The changes to Croatian tax laws starting on 1 January

Changes to Croatian tax laws coming

The New Year will bring changes to Croatia’s tax system, including adjustments to work-related tax relief, income tax, and the much-debated property tax.

Daily Večernji list have provided a summary of what will change in 2025.

Property Tax

From 1 January, the optional tax on holiday homes will be replaced with a mandatory property tax for properties not used as primary residences.

Owners of second or subsequent properties must submit proof to local tax authorities by the end of March 2025 if they believe they qualify for an exemption.

Local authorities will set tax rates and zoning rules by the end of February 2025. Starting in 2026, such decisions will need to be published by mid-December for the following year.

In areas where no tax on holiday homes was previously applied, a minimum rate of €0.60 per square metre will be introduced unless local authorities specify a different rate.

Where a holiday home tax was already in place, the existing rates will apply until new rules are set. Property tax rates will range from €0.60 to €8 per square metre, with exemptions based on criteria such as social factors, property conditions, and lack of infrastructure.

Local authorities may also impose higher rates on luxury properties, which must be outlined in their policies.

Landlords renting properties for at least ten months a year must provide rental contracts if not already submitted, and similar evidence is required for family members living in properties owned by relatives.

Preliminary tax assessments may be issued from 1 April, though it is more likely they will be sent mid-year due to the time needed to process the required data. Electricity and gas consumption will also be checked to confirm whether properties are occupied for most of the year.

The new tax will be based on records currently used for calculating municipal charges, which will continue to be collected independently of property tax.

Local tax rates, including those for property tax, income tax, and short-term rental taxes, will remain publicly available on the Tax Administration’s website.

Flat-Rate Tax on Short-Term Rentals

Tourist rentals will face the biggest tax increase. By the end of February, local authorities must set annual flat-rate taxes per bed, ranging from €150–€300 in the most developed areas, €100–€200 in the second tier, €30–€150 in the third tier, and €20–€100 in the least developed areas.

If no rates are set, the government’s default rates will apply, averaging €225 per bed in the top tier, €150 in the second, €90 in the third, and €60 in the fourth tier.

Income Tax

From January, the personal allowance will increase from €560 to €600, resulting in an average pay rise of €8 and pensions over €600 increasing by €4.

Workers supporting dependants will also see their reliefs adjusted, with a worker earning a decent salary and supporting two children receiving an extra €15–€20 per month.

However, these benefits may not impact lower earners as they might not generate enough taxable income to utilise them fully.

The threshold for the higher income tax rate will rise from €50,400 to €60,000, benefiting around 10,000 high-income earners such as managers and politicians with an extra €200 annually.

Local authorities will need to align their income tax rates within state-mandated limits.

For example, the maximum lower rate will be 20% for municipalities, 21% for smaller towns, 22% for larger cities and county seats, and 23% for Zagreb (currently 23.6%).

For higher income tax rates, the maximum will be 30% for municipalities, 31% for towns, 32% for large cities, and 33% for Zagreb. The lower rate will remain at a minimum of 15%, and the higher at 25%.

Returnees who have lived abroad for at least two years will be exempt from income tax for five years if they secure employment in Croatia.

Work-Related Tax Reliefs

From 2025, companies will no longer receive five-year exemptions from health insurance contributions for young workers on permanent contracts.

This measure, in place for ten years, will continue for workers already hired under the scheme or employed on permanent contracts by 31 December 2024.

A one-year exemption will apply only to workers entering the job market for the first time.

Young workers will still be eligible for full income tax refunds if under 25 and 50% refunds if aged 25–30.

The VAT registration threshold for small businesses will increase to €60,000.