Croatia Tax: Update on "special tax" and personal income tax rules

The Croatian Parliament has adopted the government's proposal to eliminate the "special tax" introduced on 1 August 2009 to combat the negative effects of the financial crisis before its expiry date. The two-rate tax was originally scheduled to remain in effect until 31 December 2010. The special tax on salaries, pensions and other income levied at a rate of 2% on net income between HRK 3,000 and 6,000 will be abolished on 1 July 2010, but the 4% tax on net income exceeding HRK 6,000 will remain in effect until 1 November 2010.

Separately, the government has proposed several changes to the personal income tax rules as part of the Program for Economic Recovery, which if passed by Parliament will be in effect as from 1 July 2010:

- The personal income tax rates and thresholds would be reduced to 12% on taxable income up to HRK 3,600, 25% on income between HRK 3,600 and HRK 10,800 and 40% on income exceeding HRK 10,800.

- All tax reliefs available to individuals would be abolished; affected reliefs include deductions for health insurance, premiums for life or pension insurance and interest paid on the purchase of a first home.

- The excise tax rates on certain items would be reduced (e.g. monument fee, fees for water, forestry, etc.).