In addition to the increase in VAT rates on services in hospitality, which also applies to hospitality entrepreneurs, the tax reform, which is set to start from the beginning of 2017, includes other news that will affect the tax position of entrepreneurs. The intention is to simplify the process of determining tax liability as much as possible for them, thereby facilitating their business operations. The threshold for annual income up to which entrepreneurs can choose flat tax payment on income instead of determining tax liability based on actual collected income and paid expenses is being raised. This increase in the threshold will occur in two steps: first, from January 1, 2017, it will increase from the current 149,500 to 230,000 HRK, and then from January 1, 2018, to 300,000 HRK in annual income. Thus, more entrepreneurs will have the option of flat tax payment on income, which automatically reduces their expenses for contributions. Flat-rate taxpayers pay contributions on a monthly basis determined by a factor of 0.4, while entrepreneurs who keep business records pay contributions on a basis determined by a factor of 0.65, so the transition to flat taxation reduces contribution expenses by almost 40%.
The Threshold for Flat Tax Payment is Being Raised
The tax reform provides a range of benefits for entrepreneurs while retaining all existing exemptions, and for those in less developed areas, the tax base will be reduced by 50%. The only dissatisfied parties remain the hospitality entrepreneurs with a VAT rate of 25%.
