of the Government's programme, and in these conditions of an increased need for the financing public services, there is usually no relief for citizens with a higher income,'' pointed out Zeljko Lovrincevic from the Institute of Economics.

At the same time, the Croatian Employers' Association (HUP) welcomed the announced Croatian tax relief, but due to the increased costs for preventive epidemiological measures, they consider them insufficient and have additional requirements.

They are satisfied, they say, that their proposal to treat the cost of vaccination against infectious diseases as non-taxable has been accepted. However, they insist that the retroactive application of this relief be envisaged, starting on March 11th, 2020, and that the measure be extended to testing workers. "Due to coronavirus, the costs for preventive measures have increased significantly, from protective equipment and the installation of physical barriers to maintaining the cleanliness of facilities and workplaces, and depending on the activity, they range from one hundred to as much as HRK 2,000 per worker," they explained.

HUP CEO Damir Zoric said that "it is the right time to reduce all unnecessary parafiscal levies and fees, the removal of which has been delayed for years.''

 

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Thursday, 25 June 2020

Croatian Hospitality Facilities Get Political on VAT

Croatian hospitality facilities, well, some of them at least, are getting a bit political in the run up to the elections. Some rather interesting and original approaches are being used and one of them is particularly clever.

The elections are rapidly approaching in Croatia and as with each and every time there is an election or indeed political event of any kind, numerous issues that have been left to linger in the background to rot get dragged back to the forefront in a flurry of pre-election promises that nobody ever truly expects to be fulfilled. VAT is one burning issue that bothers everyone, and yet nobody really wants to tackle it.

As Poslovni Dnevnik writes on the 24th of June, 2020, if you happen to find yourself sitting down to drink some coffee in Kostrena's Mosquito bar with its beautiful sea view, you will also be able to read an unusual message written by the owner of the facility at the bottom of your bill.

"PP and the highest VAT in Europe are calculated [and included] in the price. Spain and Italy 10, Hungary 5, Greece 13, and France and Slovenia 6 percent. Let's go to the polls and stop the tax repression of the state that exists in order to provide privileges for the eligible," the strong and clear message against Croatia's extortionate VAT reads.

The owner of this particular Croatian hospitality facility explained to Morski.hr precisely what prompted him to make such an interesting move to encourage citizens to go to the polls.

"It was simply because many people weren't aware of the facts at all. If there is the VAT level I mentioned exists in countries which rely on tourism and have a few hundred million inhabitants, how are we any different, and yet we're promoting ourselves as a tourist country? There were many people in the hospitality sector who worked while the VAT on catering services was 13 percent and also when they raised it to 25 percent, and then many put their stores up for sale because their businesses sadly became unprofitable. The government only went out to meet the hotel lobby and the restaurants managed to receive a reduction down to 13 percent VAT on food services,'' said Miro Juraj, the owner of the Mosquito bar in Kostrena.

He points out that this is his way of encouraging people to go to the polls because elections, he says, are the only place where some things can be made to change.

"Everyone who complains that coffee is too expensive for them, should know that every third employee is a state employee, that's how much money is given to the state," concluded Juraj.

For more on Croatian hospitality facilities, follow our lifestyle page.

Thursday, 11 June 2020

Coronavirus Pandemic Encourages Croatian Cities to Cut Surtax

As Jadranka Dozan/Poslovni Dnevnik writes on the 9th of June, 2020, as a source of revenue for local budgets, surtaxes are more important for larger cities, so they're harder to give up for some. However, the coronavirus pandemic has caused several to think again...

Valpovo and Motovun will both abolish the surtax on income tax at the end of this month. The aforementioned locations thus join a small number of local units in Croatia whose residents don't have the burden of surtax on their backs, as well as everything else they need to think about in these coronavirus-dominated times.

Pozega and Belisce both reduced their surtax on income tax from 10 to 7 percent back in early June, and a month earlier (in early May) the municipality of Donji Miholjac started applying a 5 percent surtax instead of the previous 8 percent surtax. At the same time, in Bjelovar, an extremely forward-thinking continental Croatian city that has made the biggest strides in the area of ​​local levies in the past few years, a zero surtax rate has been in place since May.

Bjelovar's city authorities, led by Mayor Dario Hrebak, reduced the surtax from 12 percent down to 9 percent last May, and after cutting it even further, down to 6 percent earlier this year, they have abolished it completely since last month. Starting on May the 1st, 2020, the municipality of Dugopolje also decided to abolish surtax, surtax there stood at 8 percent until that point in time.

A month ago, the local government in Rugvica decided to make a similar move, where the surtax rate within income taxation was 6 percent until relatively recently. Sinj then completely exempted its citizens from surtax at the rate of 8 percent.

According to the Tax Administration, the same was done by the Belica (Medjimurje), which, until this year, charged a symbolic 1 percent surtax. Promina in the Drnis region (inland Dalmatia), has had its 5 percent surtax abolished since back in February.

These are just a few of the areas of Croatia in which local governments have decided to take the pluge and redice the fiscal burdens on their citizens in the coronavirus era, there are others which could be added to this list and it's likely that more will follow.

This is, at least to some extent, a question of the structure of the economy and of employees, ie, the average level of wages and the share of those who are outside of the tax man's scissors. For the authorities in smaller cities, the policy of the abolition of surtax can also be an instrument for attracting the population and entrepreneurial activity.

Thus, Dario Hrebak of Bjelovar recently said that there should be no fear that reducing taxes will cause a loss in revenue. Back in March, the first month of the coronavirus crisis, they earned half a million kuna more than in the same month last year. Increasing consumption and getting rid of surtax creates, he says, yet another new activity.

For more, follow our business page.

Wednesday, 31 July 2019

Croatia's Tax on Sugary Drinks Product of Health System Desperation?

As Novac/Goranka Juresko/Zlatko Simic writes on the 30th of July, 2019, amid last week's more or less positive flood of information on various tax cuts in different sectors in Croatia, the exception to the wave of joy came in the form of the announced new tax on sugary drinks.

It was said at the time that this should have a "beneficial" impact on health, especially for kids, but also on Croatia's overall health budget, referring to the "experiences of other countries" that reached for a similar goal, although their actual results were a little muddy, to say the least.

While the actual science of course remains unquestionable, the fact remains that the current Government of Croatia still doesn't actually have a clear explanation as to why only sugars from certain carbonated juices are dangerous to health, while those from sweets, mussels, fruit yogurts and similar products apparently aren't, at least according to their logic. Why have refined sugars from other sources remained clear of the tax man's brutal scissors?

For example, a deciliter of Fanta has ten grams of sugar in it, and the same amount of fruit-based yogurt contains a massive 16 grams. Let's be real, both is too much, because proper nutritional guidelines "approves" up to 35 grams of sugar a day for a man, and for women - up to 25 grams daily. Everything else is surplus that is considered to be detrimental to health, no matter where it comes from - sugary drinks, bread, beer... In addition, this proposal is not accompanied by simulations that should show what is expected from this measure and at what time or date, nor does it talk about what effects can be expected on Croatia's relatively stretched health budget.

The Croatian Institute of Public Health, which should have been consulted before such decisions were made, said that "nobody had talked to them about it," and manufacturers say the same.

''It is true that most sugars are brought into the body come from sugary drinks, but I'm afraid that this is a decision that hasn't been prepared for and was not a logical consequence of a campaign in which citizens would get access to all the information about the dangers that come "from the plate" said Marijan Katalenić, an expert on food safety and quality.

He added that when it comes to food, any restrictions - which have proven to be a dubious decision in other countries - should reach a consensus at the EU level, and precisely on food quality.

''This is just a decision of desperate people at a moment when the health system can no longer pay for all the consequences of the bad impact of food on the health of citizens,'' concluded Katalenić.

The consumption data for energy drinks among children and adolescents is indeed worrying, however. According to a study by the European Food Safety Authority (EFSA), 68 percent of adolescents and 18 percent of children drink energy drinks.

They are the victims of advertising that convinces them that they will learn faster and become better at sports, but in reality, the consequences are obesity, diabetes and of course, the constant lining of dentists' already deep pockets with endless cases of caries. First is the intake of high amounts of sugar, which negatively affects the already significant problem of obesity. The second is the consumption of caffeine, a substance with an impact on the development of children, and something which needs to be investigated more extensively. The third is taste formation in children, that is, getting used to an extremely sweet, sugar-filled drink. The fourth is the blending of spirits and energy drinks that is popular with young people and can be very dangerous in some cases.

The above are just one part of the highlights of the conference "Better Food for Better Health", which was organised by Biljana Borzan three years ago in collaboration with the World Health Organisation (WHO).

The experiences from other countries shows that the tax burden of carbonated beverages has different effects, depending on the country and the general social status. The sugar-based tax on these products have prompted manufacturers to reduce the sugar content of their products by up to 50 percent in order to be below the taxable level.

''The measure had the greatest effect on less wealthy households, which significantly reduced the purchase of such beverages. In middle-class and better-off households, it has not had that much of an impact, and a good part of these consumers who are really determined to buy carbonated beverages have simply changed the brands they purchase,'' noted Borzan.

According to one study, out of 31 analysed countries from the EU and the region, twelve of them (Belgium, Bosnia and Herzegovina, Estonia, Finland, France, Netherlands, Ireland, Latvia, Hungary, Malta, Portugal and the United Kingdom) have a soft drink tax, whereas eighteen European countries (Austria, Bulgaria, Czech Republic, Denmark, Greece, Croatia, Italy, Cyprus, Lithuania, Luxembourg, Macedonia, Poland, Romania, Slovakia, Slovenia, Serbia, Spain and Sweden), do not have such a tax today.

What the real reasons behind Croatia's seemingly rash decision to raise taxes on sugary drinks actually are will likely continue to be speculated upon, especially as the stated reason being so vague leaves a lot of room for various conclusions, none of which are much to do with health according to the aforementioned expert.

Follow our dedicated politics and lifestyle page for much more.

Wednesday, 26 June 2019

80 Tax Inspectors to Comb Croatian Coast 24 Hours Per Day

As Poslovni Dnevnik writes on the 25th of June, 2019, in three to four of the fiscal controls carried out during the month of June, and in about two to three inspections conducted during the first five months of this year, Croatian tax inspectors found that taxpayers were violating certain fiscal-related obligations, according to a recent report from Večernji list.

Regardless of the numerous holidays at this time of year in Croatia and the usual practice of joining working and non-working days in June, the Croatian Tax Administration isn't letting up on its controls on the coast, and it has recently been engaged in the process of supervising the financial operations of bakeries, taxi drivers, restaurants and non-specialised wholesale stores. The close supervision of businesses from the aforementioned groups will last until July the 3rd, after which another set of activities, likely with another ''group'' of individuals, will come.

"During the summer, more specifically during the tourist season, surveillance is carried out with special emphasis on the Adriatic coast and the islands, daily, with the 24-hour presence of field inspectors," stated Valentina Lazar Landek, a senior inspector. On average, more than eighty Croatian Tax Administration inspectors will participate in the day-to-day monitoring of fiscalisation during the warm, tourist-filled summer months up and down the Croatian coast.

During the first five months of 2019, Croatian tax inspectors knocked on the doors of as many as 6,436 unlucky taxpayers, and 3,970 of those instances saw the inspectors detect certain irregularities. Not everyone is immediately given sanctions, therefore tax inspectors have written out as many as 1799 misdemeanor charges, a total of 23 million kuna in punishment, and 63 people were punished in the sense of being banned from carrying out their work.

Taxi drivers, of course, stuck out like a sore thumb as a much, much more risky group of people because they had been being watched carefully and under the close control of tax inspectors several times already this year.

There is an estimate that the value of tax evasion in Croatian taxi services per year stands at about 100 million kuna, and in addition to that, there are taxis who are in the VAT system but don't actually issue receipts, and there are of course numerous illegal carriers on this market that can be accessed through popular applications.

By the beginning of this week, the Croatian Tax Administration had conducted 585 fiscal surveillance operations in June so far.

Make sure to follow our dedicated lifestyle page for much more.

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