NEWSLETTER – AMENDMENTS TO TAX REGULATIONS AS OF 2025

15. January 2025 | Reading Time: 8 Min

As of January 1, 2025, amended tax regulations in the areas of local taxes, personal income tax, contributions, value added tax and general tax came into force.

Below, we present the most significant amendments to the tax regulations.

Local Tax Act

The most important change concerns the obligation of local government units to introduce property tax.

  • The “newly introduced” property tax will be paid by domestic and foreign legal and physical persons who are property owners on March 31 of the year for which the tax is determined. For newly constructed buildings, the effective date of the building permit is decisive, while for properties used without a building permit, the tax is determined from the start date of use. The obligation to pay personal income tax and/or other taxes based on the performance of activities, as well as the registration of property as non-commercial accommodation, does not affect the determination of the property’s status for property tax purposes, nor does it exempt from taxation.
  • Property tax is paid annually according to the Decision of the Tax Administration, in the amount of 0.60 to 8.00 EUR/m² of the property’s usable area. The deadline for payment is 15 days from the date of the Decision. The amount of tax is determined by the representative body of the local government unit by decision. If the representative body does not set the tax rate, the minimum amount of 0.60 EUR/m² applies. Changes affecting the determination of the tax obligation apply from the following calendar year.

The Local Tax Act also provides for exemptions from the property tax in the following cases:

  • Properties being used for permanent residence.
  • Properties rented based on a lease agreement for permanent residence, with permanent residence being defined as renting for a period longer than 10 months in the tax period.
  • Public properties and properties intended for institutional accommodation of individuals.
  • Properties listed in the business books of commercial companies as intended for sale, if less than six months have passed from the date of entry into the business books to March 31 of the year for which the tax is determined.
  • Properties acquired in exchange for unpaid receivables, if less than six months have passed from the date of acquisition to March 31 of the year for which the tax is determined.
  • Properties that, due to the declaration of natural disasters in a specific tax period, are unfit for residential purposes.
  • Properties for which it can be determined based on all circumstances that their residential purpose is hindered. The burden of proof for the hindrance lies with the taxpayer.
  • Properties owned by local government units located exclusively within the territory of that local government unit.
  • Properties used by hosts for permanent residence, according to the regulations governing hospitality activities.

Personal Income Tax Act

  • Increase of personal allowance – the amount of personal allowance is increased from EUR 560.00 to EUR 600.00.
  • Increase in personal allowances for dependent family members and established disability.
  • Income tax brackets – the threshold for applying a higher income tax rate is raised from EUR 50,400 to EUR 60,000.
  • New upper limits for income tax rates:

Local Government Unit

Lower rate

Higher rate

Municipality 15% – 20% 25% – 30%
City 15% – 21% 25% – 31%
Large city and county seat city 15% – 22% 25% – 32%
City of Zagreb 15% – 23% 25% – 33%
  • Exemption for returnees – emigrant Croatian nationals will be exempt from personal income tax for 5 years, provided they have lived abroad continuously for at least 2 years.
  • Equalization of tax liability for tourist and contractual rent – in both cases, it is determined based on the location of the property or accommodation unit.
  • Changes in taxation of flat-rate tax for individuals earning income from property rental in tourism. Local government units will be ranked into four categories.
    Category of local government units according to the tourism development index

Category of local government units according to the tourism development index

Amount of flat-rate tax in euros and cents

I 100 − 300
II 70 − 200
III 30 − 150
IV,0 20 − 100

The annual flat-rate income tax is still determined as the product of the number of beds and the amount of flat-rate tax per bed specified by the Decision on the amount of flat-rate tax for rental and accommodation activities in tourism, adopted by the representative body of the local government unit.

  • Income from the alienation of real estate – new legislative changes (Article 58 of the Personal Income Tax Act) introduce exceptions for determining income from the alienation of real estate. Some of the changes are as follows:
    • Income from the alienation of real estate is not taxed if the property or ownership right is sold more than two years after acquisition or more than two years after the property has been made available for use, if the property was built, reconstructed, or had its form and purpose changed.
    • Exceptionally, income from the alienation of real estate and ownership rights is taxed if more than three properties of the same type or more than three ownership rights of the same type are disposed of within five years from the date of acquisition of the property or ownership right, or within five years from the date when the property was made available for use in the case of construction, reconstruction, or change of form and purpose.
    • Investment costs for which the taxpayer holds valid documentation, as well as alienation costs, can be deducted as expenses.
  • Income from rent – new legislative changes (Article 62 of the Personal Income Tax Act) introduce exceptions that will allow for tax exemption in cases where the property or movable asset is rented without generating income.

Changes are also expected in the amounts of annual non-taxable income receipts, specifically an increase in the amounts of the following non-taxable incomes:

    • Bonus for work results – EUR 1,200
    • Severance pay for retirement – EUR 1,500
    • Allowance for separated living – EUR 300

Contributions Act

  • The measure that exempted employers from paying contributions for health insurance, which previously applied only to young individuals with an indefinite-term employment contract signed before the age of 30, has been amended. Now, employers can use the exemption for any employee who is entering into their first indefinite-term employment contract, regardless of their prior pension insurance history, within one year from the start of the employment relationship.
  • Employers who have begun using the exemption from the obligation to pay contributions for young individuals and for those entering employment for the first time will retain the acquired rights. The transitional period for using the exemption from the obligation to pay contributions is regulated so that employers who started using the exemption under the provisions of the Contributions Act which was in force until December 31, 2024, will continue to use the exemption under those provisions until it expires.

Value Added Tax Act

  • The key change is the increase of the threshold for entering the VAT system from EUR 40,000 to EUR 60,000. Taxable persons below this threshold can submit a request for deregistration from the VAT register no later than January 15, 2025. It is important to note that taxable persons who entered the VAT register voluntarily by December 31, 2024, cannot exit the VAT system within three years of registration. EU citizens will no longer be required to register for VAT based on residency; the new thresholds will also apply to them.
  • Taxable person with a registered seat, residence, or habitual residence in another EU member state has the right to apply for VAT exemption under Article 90 of the Croatian VAT Act (to be a small taxable person in Croatia), if the following cumulative conditions are met:
    • the annual turnover within the European Union does not exceed €100,000.
    • the value of goods and services supplied domestically does not exceed €60,000.
    • In order for a small taxable person to apply for VAT exemption in an EU member state where they do not have their seat, residence, or habitual residence, they must also meet the following conditions:
    •  they must submit a prior notification to the EU member state of their seat, residence, or habitual residence.
    • an individual exemption identification number will be assigned to them for VAT exemption only in the EU member state of their seat, residence, or habitual residence.
  • For the application of VAT exemption, an individual identification number for exemption is assigned only in the country of residence. A taxable person who uses VAT exemption in Croatia but is not a resident o
    f Croatia, is not required to register for VAT or submit VAT returns for transactions covered by this exemption.
  • The taxable person is required to submit a quarterly report on the total value of supplies in their country and other EU member states or report “0” if there are no supplies, within one month. If the annual turnover threshold within the EU is exceeded, the taxable person must notify the country of residence within 15 working days and report supplies from the beginning of the quarter.

General Tax Act

  • In case of failure to submit the prescribed monthly or annual tax returns, the liability of the company member is also determined in the tax decision procedure. Company members are jointly liable for the determined liability, as guarantors for payment, and an appeal against the tax decision does not delay its execution.
  • The delivery of tax acts and other documents that are not tax acts issued by Tax Administration is adapted to electronic communication, and it is prescribed that the participant, by registering or applying to the tax authority’s electronic system, gives explicit consent for the delivery of documents electronically.
  • The obligation to submit tax returns or other data necessary for taxation through eTax system is extended to individuals and legal entities subject to corporate income tax, those earning income from self-employment, individuals earning income from rental of houses, apartments, rooms and beds, as well as from accommodation facilities for tourists and travelers, camp organizations, and members of crew in international maritime navigation.
  • The possibility of entering into an administrative agreement with the Tax Administration through an electronic service is introduced. Furthermore, a proposal for concluding an administrative agreement with the Tax Administration for tax debt up to EUR 10,000 does not need to include a proposal for a security measure for debt collection.
  • The statute of limitations for the right to collect tax liabilities, interest, and enforcement costs does not run in cases where the Tax Administration was unable to initiate collection because the taxpayer has no right to a refund of paid taxes or interest on customs payments if the payments were made after the statute of limitations has expired.
  • Tax supervision can begin within three years from the start of the statute of limitations for determining tax obligations, and the cases in which tax supervision can be carried out within six years from the start of the statute of limitations for determining tax obligations have been expanded. In the case of a tax audit notice, the factual basis as a mandatory element has been removed, and due to the digitalization and informatization of the tax audit procedure, it is prescribed that the tax audit report is issued in electronic form.
  • In the case of the write-off of overdue tax debt, there must be a confirmed restructuring plan in pre-insolvency proceedings that states the debt will be written off. Regarding the seizure of monetary funds from the debtor’s accounts, the regulation now prescribes that the enforcement decision based on an enforceable or credible document will be executed immediately by the Financial Agency upon the enforceability of the decision.

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Please keep in mind that legislation is subject to frequent changes. This newsletter is therefore necessarily based on our understanding and correct interpretation of the law and practices at the time of its issuance. This newsletter will not be updated to reflect any changes in legislation that occur after the publication of this letter.

NEWSLETTER_Amendments to tax regulations 2025