Croatians coming back home to get five-year tax exemption

A new round of tax reforms in Croatia has been presented this week by the Minister of Finance, Marko Primorac, following a meeting of the Economic and Social Council.

The key changes focus on property taxation, rental income, and income tax.

The government has unveiled the long-awaited tax reform, which includes changes to six tax laws. These changes will affect income tax rates, the tax-free income threshold, and the introduction of property tax.

In an effort to encourage the return of Croatian citizens and address the country’s labour shortage, Primorac announced that individuals who have lived abroad for at least two consecutive years will be exempt from paying income tax for five years upon their return.

This tax relief will also apply to descendants of Croatian emigrants from the diaspora.

“The aim is to tackle a serious macroeconomic problem we are facing, the shortage of labour. We need to compete for a workforce with other EU countries,” Primorac said, adding that many neighbouring countries are taking similar steps.

He also clarified that the idea is not to “favour those who left” but to respond to current challenges through active policies.

In 2021, Croatia had just over 80,000 foreign workers; in 2022, over 120,000; in 2023, over 170,000; and this year, Croatia expect close to 200,000 work permit applications for foreign workers.

Around 3.4 million Croatians and their descendants are estimated to live abroad and the goal is to target some of them to return.

The majority of Croatians in Europe reside in Germany, while in South America, most are found in Argentina.

A significant Croatian population also lives in the USA, Canada, and Australia. These countries, along with Austria, Belgium, Sweden, Switzerland, New Zealand, and others, are considered traditional destinations for Croatian emigration. Around 350,000 Croatians live in Bosnia and Herzegovina.

These tax changes will come into effect on 1 January 2025.

How Croatia’s new property tax will work