With the first day of the New Year, amended tax laws come into effect

From the New Year, a new round of tax reform is in effect, which includes amendments to nine tax laws and accompanying regulations, aimed at further wage growth and relieving entrepreneurs.

Citizens are most interested in the changes to the Income Tax Act, which, among other things, increases the personal deduction from this year from 530.90 to 560 euros.

Additionally, the coefficients used to calculate the increased personal deduction based on dependents and disability are changing (from 280 euros for the 1st child to 2,744 euros for the 9th child, and for disability to 168 euros, and for complete disability to 560 euros).

In this regard, the amount of the annual and monthly tax base is changing – the annual income tax at the lower rate will be settled on a tax base up to 54,400 euros, and at the higher tax rate above that amount (the previous limit was 47,780.28 euros). Similarly, the advance income tax from employment will be calculated at the lower rate on a monthly tax base up to 4,200 euros, and above that amount, the higher tax rate will apply.

There is no more surtax; local government units determine the range of lower and higher tax rates

From the beginning of this year, citizens will no longer pay surtax on income tax. Namely, the novelty of the law is the abolition of surtax for all categories of income, five in total, and local government units can compensate for this income with higher rates of income tax from employment and self-employment.

Municipalities and cities, depending on their size and the previously applied surtax rate (10, 12, 15, and 18 percent), can raise lower income tax rates from 15 to a maximum of 23.6 percent (City of Zagreb), and higher income tax rates from 25 to 35.4 percent (City of Zagreb) or they do not have to raise them at all.

When it comes to the category of income from property and property rights, for income from property earned from rent and lease, which was subject to a 10 percent income tax rate plus surtax, a new rate of 12 percent is now established. For income from the disposal of real estate and real estate rights, the income tax is raised from the previous 20 to 24 percent.

From this year, insurance premiums in the third (voluntary) pension pillar are tax-exempt up to 67 euros per month, or a total of up to 804 euros annually, while these amounts were previously 66.37 and 796.44 euros.

Employers allowed to pay higher tax-exempt amounts to employees

By amending the Income Tax Regulation, employers are allowed to pay higher amounts of tax-exempt income to employees.

Thus, the annual amount that employers can pay to all employees as a special reward will increase to 700 euros from this year, which is 36.38 euros more than before. The reward for work results increases from 995.43 euros to 1,120 euros, and the cash flat-rate reward for employee meal expenses increases from the current 796.44 euros to 1,200 euros.

Furthermore, the compensation for using a private car for official purposes increases from the current 0.4 to 0.5 euros per kilometer traveled, and daily allowances for official travel in the country will be tax-exempt up to 30 euros from next year, compared to the current 26.55 euros.

Support for employees due to disability (previously 331.81 euros), for death in the immediate family (398.17 euros), for long-term illness (331.81 euros), and support for the child of a deceased employee will reach (232.27 euros) from this year to 560 euros in each category. The tax-exempt amount of severance pay for employees upon retirement increases from the current maximum of 1,327.24 euros to 1,400 euros.

For students and pupils, from next year, the amount of annual tax-exempt income for work through student associations will increase to 3,360 euros, from the current 3,185.38 euros, the tax-exempt amount for scholarships increases from 232.27 to 560 euros per month, and for scholarships for outstanding achievements from 530.90 to 840 euros per month.

Tax-exempt amounts for athlete scholarships increase from 232.27 to 560 euros per month, and the tax-exempt amount for sports achievements increases from 2,654.48 euros to 2,800 euros.

Increase in minimum wage and changes in contribution calculation for the first pension pillar

With the start of the year, the minimum wage is also increasing – the Regulation on the amount of the minimum wage for 2024 establishes the minimum wage at a gross amount of 840 euros, while last year it was 700 euros. Thus, the net amount of the minimum wage would be around 677 euros this year.

In line with this, the government has also increased the student hourly wage from 4.48 to 5.25 euros.

To ensure wage growth for those who are no longer in the tax brackets, the government has determined that for all gross wages up to 700 euros, a relief is introduced, i.e., the monthly base for calculating contributions for the first pension insurance pillar is reduced by a fixed amount of 300 euros. For gross wages in the range of 700 to 1,300 euros, a reduction coefficient of 0.5 applies, calculated using the formula 0.5 x (1,300 – base for contribution calculation). For gross wage amounts above 1,300 euros, there is no reduction in the base for contribution calculation.

This relief will not reduce the future pension amount, meaning that the full monthly base (gross) will be used without reduction for this relief in determining rights from pension insurance based on generational solidarity.

Potential higher tax on weekend houses, tips tax-exempt up to a certain limit

By amending the Local Tax Act, the range in which the city or municipal council can determine the amount of tax on weekend houses has been increased, from 60 cents to five euros per square meter, while the previous maximum amount was two euros. How much this tax will amount to this year depends on the decisions of local government.

When it comes to tips, they can also be left via cards. The tax-exempt amount of tips (both in cash and via cards) will be an annual amount of 3,360 euros. Tip amounts above this will be taxed as final other income at a rate of 20 percent, calculated as tax without contributions.

The monthly amount of collected tips will need to be reported by the employer according to the employee’s tax identification number through the JOPPD form.

Changes to the Corporate Income Tax and VAT laws

Amendments to the Corporate Income Tax Act primarily relate to rounding current amounts to whole numbers. Thus, individuals engaged in self-employment and income tax payers automatically become corporate income tax payers if they earned more than one million euros in the previous tax period, while the previous amount was 995,421.06 euros.

From next year, the threshold for paying corporate income tax at the lower rate of 10 percent will be raised from the previous 995,421.06 euros to 1,000,000 euros in total revenue, while those with revenue of one million euros will pay tax at a rate of 18 percent.

Similarly, changes to the VAT Act also relate to rounding amounts in euros, so the threshold for registration in the VAT payer register is rounded from the previous 39,816.84 euros to 40,000 euros.