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Hiring in Croatia
Croatia, officially known as the Republic of Croatia, is a country in the Balkans. Zagreb is the capital and the largest city of Croatia. Croatia is a high income country. It primarily relies on the service sector, especially tourism. This is followed by manufacturing and agriculture. Its main trading partners are Italy, Russia, China, Germany, Slovenia, and Austria. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Croatia’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. The Labor Code stipulates that employees are entitled to 20 days of paid annual leave. Resident taxpayers are subject to worldwide taxation in Croatia. Non-resident taxpayers are liable to pay tax in Croatia on Croatian-source income. Global PEO’s facilitate companies by ensuring compliance with Croatia’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- According to Article 53 of the EA, a probationary period may be agreed upon by the employment contract and its length may not exceed six months.
Annual Leave
- Employees in Croatia are entitled to a minimum of 20 business days off per year.
- Employees are also entitled to up to 7 days leave per calendar year for important personal events such as marriage or death of a close family member.
Public Holidays
- Croatia celebrates 14 public holidays for which employees are given the day off, including
- New Year’s Day
- Epiphany
- Easter
- Easter Monday
- Labor Day
- Corpus Christi
- Anti-Fascist Struggle Day
- Statehood Day
- Victory Day
- Assumption Day
- Independence Day
- All Saints’ Day
- Christmas Day
- Stephen’s Day
Maternity Leave
- Pregnant employees are entitled to:
-
- 28 days of maternity leave prior to the expected delivery date or 45 days before the delivery date under special circumstances, based on a medical assessment.
- After the birth of a child, female employees are entitled to at least 70 days of maternity leave or until the child turns 6 months of age.
- After the 70-day period expires, the father has the right to use the remaining period of maternity leave, with the mother’s consent.
Paternity Leave
- There is no statutory requirement for paid paternity leave but the employee has the option of using their personal leave.
Sick Leave
- Employees are entitled to a maximum of 42 days of paid sick leave per year.
- The amount that is paid during sick leave depends on the employment agreement, however, it cannot be less than 70% of the average daily wage in the 6 months preceding the sick leave.
Work Hours
- The standard work week in Croatia consists of up to 40 hours per week spread out over 5 or 6 days.
Overtime
- Employees can work overtime, not to exceed 8 hours per week if the employer submits a written request for overtime work.
- Overtime must be paid at a rate of 50% over the employee’s standard salary.
Notice Period
- According to Article 122 of the EA, a notice period depends on the length of tenure with the same employer.
- It is a minimum of two weeks (for less than one year) and a maximum of three months (for 20 years).
- In case of an employee who has continuously worked for the same employer for 20 years, the notice period is extended by two weeks if the employee has reached 50 years of age, and by one month if the employee has reached 55 years of age.
- In case of dismissal because of an employee's misconduct, the notice period is halved.
- The employer is obliged to pay compensation and recognize all other rights to the employee released from the obligation to work during the notice period, as if the employee had worked until the expiry of the notice period.
Severance
- Article 126 of the EA prescribes that when an employer dismisses an employee following two years of tenure, unless dismissal is given as a result of an employee's misconduct, the employee is entitled to severance pay for each year of tenure with the employer.
- It may not be lower than one-third of the average monthly salary earned by the employee in the period of three months prior to dismissal and, unless otherwise provided for by the law, collective agreement, working regulations or employment contract, it may not exceed six average monthly salaries earned by the employee during three months prior to dismissal.
13th / 14th Month Pay
- Yes
- There is no statutory requirement to pay the 13th or the 14th month.
- However, it is customary to pay a Christmas or holiday bonus.
income tax
- A taxpayer for Personal Income Tax (PIT) purposes is every physical person deriving income.
- Resident taxpayers are subject to worldwide taxation in Croatia. Non-resident taxpayers are liable to pay tax in Croatia on Croatian-source income. Non-resident performers (artists, entertainers, athletes) are not required to pay PIT if the fee for their performance is paid to the foreign legal entity and subject to withholding tax (WHT) in line with corporate income tax (CIT) legislation.
- Under certain circumstances, an individual can either voluntarily or obligatorily become a corporate income tax (i.e. profit tax) payer instead of a PIT payer.
- Croatia has progressive tax rates that are applicable to the taxable base in the process of annual assessment of tax liability. The following types of income form part of the so-called 'annual income' that is subject to the process of annual assessment of tax liability:
-
- Employment income.
- Self-employment income.
- Other income that is not deemed 'final other income'.
- Taxable base is calculated by applying prescribed tax deductions and tax allowances (i.e. non-taxable parts of income) to the total amount of annual income.
- Tax deductions and tax allowances may, depending on the type of income, also be applied when calculating monthly tax prepayments.
- The following tax rates and tax bands are used on an annual basis (i.e. in the process of annual assessment of tax liability) to calculate PIT liability:
|
Annual Tax Bands (HRK*) |
Tax Rate (%) |
|
|
Over |
Not Over |
|
|
0 |
360,000 |
24 |
|
360,000 |
36 |
|
|
*Croatian Kuna |
||
deductible expenses
- The Croatian PIT Act prescribes personal allowances (i.e. non-taxable portions of income), special reliefs, exemptions, and incentives.
- Some of the deductible expenses are given below
|
Deductible Expense |
Amount |
Resident |
Non-resident |
|
Personal monthly allowance |
HRK 4,000 |
Yes |
Yes |
|
Monthly allowance for a dependent family member |
HRK 1,750 |
Yes |
(1) |
|
Monthly allowance for dependent children |
First: HRK 1,750; second: HRK 2,500; third: HRK 3,500; etc. |
Yes |
(1) |
|
Monthly amounts for a disability of taxpayer/dependent family member/dependent child |
HRK 1,000 |
Yes |
(1) |
|
Amounts of mandatory health insurance contributions up to the amount of prescribed mandatory health insurance contribution, in case where taxpayer is not insured on a different basis. |
Not Available |
Yes |
Yes |
|
Donations made in Croatia for prescribed purposes up to prescribed level |
Not Avaliable |
Yes |
Yes |
|
|||
immigration
Residence Permit
- The residence permit based on employment is a unique permit, which provides temporary residence and allows one to work for a Croatian company in Croatia.
- The Aliens Act and Related By-Laws that governs work permits for foreigners was changed for 2020.
- There will no longer be quotas. Instead, companies who wish to hire foreigners must first check with the Croatian employment service to see if there is a qualified Croatian for the role.
- If there is not a qualified Croatian, then the company will be given approval to offer employment to a foreigner for the job.
- You’ll need to:
- Have an offer of employment with a Croatian company
- Have a valid employment contract or other proof of employment
- Once you have a job and can prove it, you can start your work permit application.
- A third-country national who has applied for a residence and work permit based on a work contract with a Croatian employer doesn’t have to enclose proof of health insurance, as health insurance will be provided by the employer.
EU Blue Card
- Croatia is part of the EU Blue Card network, which is a useful tool for third country nationals.
- To be eligible for a Blue Card, you must be from a country outside the EU, be highly skilled (typically meaning you have completed a bachelor's level university degree, or have five years of senior professional experience), and have a binding job offer or active work contract.
|
Type of Visa |
Documentation |
Validity |
Eligibility |
|
Residence Permit |
|
12 months |
|
|
EU Blue Card |
|
2 years |
|
value added tax
- The Croatian VAT system is in line with the provisions of the European Union (EU) VAT Directive.
- VAT is payable on sales of goods and supply of services, import of goods, and intra-Community acquisition of goods.
- Croatia has not introduced any VAT grouping rules.
- The general VAT rate is 25%.
- A reduced rate of 13% is applicable for certain items such as organized stays, Edible oils and fat of animal and vegetable origin, child seats for cars, children’s diapers etc.
|
VAT Rates |
|
|
General Rate |
25% |
|
Reduced Rate |
13% |
withholding tax
Dividends
- Dividends paid to a nonresident (other than a private individual) are subject to a 12% WHT, unless the rate is reduced or an exemption applies under a tax treaty, or the dividends qualify for an exemption under the EU parent-subsidiary directive.
- However, dividends paid to entities in countries that are listed as non-cooperative for tax purposes and that have not concluded a tax treaty with Croatia, will be subject to a 20% WHT.
Interest
- A 15% WHT is levied on interest paid to a nonresident (other than a private individual), unless the rate is reduced or an exemption applies under a tax treaty or the EU interest and royalties’ directive.
- However, interest paid to entities in countries that are listed as non-cooperative for tax purposes and that have not concluded a tax treaty with Croatia, will be subject to a 20% WHT.
Royalties
- A 15% WHT is levied on royalties paid to a nonresident (other than a private individual), unless the rate is reduced or an exemption applies under a tax treaty or the EU interest and royalties’ directive.
- However, royalties paid to entities in countries that are listed as non-cooperative for tax purposes and that have not concluded a tax treaty with Croatia, will be subject to a 20% WHT.
Technical Service Fees
- A 15% WHT is levied on technical service fees paid to a nonresident, unless the rate is reduced or an exemption applies under a tax treaty
- However, fees paid to entities in countries that are listed as non-cooperative for tax purposes and that have not concluded a tax treaty with Croatia, will be subject to a 20% WHT.
|
Withholding Tax |
|
|
Dividends |
|
|
Interest |
|
|
Royalties |
|
|
Technical Service Fees |
|
termination
Ordinary termination. The parties to an employment contract can terminate the employment subject to a prescribed or agreed notice period. The employer can give notice due to:
- Business reasons (if the need to perform a certain work ceases due to economic, technological or organizational reasons).
- Some of the common business reasons recognized by the courts are: -
-
- cancellation of departments in the company or a decrease in a number of employees due to unprofitability (economic reason);
- redundancy due to automation of the business operations/tasks (technical reason) or reorganization of the business;
- elimination of business units in the company (organizational reason).
- Notice due to business reasons is deemed valid if the need for a certain employee to perform working tasks ceases to exist. There is no obligation to eliminate the entire job position. It is suffcient to reduce the number of employees working in the same job.
- The winding-up of a company is another typical example of a legitimate termination of employment due to business reasons.
- Personal reasons (if the employee is not capable of fulfilling duties because of some permanent characteristics or abilities).
- Employee's misconduct (if the employee violates his/her employment obligation).
- Failure of the employee to perform the work to the required standard during the probation period.
statutory benefits
- These are mandatory benefits as prescribed by law
- These include annual leave, public holidays, maternity leave, sick leave, notice period, severance pay etc.
- Moreover, it also includes social security benefits pension fund, health insurance and unemployment benefits.
|
Statutory Benefits |
|
Annual leave |
|
Public Holidays |
|
Sick Leave |
|
Maternity Leave |
|
Notice Period |
|
Severance Pay |
|
Health Insurance |
|
Unemployment Benefits |
payments and invoicing
- Generally, tax assessments are issued starting from April of the following year and up to the end of the following year.
- The annual INO-DOH form is to be submitted by 31 January of a current year for the previous year.
- The annual ZPP-DOH form to be submitted by the end of the February of a current year for the previous year
- The annual tax return DOH form to be submitted by the end of February of a current year for the previous year
- Individuals receiving income directly from abroad should within 30 days from the receipt of the income report the income, calculate and pay taxes levied on the income.
- Reporting to the tax authorities is made via submission of a JOPPD form. If income received from abroad is subject to foreign tax during the tax year, an individual may claim exemption from taxation in Croatia during the tax year.
- In this case the individual is required to report income from abroad on the INO-DOH form.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Croatia ranked 51st in the World in 2019 in terms of ease of doing business
employee accruals
| Christmas Bonus% |
0% |
| Christmas Bonus Over Vacations % |
0% |
| Severance per Year % |
Employees are entitled to severance pay equal to 50% of their monthly salary after two years of service (4.16% of annual salary) |
| Vacations % | Employees in Croatia are entitled to a minimum of 20 business days off per year (5.49% of annual salary) |
| Notice % |
Employees are entitled to 2 weeks of notice after one year of service (2.74% of annual salary) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | 0% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 12.39% |
employer accruals
Additional information (Country Accruals)
| Health Insurance |
16.50% |
| Christmas Bonus |
8.33% |
| Description |
If an expatriate has a contractual arrangement with a Croatian legal entity and performs services in Croatia, the Croatian entity needs to withhold and pay compulsory social security contributions (pension fund and health insurance). A Croatian entity refers to all legal entities incorporated in Croatia, branch offices, and representative offices. |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Employees in Croatia are entitled to a minimum of 20 business days off per year. | This equals 5.47% (20/365 days) of annual income |
| Sick Leave | Employees are entitled to a maximum of 42 days of paid sick leave per year. The amount that is paid during sick leave depends on the employment agreement, however, it cannot be less than 70% of the average daily wage in the 6 months preceding the sick leave. |
Subjective |
| Maternity Leave | Pregnant employees are entitled to: • 28 days of maternity leave prior to the expected delivery date or 45 days before the delivery date under special circumstances, based on a medical assessment. • After the birth of a child, female employees are entitled to at least 70 days of maternity leave or until the child turns 6 months of age. |
This equals 26.8% (98/365 days) of annual income |
| Overtime | Overtime must be paid at a rate of 50% over the employee’s standard salary. | Normal hourly rate is around 92.5 HRK. Overtime is paid at an additional 46.25 HRK. |
| Severance | The employee is entitled to severance pay for each year of tenure with the employer. It may not be lower than one-third of the average monthly salary earned by the employee in the period of three months prior to dismissal and, unless otherwise provided for by the law, collective agreement, working regulations or employment contract, it may not exceed six average monthly salaries earned by the employee during three months prior to dismissal. |
This equals 33.3% of monthly salary |
| Social Security | Employers make the following social security contribution Health insurance: 16.5% | This equals 16.5% of annual income |
