This year as well, the American Chamber of Commerce in Croatia issued recommendations focused on further reduction of the tax burden aimed at attracting investment and greater competitiveness of Croatian employers in attracting and retaining labor.

The “Recommendations for the Tax System Reform in 2021” propose a number of measures to improve the functioning of the tax system, including measures for the reduction of tax burden on labor contributions (income tax) and payments for certain employee earnings. All measures proposed in the recommendations are aimed at achieving greater competitiveness of the Croatian tax system and the economy in general.

“As a result of the tax reform and a more favorable taxation of optional bonuses for employees, many companies have opted to introduce optional rewards for their employees in the form of granting shares or employee stock options, all aimed at increasing their competitiveness on the European market and retaining their employees. In the same vein, limited liability companies are showing a growing interest in providing their employees with a more favorable position when it comes to equity participation. In order to fully achieve favorable tax treatment for all companies in the same way, including companies structured as limited liability companies (“d.o.o.”), legislative changes need to be introduced in order to unequivocally ensure more favorable tax treatment for the allocation of shares and to encourage the implementation of equity plans in these companies as well”, said Andrea Doko Jelušić, Executive Director of the American Chamber of Commerce in Croatia. Therefore, AmCham proposes an amendment to the Personal Income Tax Act which would clearly stipulate that capital income is not only the allotment or purchase of own shares, but also the allotment and acquisition of shares in a company.

One of the proposed measures also refers to the introduction of a tax-free allowance for working from home. “Over the last few years, we’ve seen some big changes in the way we work, and the COVID-19 pandemic in particular has forced many workers and employers to adapt to remote work, or so-called work from home. For this reason, AmCham advocates for the introduction of a non-taxable fixed monthly reimbursement of the cost of equipment and materials needed to work from home or some other place of remote work that can be seen as the workers’ private premises”, noted Mrs. Doko Jelušić, adding that non-taxable reimbursement of the cost of working from home has been recognized in a number of neighboring legislations. In Slovenia, for example, the monthly non-taxable allowance for working from home is 5% of salary, but not more than 5% of the average Slovenian salary. If the Slovenian model for determining the monthly non-taxable reimbursement of the cost of equipment and materials for working from home were implemented in Croatia, it would amount to HRK 330 per month (calculated based on the average salary in the Republic of Croatia, which in 2020 was equal to HRK 9,181 gross, i.e. around HRK 6,555 net).