Monday, 9 November 2020

Majority of Salaries Will be Taxed 20%, Says Daily

ZAGREB, November 9, 2020 - As of next year, Croatia will tax a majority of salaries only 20%, plus local tax, which is four percentage points less than now, Vecernji List daily said on Monday.

The government believes this change will reduce the tax burden on salaries by HRK 2 billion annually, the paper said.

How much each employed person will benefit from the cut depends on their gross salary and deductions for children and other dependent family members.

Income tax is paid by all employed persons as well as the jobless who do part-time work and pensioners whose allowance exceeds HRK 4,000.

Finance Minister Zdravko Maric says two-thirds of those liable for income tax actually do not pay it because their income is below the taxation threshold when deductions for dependent family members are added to their non-taxable monthly income (HRK 4,000) .

Those not paying income tax cannot expect anything from the tax rate cuts going into force as of January 1, which has been a source of numerous frustrations and dissatisfaction for a long time. From every salary, regardless of its amount, is first deducted 20% for pension contributions, while the rest is considered as income. Those whose gross salary is below HRK 5,000 do not pay income tax, only HRK 1,000 for pension contributions.

Additional deductions make the difference even more pronounced. If a worker with a gross salary of over HRK 10,000 has two children who bring an additional HRK 4,250 in tax deductions, there is nothing to deduct, so they cannot expect the reduction of the income tax rate to 20% will result in a higher salary as of January 1.

Children and dependent family members bring big deductions due to which parents with two or more children generally do not pay income tax. Reducing the income tax rate from 24 to 20% could result, for an employed Zagreb resident with an average gross salary of HRK 9,200 without children or dependents, in a HRK 160 higher monthly salary as of January 1, Vecernji List said.

(€1 = HRK 7.5)

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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Monday, 2 November 2020

Zdravko Maric Highlights EU Funds as Key to Croatian Recovery

As Poslovni Dnevnik/Jadranka Dozan writes on the 1st of November, 2020, in an environment dominated by the unpredictable course of the ongoing coronavirus pandemic, it's very difficult to predict and plan, so even with the state budget proposal for next year adopted yesterday, the Government session strongly pointed out that it reflects only the basic scenario. Do EU funds provide the answer to Croatian recovery?

The government has more or less remained on the trail of macroeconomic assumptions from the September Budget Guidelines, based on the epidemiological picture from the end of August, which has meanwhile deteriorated globally. However, the assumptions in the budgeting reflect the expectation of a return to last year's level of economic activity at the end of 2022.

After this year's 8 percent drop in GDP, a growth rate of 5 percent is expected in 2021, and then Croatian recovery and economic growth of 3.4 percent and 3.1 percent over the next two years, respectively. The biggest contribution to growth next year should come from the recovery of exports of goods and services (primarily tourism), which, like this year's decline, should be in the double digits.

However, as imports are expected to grow at the same time, the contribution of net exports to Croatia's enfeebled GDP growth will ultimately be lower than what is expected from personal consumption. Household spending is expected to rise 4.5 percent next year after falling 6.3 percent this year, according to government expectations.

When it comes to investing, the expectations are somewhat more modest; after an estimate of the decline for this year, the expectation for 2021 is growth of less than four percent.

The total budget revenues for 2021 are planned at 147.3 billion kuna or 12.3 percent more than the new plan for this year. When compared to last year, it's been eventually reduced by almost nine billion, as a result of 12 billion kuna less revenue from taxes and contributions, but with a simultaneous increase in revenues owing to very welcome EU assistance.

On the other hand, total expenditures from all sources are planned for less than 158 billion kuna next year, which is an increase of two billion or 1.3 percent more than the rebalanced plan for 2020.

However, Minister Zdravko Maric emphasised that expenditures financed from sources that affect the deficit (from general revenues and receipts) are planned at 118.4 billion, which is 3.6 billion kuna less than the new plan for 2020.

Unlike this year, when 5.4 billion of payments under coronavirus measures 5.4 were financed from sources that affect the deficit, according to the plan for next year, 2.1 billion kuna under these measures are planned to be financed from EU funds (React EU), and from sources that affect the deficit - only 100 million.

Katanciceva also calculated that, when the impact of the government's coronavirus measures is excluded from the expenditures, total expenditures financed from general revenues and receipts of the general government budget will increase by 1.7 billion kuna or 1.5 percent next year.

''The further deepening of the coronavirus crisis represents a great risk that is currently difficult to assess, and it would have a negative impact on budget revenues as well as on the needs of the economy for additional measures,'' pointed out the Minister of Finance, Zdravko Maric.

In the planning of the state budget, Maric explained that the goal remains the sustainability of public finances, with the control of expenditures and continued tax relief. In terms of Croatian recovery, European Union funds are generally gaining in importance.

In addition to the EU budget in the coming years, these funds which will greatly aid Croatian recovery as a whole include a combination of grants and loans from the recovery fund under the EU Next Generation instrument, and in the Croatian case there are significant funds from the Solidarity Fund for Post-Earthquake Reconstruction available.

Croatia will thus have a total of 23.5 billion euros or about 176.3 billion kuna available for strategic, development and reform projects at its disposal, while it can count on 5.1 billion kuna from the Solidarity Fund for the reconstruction of earthquake-damaged areas.

The baseline scenario of macroeconomic and budgetary developments should also result in a return of the level of public debt and deficit to a downward trajectory.

When it comes to budget expenditures that affect the fiscal balance, the largest increases next year (compared to the rebalanced plan for this) are expected as a result of tax relief in income tax, the effect of which is estimated at two billion kuna.

Therefore, the budget envisages 1.5 billion kuna more in the name of compensation to local and regional self-government units.

Expenditures for employees (including education) are planned to increase by almost half a billion (493 billion kuna) next year, with these expenditures being increased by approximately the same amount as part of this year's rebalance. A little less than 435 million kuna increase refers to participations for EU aid.

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Thursday, 22 October 2020

Croatia to Receive €1.02bn from EU SURE Instrument

ZAGREB, October 22, 2020 - By the end of this year Croatia will receive €490 million from the EU SURE instrument for temporary support to mitigate unemployment risks in an emergency following the outbreak of the coronavirus pandemic, the government said on Thursday, adding that a total of €1.02 billion has been approved for Croatia.

At today's cabinet meeting, Finance Minister Zdravko Maric was authorised to sign a loan agreement with the EU for this temporary support.

The SURE instrument was established by decision of the Council of the EU in May with the aim of providing financial assistance of up to €100 billion in the form of loans from the EU to affected member states to address sudden increases in public expenditure for the preservation of employment.

To finance these loans, the European Commission will borrow money on financial markets and lend it to member states under favourable terms. The first tranche of €17 billion was conducted a few days ago, and the interest was ten times higher, Maric said.

"The instrument is designed for short work time schemes and similar measures to help member states protect jobs and employed and self-employed people from the risk of unemployment and loss of income. All member states have signed a guarantee agreement to date, whereby the SURE instrument has become operational," Maric said.

He said that Croatia had applied for this funding to address sudden and serious increases in expenditures connected with subsidies to preserve jobs and support for shorter work time.

"A loan of €1.02 billion is available to Croatia, with a maximum average maturity of 15 years and an availability period for financial support of 18 months. Financial support can be used through a maximum of eight instalments which can be paid by one or more tranches. These are very favourable loans, and a total of €490 million will be paid to Croatia by the end of this year, which will be included in the budget revision and which is about 48% of the allocation," Maric said.

The government also decided to include micro and small businesses in the state aid programme for the sea, transport and transport infrastructure sector to help them cope with the crisis caused by the coronavirus pandemic.

Wednesday, 30 September 2020

Croatia Initiates Procedure to Conclude Double Taxation Convention with USA

ZAGREB, Sept 30, 2020 - The Andrej Plenkovic government on Wednesday launched procedures to conclude the double taxation convention between Croatia and the USA for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Finance Minister Zdravko Maric told the press before the government's meeting that the conclusion of the Convention would lead to many benefits in the taxation of all kinds of income and to the improvement of conditions for boosting bilateral trade.

"This is a great signal for investors. We are tackling the matter that has been present for more than two and a half decades," the Croatian minister said.

In October, the country's Tax Administration will open preliminary talks on holding negotiations on the document.

The convention will be beneficial to all industrial sectors, notably the IT sector.

Companies' income will be taxed in their countries of residence, the draft convention reads.

It will enable Croatian air and shipping companies that transport goods between the two countries to pay profit tax in Croatia only.

Croatian builders operating in the USA for less than 12 months will not pay taxes in the USA.

The convention regulates the taxation of income from real property, income, and salaries of athletes, artists, and so on.

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Saturday, 26 September 2020

Minister Zdravko Maric: Coronavirus Crisis Will Pass, One Problem Remains

As Novac writes on the 25th of September, 2020, a new round of tax reforms with changes that should take effect early next year will bring a reduction in corporate income tax rates, but a great opportunity for them is to withdraw money from European Union funds, said Finance Minister Zdravko Maric on Friday.

Ahead of the meeting on tax changes, which is usually organised at this time of year in the Croatian Chamber of Commerce (HGK), Minister Zdravko Maric said that he was carrying a "new message of tax relief" in the form of reducing income tax rates, noting that this also opens up a great opportunity for the use of European Union funds designed to help the economy fight the consequences of the ongoing coronavirus pandemic.

''What we're offering in the fifth round of reforms is the lowering of the income tax rate, I think that's more than enough, but I certainly want to hear what you want in terms of parafiscal levies and other burdens,'' said Minister Zdravko Maric, adding that it turned out that lowering tax rates ultimately brings in more to the state budget, but that there's a lower limit and as such it can't just be reduced indefinitely. He warned that the coronavirus crisis will pass, but that we'll be left with a demographic problem that will remain a burning issue.

According to earlier announcements, in the new round of tax reforms, income tax rates would be reduced from 36 percent to 30 percent and from 24 to 20 percent at the beginning of next year. There are also plans to reduce the corporate income tax rate from 12 down to 10 percent, for small and medium-sized companies, ie for all enterprises with an annual income of up to 7.5 million kuna.

Regarding the reduction of VAT rates on all food, Minister Zdravko Maric reiterated that this is part of the government's programme, as is the abolition of property sales/transfer tax, but that the government hasn't committed to any specific date when these measures should take effect.

HGK President Luka Burilovic said that businessmen were "extremely interested" in any tax relief.

He announced that he would ask Minister Zdravko Maric for measures to provide additional liquidity, especially over the next six months, as well as to speed up the procedures dealt with by HAMAG-BICRO in HBOR.

The head of the Croatian Chamber of Commerce also announced talks with the Ministry of Labour and trade unions on amendments to the Labour Law which will start next week. That law, he said, is outdated, and businessmen believe it should be more flexible. Flexibility, as he pointed out, shouldn't be feared by good workers.

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Thursday, 24 September 2020

Zdravko Maric: We Expect GDP Growth in 2021, But Less Than We Envisaged

September the 24th, 2020 - There have been many predictions about the state of Croatia's GDP as a result of the ongoing coronavirus pandemic, with some expectations being worse than others. Finance Minister Zdravko Maric was a guest of the Croatian Radio show "A sada Vlada/And now the Government" recently, during which he spoke about the guidelines for the 2021 budget.

As Poslovni Dnevnik writes on the 23rd of September, 2020, Zdravko Maric said that a document on economic fiscal policy should be adopted at a Croatian Government session on Thursday.

"These will be updated macroeconomic projections for this year and for the next three years. As was the case in May when there was a rebalance, the circumstances are really difficult. In a situation when we don't have a vaccine and it's still difficult to predict that epidemiological-health part of things as well as some other things, we got the best possible quality,'' said Zdravko Maric.

"For this year, our original projection regarding the fall in GDP will be somewhat improved. The drop should be smaller than we expected. We forecasted a decline of about -8 percent for 2020. For next year, we predict growth, but lower growth than we predicted, it will somewhere at the level of 5 percent,'' explained Zdravko Maric.

We will exceed the level of GDP back in 2019 somewhere in the middle of 2023

Zdravko Maric said that one could hear from analysts predicting a recovery in the shape of the letter V. It represents a fall which is significant, followed by immediate recovery.

"It quickly became clear that it all depends on various situations because there are still negative risks for these projections, especially from the health and epidemiological point of view. We'll exceed the level of GDP in 2019 in the middle of 2023,'' he stated.

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Thursday, 17 September 2020

Finance Minister Zdravko Maric Reveals Plans to Abolish Unpopular Tax

September the 17th, 2020 - We recently reported on the fact that the much anticipated abolition of an extremely unpopular tax had been reconsidered by Finance Minister Zdravko Maric, who explained that those who believed the change was due to come into force at the beginning of 2021 had got their wires crossed.

As Poslovni Dnevnik writes on the 16th of September, 2020, Finance Minister Zdravko Maric said on Wednesday that the abolition of property transfer/sales tax is indeed planned during this government's term, and that it has never been specified that this will happen on the first day of next year, which is something that people have somehow begun to believe.

As Finance Minister Zdravko Maric told reporters recently, there is no "rethinking" on this issue because "the Government never said that it would come into force on January the 1st, 2021", but its programme does state that this government plans to abolish the unpopular tax during its mandate, but without any sort of specified time period, much less a specific date.

''Property transfer/sales tax, value added tax and food tax, these are all measures that we also put in the programme, but we didn't define when, ie, when during the mandate we'd get rid of them,'' explained Maric.

The property transfer/sale tax amounts to three percent of the market value of the purchased piece of real estate, this tax is income for cities and municipalities, and as some media portals, wrote yesterday, its abolition caused a revolt among various Croatian cities and municipalities, and finally a delay.

However, Finance Minister Zdravko Maric vehemently denies this, adding that in the current round of tax changes, the abolition of that tax was not originally envisaged.

He explained that from the first day of next year, there will be changes to income tax, ie lowering rates from 24 to 20 percent, or 36 percent down to 30 percent, as well as lowering the corporate income tax rate, from 12 to 10 percent, for all Croatian enterprises with a turnover of up to 7.5 million kuna.

In the context of a fairer distribution of the tax burden, and regardless of all previous tax changes, Maric pointed out that Croatia is still at the very top of the countries in terms of the share of VAT revenues in GDP.

Journalists also asked the Finance Minister about the postponement of the payments of leases, which was also appealed to by the employers' associations, to which Maric said that these were civil relations between private individuals and business entities. He suggested that financial institutions themselves, following the example of the Croatian Government's previous measures, should take additional measures to be accommodating towards enterprises and other clients.

Asked about the possible further prolongation of the moratorium on executions, Maric reiterated that this was down to the relationship between debtors and creditors, and that the state, for its part, had extended the deadline for another three months.

''We need to think and talk not only about the rights of debtors but also about the rights of creditors. But the creditors, who have these opportunities, should certainly follow the example of what we as a state have done, to enable some kind of repayment, or installment payment, or some other mechanisms that will make it easier to avoid great pressure in a short period of time,'' stated Finance Minister Zdravko Maric.

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Wednesday, 16 September 2020

Finance Minister Maric Changes Mind on Property Transfer Tax Abolition

September the 16th, 2020 - The noise surrounding property tax and property/real estate transfer tax has been loud for a significant amount of time now. There have been comments made across all spectrums and it appears that the subject continue to be a thorn in the side of many, constantly coming up in almost every political discussion. It appears that what was once celebrated, the idea of the total abolition of property transfer tax, isn't going to happen any time soon as Finance Minister Maric changes his mind.

As Poslovni Dnevnik writes on the 15th of September, 2020, back in July, Finance Minister Maric announced that he planned to abolish the ever-unpopular property transfer tax, but cities and municipalities rebelled, so the tax will remain throughout next year. This unfortunately means that the proverbial little guy suffered once again as buyers of apartments and houses now realise that they waited in vain for the abolition of this cumbersome tax.

Those who postponed the purchase of property for next year in order to not have to pay three percent real estate transfer tax, are more than understandably irritated by Finance Minister Maric's apparently sudden change of heart.

As was unofficially confirmed for 24sata from a reliable source, this tax will certainly remain in place as normal throughout next year and will not be part of the package in which income tax and profit tax are being reduced.

Real estate/property transfer tax is paid according to the value of the real estate in question, so if you're buying an apartment, for example worth 100,000 euros, the city or municipality where the real estate is located should be paid 3,000 euros, this is no small amount in any scenario, much less when a buyer is already forking out a huge sum of money for a property.

''The real estate transfer tax of three percent is set to remain next year. The programme of the Croatian Government includes the announcement that it will be abolished by the end of the mandate and we're going fulfill that, but it will not be part of this relief package,'' a high-ranking interlocutor from the Croatian Government confirmed.

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Friday, 11 September 2020

FinMin Violated the Principle of Good Conduct, The Conflict of Interest Commission Says

ZAGREB, Sept 11, 2020 - The Conflict of Interest Commission found on Friday that FinMin violated the principle of good conduct by participating in a decision by the Croatian Bank for Reconstruction and Development (HBOR) to grant a loan to a company owned by his friend Josip Stojanovic Jolly.

The procedure against Maric was launched in December last year due to the possibility of bias because, in his capacity as finance minister and president of the HBOR supervisory board, he did not excuse himself from the decision to issue a loan to Stojanovic's Olympia Vodice company, which was issued with an HBOR loan for the construction of a hotel even though he had made it clear in his statements to the media that Stojanovic was a friend of his.

The commission decided on Friday that Maric was not in conflict of interest but rather that he had violated the principle of good conduct, which is not subject to any penalty.

The commission also found that Maric had not violated the law by attending a World Cup match in Russia where he was seen in Stojanovic's company, as Maric provided evidence that he personally paid for his ticket.

In a second case, the commission found that Zagreb Mayor Milan Bandic and members of parliament who crossed the floor and joined his parliamentary group had not violated the law.

The commission decided on each individual member of parliament who crossed the floor and joined Bandic's party and whether they were rewarded for that with some counter-favor. The commission found that no violation had occurred with regard to the Conflict of Interest Act.

The procedure involved Mayor Bandic and Members of Parliament Marija Puh, Mladen Madjer, Milanka Opacic, and Sinisa Varga who crossed the floor in parliament, as well as Deputy Mayor of Donja Stubica Luka Grabusic and Radoboj Mayor Andjelko Topolovec who too joined Bandic's party.

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