Marija Zuber: Fees from abroad are taxed according to Croatian regulations

All income of individuals who are Croatian tax residents, whether earned domestically or abroad, is taxed according to Croatian income tax regulations, unless otherwise specified by a double taxation avoidance agreement that Croatia applies with the country of source of income. Based on this fundamental rule of income taxation, Croatian residents who receive author fees from abroad have prescribed obligations related to the payment of public levies in Croatia and reporting to the tax administration. The first among them is the obligation to register in the tax payer registry, where the recipient registers as a recipient of other income from abroad. The application must be submitted to the Tax Administration on form RPO within eight days of the first earned foreign income.

Obligations of payment and reporting

A person who belongs to the Croatian social security system, whether based on their employment, self-employment, or other grounds, is obliged to calculate and pay 10 percent of contributions for mandatory pension insurance on other income, which includes compensation for delivered author works. If the insured person is in the second pillar, this obligation is divided into two parts, with 7.5 percent of contributions paid into the first pillar and 2.5 percent into the second pension pillar. The base for calculating contributions is the earned income reduced by 30 percent of lump-sum expenses, where the income is understood as the amount received in the current account, increased by the tax withheld from the author in the country of source of income.

No health insurance contributions are paid on income earned from abroad. Pension contributions must be paid within 30 days of receiving the income. Within the same period, the income recipient must submit form JOPPD to the relevant branch of the Tax Administration, showing data about the country of source of the author fee (country codes are available on the Tax Administration’s website), the base for contributions, and calculated amounts of pension contributions. The obligation to pay an advance income tax in Croatia depends on whether tax was paid on the received fee in the country of source. If tax was not paid abroad, the recipient is obliged to pay it in Croatia simultaneously with the payment of contributions. The advance tax is paid at a rate of 24 percent, increased by the applicable surtax, while the tax base is reduced by 30 percent of lump-sum recognized expenses and 10 percent of the pension contribution paid by the insured person. Data on the earned income and the advance income tax paid in Croatia are reported on the same JOPPD form that shows the obligation for pension contributions.

Cumulative taxation

If tax was paid in the country of source of income, there is no obligation to pay an advance income tax in Croatia, about which the income recipient is obliged to inform the Tax Administration in a statement containing data about them as a taxpayer, the country from which the income is earned, the type of income, and the bank account to which the income is paid. The statement must be submitted within eight days of the first income received in the tax year and does not need to be repeated for similar income received from the same country in the same tax year. For these purposes, form INO-IZJAVA, available on the Ministry of Finance’s website, can be used.

However, in this case, the taxpayer is obliged to submit data on income earned from abroad to the Tax Administration on form INO-DOH by the end of January of the following year. This is an annual form on which the taxpayer reports all their income for which income tax was paid abroad, thus there was no obligation to report to Croatian tax authorities during the year. If the taxpayer has data on the amount of tax paid abroad, they will indicate that data; if they do not know it, they will provide it later.

Income based on author fees is classified under our tax legislation in the group of annual incomes for which cumulative taxation is applied on an annual basis using the annual tax rate, so it is in the taxpayer’s interest to obtain a certificate of tax paid abroad. The certificate of foreign tax paid must be issued by the competent authority of the country of source of income (the payer’s certificate is not sufficient!) and must be submitted to the Tax Administration no later than November 30 of the current year for the previous year. Our tax authority will take into account the tax paid abroad when determining the annual tax obligation, but only up to the amount that would correspond to the domestic tax on that amount of income. In this regard, only the amount that the country had the right to withhold according to double taxation avoidance agreements will be recognized as tax paid abroad.

For example, if the country of source had the right to withhold five percent of income tax from the author fee, and withheld 25 percent, only five percent will be recognized for settling the tax obligation in Croatia, but the taxpayer may request a refund from the country of source for the tax paid in excess of what was provided for by the distributive rules of the double taxation avoidance agreement that Croatia applies with the respective country.

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