The Croatian tax reform

Sarajevo, May 2013.

Table of Contents

1. Introduction..........................................................................................3
2. Value added tax changes in the Croatian rates.................................4
2.1..................................Changes entered into force on March 1st 2012
6
2.2................................Changes entered into force on January 1st 2013
7
2.3..................................Changes entered into force on March 7th 2013
7
3. Corporate Income Tax Act perceived changes...................................9
4. Personal Income Tax Act and Contributions Act.................................11
4.1...................................Changes entered into force on March 1st 2012
13
5. Croatian excise duties........................................................................15
5.1.............................Excise duties on alcohol and alcoholic beverages
16
5.2.....................................................Excise duties on tobacco products
18
5.3...............................Excise duties on energy products and electricity
20
6. Conclusion..........................................................................................23
7. References.........................................................................................24

1. Introduction
The tax system of any country depends on its economic, political and
social system. Therefore, the changes in these systems are inevitably
followed by changes in the composition of the taxation system.

Major

changes that impact that system are considered as a tax reform. On July
1st 2013, Croatia is to experience a monumental change in its system, as it
is to become the 28th Member of the European Union. Because of this, the
Croatian Government is obliged to bring about certain tax reforms in order
to comply with the regulations that govern the Member States of the EU.
This paper will provide an overview of the most important changes in the
Croatian taxation system with regard to:

Value added tax where an increase in the VAT rate is introduced;

Corporate Income Tax Act where taxation of dividends is introduced

and the reinvested profit is exempt from taxation; and

Personal Income Tax Act and Contributions Act where changes in
taxation of personal income and state mandatory health insurance
contributions are presented.

In addition to this, I will also explain the most important changes in the
Croatian Excise Duties Act regarding the excise rates for product affected
by them, mainly: alcohol and alcoholic beverages, tobacco products and
energy products and electricity.
Due to the fact that considerable changes have been introduced at such
short notice and amidst an economic crisis that continues to grip this
country

the

consequences

(although

yet

indiscernible)

are

worth

examining, as they are sure to be felt by the public and economy sectors
as well as the citizens of the country.

2. Value added tax changes in the Croatian rates

Value added tax (VAT) is typically described as a tax on consumer
spending. In more detail, it is defined as a type of consumption tax that is
placed on a product whenever value is added at a stage of production and
at final sale (Investopedia 2013b). Having this in mind, those taxable
under the value added tax include legal entities, individuals operating a
registered business and other individuals who typically make taxable
supplies of goods and services and imports of goods. According to the
Croatian VAT law, a company that supplies goods or services in the
Croatian territory and does not have a head office or some other type of
residence will be treated as a VAT taxpayer unless the service recipient is
liable to self-assessment and VAT payment or when a foreign company
buys goods in Croatia and makes further deliveries in Croatia (Expat
Croatia 2013). In addition to this is necessary to emphasize that nonresidents are obliged to register for VAT if they perform a taxable business
activity in Croatia, the registration of which is around HRK 85.000.
VAT itself has been applied in over 150 countries (due to its neutrality and
the general revues it provides), and is most often used in the European
Union. In EU, VAT is applied in each member state according to a common
legal framework, although member states do enjoy derogations from the
General VAT Directive that allows for some flexibility (Revenue.ie 2013).
The Croatian value added taxation system incurred significant changes in
early 2012 (the most important of which was the increase in the general
rate from 23% to 25%) and continued to change in 2013 because of the

rapid fiscal effect of VAT, as well as due to the need for further
compliance and alignment of the Croatian legislation with that of the
European Union (Bratic 2013). This increase in the general VAT rate by 2%
was done in an effort to increase tax revenues in 2012. An overview of the
Croatian tax revenues for the period 2008-2012 is given in table 2.1.
Table 2.1. Croatian tax revenues, 2008-2012
Total

state

(excluding

budget

revenue

contributions

in

million HRK)
VAT revenues (in million HRK)
Share of VAT revenues in total

2008
115.7

2009
110.2

2010
107.4

2011
107.0

2012
108.6

73

58

66

52

49

41.30

37.05

37.68

39.31

40.52

8
35.8

0
33.0

9
35.7

4
36.2

2
37.0

tax revenues (%)

Source: Kulis (2012)
Although this action was put in place, it should be taken into account that
simply raising the VAT rate in itself wont always lead to an increase in tax
revenues, because apart from the rates they depend on a number of other
factors. An example of this can be seen in 2009, when as of August 2009,
the VAT rate went up from 21% to 23%, but VAT revenues decreased
significantly from July. As a result VAT revenues for 2009 were almost 10%
lower than in the previous year. The Croatian Ministry of Finance justified
such an occurrence by stating that the drop in VAT revenues was due to an
economic downturn, particular in personal consumption, that affected not
only Croatia but also other European countries and the world at large.
It is therefore noted that the decision to lower or increase the general tax
rate must be taken with care not only because it affects tax revenues, but
also the quantities and prices of goods and services and, indirectly, the

income, consumption, competitiveness in the market and living standards

of citizens (Kulis 2012).
If the Croatian general VAT rate is compared to other European countries,
the following results, represented in figure 2.1 emerge.

Figure 2.1. General VAT rates in EU and Croatia, early 2013 (%)

Source: European Commission (2013)

The results indicate that Croatia has the second highest VAT rate in
Europe, after Hungary, which is equal to that of Sweden and Denmark.
2.1. Changes entered into force on March 1st 2012
The 2012 amendments to the Value Added Tax Act included the following
measures (Ernst&Young 2012b) to be put into force:

An increase in the general VAT rate from 23% to 25%;

Introduction of the reduced 10% rate on:
Edible oils and fats of both animal and vegetable origin;
Baby food and processed cereal-based foods for infants and
toddlers;
Delivery of water except for that which is marketed in bottles

or other containers;
White sugar from the sugar cane or beet.
Abolition of input VAT deduction for the

procurement

and

maintenance of vessels, planes, personal motor vehicles and other

personal modes of transportation;

Abolition of input VAT deduction for the procurement of goods and

services for entertainment purposes;

Increase in the VAT registration threshold and;
Changes in penal provisions.

2.2. Changes entered into force on January 1st 2013

The early 2013 changes to the Croatian value added taxation system
included measures (Bratic 2013) such as:

A reduced rate of 10% applied to supplies of food, non-alcoholic

drinks and wine and beer in catering facilities;

A replaced zero-rate by a reduced rate of 5% on goods and services
such as: all kinds of bread and milk; medicines, scientific journals,
devices surgically implanted into the human body, cinema tickets,
books with professional, scientific, cultural, art and educational

contents etc.
A new 5% rate introduced on vessels for sport and leisure which
were previously under temporary admission procedure and are to be
put into the customs procedure of free circulation by May 31 st of
2013.

2.3. Changes entered into force on March 7th 2013

The new Croatian VAT Act, based on a proposal submitted to their
Parliament on March 7th of this year and its subsequent adoption, is set to
pave the way for further harmonization with the VAT regulations of the
European Union, which Croatia is set to enter on July 1st 2013.

Changes envisioned by this act include changes such as (Bratic 2013):

Inclusion of free zones in the Croatian territory;

Abolition of VAT exemption for the import of passenger cars and
equipment for the performance of business activities by Croatian

war veterans;
Abolition of VAT exemption for the import of goods received by
religious organizations from foreign religious organizations and other
natural individuals used for the purpose of performing some type of

a religious activity;
Abolition of VAT exemption for freelance artists;
Abolition of VAT exemption for the purchase of fuel for ships sailing

on high seas;
The introduction of value added tax on building land as of January 1 st
2015.

Regarding this new Croatian VAT Act it is also important to mention that
according to estimates from the Croatian Minister of Finance Slavko Linic,
such actions may lead to a drop in the state budget revenues by about
HRK 500 million in 2013 (or by approximately HRK 1 billion in the
upcoming years), but it is also expected to facilitate operations of Croatian
companies exporting to EU countries and to ensure greater liquidity
(Radio.net 2013). Related to this matter, the Croatian Prime Minister Zoran
Milanovic emphasized that although the VAT tax for tourism was reduced
from 23% to 10% (applicable from January 1st 2012) because of the great

importance of the tourism sector to the Croatian economy (Bradbury

2011), a similar type of reduction in the publishing industry could not be
performed. He added that amendments the new Croatian VAT Act do plan
to reduce the VAT tax on daily newspapers form 10% to 5% as of July 1 st
2013 (when Croatia enters the European Union and becomes the official
28th member), but otherwise publishers must unfortunately fend for
themselves and find new ways of becoming competitive in the market
place until more appropriate solutions can be envisioned for this sector
(Radio.net 2013).

3. Corporate Income Tax Act perceived changes

Corporate taxes are defined as taxes against profits earned by
businesses during a given taxable period, generally applied to a
companys operating earnings after expenses and depreciation have been
deducted from revenues (Investopedia 2013a). Corporate taxes and laws
that govern them differ significantly around the world, and in Croatia the
corporate income tax (CIT) is based on the consumption concept. This
means that the tax burden is targeted toward those parts of income that
are intended for consumption, whereas parts of the income intended for
reinvestment and savings are considered more favorably or are in fact
entirely exempt from taxation.
The corporate income tax must be paid by (Expat Croatia 2013):

Companies and other legal entities residing in Croatia who

continuously provide action for profit;

Non-residents in Croatia, for the profit made during business
operations via a permanent subsidiary or business unit located in
the Croatian territory;
9

A natural person who drives income under the income tax

regulations if it is stated that the person in question wants to pay

corporate income tax instead of paying personal tax; and

An entrepreneur who derives income from a small business if:
Total revenue in the preceding tax period exceeded HRK
2.000.000; or
Total income in the preceding tax period exceeded HRK
4.000.000; or
The value of long-term assets exceeds HRK 2.000.000.

The Croatian CIT rate is currently 20%. Figure 3.1 provides a comparison
between the Croatian CIT rate and other European countries.

Figure 3.1. CIT rates in Croatia and other European countries (%)

Source: Simovic (2009)

The comparison indicates that Croatia has a low CIT rate, which is well
below the EU-27 average. And unlike other EU countries that have

10

changed their CIT rates, Croatia has a relatively long period of CIT rate
application of 20% (the rate has not been modified since its application in
2001). However, due to the fact that Croatia is on its way to becoming a
Member State of the EU, the Government has added amendments to the
Corporate Income Tax Act (Ernst&Young 2012b) as follows:

Withholding tax at 12% applies on dividends and shares in profits

paid to foreign legal entities after March 1st 2012;

Once Croatia becomes an EU Member, no withholding tax should
apply on dividend payments to shareholders in other EU countries,
provided that the shareholder has held at least a 10% equity stake in
the company paying the dividends for an uninterrupted period of 24

months;
The CIT base may be decreased for the profit that is for investment

purposes used for share capital increase;

In line with the amendments to the OECD Transfer Pricing Guidelines,
the comparable uncontrolled price method is no longer preferred

over other methods;

As of March 1st 2012, the period after which the cost of value
adjustment of receivables may be recognized as tax deductible is
reduced from a 120 days to 60 days.

Under the previous bylaws of the Corporate Income Tax Act all profits were
taxed in Croatia, irrespective of whether they were paid out to the
stakeholders or reinvested into new ventures. The latest proposed reform
states that if profit is reinvested into the companys share capital in the
first six months of the following fiscal year, the reinvested amount will be
exempt from taxation. What is also interesting is that the dividends are
now a part of taxable income, although the dividends up to HRK 12.000
annually will be exempt from taxation if they are paid to private local
individuals.

11

4. Personal Income Tax Act and Contributions Act

Personal income tax is defined as a tax paid on ones personal income
as distinct from the tax paid on a firms earnings (Business Dictionary
2013). Under this act, those who are taxable are either:

A taxable natural person that derives income from his or her

activities; or
A natural successor.

Typical sources of taxable income include sources such as: income derived
form employment, income gained from property and other property rights,
income that comes as a result of performing individual activities, income
that comes about as a result of investment making etc.
The tax rate on personal income in Croatia has a progressive rate (persons
with higher income pay higher taxes) and it goes from 12% to 40%. If we
take a look at the Croatian personal income tax rate for the last five years
and compare it to some other countries in Western and Southern Europe, it
can be noticed that the Croatian rates were equal to those find in Spain in
2008-2010, Greece in 2010, and Switzerland in 2011-2012.
Figure 4.1. Personal income tax rates in Croatia and other select
European countries (%)

12

Source: KPGM (2012a)

It should be also taken into account that the minimum monthly gross
salary in Croatia for full time employment (40 working hours a week) in the
period from June 1st 2011 to May 31st 2012 was equal to HRK 2.814.

4.1. Changes entered into force on March 1st 2012

In March of 2012, Croatia has entered several changes into the Personal
Income Tax Act because of its subsequent entry into the European Union.
These changes include the following mandates (Ernst&Young 2012a):

13

Monthly personal income has increased from HRK 1.800 to HRK

2.200 (for retirees from HRK 3.200 to HRK 3.400 per month).
The tax rate schedule is also changed meaning that new tax
brackets now apply on a new tax base (gross salary reduced by
obligatory contributions from salaries and personal allowances) and
they are as follows:
o Monthly tax brackets:
The 12% rate applies to income up to HRK 2.200;
The 25% rate applies to income between HRK 2.200 and HRK
8.800; and
The 40% rate applies to income exceeding HRK 8.800.
o Annual tax brackets: These are generally determined as being
12 times the monthly brackets, however is should be taken
into account that there was an exception in 2012, when the
annual brackets were averaged over the whole year due to

their change in March of the same year.

Pensions income received from abroad by Croatian residents is
taxable at the same progressive tax rates as the employment
income, and are subject to the provisions of an effective double tax
treaty, with the right to utilize basic personal allowances up to HRK
3.400. Tax payments, such as this are required to be paid by the
taxpayer within eight days from the recipient of income.

Additional changes to the Personal Income Tax Act stipulate that, unless
specifically exempt, all non-cash salary items (benefits) are generally
taxable according to the market value (including 25% VAT). Typical noncash salary items include items such as private use of company available
cars, housing and rental reimbursements, meals, loans with an interest
rate that is below 3% etc. An example of how non-cash salary item are
taxes is provided below for the private use of a company car.
EXAMPLE: Tax value for the private use of a company car

14

The taxable value of this type of non-cash salary item is calculated in one
of three ways:
a) Based on the number of actual driven kilometers for private use in a
months time;
b) Tax value is equal to 1% of the purchase price (including 25% VAT of
the company car per month for those purchased); or
c) Tax value is equal to 20% of the monthly lease installment including
again 25% VAT.
Mandatory Contributions Act
The Act on Mandatory Contributions primarily concerns health insurance
contributions and social security contributions, which are typically
deducted from income and paychecks.
The two most prominent changes in the Act on Mandatory Contributions
include (Ernst&Young 2012b):

A decrease in health insurance contributions from 15% to 13%. This

mandate applies to all salaries from April 30th 2012;

The procedure for offsetting outstanding employer contribution
liabilities against its claims toward the Croatian Institute for Health
Insurance is introduced in May of 2012.

These proposed changes in the contributions act contemplate the

possibility that the Government will make changes in the payment
mechanisms for social contributions. If we take a closer look at these social
security contributions, the following results emerge:

Table 4.1. Social security contributions

Emplo

Employ
15

Pension insurance
Pension insurance (based on gross salary and
paid by the employer in addition to gross salary)
Health insurance
Unemployment insurance
Insurance against work injury
Total contributions
Source: KPGM (2012b)

yee
15%
5%

er

20%

13%
1.7%
0.5%
15.2%

The main effect of the 2% decrease in health contributions is that total

salary costs are reduced, as the employers mandatory contributions are
now lower.

5. Croatian excise duties

With its entry into the European Union on July 1st 2013, Croatia will start
applying an updated system of excise duties because of the need to
harmonize the Croatian excise duties system with the minimum amount of
excise rates prescribed by European directives. Because of this, the
Croatian Parliament has recently adopted a new Excise Duties Act, which
stipulates the excise tariffs for the products that are subject to this type of
duty. The three types of products subject to excise duty are:
a) Alcohol and alcoholic beverages (including beer, wine and other
beverages obtained by fermenting, intermediate products and ethyl
alcohol);
b) Tobacco products

(cigarettes,

cigars,

cigarillos

and

smoking

tobacco);
c) Energy products (motor fuel or heating fuel, or electricity).

16

5.1. Excise duties on alcohol and alcoholic beverages

The 2013 Excise Duties Act does not stipulate any changes in how alcohol
and alcoholic beverages are taxed. As can be seen in table 5.1 the
Croatian excise rates for these types of products are at a rate higher than
those currently prescribed in the European Union.
Table 5.1. Excise duties rates on alcohol and alcoholic beverages in
Croatia and EU
Excise product

Amount of excise in

Minimum excise

Beer
Still wines
Sparkling wines
Other
alcoholic

Croatia
HRK 40.00
HRK 0.00
HRK 0.00
HRK 0.00

duty in EU
HRK 13.89
HRK 0.00
HRK 0.00
HRK 0.00

beverages

Intermediate
products

HRK

HRK

500.00

800.00

containing

containing

less than

15% vol.

15% vol.

of pure

of pure

alcohol or

alcohol
more
Ethyl alcohol
HRK 5.300.00
Source: Tax Administration of RC (2013)

HRK 334.15

HRK 4.084.03

The difference in excise duty rates between Croatia and the EU is primarily
due to the fact that in Croatia every alcoholic product is taxed at a single
rate, while in the European Union there are typically one or more standard
or reduced rates for all categories of goods.
On accession to the European Union some of the changes in the Croatian
Excise Duties Act that will come into force include (Kulis 2013):

17

The volume restrictions for commercial restriction outside the

system of suspended payment for excise duties are to be lifted;

Producers who produce beer, intermediate products and other
alcoholic beverages for commercial purposes will be able to operate

outside the excise warehouse;

In the production and processing of non-food products, an exempt
user of excise goods will not be required to pay an excise duty on
ethyl alcohol partially denatured by regulation preparations.

To demonstrate the difference in excise duty rates between Croatia and

other EU Member States, standard rates in the case of beer are taken as
an example. In the new Croatian Law on Excise Duties (Article 60) beer is
taxed at HRK 40.00 for 1% of actual alcoholic strength in a hectoliter of
finished product (Croatian Parliament 2013), while in the EU the rates on
beer relate to the malt concentration or the proportion of alcohol in beer.
Figure 5.1 indicates the amount of excise duty rates on beer according to
the criteria of malt concentration and the proportion of alcohol.
Figure 5.1. Rates of excise duties on beer in Croatia and EU countries
20012/2013 ()

18

Source: Kulis (2013)

The figure indicates that the highest rates are applied in the UK and
Finland, where the rate of excise duty is measured according to the
proportion of alcohol, while in comparison the rate in Croatia is lowest for
beer is taxed only according to a single rate.
5.2. Excise duties on tobacco products
When it comes to the excise duty rates applied to tobacco products, the
biggest change in the new Law is with regard to how the reference value
and base for measuring the percentage of the share of a specific excise in
the total tax burden is introduced. Article 75 of this Law stipulates that
instead of a retail price of cigarettes the new value base is the weighted
average price (WAP) of cigarettes released for consumption is used
(Croatian Parliament 2013).
A comparison in excise duty rates between Croatia and other EU countries
based on the percentage of the weighted average retail price of cigarettes
is provided in figure 5.2.
Figure 5.2. Rates of excise duties on cigarettes in Croatia and EU
countries January 1st 2013

19

Source: Kulis (2013)

The figure indicates that the lowest rates on tobacco are found in Croatia.
This means that a significant amount of time will have to pass, for these
rates to be harmonized with the Directives of the European Union.
However during negotiation for Croatian accession into the EU, it was
announced that Croatia can keep its lower excise rates on cigarettes until
December 31st 2017 when harmonization with EU Directives must be
completed (Delegation of the EU to RC 2013).
Until that time, some of the obligations before the Croatian Parliament with
regard to excise duties on Croatia are as follows (Kulis 2013):

July 1st, 2013 Total excise must come to at least 57% of the average
weighted retail price of cigarettes released for consumption and 64
euro per 1.000 cigarettes. Currently that percentage is about 52.2%

and 62.25 euro per 1.000 cigarettes.

January 1st, 2014 Weighted average price of cigarettes should be

77 euro per 1,000 cigarettes released for consumption.

December 31st, 2017 Price of cigarettes should be 90 euro per
1,000 cigarettes, in conjunction with a minimal 60% of the average
weighted retail price of cigarettes released for consumption.

20

Current excise prices on all tobacco products are shown in table 5.2.
Table 5.2. Excise duties rates on tobacco products in Croatia and EU
Amount of excise in
Excise product

Cigarettes

Cigars

Cigarillos

tobacco

Minimum excise duty

After EU

accession
HRK

accession
HRK

180.00 per

475.00

HRK 475.00 per 1000

1000

per 1000

items

items
HRK

items
HRK

1.100.00

600.00 per

HRK 89.00 per 1000

per 1000

1000

items

items
HRK

items
HRK

220.00 per 600.00 per

Fine-cut tobacco

Other

Croatia
Before EU

1000

1000

items
HRK

items
HRK

325.00 per 351.00 per

kg of

kg of

product
HRK

product
HRK

smoking 146.00 per 296.00 per

1000

in EU

HRK 89.00 per 1000

items

HRK 349.00 per kg of

product

HRK 163.00 per 1000

1000

items

items
items
Source: Tax administration of RC (2013); Kulis (2013)
5.3. Excise duties on energy products and electricity

21

When it comes to the 2013 Croatian Excise Duties Act, the biggest
changes are with regard to the duties regarding energy products and
electricity. More specifically, the Law (article 84) states that in addition to
an increase in rates, taxation will now be extended to natural gas, coal,
coke and electricity.
The rates for these products are listed in table 5.3.
Table 5.3. Excise duties rates on energy products and electricity
Excise product

Amount of excise in

Minimum excise

Petrol used as motor fuel:

Croatia
(1) HRK 3.801.00 per

duty in EU
(1) HRK 3.126.00 per

(1) Leaded; (2) Unleaded

1000 l

1000 l

(2) HRK 3.151.00 per

(2) HRK 2.666.00 per

1000 l

1000 l

(1) HRK 2.450.50 per

(1) HRK 2.450.50 per

1000 l

1000 l

(2) HRK 343.00 per

(2) HRK 156.00 per

1000 l

1000 l

(1) HRK 2.450.50 per

(1) HRK 2.450.50 per

1000 l

1000 l

(2) HRK 1.752.00 per

(2) HRK 0.00 per 1000

1000 l

(1) HRK 100.00 per

(1) HRK 928.00 per

1000 kg

1000 kg

(2) HRK 100.00 per

(2) HRK 0.00 per 1000

1000 kg
HRK 160.00 per 1000

kg
HRK 111.00 per 1000

kg

kg

(1) HRK 0.00 per MWh

(1) HRK 19.00 per Gj

Gas oil:
(1) For motor fuels;
(2) For heating

Kerosene:
(1) For motor fuels;
(2) For heating

Liquid petroleum gas:

(1) For motor fuels;
(2) For heating

Heavy fuel oil

Natural gas:
(1) For motor fuels;

22

(2) For heating (business

use)
(3) For heating (non-

(2) HRK 4.05 per MWh

(2) HRK 1.11 per Gj

(3) HRK 8.10 per

(3) HRK 2.23 per Gj

MWh

business use)
Coal and coke:
(1) For business use

(1) HRK 2.30 per Gj

(1) HRK 1.11 per Gj

(2) For non-business use

Electricity:

(2) HRK 2.30 per Gj

(2) HRK 2.23 per Gj

(1) HRK 3.75 per MWh

(1) HRK 3.71 per MWh

(2) For non-business use

(2) HRK 7.50 per MWh
Bio-fuels
HRK 0.00
Source: Croatian parliament (2013); Kulis (2013)

(2) HRK 7.43 per MWh

HRK 0.00

(1) For business use

As can be seen in the table above, excise duty rates in Croatian arent that
different than those found in the European Union. The only exceptions to
this, where rates arent compliant with the minimally prescribed EU rates,
are with regard to excise duty rates for liquid petroleum gas and kerosene.
A comparison in excise duty rates between Croatia and other EU countries
for petrol (both leaded and unleaded) is provided below in figure 5.2.

Figure 5.2. Rates of excise duties on petrol in Croatia and EU countries

23

Source: Kulis (2013)

The figure indicates that the highest rates for both leaded and unleaded
petrol can be found in Netherlands, while four countries namely Russia,
Bulgaria, Latvia and Estonia have lower rates on leaded petrol than
Croatia. On the other hand, it can also be noted that the use of leaded
petrol is prohibited in Poland and Finland.

24

6. Conclusion
In response to the need for fiscal consolidation and financial adjustment of
the Croatian taxation system with that of the Member States of the
European Union, it is clear that Croatia has made some obvious and
commendable changes. With regard to its Value Added Tax system, the
most noticeable change is that it first increased its general VAT rate (from
23% to 25%) in 2012, and then abolished the zero rate in early 2013. Such
changes in VAT rates are expected to increase tax revenues, provided that
there are no economic activity reductions or other reduction in personal
consumption of Croatian citizens. The Croatian Corporate Income Tax Act,
also introduced some changes to its mandates, and these primarily
concern the introduction of the withholding tax and the taxation of
dividends, while reinvested profit now becomes exempt from taxation.
When it comes to the changes in the Personal Income Tax and Mandatory
Contributions Act these primarily concern increases in the amount of
monthly personal income and decreases in health insurance contributions.
Finally, with regard the new Croatian Excise Duties Act the changes are not
that distinctive. This act is mostly harmonized with the minimal rates
prescribed in the European Directives, although the exception are the
excise duties on tobacco products, where increases in rates and price are
expected to be preformed until December 31st 2017 upon which time they
should be fully harmonized with those found in EU Member States.

25

7. References
Bradbury, P., 2011. New Croatian Prime Minister Zoran Milanovic reduces
tourism VAT. Available at:
http://www.digitaljournal.com/article/316617 [Accessed May 27,
2013].
Bratic, V., 2013. Value Added Tax: Changes in Rates in Croatia and Trends
in the European Union.
Business Dictionary, 2013. What is personal income tax?
BusinessDictionary.com. Available at:
http://www.businessdictionary.com/definition/personal-incometax.html [Accessed May 26, 2013].
Croatian Parliament, 2013. Croatian Excise Duties Act. Narodne novine.
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