Clamping Upon Croatian Tax Residents Living and Working Abroad

Croatian Tax Administration has recently announced that it will collect income tax on all Croatian residents living and working abroad if they do not file a tax return themselves. That is on all those who are considered residents of Croatia for Tax purposes.

The 2021 Census recently revealed that Croatia no longer has 4.3, but 3.9 million inhabitants.

“If we compare the data with the final results of the 2011 census, we see that the population decreased by 9.25 percent, or 396,360 inhabitants,” said Lidija Brkovic, director of the Central Bureau of Statistics.

This is a larger decline in population than in the period between the 1991 and 2001 censuses, which also covered the war in the 1990s, when Croatia’s population fell by seven percent, or 346,805 people.

The official Census 2021 data released also shows that in the past ten years Croatia lost almost 112,000 people due to the negative migration balance. That is, there is such a difference between the number of citizens who emigrated from Croatia and those who immigrated. However, it is also estimated that another 120,000 people had in that time also left Croatia without deregistering their residence or permanent abode in Croatia.

The current issue of interest to Croats working and living abroad, who are still considered residents of Croatia, is that appears if they did not apply to have their names deleted from the Croatian Register of Taxpayers, all these citizens, about 230,000 of them, could still potentially be Croatian residents for the purposes of Income Tax liabilities.

The Croatian Tax Administration had in the past couple of weeks reminded these Croatian citizens living abroad again of their possible obligations as tax residents, inviting them to declare their foreign earnings for the previous few years. That is, when it comes to collecting taxes, the statute of limitations is six years, which means that income tax could this year be calculated to a backdate in 2016.

For all those who remained residents of Croatia even though they left Croatia to work in other countries may be facing a taxation liability calculated in the difference in income tax paid abroad in relation to the tax liability they would pay on that income in Croatia.

The calculation of income tax includes not only salaries and pensions, but also, for example, income from dividends, interest on savings, capital investments, real estate rentals, and even investments in cryptocurrencies.

Based on reciprocal arrangements Croatia has with other countries, including their taxation authorities, regarding income of Croatian residents in those countries, reportedly the Croatian Tax Administration had discovered that a number of citizens did not fulfil their obligation in reporting foreign receipts, and invites them to do it themselves and that in that case it would not calculate in their liabilities any interest rates or impose any fines for not reporting their income to them in previous years. Furthermore, Croatian authorities say that these citizens can count on a more favourable calculation of income tax than was the case in previous years, because in the meantime tax rates have been reduced and the non-taxable part of income increased.

Those who have, in accordance with the relevant legislation, “written themselves off” from the Croatian Tax Register and who have become tax residents of another country no longer have obligations to Croatia, and for those who have remained Croatian tax residents the rules depend on which country they moved to. The difference is in the taxation rates of salaries and pensions. For Croatian citizens who remain tax residents in Croatia after moving, for example, to Germany, Sweden, Estonia, Latvia, Lithuania, Norway, Belgium, Canada etc. the method of exemption from income tax liability to Croatia applies when it comes to pensions and salaries, i.e., income from non-self-employment work because of the reciprocal arrangements between countries. For countries such as Argentina, Australia, New Zealand, South Africa, USA, etc. there is no such exemption as no reciprocal arrangements regarding double taxation has been reached yet, so Croatian tax residents (that is people living in those countries who have not deregistered themselves as residents of Croatia) are required to submit details of their income to the Tax Administration and are subject to taxation.

The Croatian Tax Authority has on its website created a special page with assistance as to VOLUNTARY DECLARATION OF FOREIGN INCOME – FREQUENTLY ASKED QUESTIONS. It is worthwhile visiting that website if you have questions regarding your personal circumstance. https://www.porezna-uprava.hr/HR_obrasci/Stranice/NPP_dobrovoljna_prijava_ino_primitaka.aspx

In any case as the situation varies from country to country where Croatian citizens live and work it is necessary in terms of tax liabilities to determine in advance whether a person receiving the income abroad is a Croatian resident or not. If the person is a Croatian resident, there is an obligation to declare the income received in the Republic of Croatia, regardless of whether there will be taxation in the end, or not.

It seems that many people are “stuck” on that and recently I heard of a person who is a Croatian citizen and said that he took his name off the police/internal affairs and health care register, but not in the tax office because he thought it was automatic. When asked what should be done now to be exempt from tax liability, he answered that the fact that a person deregistered his residence in the residence register kept by the competent ministry as well as the fact that a person deregistered from the Croatian health insurance system speaks in favour of the fact that he is most likely not considered a Croatian resident for tax purposes.

However, as the fact of the centre of vital interests of that person and his immediate family is crucial for the payment of taxes, in this case it is necessary to contact the Tax Administration and fill in the TI Form (see website above) to determine the taxpayer’s residence.

A person who considers that he/she is not a Croatian resident, but a resident of another country may issue a certificate of that country’s residency status from which it must be visible from which date that country considers him/her its resident.

For clarification purposes that some people may find useful, one Croatian citizen states that he deregistered his residence from Croatia, works most of the year in Germany and comes to Croatia on holidays and weekends. He pays all taxes in Germany, but in Croatia his wife and children are in a shared apartment. He wondered whose resident he was? Based on the information given the Tax Authorities of Croatia concluded that the centre of vital interests for this person is still in the Republic of Croatia and that the person is a Croatian tax resident.

Another said that he is permanently resident in Austria, but in the Republic of Croatia he has a house where his parents live and visits them occasionally. The taxpayers answer him that it could be concluded from his information that the person is not a resident of the Republic of Croatia and advises him to submit a certificate of residence from Austria to the taxpayers, which will show from which date Austria considers him its resident.

Croatia has a Double Taxation Avoidance agreement with 66 countries, see https://www.porezna-uprava.hr/bi/Stranice/Dvostruko-oporezivanje.aspx, but paying taxes in another country is not considered a fully settled obligation if the countries have not agreed on an exemption method for a certain type of income. Tax residency and citizenship are not synonymous. The tax residency of natural persons is prescribed by the General Tax Law and is generally determined according to the residence or usual abode of the natural person.

A taxpayer who has possession or owns a home in two or more countries is considered a resident of the country in which the family resides. In the case of a single person residing in two or more countries, it is considered that his / her residence is in the country from which he / she predominantly goes to work or perform activities, i.e., in the country in which he / she predominantly stays.